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How to Create Meaningful Employee Incentives

1 Comment Posted by on June 26, 2012

The purpose of incentive plans is to do exactly what the name implies – incentivise the people in your company (both executives and employees) to contribute more than they normally would. In other words, you want them to work harder, move faster, take on more ownership, and generally make as great a contribution to the overall success of the company as possible.

Usually the incentive is to share in the company’s upside in some way.  A common mechanic for that is a stock option plan that coordinates payout directly. There are a variety of options though, including bonus schemes, commissions on sales, and so forth. More recently, there has also been an emphasis (rightly so) on non-financial incentives, such as work conditions, opportunity for professional advancement, and so forth. But, in general, a major component of the incentive model for startups remains dollars. This is especially the case for mid to senior level employees where upside is a significant portion of their overall compensation.

How you structure your incentive plan depends a little bit on your corporate culture but the fundamental challenge is always the same: How to translate the reward of real dollars into better performance of your team.  For that to happen, your incentive plan needs to achieve Proportionality, Transparency, Appropriateness, and Certainty.

Proportionality.  There should be a pretty tight correlation between the company’s success and personal payout for the employees. You want to have a system that can’t be gamed easily, and that really rewards meaningful advancements with meaningful payout. So if somebody does more, they should get more. If the company is more successful, employees should get more, and so on.

Transparency. Employees need to understand and see the dynamics of the incentive plan. While nobody can predict the final payout in advance, employees should see that they get more if they do a bit more work on something. Incentive plans should not only be transparent enough that the employees can see the impact on their own behavior, but also be able to see the impact on other employees.  They don’t necessarily need to know who owns how much of the company, but they should have some general sense of what it will translate into if they get promoted, and, based on their peers, what their reward will be if they do some certain extra. If employees don’t understand these dynamics, the incentive plan is less likely to influence their behaviour in the desired way.

Appropriateness. Appropriateness is a bit more of a judgement call. On one hand, you want employees to have a large enough stake in the company that the payout has a meaningful impact on their life, and, therefore, creates a true incentive. On the other hand, you clearly don’t want to create a social collective with employees who own the entire company, because (presumably) you have to leave some room for investors and other major stakeholders. In North America, that usually means you end up with an incentive pool for employees somewhere in the range of 10-30%, usually hovering at about 15%-20% unless you have significant elements for founders in the pool.

Certainty. More recently, certainty has become increasingly important. When you make an incentive plan, you are making a promise. You are telling people that when they work for less pay, or work harder for normal pay, they will be considered when it comes time to divvy up the company’s benefits. Employees’ certainty that you will keep that promise is critical, because their belief in the outcome has to be very high in order for an incentive to exist. Everyone will understand that the company might fail, but everything fails if there are scenarios when the company succeeds and employee payout evaporates despite the promised incentive.

In my opinion this is the hardest problem to solve in an organization because certainty is the only factor that does not depend entirely on the company itself. If you are in a market or demographic where employees have been routinely screwed in incentive plans (read my post on ethics and employee equity for example), it lowers employees certainty in that entire industry or region. The best way to counteract this industry effect is a mixture of ensuring the personal integrity of the leadership team, and, most importantly, going to the effort of putting in place a solid legal structure for your incentive plan to ensure that arbitrary last minute changes are less likely, or unable, to claw back employees promised reward.

Ultimately, Transparency is the foundation for any employee incentive plan: if your employees don’t understand how the benefit mechanism works, they won’t have the motivation or understanding to make that extra contribution you are looking for.  Proportionality and Appropriateness need to be taken into account to ensure that you are incentivizing the right people, for the right reasons, in a way that won’t compromise the company’s health.  But no incentive plan will give you the desired results if employees’ trust and certainty that they will actually receive their benefit is compromised.

People Management , , , , ,

The CTO Role Broken Down

Leave a Comment Posted by on May 22, 2012

The CTO fills a critical role in a technology startup. The title is really broad, and people tend to cling to different aspects of it, but what do you really need your CTO to do in a startup? Here’s a quick breakdown for aspiring Chief Technology (or Technical) Officers.

 ‘Chief’ communicates hierarchy and seniority. A chief, by definition, is a management role. There is a big misconception about who should be a CTO. A CTO shouldn’t necessarily be the smartest code developer because, as a CTO, they must by definition be an integrator and a manager of people. CTO’s have to understand the entire organization.  Specifically, they need to understand what all of the technical parts of the team are up to, what all the players in the organization are up to, and what the programs are that are underway. Moreover, this must be done in a way that allows one to zoom into the individual details while keeping the overall technology strategy in mind. As a CTO, you must know the vision for the company’s IP. You must avoid being pulled down into the weeds and stay at a high enough level to maintain the strategic level vision.

