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0 pointsadventured6y ago0 comments

I've known a lot of Main Street entrepreneurs over the years, small business people of various levels of success. I know far more of those people than I know entrepreneurs that have been VC-backed.

I'm talking about people that own insurance agencies, small city newspapers, boutique shops, fast food franchises, small consulting businesses in tech or elsewhere, car dealerships, convenience stores, bakeries, food shops, and so on.

To add to what the parent, Will, said - very few people in general possess extraordinary skill at anything. That's just reality. It's true of most business creators as well as it is the general population. Most entrepreneurs don't have access to the networks required to raise millions of dollars in venture capital, even if they wanted to. And given the very finite nature of such things (there are only so many VCs and so much money, and relatively few VC deals even in the largest economy that has 330m people), most could never get access to them. The numbers are badly against anyone that wants to attempt it.

You're not building the next giant company without extraordinary skill, most likely. Sure, there are some flukes that get through somehow, mostly that isn't the case however. Mostly, it takes extraordinarily skill at a thing, combined with immense luck, typically immense hard work, immense sacrifice, and access to elite networks. Yes, Joe/Jane Average can beat the odds, overcome everything that is dramatically stacked against them, it happens, and it's kind of like hitting the lottery. More likely they'll ruin their life chasing a nearly impossible dream.

99%+ of the population is eliminated from contention instantly. It's simply not a consideration, it's not a potential, and I believe most of them know it. Certainly all the small business operators I've ever talked to, they tend to understand their capabilities and limits very well, especially those that have been in business a while. They know better than to waste their time on fantasies (and that isn't a bad thing). Very few of them that I know did it to try to get very wealthy, mostly it was for all the other reasons: independence, not having a boss, charting your own course, pursuing a solid opportunity that becomes a good job, doing something they enjoy, etc. The VC game is an entirely different beast, it makes perfect sense that most entrepreneurs would have little interest in it.

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WillPontificate6y ago· 1 in thread

Bingo... a stable business you enjoy pursued for sustainable reasons. I'd add a slight financial component to the list of reasons (hiding in my basement for $50K/year isn't appealing) but that seems consistent with the strategy I recommended.

A second benefit: many established small businesses can be bought for under 5 X EBITDA ($10 MM - $100 MM sales) which usually can be levered up 3:1 using an SBA loan. You could also generate similar returns by funding the right types of organic growth projects. If chosen prudently, there's a lot of upside in those numbers.... (with some risk, naturally)

So while they may do it for the lifestyle, the underlying investment dynamics of the niche are very attractive...

adventuredOP6y ago

One of my favorite small business examples is a friend that quit working for an insurance agency and bought one of his own (typical car & property insurance agency) for 1x sales. In service segments like insurance or accounting, it's often easy to find businesses to buy at 1x sales. The former owner was retiring and ready to be done with it.

Simple small business concept. He instantly replaced his former income, bought himself a job. The purchase paid for itself in a few years. Since the purchase he has organically - with very little advertising effort, mostly through good customer attention - increased the size of the business 4x or so. The year by year growth goals are very modest, and over time the persistent gains obviously add up (snowball down the hill). The same effort he would have been putting in for his former employer, will make him a multi-millionaire instead, with quite modest risk.

He doesn't regard himself as an entrepreneur, he thinks of being an entrepreneur as those that take very outsized risk (the media propaganda version everyone gets fed). He's wrong though, he's an excellent example of an entrepreneur. The best entrepreneurs are usually those that understand the task is to eliminate the risk in the equation, not to actually take or pursue risk. Risk is what threatens the business, eliminating the risk is what ensures prosperity (or at least gives you the best shot at it). In my observation, small business operators are often frequently quite good at spotting and quickly eliminating risk in their businesses, they're very close to the metal so to speak, very exposed to the nerves of the operation.

perl4ever6y ago

"Very few of them that I know did it to try to get very wealthy, mostly it was for all the other reasons: independence, not having a boss, charting your own course, pursuing a solid opportunity that becomes a good job, doing something they enjoy, etc."

That's exactly why I would never try to be an entrepreneur. So many people do it for the intangibles until they go bust, which means that no matter how good you are or how rational you are, you have to compete with a constant influx of people who will operate at a loss as long as they can.

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