Startup : There is no risk | Hacker News Reader

Startup : There is no risk

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56 pointsdatums54 comments

I think the OP makes some excellent points, but unfortunately he uses the phrase "no risk" instead of, as I'd phrase it, "dramatically less risk." There is definitely opportunity cost. At the beginning you won't have an income. If you're 30, like myself, you'll watch your friends who didn't go down the same road start to pile up "stuff." Cars, houses, whatever. They'll have it and you won't. Even if your startup turns a corner to provide lifestyle income, there are still issues. This is a purely anecdotal example, but yesterday my wife and I went to a bank to talk about pre-qualifying for a mortgage loan, and apparently you need two years of self-employment history.

But here was the point that I think got lost in such a binary stated view of risk: right now it's easy to jump back on the totem pole. If I really wanted to buy property that bad, I could get a job making well over my previous salary within weeks. There are not a lot of entrepreneurial endeavors where that is true.

Consider something like opening a restaurant. There is not just opportunity cost but real investment cost before you even get started. And if you bomb, and statistically it's very likely you will, there is not nearly the the likelihood you can at least go back to where you started. As another anecdotal example, my friend is a second year lawyer at a firm, one of the few people in his graduating class that got a nice corporate law job so that he actually has a chance to pay off his massive loans. And he pretty much hates his life, but there's a huge chance that if he left to pursue one of his dreams, there would be no "reset" button. There is no easy chance that if he doesn't succeed, he can just go back to being a highly compensated corporate lawyer within a few weeks.

So yes, there's obviously risk in starting your own startup. There's always a cost to pursuing a dream, and not everyone wants to pay that cost. The distinction is as a technology startup founder in this current environment, your cost is dramatically lower than anyone else's, and I think that's ultimately what I think the OP is trying to say.

"This is a purely anecdotal example, but yesterday my wife and I went to a bank to talk about pre-qualifying for a mortgage loan, and apparently you need two years of self-employment history."

You may want to search around for a different mortgage company who will do manual underwriting. It's tougher these days than it was a few years back, but it's still possible. If your 'self employment' is primarily a continuation of what you did before in the same industry, and you've got verifiable proof but less than 2 years, you may still find a lender, just not as readily prominent.

I'm not from the US, but I find this surprising after hearing all those stories of unemployed illegal immigrants who were able to get huge mortgages with no questions asked.

6-8 years ago, yeah, that was happening more and more. There was an entire process in major processors for "no doc" loans. The rates would be a bit higher, but there was a market to sell those loans to. That market dried up pretty quickly, and 'no doc' loans are extremely hard to come by these days.

My post is definitely specific to tech startups, and particularly tech founders (developers.) Restaurant owners = completely different story, for which I have no experience. But I can imagine "getting a job in the restaurant biz" is considerably different than getting a job in the tech space.

The use of "no risk" is admittedly a bit over the top ... creative license if you will.

It takes a youthfully incandescent naivete† to believe that your future employment prospects blunt any risk from a failed venture.

You can accept the risk that your savings will dwindle to zero; you can in fact stipulate that the chances of that happening are 99.9%. You can tell yourself, probably truthfully, that the life cost of zeroing out your savings is minimal, because you will almost certainly be as (or maybe more) employable when you finish your venture.

What you will not ever get back from a failed venture is the time you sunk into it. You will, I am fairly certain, come to realize that lost time is the worst kind of loss; your time is not only effectively money, but also opportunity.

Pick what you're working on carefully. Every startup founder in the history of startup founders has told themselves, "even if this thing fails, it will be a great experience". As someone who has failed at a startup: failure is indeed educational. But at 2-3 years of the most productive, least encumbered years of your life, the tuition is expensive; it's a rip-off. Don't buy it.

† Ironically, Yoskovitz appears to be exactly my age.

So what would you say to those who can't see themselves doing anything else (i.e. running a startup)?

Edit: I suppose your comment is about those still on the fence about making the leap.

How do you know that attempting a startup isn't the most rewarding opportunity available to people on the fence about it, in careers they're not passionate about? Even if you fail, you've still pushed yourself to develop an array of new ideas and knowledge and to likely meet many interesting people.

Careers can be changed. Why does that career change need to be to entrepreneur? There are plenty of other careers where you can develop an array of new ideas and knowledge and meet many interesting people. Think of how many new ideas, knowledge, and interesting people doctors and lawyers come across. Or journalists. Or politicians. Or... you get the idea.

A fair point, but entrepreneurship allows you to do it on your own terms, which can be very empowering.

Does it? Entrepreneurs have to satisfy: investors, customers, employees, co-founders, and probably more people I'm not thinking about.

