Do you have a dumb question that you're kind of embarrassed to ask in the main thread? Is there something you're just not sure about?
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Notes -
Ok what is the adjusted risk of opening a business? Adjusted for competence that is.
It's more or less a truism that most businesses fail (to break even, forget survive). But most people would probably fail at getting STEM degree as well.
What is the risk for someone like me with a relatively high IQ, high conscientiousness, lack of emotion or lack of any retarded world models, fairly trustable person like me?
I've been thinking this because having met some unsuccessful entrepreneurs, I wouldn't trust them to manage a microwave, if that is my competition, then I might actually not be as doomed to the wage slave life as I think.
The successful ones I met are a better group on average, but not the entire group!
Of course ik ik it depends on a thousand factors, but let's just focus on this now. The average business owner is.... Average!
I was a single digit employee number at my current gig, now very successful by any stretch of the imagination.
Competence is critical. Like you, most failed entrepreneurs I've met are idiots. I've also seen some semi-successful ones that aren't super hard-working but compensate with some light grift and charisma.
I think if you have:
You can be successful. Securing funding and taking advantage of luck are the keys, IMO.
Are you considering any business plan?
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There's no such category of thing as "opening a business." That description contains stuff that runs the gamet from Buying A Job like opening a real estate agency or a plumbing company, to startup entrepreneurship like trying to start a company around a new innovation, to entering a competitive field like opening a restaurant. Those are all going to have different expectations and definitions for success and failure.
I think a smart person can be fairly certain of success running a low end business if they can acquire the capital on terms that aren't crippling. But even an extremely intelligent person isn't going to be guaranteed to set the world on fire running a hedge fund or opening a nightclub in NYC.
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Most successful (as in "able to make a living", not in "super-rich") businessmen I know personally started a business because they were forced to by the circumstances. In one case a classmate of mine lost both his parents soon after graduating high school and it was literally a choice between risking everything and literal poverty.
On the other hand, I know several people who tried to start a business carefully and without taking unnecessary risks and it never took off.
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GROUP 1: ALL OF THE BUSINESS ACTIVITIES.
You have to realize that you're going to be doing EVERY job in the business for at least a while. That means:
If you are one person company, you can do all of these things as you gradually get better and, eventually, probably have the cashflow to outsource number 3. If you add true partners (think in the law firm sense) you can scale a little better than linearly this way and eventually have specializations across partners (one is the Rainmaker, the other is the genius Dev etc.)
So, that leads to the first big questions: are you any good at ALL of these? If the answer is "I think so," you're probably going to have a rude awakening. If the answer is "I don't like to do X" you're going to fail. If the answer is "I have some experience in all of these things, and I believe I am basically competent" - congratulations, you probably are at about at 50/50 shot.
GROUP 2: TIMELINES AND CASH CONVERSION
How long can you afford to not make any money?
You answer needs to be "at least six months" If you don't have six months of your living expenses ON HAND RIGHT NOW LITERALLY WHILE READING THIS SENTENCE, you won't necessarily fail, but you're risking a big part of your financial health. To be fair - lots of people have done that at succeeded, I would just say you need to know that going in in order to be able to handle the stress.
Metrics you need to understand and track:
What's the full length of your sales cycle from prospect identification to close? (If you don't know what those terms are ... you aren't ready)
What payment terms are you offering? Net 30,60,90?
Are you spending money upfront on inventory? Digital marketing? Business trips to meet clients or customers? If so, when, and how much?
Those are the basic components of your cash conversion cycle. So now, big question number 2:
Do you have enough money to survive your first full cash conversion cycle and will the revenue be large enough to support yourself?
If the answer to that is "No" ... you're not necessarily sunk. You just have to raise outside capital. A good way to do that is to build a deck that gives the impression you are at least aware of the idea above. But, decks should primarily focus on product-market fit and theory of the product first.
