Entrepreneurship is not always the best path

You'll never be rich working for somebody else" is bad career advice. The idea that entrepreneurship is the best route to riches and freedom is false.

  • Many of the wealthiest people earned their money working for other people, e.g. CEOs, financiers, engineers, doctors, etc.
  • The assumptions that entrepreneurship offers a better path to wealth than working for others is bad economics.

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Bad Advice: “You’ll Never Be Rich Working for Somebody Else”

scotthyoung.com

Get Rich Quick doesn't work because all career choices are part of supply and demand.

  • If a career choice is desirable - because you get a lot of money for little effort and talent - more people will do it. In turn, it will increase competition, push the payoff down and won't be so attractive anymore.
  • Starting a business will follow the same pattern. More businesses mean more competition, suggesting that the average payoff will shrink.

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Three mediating factors explain why some people earn more.

  • Some career choices have a higher variance. A risky profession might return more as most people are risk-averse.
  • Some career choices offer non-monetary benefits, like status, security, or entertainment.
  • Some career choices require more talent, connections, or credentials. E.g., medicine is a lucrative profession. Most people won't desire it because it lacks endurance, aptitude and years of training.

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Entrepreneurs do not generally out-earn their peers, according to a review.

  • Entrepreneurship has a higher variance. Some people will win big and others will win nothing
  • It's an attractive profession as most people would love to be their own boss. This generally makes entrepreneurship a worse way to make money.
  • The barriers to entry are typically low.

However, these points apply to every profession. The risk-adjusted, expected income and barriers to entry should be roughly equal.

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Effort, skills, connections and credentials can open doors in niches with higher rewards and less competition. And some careers are harder and more restricting than others.

  • Pick a career that matches your level of ability and drive.
  • Match your career to your values.
  • Invest as much as you can into building skills, experience, connections and other assets that will enable you to do things other's can't.

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