I'm not against entrepreneurship, but it certainly comes off as though you're positioning it as some kind of snake oil for all your employment ills.

As a not-yet-successful full-time entrepreneur myself, I certainly would not want to give the impression that it's an easy path, but it is one I find extremely rewarding despite the huge, huge risk, and I am very happy to have chosen it.

If you think having to answer to a boss is bad, then try and answer to a customer.

I love answering to customers, as they're trying to solve real problems. With many bosses, that's not the case.

For B2B perhaps yes. But B2C is a completely different game :)

Be an entrepreneur! Just don't be naive about the risks.

I wish I had "youthful naivete" ... although plenty of people have said I "act quite young." Does that count? :)

Sunk time is an issue. And I have also railed against what I describe as "zombie startups" that outlast their welcome or usefulness. I've been caught in those. And I lost a lot of time. There's a risk in knowing when NOT to quit...

OP tries to persuade that there is no risk at a personal level to the entrepreneur pursuing a startup. He acknowledges that startups have opportunity costs but denies that this is a risk. While I applaud his efforts to encourage his friend to start a company, I think the semantic contortions around the word 'risk' are unproductive.

There most certainly is risk that the opportunities forgone could be greater than the benefits (monetary or non-monetary) received. Rather than deny this reality, I'd suggest that it'd be better to sell one's friend on the tremendous upside potential relative the comparatively limited risks of not succeeding (or not even trying).

Risk concerns: Do not deny. Refocus.

Whenever I think about "risk" in starting your own business, my mind always wonders to health insurance (living in the US). Individual health insurance is of course an option, but many of the legal protections that are in place for group health insurance plans are not applicable to individual health insurance. For example, when you move directly from one group health insurance plan to another, the latter plan cannot claim a pre-existing condition exemption for an illness that was identified during your previous coverage. If you were moving from an individual insurance plan to a group plan, the same protection is not available.

This is a huge issue for me as I value my health above all but my family (certainly leaps and bounds above my career aspirations).

I haven't looked very much into this, but I'd be very intrigued to hear how U.S. startup founders address or mitigate the risks associated with health insurance in their early-stage ventures.

+1 this comment. I have recently had an experience with a kid which reminded of the value of this benefit. What other options have founders exercised to mitigate this risk for their families in a cost effective manner?

Get catastrophic insurance if you have the cushion for the full deductible.

When I quit Cisco to work on my startup I was shocked at how much was coming out of my paycheck that I simply didn't notice. When my wife and I shopped around for individual insurance we realized that we could get very decent insurance for a fraction of that price. We opted for the even cheaper catastrophic insurance. Even though we hit the full deductible last year because we had a baby we're still ahead where we'd be paying the premium for my Cisco insurance.

Believe it or not, if you're even somewhat healthy individual insurance is not as expensive as you're led to believe. Or, perhaps, group insurance is more expensive than you've been led to believe :)

Here in the UK, it was something that I didn't have to worry about.

Which was a good thing. Shortly after I had committed to my start-up my wife became pregnant, with twins, and ended up with a reasonably lengthy stay in hospital due to complications. My start up ultimately failed hard, and my savings were wiped out. But her and my health was one thing we didn't need to worry about.

It's always a little weird when I see the topic of health insurance come up (and it comes up a lot). When I hear this argument, it's very apparent that this is a large emotional risk, but not a large financial one. In fact, this fear is a very illogical one compared to other risks.

Let's quantify real quick so we can remove the emotional barriers and just deal in numbers. According to AHIP's 2011 survey, average monthly cost of family insurance for a firm with less than 50 employees is $13,400. How does that compared to the risk of losing a salary of $50k, $75k, $100k+? (Btw, any firm with 2+ employees can qualify for group plans)

The problem here is that leaving work and thus losing that salary is a form of freedom for most. Again, this is our emotions playing tricks on us. Both can be quantified, but one is villainized and the other martyrized.

I don't think it is fair to compare health insurance with salary, they're completely different animals.

#1: You cannot plan for the unexpected

When you quit your job to start a business, you're planning to lose your existing salary. If you've planned well, your living expenses (food, rent, utilities, etc) are known, so you can plan for them.

You don't plan to get sick or hurt, and even if you did, it would be very difficult, if not impossible, to accurately estimate how much it will cost you to get better. You pay for health insurance to help you pay for the unexpected, so its value is inherently volatile.