Smart people aren't any better at business than dumb people. There is no skill called "business." Business School (MBAs) are accounting, fundraising, and basic systems thinking courses. They don't teach any business at business schools because it's impossible to teach business all you can do is do business (to be a little less trite: Business school lacks something very important: customers or clients...Every "market analysis" or "strategy development" is done with a rational agent stand-in for a customer segment. This is like war-gamming against an adversary who does ONLY the basics of infantry maneuver).
So, what's going to happen is, you're going to spend 6 - 12 months of your money or someone else's money to see if you're any good at business-ing. If you this post is full of things you don't understand, you'll probably fail. If you totally already get everything i'm writing, you'll still probably fail. If you've already raised $3m in pre-seed funding - you've already failed because you probably won't be able to keep your valuation increasing in later rounds and your VCs are going to push you to capture market at unsustainable customer acquisition costs, you'll begin to fudge some numbers, and end up bunkies with SBF.
They do teach you business at business schools, but they don't teach you to start one literally from scratch, since a business that you start from scratch is in 99% of the cases either a lifestyle business or a startup; the former is irrelevant (since most MBA graduates expect to be paradropped into a management position in an existing company) and no one has a teachable theory of how the latter works.
Don't make the mistake of thinking management == business.
I'm actually fan of disciplined and standardized management. I like that a lot of MBA grads are kind of robots like that - it creates more standardization and predictability across public markets.
But I've seen some awful-hilarious situations in which a McKinsey style cyborg thinks they can "Start a Business" because of all of their wonderful management experience and quickly realizes (or doesn't) that .... they always already had an organization to manage. Operating without that org was impossible.
These people are systems operators. Again, it's a skill I greatly admire (especially at scale and complexity. I've often wondered what it would be like to be a shipping executive, for instance) --- But it isn't "business" in the sense of determining what to bring to a market, what market need your offering solves, how to price it, how to sell it, how to appeal to customers etc. etc.
I can meet you half way and maybe rephrase "business" to "entrepreneurship" -- but that just risks making my point even more obvious. Very few schools even attempt to "teach" entrepreneurship and those that do are often the butt of jokes - deservedly so.
In truth though, and I say this as someone with no love for management consultants, a lot of very successful businesses are started by ex-MBB. Is that because they’re typically smart, ambitious and well-connected, or because they’re successful MBB consultants? That’s harder to say.
Definitely a chicken and the egg problem. Winners are gonna win, and they often do winner stuff (i.e. McKinsey, Harvard MBA) even when they don't necessarily need it.
A lot of my dyspeptic feedback here is derived from a deep hatred for the PMC types who come out of these kind of backgrounds. It's not that everyone from McKinsey is bad. In fact, I'd say that most aren't. But there is an often over-represented few who collect all the merit badges (Ivy education, McKinsey, maybe a stint in government) and sort of skip-level-up to real positions of influence ... to totally shit the bed when it matters. My current poster child for this is one Tony Blinken.
I don't care if a bunch of McKinsey dudes get together, raise capital, and then set that cash on fire trying to do Uber for Cats or whatever. I do care when they somehow get hired at an already growing company (or an established one) and then try to continue to coast on buzzwords and handshakeful-ness while failing to lead and make decisions. They'll probably end up failing upwards to do it all again. This is the true curse of the PMC. They are parasites who often face little to no consequences while those they "manage" can experience real career setback and failure.
Private Equity types have, at least, a very cut and dry success rubric. They often are also more transparent with who they are and what they're trying to do. PE as a career is much more results oriented and its hard to coast by with just the right merit badges.
Somewhere at McKinsey, however, the person who was flying high on the DEI accounts for the past several years is now "strategically pivoting" to a role as an "expert" in AI ... or AI ethics / alignment / effective altru-shitism. And that is a $500k / yr parasite.
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One of the biggest factors is clearly going to be the type of business you want to start. Setting up a McDonald’s franchise is going to require a significant amount of work and dedication but is likely to have a reasonably high chance of making you rich.
A traditional VC backed software startup might have higher potential upside but its sharpe ratio is pretty likely to be considerably lower.
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