Even though I lean Republican on many economic issues, small business, by in large, is overrated and a lousy way to make money due to the high start-up costs and high failure rate; furthermore, these ‘success stories’ touted, such as Steve Jobs, Bill Gates, and Mark Zuckerberg, are the exception and far from being the norm. Millennials, to their credit, see through the BS, as do I, as evidenced by the funny comments in refutation this this small-business/entrepreneurial slide which, like Gladwell Books, is full of hope, cherry-picked examples, survivorship bias, and a complete detachment from empirical and economic reality.
The comments are the best, and I have taken a screenshot of the highest-rated comments, all of which douse cold reality on the warm ‘you-can-do-it’ sentimentality that is pervasive on both sides of the political aisle, which unfortunately includes the right.
Yes, small business does sometimes lead to great innovations, but nowadays large business, with their large R&D budgets, are taking over the role of the small-business tinkerer. And, yes, small business does occasionally lead to great riches for their founders, as in the case Google and Apple, but at the individualistic level using cost/benefit analysis, due to the high rate of failure and high start-ups costs, small business is a bad way to make money, especially compared to buying the S&P 500 and or real estate. You can be comatose and make money with stocks & real estate, versus small business which is a lot of work.
The way you get rich is to buy and hold the S&P 500, buy Bay Area real estate, build a website that goes viral, or become an early employee or early investor of a company that becomes very valuable.
Other ways to get rich (or at least comfortably middle class) include:
-attaining a high position at an established company
-getting in early on a future multi-billion dollar start-up either as an employee or investor
-professorship (very hard to get tenure)
-specialized trades (elevator repair, die making, etc)
-specialized in-demand services (doctor, lawyer, accountant, etc)
But this is not the mythical ‘passive income’, which like the pot of gold at the end of the rainbow is sought but never found. It’s easier to just grind through the cubicle job, or buy & hold the S&P 500, than piss away tons of hours trying to get an online passive income using books, websites, affiliate marketing, blogs, and other time-consuming crap that doesn’t work for 99.9% of people.
The only way I could endorse small business is if the start-up costs are minimal and the profits are extremely high from the onset, or you can dupe a VC to write you ‘blank check’ – but otherwise, the ‘small’ in ‘small business’ belies the large start-up costs, which often requires large loans, leading to financial ruin when the business fails. With web 2.0, it costs little money to create the app and viral marketing can take care of the rest. The greatest web 2.0 successes – from Snapchat, to Facebook, Twitter, Uber, Pinterest, Dropbox, and AiR B&B – all spent very little – if any- on promotion, and most of these companies were already successful by the time they received VC funding.
But what about the success stories? Again, those are cherry-picked among a huge, hidden graveyard of unpublicized failures. Then you have the pesky role of IQ, which keeps popping up again and again, be it writing ability, stock trading, or small business success. What all of these successes have in common – with few exceptions – is that all the founders were brilliant, and not in a figurative sense (like how the word ‘genius’ is constantly being thrown about) but as measured by an IQ test, with these founders being among the smartest people in the world, or as I wrote in an earlier article, Telling Fairy Tales To Spare Our Feelings:
Like I mentioned before in a response to a Techcrunch essay by Jon Evans, the elephant in the room is IQ, and all of the aforementioned individuals, Zuck, Elon, Jobs, Gates.. etc, with the possible exception of Richard Branson, have very high IQs. But a simple search of the Quora page yielded not a single match for IQ among any of the replies. If you want to be as great as those people – while hard work and obsession does help – so to is being in the top .1% of IQ. Bill Gates got a near-perfect SAT score on the ‘hard’ pre-1995 test, corresponding to an IQ of 160 or so. While Woz is often credited as being the ‘brains’ of Apple, Jobs skipped many grades and still found his schoolwork super-easy, giving him time to ponder the wonders of technology. Elon Musk is a physicist/rocket scientist, applying his intellect in his role in Paypal, SpaceX, Solar City, and Tesla. Zuckerberg was a coding prodigy, creating websites as his peers were still struggling with simplifying fractions. Warren Buffett, who isn’t on the list, entered college early and knew more about finance than his professors. And this applies not just to technology, but writing (and a slightly different take), mathematics, trading, chess – any field that requires brain power, but more specifically, memorization and making inferences between disparate pieces of data – skills that IQ tests measure.
Also, although I’m bullish about the US economy and stock market, I’m bullish about the ‘biggest’ aspects of it, as part of the post-2008 ‘bigger is better‘ theme. This means I’m bullish on multinationals like JNJ, Microsoft, Google, Apple, and Facebook which, unlike small businesses, have cheap borrowing costs, wide moats, billions in revenues, and pricing power; I’m bullish on the biggest and most successful web 2.0 companies (Snapchat, Uber) and the most expensive real estate (Palo Alto).