Anybody can start a business, but not everybody can generate enough money from their business to live a comfortable lifestyle. Capitalism, ironically, ensures that everyone will not be successful. Capitalism is what causes an uprising, even though our standard of living has never been higher!
I made the case years ago that real entrepreneurs are successful when I defined success as being able to generate at least the median per capita income for your city after three years of full-time effort. Those entrepreneurs who've been trying for far longer, while earning far less were clearly agitated by my stance. But everyone knows the more you spin your wheels in the mud, the more trapped you will be until one day the cannibals hear your cries and start hacking off your limbs until you die.
I don't want you guys to ruin your lives because of an entrepreneurial pipe dream, so let me share with you a warning story of what may become of you if you don't recognize reality.
Delusional Entrepreneur In Full EffectI met a guy, let's call him Roger, three years ago at a financial innovation conference in San Jose. At the age of 35, he was an enthusiastic fellow who started a video website teaching people how to save money. It wasn't a novel idea, but you don't need to reinvent the wheel to create a successful business.
Over the course of the two-day conference I kept seeing him speak to female attendees, which was fine, if the ratio was relatively balanced. But these types of financial innovation conferences are never balanced. Women made up around 20% of the crowd.
During lunch break the next day, he asked if he could join my table. The table consisted of three guys and an attractive woman. I told him sure and he proceeded to gleefully show me all the cards he picked up from the women he was talking to.
"Sam, meeting people, especially women as a founder is awesome. I'm having so much fun!" Roger whispered in my ear, careful not to let the woman to my left hear. Clearly, she was his next target.
Although Roger was a relatively normal looking guy, he was extremely geeky and socially awkward. He's the type of scatterbrained person who speaks 90% of the time in a conversation and then wonders why the other side hasn't listened to a word he said. There are many, many people like Roger at these conferences for some reason.
Roger told me he was dedicated full-time to his business and that he planned to stay with his parents in San Francisco while he worked on his startup. That's pretty honorable given most guys in their mid-30s would do everything possible to stay away from mom and dad.
When I asked him where he plans to meet up with all the women he so proudly met at the conference, he mentioned, "at a bar or a coffee shop, of course!"
Despite knowing about my site, Roger never asked if I could help him spread the word about his business. I was waiting for the ask, but it never came because he was too excited to think about business at a business conference.
Three Years Later
Fast forward three years later, I was walking down the street when I saw Roger at a coffee shop with a female friend I know in PR. Ah hah! So Roger was still at it, grinding away at his startup while trying to find love or excitement as a startup founder in San Francisco. Good for him!
I didn't want to intrude on their conversation, so I let them be. But I did text my friend later that evening and asked her how her meeting with Roger went.
"Sam, you should have said hi!" she responded. "Roger is looking to sell his company. Know of anybody interested in buying?"
The first thing I always do when evaluating an online property is look up its traffic figures to get an idea of what type of revenue it could be generating. I've got a simple formula I use where I take the number of pageviews a month and multiply it by 1 – 10 cents to get the estimated monthly revenue range.
After three years of working on his business, I was expecting Roger's site to have at least 100,000 pageviews a month, equivalent to roughly $1,000 – $10,000 a month in revenue. Unfortunately, his traffic figure came out to just 1,200 a month, or only $12 – $120 a month in revenue! Holy crap. What has Roger been doing all this time, hitting on women instead of conducting business?
Before responding to my friend's question, I asked her what else Roger was up to and she said, "He's still living at home with his parents in San Francisco. He's looking for a part-time PR person to help spread the word and has a bunch of free interns out of Asia he's using." She then proceeded to ask, "How much do you think Roger could sell his site for?"
I responded, "Maybe about $3,000 – $8,000." The figure is based off roughly 2X – 5X annual revenue.
"WHAT?" she responded. "Why am I wasting my time with this guy? He's never going to be able to afford my PR services. He made it sound like his business was doing well and just wanted to move on to something new."