‘Technology’ or ‘Technical’ is the obvious part of the job description. The CTO needs to understand the technology. But there’s actually more to it than that; The CTO has to have the ability to share his opinion while engaged in any major business activity.  The CTO is someone you do not want to have hidden in the basement, but rather someone to have front and center applying the technical vision of the company. It’s important for the CTO to be able to project that technical vision on the spot, by going into a meeting or strategic discussion either internally or externally, be hit with a new set a parameters “Would this work with x?” or “Would this work with application y?” and, at the drop of a hat, have a sufficiently broad understanding of the technology and operating details to not only answer the questions but extrapolate: “Yes, and this is how we’d do it.”  That kind of knowledge is unique, and as your company reaches any kind of scale it becomes more difficult. The ability of a CTO to do that will give you the ability to advance the development agenda by leaps and bounds, not just by setting a direction, but responding well to shifts in the landscape. Nothing restores more confidences in a strategic partner or investor than a technical leader who can, not only articulate what has been done, but seems to have a clear command about what needs to be done in the future given the variability and uncertainty of that future.

“Officer” means liability and responsibility across the organization. Like a board member there is a certain amount of governance required. The ideal CTO should know the business strategy and operational strategy to an extent where he can be a functional participant and contribute outside the technical domain to the executive. CTOs use knowledge of the technical domain to inform strategic decisions while understanding and being comfortable with the other core areas of the company. Ideally the CTO should be able to take over core preparations, engage, and possibly close a commercial relationship while stepping in for the CEO. Having these skills makes one a much more effective CTO.

People Management , , , , , ,

Ownership versus Leadership

3 Comments Posted by on February 14, 2012

Any organization should be continuously on the look-out for talented people who are capable of taking on leadership roles.  In this context you hear the word ‘ownership’ a lot, in reference to ‘owning’ a function, project, or deliverable. The words are often used interchangeably but, I believe, have very different roles. In essence, leadership means leveraging others, while ownership means getting stuff done.  All companies need both, but startups in particular succeed or fail on the basis of leadership and ownership in the organisation.

Ownership

Ownership is about getting something done no matter what. You own something not when you’re hierarchically entitled to be the boss of something but when you cause the end result to happen.  For example, you own product sales if you are at or above quota, and there is no real interaction required by your boss.  You don’t need to be a manager to have ownership, you just have to do the thing that you’re assigned to do and execute it in a manner that means success occurs repeatedly and reliably without somebody above you investing significant time or effort.

Leadership

Leadership is the ability to inspire, motivate, and direct others.  It is fundamentally the ability to leverage other people. Strong leaders create value not through their own work but by enabling others to work more efficiently, more targeted or just plain more. Unlike ownership, leadership is not entirely independent of hierarchy. Fortunately this isn’t much of a hurdle in most startups. If you have strong leadership skills in a startup, you will likely get to the point quickly where you will lead people simply because you are good at motivating and inspiring people. In a large company this may not necessarily be the case if advancement is partly based on experience or tenure – thus limiting the network effect you could have within an organization.

The Employee Perspective

From a career perspective, ownership is better for employees to focus on than leadership in my opinion. Ownership is universally needed and valued. The fastest way to grow your startup career is to grow with your startup as it scales.  Everything attached to revenue generation, product, development, and basically all the core functions of a startup, even things like finance, can scale very quickly…if your startup has a critical mass of people that truly own their functions.  These people will build success in their functional areas, scale the company, and accelerate their career much faster than formal appointment of hierarchical leadership.  When that happens, those employees who additionally possess strong leadership skills will naturally rise to take on the growing areas while those without will remain key individual contributors (especially in startups that maintain a parallel individual contributor professional career track up to higher levels).

The Startup Perspective

In a startup ownership is, in my opinion, the essential founding skill. If a startup wants to have any hope of succeeding at all, it needs people who take complete ownership of their respective functional areas, or, effectively, the company as a whole in the case of the founders. They simply don’t stop, don’t give up, and don’t just check out at the end of the day unless things are done.