#2: You cannot "go back" if the unexpected bites you

If you're looking to start a business, chances are you are highly skilled, personable, and/or ambitious. These are all traits that lend themselves to being abnormally hirable, so if things didn't work out the way you had hoped, you can likely get back into the workforce with a similar salary from when you left. And if that doesn't work out, you still have a better shot than most at a myriad of other job opportunities that at least pay you something worth working for.

If you get sick and you have insufficient health insurance, there are very few ways to get around it. If you were diagnosed with cancer a day after you quit your job, and your current individual provider was unwilling to provide all of the necessary treatment, you're out of luck. That's the ball game. You can't just back out of your startup venture and go back to work to fix the problem.

#3: You can die

Your salary can affect your quality of life, but with personal and societal safety nets, you're not going to die just because you're poor.

The U.S. has no safety net that ensures you will be provided with all of the care you need to not die even from curable or treatable conditions. Medicaid is about the closest thing to such a net, but it doesn't cover every person nor every thing. No personal safety net will help you here either (unless you know a few billionaires that have enough of an interest in you being alive).

They're the same if you just put a dollar value on them. You can buy group insurance easily as a startup. Forget about everything else and just quantify it as money. In this case, you'd realize both risks when you start a company so the probability of the risk is 100%. You'd simply take the cost and multiply by 1 (probability) to quantify the risk.

#1: as I wrote earlier, you buy the insurance and it's simply a fixed cost.

#2: you have insurance so this point is invalid (you have access to cobra which is retroactive in case insurance has not been set up).

#3: Again, you have insurance.

I'm not sure why you're proposing to not purchase insurance because that's a completely different topic and discussion. My point was that the cost of insurance is easily quantified and is in fact much lower than the cost of not receiving a salary. It's about comparing apples to apples and honestly your argument really speaks to my original point that people tend to be overly emotional when evaluating insurance.

Yes. This is where having a spouse with fantastic benefits comes in handy.

This is absolutely a concern, and there's no one answer to the problem. A lot of entrepreneurs have employed spouses. A lot buy (relatively) cheap catastrophic plans. A lot (myself among them) simply skip health insurance and take our chances. It helps being relatively young and healthy, but I don't go skiing or ride my motorcycle as much as I used to.

If you have a family to support, health issues, a mortgage, even car payments, the risk of failing is higher. Everything takes longer than you expect, and IMHO the best way to improve your odds is to make your "runway" as long as possible. Halve the burn rate, double the runway. It sucks to go back to living like a student in my late 30s, but it's vastly more satisfying than working for someone else.

The cost of doing a startup has of course fallen over the last decade, but on the flip side, the cost of living has also shot up.

Nowadays, you are likely to need more money than ever to to pay for your living accommodation, expenses, potentially large student debts, healthcare costs etc.

For this reason, I would say that the personal risks are very real. The consequences for ending up flat broke can actually be quite serious and quite tough to get out of if you crash and burn and are not quickly able to find employment.

Risk and reward are relative to your personal status quo. If you are gainfully employed, then leaving to start your own company has real cost (the opportunity cost of your lost income + the cost of your lost savings) and clear risk (the risk of not recovering that cost, the risk of not finding a new job). But there is also real reward (building your network, gaining experience as an entrepreneur, creating a product or service that is loved by your users) and potential reward (becoming profitable, being acquired, going IPO) that can lead to future reward (starting a next company with OPM, gaining a reputation as a successful entrepreneur).

So of course there is risk. As there is reward.

And the simple question for every aspiring entrepreneur is: given your personal status quo, are you willing to incur real cost in exchange for real and potential reward?

It's a personal calculation and a personal decision.

OPM? Other Peoples' Money?

Yes. If your business was acquired and you gave your investors a decent return, you won't (or shouldn't have to) bootstrap your next company, thus reducing your personal cost (and risk) the next time around.

Stop fussing around with the concrete definition of "risk."

Starting a startup is an extreme financial risk. You can drain your savings and pass up hundreds of thousands in foregone wages. Given that we're not all financially secure for life, financial risk leads to personal risk. Trying to spin it any other way is disingenuous.

What Ben didn't point out (which I mentioned in my comment on his blog) is the risk of not starting a company. The risk that you'll live your whole life never taking the incredible opportunity you have to make a difference.

Small teams of smart people have more opportunity today than ever before in human history to change the world. The technology, the networks, and the capital are there for people who want to use them.

The risk is in waiting for even better conditions than we have right now. Is there going to be even more of a chance to have an impact five years from now? Will five years of doing what someone else tells you to do make you more ready to take that chance?

It's foolish to throw away a good hand of cards and gamble that a better one is waiting for you in the deck. You could get hit by a truck in the next five years. You could have a personal financial catastrophe that would make it impossible for you to forego a salary long enough to make a startup work. Worse, you could get too comfortable taking orders and forget what it means to take a chance.