"Welcome to the world of smoke and mirrors! :P" I responded.
Related: How Much Can You Really Make Online?
Don't Be RidiculousOn the one hand, I understand why Roger can't let go of his business. It's his baby, and nobody gives away their baby before adulthood. I'm sure Roger spent many hours building content and marketing his business. Further, his position as startup founder enables him to speak to plenty of women he would never have been able to speak to before.
On the other hand, if you are almost 39 years old, still live at home with your parents, and only generate ~$1,200 a YEAR in revenue from a business you spent three years of your life working on, then you've got to face reality that things aren't happening. Roger deciding he wants to sell his company is a step in the right direction. However, his asking price is not.
"Roger told me he's looking to sell for $3 – $5 million! " texted back my friend.
Of course he said that, dear friend. He's trying to impress you.
Roger believed in his failing business so much that his net worth is probably equivalent to that of a typical college student: zero-to-negative. Unless his parents have money, Roger is going to be in financial misery for the rest of his life because he's actually been working on his business for five years. When I met him three years ago, he had already left his job two years prior to work on some prototype video content.
If you've been out of work for five years in your 30s, it is brutally hard to get back in, especially if you have nothing to show for your time away. It took me five years to find an ideal job as a varsity high school tennis coach after a couple hundred rejections from tech companies, despite having a site that's doing fairly well.
Given everything is rational in my world, I'm perplexed by Roger's situation. Perhaps his parents are rich since he did attend a private high school. But my friend says his parents didn't have money when Roger was growing up. Then I found out what Roger could be suffering from based on the passage below.
The Dunning-Kruger EffectHere's a passage taken straight from Wikipedia:
"The Dunning–Kruger effect is a cognitive bias in which low-ability individuals suffer from illusory superiority, mistakenly assessing their ability as much higher than it really is. Dunning and Kruger attributed this bias to a metacognitive incapacity, on the part of those with low ability, to recognize their ineptitude and evaluate their competence accurately. Their research also suggests corollaries: high-ability individuals may underestimate their relative competence and may erroneously assume that tasks which are easy for them are also easy for others.
Dunning and Kruger have postulated that the effect is the result of internal illusion in those of low ability, and external misperception in those of high ability: 'The miscalibration of the incompetent stems from an error about the self, whereas the miscalibration of the highly competent stems from an error about others.'
The phenomenon was first observed in a series of experiments by David Dunning and Justin Kruger of the department of psychology at Cornell University in 1999. The study was inspired by the case of McArthur Wheeler, a man who robbed two banks after covering his face with lemon juice in the mistaken belief that, because lemon juice is usable as invisible ink, it would prevent his face from being recorded on surveillance cameras. The authors noted that earlier studies suggested that ignorance of standards of performance lies behind a great deal of incorrect self-assessment of competence.
This pattern of over-estimating competence was seen in studies of skills as diverse as reading comprehension, practicing medicine, operating a motor vehicle, and playing games such as chess or tennis. Dunning and Kruger proposed that, for a given skill, incompetent people will:
Dunning has since drawn an analogy – 'the anosognosia of everyday life' – with a condition in which a person who experiences a physical disability because of brain injury seems unaware of, or denies the existence of, the disability, even for dramatic impairments such as blindness or paralysis: 'If you're incompetent, you can't know you're incompetent.… The skills you need to produce a right answer are exactly the skills you need to recognize what a right answer is.'"
Wow! This is exactly it! Roger fails to recognize that no matter how hard he tries, not enough people are coming to his site to provide him a livable income stream. Yet, he refuses to give up after five years and get a job. If the women he keeps tricking to go out with him would simply tell him the truth about his failing business, he might have not ruined his financial situation. But once again, confrontation is hard, even for parents who are housing a 39 year old man child.
My Own DelusionsI know some of you think I'm being too harsh on Roger, but it's important to realize that because nobody cared enough for Roger, nobody was willing to tell him the truth!
