What the literature says about the earnings of entrepreneurs | Hacker News Reader

What the literature says about the earnings of entrepreneurs

80000hours.org

63 pointsBenjaminTodd23 comments

So here's the Math for me. I recently dropped my nice fat full-time contract so that I could either "go full time on my business" or "retire", depending on how you want to interpret it.

Before: One of those Google/Facebook/Twitter "Total Comp" numbers that nobody here believes whenever Bay Area salaries are discussed. Upwards of 40 hour weeks, though I did drop down to 4 day weeks for the last year because, hey, I can live on only 80% of a fairy tale number that nobody would believe if you told them.

After: Normal Bay Area Developer money, of the sort that the other half of that discussion above make. Or maybe a bit less. But the "Hours" side of the equation is where it all gets made back up.

I just spent 3 months traveling through Southeast Asia with the kids, Rock Climbing, Surfing, Getting Married, Riding Elephants and Building Sand Castles. The biggest work week I had involved maybe 10 hours in front of the computer.

Realistically, I could coast along like this indefinitely (thus the "retired" interpretation of my current situation above), but more likely I'll go back to 5-20 hour weeks building out features in the existing products and shipping the next one.

That's what you're buying with all this "Entrepreneuring". The ability to replace your old income with a new one that doesn't necessarily require you to work full time for it.

If you like doing things other than sitting a cubicle discussing where to go to lunch, I'd highly recommend looking in to it.

> That's what you're buying with all this "Entrepreneuring". The ability to replace your old income with a new one that doesn't necessarily require you to work full time for it.

I cannot possibly agree more strongly with this. While I still have an internal fire that wants to put a couple more commas in my bank balance, the ability to experience life however and whenever you want to is, once found, not easily let go.

My wife (a teacher) and I live abroad, and the nature of her work means she has effectively ~90 days of paid vacation (not including weekends) each year. I'm not certain what our life would be like if I were still an executive, but I'm sure that our relationship wouldn't be as strong without the shared experiences that come from being able to take advantage of that time in a meaningful way.

This is my goal. Do you have suggestions on how to get started? Experience and skills-wise, I have no problems. I currently build low-latency trading systems for a bank, but I'm also adept at web work as well.

Dunno but jasonkester has a blog with some info http://www.expatsoftware.com/articles/

> That's what you're buying with all this "Entrepreneuring". The ability to replace your old income with a new one that doesn't necessarily require you to work full time for it.

Time is the limited resource, not money. You can always get more money, but you can never get more time.

Many (most?) people forget that.

Cue the reference to the "time vs money for happiness" thread that was on HN a while ago.

https://news.ycombinator.com/item?id=10860517

Quick aside - all the figures in the paper are per hour earnings figures.

Good stuff. I'm looking at doing something similar. Is your current gig your own product? Is it profitable or investor funded?

I would add to that that, if you are the sole owner of a business, once that business generates enough cash to live on, the excess earnings gives you much more financial flexibility and options than a venture backed startup would. Typically, the founders have to wait 3-5 years before getting any money out of the business in a venture backed startup, but if you are the sole owner, you can choose to keep 100% of your earnings for your own personal pleasure, reinvest 100% of your earnings at your current rate of return (generally 1.5-2x for young companies), or choose somewhere in between. I think a lot of young entrepreneurs don't realize how valuable that flexibility really is, especially once you get married and have kids.

I recently registered an LLC, and opened a separate bank account. I did it because I didn't want to "cross the streams"... however it felt more like a switch was flipped in my head, and so far that's one of the biggest benefits.

Where as before when I had to spend some money for the business, it was very difficult on an emotional level. I'm not the kind of guy who doesn't spend money if he doesn't have to. However once I was spending money out of the business account, it was easier somehow. My mindset was now a matter of "will this help me grow the business? sure, let's go for it". Instead of "Can I accomplish the same goal without spending the money?"... which there is almost always a way to do.

I am defiantly on the control-oriented side rather than the wealth-oriented side. The appeal for me of being an entrepreneur is I have control over my life, not the money (I am not saying that money is not great).

You only have one life and you almost certainly won't look back on your life and say "I wish I spent more time making money".

Same here! I went through a startup course, only to realise the I want to be in control, not take investment.

That being said, this made me think of whether I can take better "wealth-oriented" decisions within the business, just like focussing better on finding new users instead of always building my SOPs :) It's always a balance, I suppose.

It is not an either/or decision. You can still become wealthy with a control-oriented approach. While I have not become obscenely wealthy, I am well on track to achieving my personal wealth goal. More money would not make my life substantially better.

Thanks Daniel. I appreciate your insight.

You only have control once your business steadily earns enough to employ managers to run things for you. Until then you are at the whim of your clients.

You can say no to your clients ;)

Much more interesting is the percentage of the value they generate that is captured by entrepreneurs:

"We conclude that only a minuscule fraction of the social returns from technological advances over the 1948-2001 period was captured by producers, indicating that most of the benefits of technological change are passed on to consumers rather than captured by producers."

http://www.nber.org/papers/w10433

Yes - I'd guess entrepreneurs have more social impact than salaried workers, because they do more innovative work. We'll write more about this in the future.

Note that the paper you cite is only about technological advances though, and only a fraction of what entrepreneurs do contributes to technological advances - a bunch of its just implementing stuff that's already best practice.

AIUI implementing stuff that's already best practice - innovation driven Total Factor Productivity growth - is technological advance and is included in Nordhaus' calculations. But IANAE.

Good point. It still seems unlikely to me that all entrepreneurial activity contributes to productivity growth though. I'll look into it some more.

Sort of. An example mentioned in the paper is etoys.com, presumably the first major online toy retailer.

According to this theory, etoys.com would have only captured some small % of the online market for online toys before they went under. So, yes, it's true that the "producer" here didn't capture much of the value of that market. But it's equally true that other entrepreneurs (most notable among them Amazon) captured a huge chunk of that market because etoys.com's "technological advance" simply wasn't all that technically difficult (or advanced) and wasn't different from what plenty of other entrepreneurs were doing in other online markets.

So the outcome seems entirely logical and fair. Sure, etoys.com launched the first toy site but didn't capture much of the "value" of selling toys online. But etoys.com wasn't very good and it got beat out by similar but better sites. Would you rather strengthen our (already fundamentally overbearing) IP laws so that no one else could compete in selling toys online? That's the only way I can imagine to ensure that etoys.com could take much more of the profits and not get out-margined by Amazon and the like.

There's a bit of an implicit post hoc ergo propter hoc fallacy going on with this article. That is, if someone quits their salaried job and incorporates, then they'll make more money. I think the likely conditional for most entrepreneurs is "if I incorporate a business to do X, then I'll make more money." I think a lot of entrepreneurs have an X in mind before they start their business (which is not to say it doesn't change, but, still).

I've read that incorporation isn't worth the effort and cost if the business makes less than 60k, maybe this is a hidden cost in some of these situations.

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