If you think you can change the world, there's no time to waste in getting started.

I hear it all the time from friends in the valley. "Do a startup dude, its not risky at all, you'll learn a shitton of stuff, maybe become wealthy beyond your means if you get traction,...."

So I say, "Ok. But tell you what. I will join your startup f you let me code in Scala/Haskell/SML/<insert favorite immature fp here>" :)

Instantly, they'll say, "No way dude! That's too risky! Lets just do it in php/ruby/python/easy-mature-imperative-dynamic-scripting-language"

So you want me to take a risk when it comes to my career/finances/life-situation. But you won't even take a risk when it comes to a simple language choice. Despite the fact that you are a technology startup working out of cutting-edge silicon valley, you want to choose the least risky technology/language/framework.

So much for risk.

I don't see the contradiction between your friends claiming a startup isn't risky, and then refusing to do something they consider risky.

It’s a backward perspective: running a company involves considerably more risk than choosing a programming language.

And when you're trying to minimize the (already considerable) risk, you don't go around throwing yourself into the first thing you see.

Yes, assuming you're right and they're wrong, then you're right and they're wrong, obviously. They're still being entirely consistent.

php, perl, python, ruby and R are the GCD, it's reasonable to expect an experienced dev to be productive in them in 3 days.

If you offer to teach the other devs scala or Haskell you'll probably get interest. Probably they won't know what SML is, unless they went to one of the few schools that use OCaml/ML to teach

If you eventually want to start your own company, I think the biggest risk is not taking action when it's easiest to – when you're young, with minimal expenses and few responsibilities.

I quit my job at 24 and dedicated a year to bootstrapping my own company. It generates a good full-time income now, but it took a year of hard work to get there. Because I was single and with negligible expenses (less than $1,000 a month), I was able to invest the time to getting my business up and running without worrying about the short-term lack of income.

I'm older now - married with a kid on the way – and have a lot of friends who really want to start their own business. But with mortgages and kids of their own, they can't afford to take 3 to 6 months off to get a business off the ground. The drop in cash flow would sink them. Someone really dedicated could save a cash cushion and quit their job, but the pressure would still be much greater knowing you only have X months in cash reserve before you're unable to support your family.

If you're an aspiring young / single entrepreneur, the time to start a company a company is NOW. As legions of people will tell you, it only gets exponentially harder as you get older and take on more responsibilities. The real risk is not taking action when it's easiest to do so.

For anyone interested in my bachelor startup-story, I detailed it in the post below:

http://www.ecommercefuel.com/my-corporate-escape-story/

There is risk, but I agree in the sense that the risk is not nearly as serious as most people think. The worst thing that happens is that you waste a year or whatever, the company fails, and you find another job.

Society casts this black cloud over unemployment. Most people fear unemployment like the plague. But for talented people, finding a new job is not hard.

The author says "The likelihood of success is very low." I hate it when I see such discouraging remarks, especially when they're not meant to be discouraging. The percentage of startups that succeed enough to compensate the founders for their time is low, and the percentage of startups that truly succeed is very low, but that's largely because most founders make a number of bad mistakes. The existence of successful serial entrepreneurs (e.g. Elon Musk or Lachy Groom, that teenager recently talked about on HN) shows that a particular startup can have a high likelihood of success if the founders do a good job. I don't really think people should found a startup if they believe the odds of their particular startup with them as its founders will have a very low likelihood of success.

"Only thing we have to fear is fear itself."

Business is ultimately managing risk and figuring out how to make it both profitable and (sometimes) fun.

If you're hung-up on and/or scared of the risks of starting a business rather than earnestly evaluating each bit of information for it's situational value, and moving agilely ahead... you're probably going to run into issues.

Keep risk in mind, but be courageous enough to act/execute without having it pull you down. Be an opportunistic and optimistic realist, with a cynic's backup plan.

To put it simply:

"Scared money don't make no money."

I think key part of this article is this sentence: "Watching your savings dwindle isn’t a risk, it’s a fact." There's no risk in founding a startup, if you take "risk" to mean "possible downside". There is a _certain_ downside; maybe that doesn't qualify as "risk".

If you go into a startup thinking that you'll have dwindling savings, lost time with family and friends, and mental and physical health impact, there's nothing "risky" about it.

There is also the "fear of unknown". This could be one of the many things like "Incorporation" "Taxes" "Is it legal" "What if" and so on...

Sometimes, even a good person pulls back just because of this "fear of unknown"

The unknown could be the "success" itself. What if I am successful?

