The Education of Millionaires - Michael Ellsberg [31]
“I can’t help it. It’s an addiction. It’s a compulsion,” Mike told me with a mischievous grin, from his fancy San Francisco offices. Nearly everyone I interviewed for this book has this attitude about starting businesses. What makes it different from, say, a gambling addiction, is that these people are masters of making sure they stay in the game when luck inevitably turns against them. Unlike a gambling addict, they have consciously cultivated a lifestyle of resilience. They are ready to pick themselves up, dust themselves off, adjust course, and try something else when they fail. That is the essence of learning. Without failure, there is no learning. These people are not addicts of gambling; they are addicts of learning in the real world. And learning in the real world involves failure. Lots of it.
“People who have been successful are still as likely to get it wrong as right going forward. They just try more things,” Mike told me. “That’s the difference.” Mike’s advice for young people who want to combine their passion with their money? “Start with the passion and the drive. You’ve got to have that hunger. From that passion and desire, go actually do some stuff. Try some little businesses. Get some failure under your belt. Find out what works and doesn’t work, and don’t worry about the failures, worry about learning.”
By far the most common objection many people raise in discussions about whether it makes sense to try out an entrepreneurial side gig in service of pursuing your dreams is the oft-cited statistic that 95 percent of small businesses fail within their first five years. This statistic brings up images of 95 percent of all small-business owners ending up on the streets begging for change to feed their kids after they sell off their house to pay off business debts.
“That statistic is a bunch of crap,” Josh Kaufman, author of The Personal MBA: Master the Art of Business, told me. He pointed out to me that the statistic is based on the number of people who file Schedule C forms (profit or loss from business activities) and other forms related to business ownership, then stop filing such forms at some point. Yet, as he says, “It’s calculated on the number of businesses that cease to exist within five years, not that go bankrupt or whose owners’ lives are ruined forever and ever. Sometimes companies are making money, but they’re not making enough to make it worth it, so they go do something else. Sometimes the business got acquired. That’s a really good thing. ‘My business ceased to exist because I got paid a lot of money to sell it to some other company and it got absorbed.’ All of the many ways that a business could cease to exist are wrapped up in that one number, which gets interpreted as a doomsday ‘Oh my gosh, so many people are failing in business and ending up in the soup lines!’ kind of statistic.”
One of the best ways to avoid this kind of horror-story scenario when reaching for your dreams, even if your business doesn’t end up working out, is to start a service business. Usually, overhead and start-up costs are low, you don’t need to borrow a lot (or any) to get started, and you can begin generating revenue immediately. Even if the business doesn’t work out, the consequences of failure are usually minimal, and if you do end up being one of those 95 percent who fail to file a Schedule C within five years, you’re not going to end up on the street begging for change. It’s just not that big of a deal. You can close up shop on that business, go back to your day job, and try something different another time, no big deal.
“The very best things you can do when starting a new business,” Josh told me, “are, number one, keep your overhead as low as possible, and number two, make sure you’re getting recurring revenue as quickly as possible. If your revenue is semi-predictable, you can just grow and grow based on the cash that the business is throwing off, instead of having to get investments, loans, and so forth.”
In his book, which he presents as a business education in a book without