The Voluntary Life: 111 Money, Risk and Motivation in Entrepreneurship

6 June 2013

111 Money, Risk and Motivation in Entrepreneurship

An episode about the financial risks and rewards of entrepreneurship and what they mean for your motivation in starting a business. Here's some harsh data about the financial risks and rewards:

  • More than half of startups cease trading within the first five years.
  • Entrepreneurs on average earn significantly less income over 10 years than they would have earned in paid employment. There are debates about the numbers but one study (Hamilton) suggests a 35% earnings differential.
  • Entrepreneurs on average don’t earn a better return on their investment by founding startups than they would have by investing in publicly traded stocks (in fact they earn less from a risk return perspective).
  • Nevertheless, the majority of affluent people are self-made entrepreneurs. Entrepreneurs make-up less than 20% of the workforce in America, but account for 66% of the millionaires. Of the millionaire entrepreneurs, 80% of them are self-made: they are first generation wealth holders (Stanley).

What are we to make of such statistics? I argue that the high financial risk (and potentially high reward) make it even more important to do entrepreneurship for intrinsic motivations:

  • Purpose: building a business because you want to make a dent on the universe and you believe that what you are doing will make peoples' lives better.
  • Autonomy: being an entrepreneur because it gives you freedom to live and work as you want to (not as someone else thinks you should)
  • Mastery: overcoming the challenges of learning how to build a business is rewarding in itself.

The episode ends with a discussion of the difference between extrinsic and intrinsic motivations for making money itself. The intrinsic motivation to make money is for the freedom (financial freedom) that it gives you.

Show Notes:


Podcast Episode

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