With the exception of the founder, leadership is a skill required only at a later stage when the company scales. Most people cannot effectively manage more than a handful of direct reports, so a second layer of leaders below the founder will quickly become crucial. While larger companies have more of a capacity to micromanage employees with low levels of ownership, startups simply can’t.  If you start micromanaging employees in a startup, growth will slow down dramatically. This also implies a need for founders to learn how to “un-own” by allowing the new leadership layer to operate as independently as necessary for the company to grow – a skill that is a major challenge for most detail obsessed founders.

Beyond this transition, it is critical to keep leadership and ownership strong in the organization.   Whereas founders will self-select for ownership and often jealously guard leadership, the success of your startup will depend on the founder’s ability to consciously hire for and nurture both ownership and leadership.

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A Sustainable Startup Model for Canada

2 Comments Posted by on January 17, 2012

At the end of my last post on the gaps in the R,D,E chain, I talked a bit about why people with the development skill set are attractive to large companies, but ultimately don’t fit in with these companies’ emphasis on engineering (e.g. rigour, discipline, process).  Startups are by far the best at the critical development piece between research and engineering, and yet the existing model for startups has them dissolve after acquisition.

Quite often when a company buys a startup they think that they actually want the organization, but the supporting jobs start disappearing, a bit later the technical staff will drift off, and in the end the whole place just shuts down.  Canada is full of acquired entities that followed this path.

That is OK on some level, because the transition will hopefully have brought some measurable amount of money or expertise into the country. But ultimately, it also means an economics loss: the loss of a company, the associated jobs, and a skilled development team that has found ways to work together effectively and efficiently.  This is especially important for a country like Canada where there are not a lot of big companies left that do engineering on a large scale (Nortel is gone, RIM is spiralling to the bottom, etc.).

So, how is it beneficial for the development capabilities of startups to be dispersed instead of being rolled into other development projects?  Industry really doesn’t want the development skill set in the long term, and every startup is forced to waste time starting their company from scratch. Following this traditional path is both capital inefficient for the startup as well as sub-optimal for the region in terms of long term economic growth. On the flip side, any law or policy that limits the ability of a startup in a small economy to be sold to the big players in another economy is fundamentally a mistake. Doing so just lowers the competitiveness of the venture and ultimately weakens the economy.

Having witnessed an economically successful cross-border acquisition and the aftermath, I can’t help but wonder if there isn’t a more effective way to build companies. This was on my mind when it was time to set up another venture in Canada: TandemLaunch Technologies was the result.

TandemLaunch is meant not only to solve the major international challenge of university-industry tech transfer, it is also meant to be a “sustainable startup” for Canada. TandemLaunch runs multiple development projects in parallel, each encapsulated in its own company to avoid cross-project distraction. Each portfolio company is structured in such a way that they are easy to acquire by industry, and allow industry to hand pick the technical resources that they need.  All other assets, including facilities and people, stay with TandemLaunch after any acquisition for assignment to new projects.

This means that the jobs created by TandemLaunch actually stay in the country of origin, grow in that country, and the money that is made on acquisitions is invested into future ventures in that country.  This maintains and creates jobs, and sustains a long term company.  All this, while transferring technologies into an organization that’s more effective at engineering, and ultimately consumer production.  The idea is to treat the invention and early prototyping steps that small economies like Canada are often very good at as the product of the larger entity. Each portfolio company has its own business model, revenue stream, and ultimately acquisition opportunities, but from the perspective of the larger entity they are revenue streams themselves.

Added side benefits are: the ability to create and maintain stronger industry connections, by the nature of multiple venture engagements; higher capital efficiency of each portfolio venture (avoiding a significant portion of ramp-up cost as the resources of past ventures are re-used where appropriate); and the fact that investment capital is maintained in the entity and thus the country (TandemLaunch is effectively an evergreen fund).

We will see how the model unfolds, but I have high hopes that it will lead both to financial success and an ongoing contribution to the local economy.

Entrepreneurship, Technology Transfer , , , ,

Secondary Sales and Venture Capitalists – an unhealthy mix!

1 Comment Posted by on November 1, 2011

A recent article by Michael Greeley shows that US venture capital (VC) funds are focusing more on short term rather than long term investments. Intuitively, that doesn’t feel right, and it got me thinking about a related phenomenon I’ve been seeing in the VC world recently: secondary sales.

Secondary sales transfer equity from current to new shareholders for (usually) a cash payment. While such transactions are common in the public market, in the past they didn’t really happen in private companies, and practically never happened in pre-revenue startups. And for good reason! Secondary sales are private transactions, unprotected by regulation, and thus open to significant abuse. And yet, recent years have seen an upsurge of secondary sales in the startup world to the point where formal marketplaces now exist to facilitate these sales.