I just don't want any of you to turn out like Roger, delusional, and wondering why you've got nothing in your bank account in the second half of your life due to some fantasy. Given there's no rewind button, we must speak with absolute truth.
Here are a couple of my Dunning-Krueger issues:
1) I believe all outcomes are correlated with effort, which is a failure in accurately gauging the skills of others. Often, my simple mental response to people who are struggling is, just try harder. I sometimes get frustrated when someone I care about doesn't understand something or do something efficiently just because I can. This is why I pray for patience all the time. I don't want to be a tiger dad who causes his kid to rebel. Every failure I have is attributed to not trying hard enough, which traps me into forever trying hard despite having enough and wanting to rest!
2) I believe everything I write is logical, and therefore should be followed. How can people disagree with my thesis if they haven't also spent hours researching and writing about a subject for the past eight years? But of course, you'll plenty of different viewpoints in the comments section that also hold true. I've tried understanding other viewpoints with posts such as, Explaining Why The Median 401k Is So Low (to counteract my 401k Savings By Age post), and The Only Reasons To Ever Contribute To A Roth IRA (to counteract my anti-Roth IRA post).
Other D-K Examples:
Daenerys Targaryen, Mother Of Dragons? Nailed it!
* Thinking you're an attractive person, thereby holding out for the perfect attractive someone, only to end up alone. Let's face it. Most of us are not attractive! The sooner we realize this, the sooner we can recalibrate our expectations of finding the perfect match. Most of us are not witty or funny either. So if we are unattractive, boring, don't know how to listen, and have an unsuccessful career or business, it's time to shoot lower.
* Being a 4.5 rated tennis player with a losing record, but only willing to play 5.0 opponents.
* Thinking you made a good real estate purchase when there are foreclosures all around you several years later.
* Thinking you made a good stock purchase even though the stock is down 50% since purchase.
* Thinking you are a great CEO while women, minorities, immigrants, and the media bash you.
* Thinking you are a great cook despite all the thrown away leftovers.
* Thinking you can consistently outperform the broader stock market.
* Some contestants on So You Think You Can Dance or American Idol.
The Best Way To Get Rid Of DelusionI used to think the best way to get rid of delusional thinking is to be an entrepreneur or play sports. Scores don't lie. If you lose 1-6, 0-6 you suck compared to your opponent. If you are only generating $1,200 a year in revenue after three years as an entrepreneur, your business model isn't working. There's nowhere to hide.
That said, I continue to see cases like Roger who aren't willing to face reality all the time. I also continue to see great stories of triumph against all odds. Therefore, there must be a combination of humble realization and stubborn persistence in order to achieve your dreams. If you see a friend suffering from Dunning-Kruger, try to talk some sense before it's too late.
For those who long to escape full-time employment, I strongly recommend moonlighting on the side while working a full-time job first. Even if you have to work from 7am – 7pm, Monday – Friday, you're still left with 4am – 6am, 8pm – 4am, and all weekend to work on your side business.
Only after you've gained some traction should you consider taking the leap of faith and going out on your own. If you haven't made at least a livable income stream after three years of working full-time on your business, it's time to get a job or pivot to something new. After three years, employers begin to shy away.
For everything else, it's important to find congruency in how you see yourself and how others see you. It's vital to ask the people closest to you to give an honest assessment of your strengths and weaknesses. When there's a mismatch, do your best to accept and rectify the situation. Otherwise, you might wake up one day wondering where it all went wrong!
Related:
Career Advice For Joining A Startup: Sleep With One Eye Open
Why Blogging Is The Best Business In The World
Readers, do you know people suffering from Dunning-Kruger? If so, why don't you be a pal and tell them the truth so they don't ruin their lives? What are some of the most common delusions people suffer from? Please tell me some Dunning-Kruger effects I'm suffering from so I can get better. Be totally honest! I can handle the truth, I think.
Source: Is Delusion Ruining Your Life? Let's Talk Dunning-Krueger
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