For them, it is best to join a startup and just watch and learn from others. If they are ready may be they will jump in the next boom cycle.

Entrepreneurship is the quintessential American dream: a way to break out of a mold by your abilities and hard work.

If you're talking to someone on the fence, the risk / reward equation basically looks like this:

Real world problems creating a business vs making your dreams come true. There's a very obvious side of that equation to massage.

OP makes excellent points. The point is that starting a business is not a risk but it has costs.

However, there is one big risk. It is health insurance. Because it is really hard to put sticker price when insurance company tells you that you are 'uninsurable'.

I'll paraphrase Peter Drucker: the job of an entrepreneur or businessman is risk management and risk elimination. The goal is to limit and kill risk, not pretend it's not there. Entrepreneurs are properly risk killers.

A lot of this is rather crazy, logically speaking. That is, the author constantly contradicts himself.

Like this: "Watching your savings dwindle isn't a risk, it’s a fact." That's nonsensical. Just because it's a fact, doesn't mean it's not a risk.

Or saying that there is no risk. There is risk in every single thing you do your entire life: you're 'gambling' with time constantly, and time is your life currency, it's always running out, how you spend it is a risk based equation.

If someone spends 30 years of their life on ten startups, and none of them work, how'd that risk equation work out? The business survival odds say that it's very easy to do ten startups and have all of them fail.

Lost time is an extraordinarily expensive proposition. You can never get it back, and you get one life to live. There's no greater risk in life than wasting time. The author says that it's not a waste because you're learning; that's not always true first of all (people often repeat mistakes), and second that only matters if some day that knowledge pays off (and that's a massive risk variable).

"you can build an incredible network"

"can" = risk variable. The potential for something to happen is not a guarantee, which means there's risk there.

The entire article is filled full of proofs for there being tons of risk in starting a business.

If it's a fact (that is, certainty), then it's not a risk, it's a cost. That said, having lower savings does itself carry risks.

Moral of the story: do something you enjoy and believe in.

I'm sure the guy who, for 30 years, failed over and over (if he exists) doesn't regret it a single day. Why would he carry on doing it otherwise?

The currency is time we all agree on that, but if it is repaid in happiness I don't think you are wasting your life... Money coming from success should just be a bonus, if someone think otherwise it's clearly a bad bet for him and he is not doing what he likes.

So I agree with you, just do what makes you happy and you'll live a good life.

Walking on the street is a risk.

Driving a car is a risk.

I get it -- everything is a risk. Even more reason to start a company and give it a shot. You may get struck by lightning tomorrow.

I'm not such a "ra ra" kind of guy to say, "everyone should go start a company tomorrow, and you'll all win." But on the flip side for those people that want to take a shot - it's the time to do it. The "risks" that you think exist, around money and failure aren't really risks. Even "lost time" isn't in my mind a risk. Don't get caught (as I mention in another comment) running a zombie company though...

This article writer (to a certain degree) exemplifies recklessness, irresponsibility and selfishness - It is a rare person and at slim odds that someone can have a successful and happy life and family while following this philosophy. (let me guess what generation he is from).

Sure HE may be doing OK SO FAR in life because of many reasons not disclosed in the article. Perhaps he has great people skills or markets himself really well. Maybe he has a very high IQ or possesses one or more of many intangibles or contacts that most people do not have (or maybe just has a large trust fund or his wife has a steady 9-5). Many if not most who follow this philosophy will end up with massive debts and with their family deserting them. (their lives will be in complete ruins). This fate is similar to most aspiring musicians, artists and pro athletes (most never make it big and pay dearly in the end).

This scenario reminds me a bit of several friends that I had in my youth. One of the friends used and advocated illegal drugs regularly. He was was a functional (actually successful) person. Several of my other friends thought that they too could have a successful life while doing drugs. They thought that it would not get the best of them. Sadly, all who tried rather quickly failed and succumbed to drug overuse/addiction their lives became shambles. Most of them have never recovered their lives 20+ years later now. Ironically, the functional drug attic that they emulated eventually got clean - largely because he saw what the drugs did to the others and he realized that even he was vulnerable (his drug use carried too much risk).

If the startup succeeds: great! Of course, success or failure depends on whether you have a good idea and can execute it.

If the startup fails: you're broke and probably deeply in debt. Hope you can find a church to take you in.

If you don't try for a startup: You still have a buffer of money to fall back on for a time. If you were "insanely employable" before thinking about a startup, you are employable now and can get a good job before the money runs out. If not, you would have been in even worse shape if you had tried to launch a startup and it failed.

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