What does it really take to build a successful business? Is the path to entrepreneurial wealth different from what popular media portrays?
In Don’t Trust Your Gut, Seth Stephens-Davidowitz challenges common myths about entrepreneurship by examining hard data. The reality of entrepreneurship is less about young geniuses with overnight success and more about experienced professionals in their 40s who understand their industries deeply.
Keep reading to discover which “boring” business fields produce the most wealth and why your age might be an advantage rather than a hindrance.
The Reality of Entrepreneurship
Hard data acts as a guide to financial success. According to Stephens-Davidowitz, researchers working with anonymized taxpayer data have determined that more than 80% of the richest people in the US are those who started a business. However, the data also reveals that popular beliefs about entrepreneurship are wrong. He lays out the reality of entrepreneurship, explaining that the road to wealth is long and boring and that your odds of achieving runaway financial success are highly dependent on which field you enter.
(Shortform note: Stephens-Davidowitz doesn’t claim that starting a business is an automatic path to wealth—he’s clear that only some businesses are successful. What he doesn’t bring up are business failure rates—according to the US Bureau of Labor Statistics, less than 35% of businesses survive for more than 10 years. Agriculture businesses have the highest longevity rates while those in the mining sector fare the worst.)
Stephens-Davidowitz describes the popular myth of entrepreneurship this way: A brilliant young person drops out of college, starts a company in their parents’ garage, invents some genius product that industry insiders would never dream of, and becomes an overnight millionaire. This rarely happens, but when it does, the media latches on to it and milks it for every ounce of drama it’s worth. As a result, all we hear are stories of young, maverick business founders to the point that we believe they’re whom we should emulate.
(Shortform note: The myth that Stephens-Davidowitz criticizes is what Malcolm Gladwell calls an “overstory”—an overarching narrative that shapes how society thinks. In Revenge of the Tipping Point, Gladwell explains that an overstory—such as the myth of the brilliant, renegade entrepreneur—doesn’t come from leaders and policy makers, but instead is driven by popular culture and the beliefs of large groups of people. Overstories can be useful or harmful, depending on how they frame society’s problems and what they encourage people to do.)
Despite the myth of the young entrepreneur, the data tells a different story. Stephens-Davidowitz writes that, after crunching the numbers on nearly three million entrepreneurs, two facts stand out:
1. Your chances of being a successful business founder increase with age. Tax data shows that the average person behind a successful new business venture is well into their 40s. The young, daring entrepreneurs of legend are outliers, not the norm.
2. Your chances of success are double if you already have experience in your field. Like the value of youth, the premise that innovative business plans only come from outside an industry is bunk. For the most part, to have a groundbreaking idea, you have to know and understand what’s been tried before.
| What Is Entrepreneurship? Stephens-Davidowitz writes about entrepreneurship and starting a business as if they’re the same, but renowned business management expert Peter Drucker disagrees. In Innovation and Entrepreneurship, he argues that true entrepreneurship involves creating new markets, not just copying what others have done. Drucker is also clear that entrepreneurship isn’t confined to business startups—it takes place within established businesses as well. While Drucker agrees with Stephens-Davidowitz that knowledge of a field is crucial for innovation, he points out two barriers that come with it. The first is inertia—if you think you know what success looks like based on past experience, you’ll be tempted to pursue the old way of doing business instead of trying something new. The second is ego—once you’ve established a successful business, you need to know when to step back and let it run. Stephens-Davidowitz connects the prevalence of older entrepreneurs to their deep understanding of their business fields, but there may be another reason why seasoned professionals make good entrepreneurs—they have a better understanding of what it takes to manage a business. Drucker argues that what sinks many startups isn’t their lack of innovative ideas, but their inexperience with business management. The older you are, the more likely you’re aware that a startup can’t be run by the founder alone and that you need to establish a strong management team to bring your new business to market. |
Therefore, Stephens-Davidowitz argues that big data’s message is clear: To increase your odds of business success, spend the time to fully master your field before trying to start your own company. This may sound obvious, but the more exciting (if spurious) narrative of entrepreneurship has permeated the business world to the point that we now have to back up common sense with hard numbers.
(Shortform note: Though Stephens-Davidowitz highlights the importance of your individual expertise, a thriving new business is rarely a one-person operation. In Zero to One, billionaire Peter Thiel states that the most important decision you’ll make when founding a new startup is who will do it with you. For your business to survive, you’ll need a strong team and a unifying culture that leverages everyone’s knowledge and skills, not just those of the founder.)
Business Isn’t Glamorous
In addition to discussing age and experience, Stephens-Davidowitz highlights studies showing that certain categories of businesses produce the most wealth for individual owners—and unfortunately, they’re not very glamorous. To increase your odds of becoming rich through your business, you’ll want to focus on (in no particular order) car sales, market analysis, real estate, financial investing, and wholesale distribution. None of these are businesses that spark many people’s ambitions when they’re young. Nevertheless, these are the paths that statistically provide the most return on investment.
(Shortform note: Stephens-Davidowitz’s advice to follow a “boring” path to business success assumes that wealth is your only goal. However, in Reboot, entrepreneur Jodie Fox insists that there’s value in following your passion, even if your business doesn’t work out. Passionate people work harder, spend more time finding innovative solutions, and are generally more attractive to customers and investors. The alternative to following your passion—doing uninspired work that you dislike—can leave you feeling trapped and depressed.)
Beyond the numbers, Stephens-Davidowitz suggests that these profitable businesses share two things in common—they’re relatively immune to competitive price wars, and they’re in industries that aren’t monopolized by multinational giants. The reasons vary from industry to industry: Some are highly localized, some rely on specialized knowledge, and some have legal protections from competition. In each case, these businesses benefit from structural barriers that statistically decrease the odds of defeat by small-business Davids or corporate Goliaths. As much as you may dream of starting some other type of business that aligns with your passions, the data says that if you want wealth, this is the way to achieve it.
(Shortform note: In Innovation and Entrepreneurship, Drucker acknowledges the same benefits of niche monopolies that Stephens-Davidowitz describes, but he argues that they’re rare and offer limited potential for growth. Drucker suggests two different paths to success: You can corner a new market with an innovative product or, better yet, let someone else try it first then outfox them by identifying a market that they’ve missed—as when Apple took the concept of a point-and-click computer interface from Xerox and aimed it at home consumers.)
Exercise
If wealth is a priority in your life, would you be willing to start your own business, based on the data Stephens-Davidowitz provides? If so, would you be willing to pursue a “boring” line of business if it statistically increased your odds of success? Why or why not?