As usual, the introduction of secondary sales was well intentioned. Venture capital requires extremely high return exits (at high risk) to make the math work out for investors. That puts many entrepreneurs in the odd position of having to pass on solid acquisition deals in order to pursue moonshots. Secondary sales during investment rounds has become a somewhat popular way to fix the immediate cash worries of the entrepreneur and keep them motivated for that high risk, high reward, play that VC partners dream about. Depending on the magnitude of the early payout, this doesn’t seem unreasonable. While I didn’t take any money off the table in my ventures, I can certainly attest to the fact that having to live with 6 people for lack of money doesn’t make entrepreneurship any easier.

More recently, we have seen VCs and early investors becoming the dominant benefactors of secondary sales (like in the last Groupon funding round). That’s where the logical argument above falls apart. Frankly, the reasons for taking money off the table just do not apply to initial investors or VCs.  Founders might take some cash so that they don’t have to worry about losing their home while working for a tiny salary – It probably makes sense to take that risk off their mind so that they can focus on the business – but VCs don’t have that risk.  No VC partner is poor.  Nor do they have the same degree of personal risk. Their funds normally have decade-long life spans and they have fairly high confidence that they will receive their ongoing management fee during that period.  When founders are encouraged to take money off the table, the point is to provide founders with similar risk profiles to VCs.   A VC already has the risk profile of a VC, so why should VCs be able to take money off the table these days?

Let’s take a few steps back to how the VC model works.  A venture capital firm is a partnership between limited and managing partners. Limited partners (LP) put the money in, usually from pension funds and other big capital pools.  The managing partners are the actual venture capitalists.  VCs don’t own the money they invest and thus carry no personal risk (they might make less upside if they perform badly, but nobody takes anything away). They make money in two ways. 

  1. They charge a management fee.  Usually for a decent sized fund it’s about a 2% fee, so if you have a $100M fund, you get $2M each year. For a 10 year fund, you clear $20M – just to manage the money.
  2. They participate in the upside or ‘carried interest.’ The way it works is that if they invest $100M dollars, and get 200M dollars back in exit return, they pay the 100M dollar principle back to their limited partners, and get 20% of the remaining 100M (a $20M upside). 

This structure is effectively capped in terms of downside risk: unlike entrepreneurs (who make very little and gain solely based on the upside) and limited partners (who can lose all of their money), VCs have a potential share of the upside, but really no way to make less than their relatively high base income (management fee). In economic game theory this creates what is called a “drunk on the sidewalk” scenario (A drunk randomly walking on a one-dimensional cross-section of a road will end up in the middle of the road, but if you put him on the sidewalk where one side is blocked by a wall, he will inevitably end up lying in the gutter at some point – in other words, capping one direction of risk leads to a statistically guaranteed outcome different than the true uncapped mid-point). Apart from guaranteeing a better payout for VCs than for the other two players in the venture game, the structure also encourages a pyramid scheme setup when VCs are routinely taking money off the table prior to a true exit.

Imagine a VC with both a seed fund and a later stage fund under management. Post-management fee they might have $10M and $100M to invest respectively (let’s call the 10 year management fee $2M and $20M respectively). They invest $10M from the seed fund into a venture and then do a secondary sale of the same shares to the late stage fund for $100M. For simplicity sake, let’s assume that the company dies right after that transaction so that there is no return at all for the second investment. The picture is prettier for the seed fund. After repaying the $12M principal there is $88M left which yields a carried interest of $17.6M for the VC. Net combined gain for the VC partners is $39.6M ($22M in fees, $17.6M in carried interest).  The LP on the other hand collectively lost $49.6M ($132M investment vs. $82.4M). The remaining $10M is actual capital for the company so some of it will pay at least a salary for the entrepreneur and staff. The problem is that the VC not only profited from a failed enterprise, but also controlled both ends of the deal. In a pump-and-dump IPO they have to at least temporarily sell the proverbial bridge in Brooklyn to somebody else.

While a simplified example, there is nothing implausible about it once early VC secondary sales become commonplace. Facebook, Groupon, LivingSocial and many of the other “internet darlings of the day” have thriving secondary markets and the rate of VC participation is growing steeply on both ends (buyer and seller). The number of VC players in these deals is small enough that you can easily find circular arrangements (though none with the same VC using two managed funds yet…).

