Mohammad Al-Ubaydli’s blog

The entrepreneur’s dilemma

Posted in Books, Economics by Dr Mohammad Al-Ubaydli on December 23, 2007

So, should you quit your job at a big company to start your own small company? The business press is full of examples of entrepreneurs that have done fabulously well from this, and Paul Graham had written several essays that explain starting a company as the opportunity to work incredibly hard for a few years to earn what you would earned over a whole career in a big company. Personally though, I suspected something different was at play. I read about it in the “Good capitalism, bad capitalism” which mentions:

[…] several reasons why radical innovations seem to emanate from entrepreneurs rather than large firms[…] For one thing, successful radical innovation, if undertaken by the entrepreneur, promises what might be call “mega-prizes” – hundreds of millions, if not billions, of dollars of wealth. Nothing comparably awaits the radical innovator in a large firm, who might get a special recognition award and a onetime bonus.

Beyond this, paradoxically, studies have found (for the United States at least) that the typical entrepreneur earns less monetary compensation than her employee counterpart. Why then do so many entrepreneurs willingly engage in what is inherently risky activity? Because the additional psychic rewards – being one’s own boss, pride in self-accomplishment, and so forth – make the entrepreneurial endeavor worthwhile even if the entrepreneur does not gain the mega-prize. This, in turn, explains why entrepreneurs have a comparative advantage relative to large companies in attempting to discover and commercialize breakthrough innovations. Because a not insignificant portion of the entrepreneur’s “income” from her activity is psychic, the entrepreneur is the low-cost provider of radical innovation. Often, therefore, it is more economical for the large firm to wait for entrepreneurs to develop the radical innovations and then buy them out.

Italics were in the original text. Folks, you have got to want to be an entrepreneur, not to be rich, to start your own company.

One Response

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  1. rontowns25 said, on August 15, 2008 at 9:51 pm

    Thanks for the informative post. Something that may be of interest to you related to entrepreneurship… neural science evangelist and entrepreneur John Assaraf from “The Secret” and author of “The Answer” is holding a free conference call August 20th about how to condition your mind to live a life of entrepreneurial and professional success. I’d highly suggest listening in. Go here for details and registration… http://www.JohnAssaraf.com/hia/challenge.htm?s=hiac2008


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