Silicon Valley is a place built by dreamers. People who thought they could not only change the world, but build a multi-million dollar business while they were at it.
While that’s still possible, there are slightly better ways to increase your chances of becoming wealthy.
The path is different if you’re not in Silicon Valley and you don’t want to be (or if you are, you’ve got another idea).
You can become wealthy with any type of business, but the tech startup route is faster than most.
If we look at some data from the Kauffman Foundation, it becomes clear that tech startups create more wealth than non-tech businesses.
This is the second in a series of posts I am writing about wealth.
The question I want to answer first is: Is becoming wealthy as an entrepreneur still the fastest way?
To answer this, we need to look at how people become wealthy.
And to do that, we need to look at what wealth is.
Wealth is fluctuating over time. It can be positive or negative. If you have $10,000 today and will have $5,000 next year, your wealth for this year was -$5,000. If you have -$10,000 today and will have $50,000 next year, your wealth for this year was +$40,000. The word “wealth” is often used loosely to mean what you own minus what you owe. This isn’t a bad approximation in many cases; but it’s not exact either.
Most people are trying to increase their wealth. And most people who make money do so by increasing their income and reducing their expenses until the two are equal (i.e., they’ve reached their target net worth). But some people are trying to increase their wealth by buying things they don’t want (or selling things they want). Some people do this because they think
Wealth. For many people, the word arouses images of mega-mansions, expensive sports cars and yachts. Most people have a general idea of what it means to be wealthy, but few really understand how a person becomes wealthy. The truth is that the path to wealth is different for every person. Many people become wealthy through hard work, others by investing in real estate, and still others by starting their own business. But lately, one path to wealth has emerged as being particularly effective: starting a tech startup.
The tech startup industry has seen an explosion in recent years thanks to the proliferation of cloud computing platforms such as AWS making it easier than ever to launch new ideas cheaply and quickly. It’s not just cheap cloud computing platforms either — there are also open source libraries and frameworks that allow you to build your application on top of proven code bases rather than having to write everything from scratch. These open source libraries give you access to features such as e-commerce or social networking that would have been costly or difficult to develop yourself in the past.
Add in the fact that there are now more ways than ever for new startups to acquire customers, such as Facebook ads or SEO, and it’s easy to see why so many people believe
The tech startup is a way to get rich faster than most other methods.
The idea is that you become rich by creating wealth. That’s how most of the rich got that way: creating wealth. You can create wealth by inventing new technology, and by starting companies to exploit it. The median household income in the US is $50,000 a year. A typical middle class family can produce several million dollars worth of wealth over a lifetime of work. But if you want to create more than that, you’re going to have to work harder than most people do: you’re going to have to start a company.
There are lots of ways to start a company, but one of them stands out as particularly fast: the tech startup. It’s not easy, but it’s probably the quickest way for an individual to get rich on her own effort.
Why does wealth creation happen especially quickly in tech startups? There are three reasons why they stand out: leverage, luck, and monopoly power.
I’m going to take a more careful look at the question: Is it still possible to become wealthy by starting a tech startup?
I say I’m going to take a more careful look, but that’s just a way of claiming credit for the inevitable. It’s still pretty obvious that this is what will happen. The flood of startups has not abated. The only change is that they are less concentrated in Silicon Valley. Startups are being started all over the world, everywhere there are people who have heard about them and want to start one. And as long as that continues, eventually you’ll get one that is worth billions of dollars.
But if you’re thinking of starting a startup, especially if you’re young, you should know the typical fate of such startups. When we were first starting Y Combinator back in 2005 we asked the startup we funded then with the most experience (Loopt) how many startups they thought had been funded before them by YC or by any other incubator or angel investors. They guessed about 500.
Today I think it’s probably more like 100,000? Which is why I think it’s important for anyone thinking about working on a startup to understand how much harder it has gotten and what that means for their chances
The tech startup boom has been going on for almost a decade now, and the question I keep hearing is whether it’s still possible to make a lot of money starting one.
I have no idea. But there are some things you can know about any kind of new business.
First, it doesn’t help to think about how much money you can make from it. Think instead about what your life would be like if you did this thing and it worked. If you’re in the middle of making one of these four decisions, and you’re not thinking about that, stop reading and decide first.
Then ask whether becoming wealthy is something that would improve your life. It would mine. But there are plenty of people for whom wealth would make no difference at all– people who already have enough money to do the things they want to do, people who don’t care about money, or people who are already happy doing whatever it is they do for a living. For someone like that becoming a billionaire wouldn’t improve their life: it would just mean they were spending more time with their lawyers.
Another decade. Another group of Stanford grads with a hot idea. Another company with the potential to change the world, and another super-rich founder.
It is like watching a movie, and we all know how it ends: The founder will become wealthy, the world will be changed, and everybody will live happily ever after.
Or will they?
If you are an aspiring entrepreneur who wants to get rich by founding a successful startup, you might want to grab the popcorn and watch this movie carefully-because there is a crucial scene that never makes it into the final cut. You see that scene in which the hero marries the girl? Well, there is another one where she leaves him for his best friend. You see that shot of him getting off his private jet to go meet a foreign dignitary? There is another one where he gets arrested for insider trading. You see that scene where he is presented with an award by President Obama? There is another one where he breaks down sobbing after discovering that his daughter is on heroin.
You get my point? A lot happens between those two seemingly different scenes; and while there are many roads to becoming wealthy, some are more treacherous than others.