Apart from regulations, the only thing to keep this kind of circular pyramid scheme from happening would be VC expectations that the larger fund can be more profitably employed elsewhere (e.g. investing the $100M in the example into other ventures which would yield more than the ~$40M total VC payout available in the pyramid scheme). That’s of course how things are supposed to work, except that in most markets, including Canada and the US, the VC industry as a whole hasn’t made a dime of net gain in the last decade. In that environment, a guaranteed $40M might sound mighty attractive.

I understand that the example above is pretty simplistic, but I would love to know whether I am missing some mechanic that would prevent these kinds of circular secondary market deals from happening.

Entrepreneurship , , ,

Does Montreal have what it takes to be the next Silicon Valley?

2 Comments Posted by on October 27, 2011

After studying economics and marketing in France, Pierre, one of our recent marketing interns, came to us ready to see what was happening “somewhere else.”  TandemLaunch was precisely that, especially compared to his last internship with the 5th largest telecom operator in the world (Orange-France Telecom).  Since startups are all about new ideas and fresh perspectives, here are his thoughts on Montreal’s startup environment as an outsider.

While some elements of an entrepreneurial ecosystem can be “easily” controlled (like tax credits, event organization, etc.), other elements are more difficult to create (such as culture and the right balance of fresh ideas, technical know-how, and experience). Will Montreal be the next Silicon Valley? Probably not quite as big, but here are some things that make Montreal a dynamic startup hub:

The people: An optimal place for startups requires a base of talented people. Ideally, these people will be from different age groups: young professionals are likely to be dynamic and “eager”, while the experience of more seasoned professionals can provide the foundation that an ecosystem needs. From this perspective, Montreal is one of the best cities in the world. With 4 major universities, Montreal is the number 1 city in North America for per capita university students. It also ranks 5th in North America for its concentration of high-tech jobs. The skilled people needed for a great tech startup ecosystem clearly exist in Montreal. The population also has the added advantages of language and cultural diversity.  And it is simply in the DNA of the city that 52% of Montreal residents are bilingual, while 18% speak 3 languages. It also has a lot of highly qualified foreigners: people who come to Canada from other countries ((more than half of TandemLaunch’s staff was born elsewhere) and who have had to learn to be flexible and adaptable (if they weren’t already). They also have insider knowledge of the countries from which they’ve come. This is great for business as people from diverse backgrounds bring different ideas and perspectives that infuse creativity into startups.

The culture: Beyond access to skilled people, there is an ‘effervescence’ in Montreal that can only profit startup developments. The city is cosmopolitan, sharing North American and European culture. This is most obvious in the languages spoken, but that is only the tip of the iceberg; Montreal is culturally in the middle of Europe and North America, which have two very different ways of thinking about business. North America is in general more action and goal oriented; while Europe, especially France, is more concept and process oriented. Montreal benefits from both ways of thinking, which clash by times, but also create great business ideas and strategy.

Start-up culture and community: Startup communities start with a synergy between their people and culture. To be viable, the community needs to be large enough and organized enough to enable partnerships and knowledge exchange. More than in any other form of business, entrepreneurship is as much about finding the right people to work with as having a great idea. I hesitate to use the word “networking,” because the term implies using people to achieve a specific goal. What I really mean is fundamental “relationship building.” My time at TandemLaunch has taught me that relationship building is about creating better collaborations with partners and investors over the long term; aligning interests rather than pushing an agenda. Relationship building takes time, but also depends on getting that first contact.  So does Montreal’s community enable that? It’s moving in that direction to be sure. The 1st International Startup Festival in July was a great success with over 1000 attendees, from over 100 cities around the world, more than 40 speakers, and future collaborations being built! Montreal also offers a Start-up camp every year that brings together entrepreneurs, people considering entrepreneurship, start-up employees, investors and others. Most importantly, there are multiple formal and informal occasions to be in touch with these people:  Startup Drinks Montreal, Girls Geek Dinner, start-up tour, tech entrepreneur breakfast, student organization founded events, and many other workshops, open-networking events, and pitch events every month. The avenues are there, and people are investing in building them.

Government will: Canada and Quebec’s R&D tax incentives are among the most generous in the world and are especially favourable for small businesses. Each year, the R&D program provides more than $4-billion in tax credits to more than 18,000 claimants, 75% of which are small businesses. This is good news for the tech entrepreneur.

 

A success story: A success story is inspiring, and makes others think, “hey, I could do that too.” It also builds confidence in the community, and gives free indirect advertisement for the benefits of entrepreneurship. It’s essential (but not sufficient) for the active and future start-up, and for the reputation of the city as a business place, to leverage talented individuals to gain credibility with investors. While Montreal has had several successful startups, like Copernic, it has yet to have a massive success hit the newspaper headlines.  But there’s nothing keeping it from happening. 

The conditions exist for tech entrepreneurs in Montreal, they just need to do what North Americans do best: keep striving for success.

 

 

Entrepreneurship , , , ,

Entrepreneurship is a Profession, Not a Cool Pastime

15 Comments Posted by on October 18, 2011

While traveling in the Valley I had a chance to catch up with a few local entrepreneurs and accelerators. Many of them are doing interesting work, but I noticed a disturbing trend: entrepreneurship has become “cool” for a whole generation.

As a an entrepreneur who had gone through several popular accelerators told me, “It used to be that if you didn’t know what to do at the end of college you would go to grad school. Now the same people go to accelerators instead.” And they bring with them their culture: beer games, lawn chairs, geek gadgets, and “bro culture” galore. Everybody is a ‘rebel,’ but in exactly the same way.

As much as I applaud entrepreneurial energy, I believe that this trend is a bad news for society in general. Entrepreneurship is risky business, requiring highly skilled, disciplined and motivated people.  Encouraging entrepreneurship among individuals who lack any of these three characteristics is setting them up for failure, and setting society up for a big bill in the future.

The parallels to graduate school are strong. While I am a strong advocate of graduate studies, I also spent much of grad school surrounded by people without clear goals or motivation. Putting the same crowd into startups achieves nothing. If you lack the drive, self-control and people skills to finish a PhD in 3-4 years, then you likely won’t be building strong businesses either. These “Peter Pan” grad students won’t drive the economy even if they become trendy entrepreneurs (or whatever the next cool thing might be).

Instead, society pays for their leisure. This is obvious for grad students, because educational subsidies are fairly visible in our economy. For trendy entrepreneurs, government new business grants can play the same role, but the real economic cost is less visible. My parents produced economic value from the age of 17, contributing to social security and their own retirement savings. Whether unfocused grad school or unfocused entrepreneurship, we are creating a generation that delays this kind of societal contribution for years, decades or even forever – burdening the rest of society with their bills.

I am a strong believer in progressive taxation. The wealthy should pay more than their fair share because society has a moral obligation to fight poverty and support those unable to improve their lives for reasons of intellectual, social or physical hardship. But this kind of system is weakened when capable individuals delay their social contribution indefinitely. “Lifestyle poor” students and entrepreneurs are not in the same camp as those with true hardship. Their lack of economic productivity is due to personal choice, a lack of discipline, or unrealistic expectations. They are potential net contributors to society who decide to become net beneficiaries instead – robbing the truly disadvantaged twice, by first reducing the available resources, and then competing for the smaller resource pool [1]. This hurts our collective future.

Both entrepreneurship and graduate studies should be goal oriented, execution focused, and make a net contribution to the world. Entrepreneurship, like graduate studies, isn’t about wearing a hoodie, speaking at conferences, following people on Twitter, or reading the latest buzzword ebook. It’s not even about building a great website or product. Entrepreneurship is about building a scalable business with people, products and meaningful financials.

That requires pretty specific skills and beyond average discipline that not a lot of people possess[2]. Given that you either succeed as an entrepreneur or you don’t, it is irresponsible to perpetuate the myth that everybody can be an entrepreneur (or should be). It is as amoral as encouraging lottery participation in poorer neighbourhoods, or home ownership for those without sufficient income. Somebody will make money, but it won’t be the ill-suited entrepreneurs, and it won’t be society as a whole.

[1] This is not an issue of personal financial balance. It doesn’t matter whether you have a lifestyle that “works” with $10k a year or not. Unless you live on the moon, society *does* subsidize your lifestyle whenever you earn less than the average income level for your age group (government debt and the degree of progressive taxation in your country modify that bar a bit but it is a good first-order approximation). You don’t get the subsidy cheque but it flows into everything from the streets that you walk on, the food that you consume, the energy that you consume and so forth.

[2] The tough part is finding out whether you are one of the few people who can build businesses instead of working in one. There are no ultimate rules for this but a good indicator is whether you have the discipline to consistently succeed in non-entrepreneurial activities that your peers have difficulty with (e.g. making your marriage work when 50% of them fail, getting through college without debt when 80%+ of students have debt, etc.).

Entrepreneurship , , , , ,

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