Startups and Fear of Failure

Fear

I keep backing away from the idea of creating startups because it feels like an obviously bad choice to me. Very few startups ever succeed, even moderately. Even fewer become successes. YC’s numbers are testament to that - even among the cream of the cream that their startups represent, very few have made it.

Let’s be generous and say that 1 in 10 startups do reasonably well. So, we start from the assumption that you have a 10% chance of making some money out of it. Otherwise, you’re just putting your time and money into a sink. Those are not good odds. Any salaried position would be better than that.

So, I keep feeling that starting a startup would be a bad move, that there are saner options. But, niggling doubts arise here and there.

What this means is that at any given time, the great majority of startups will be working on something that’s never going to go anywhere, and yet glorifying their doomed efforts with the grandiose title of “startup.”

This doesn’t bother me. It’s the same with other high-beta vocations, like being an actor or a novelist. I’ve long since gotten used to it.

– Paul Graham, Startup = Growth

Damn. I’m generally derisive of acting or novel-writing as a career too. But, it’s not like startups are a new kind of bubble right now. There are other precedents for this kind of lopsided risk-reward ratio. This kind of pattern holds even in academic research, where a tiny percentage of the researchers will make a disproportionate contribution (and get a disproportionate share of the glory).

This means that I may have got it wrong. Maybe these aren’t completely hopeless endeavours after all.

Capturing the Gains

The main problem is that startups are a great proposition for the world, but a bad one for the average founder.

On the one hand, you would be insane not to go in for opportunities with high expected value. On the other hand, I’m afraid of failure. I don’t want to end up with nothing. How do I resolve the tension between the two?

It all comes down to my risk aversion. What is my utility function over the amount of money I earn? What if I work hard for ten years and have pretty much no money to show for it? What if I do the same and get quite a lot of money? What if I get no money, but end up adding a lot of value to the world? To answer these, I need to understand my utility function better. How much do I care about money, personal respect, love, and value added to the world?

Basically, I feel like I want to create some gains reliably and then capture those gains for myself. Can I somehow escape these requirements?

What will others think?

Mainly, I’m scared of what the people around me will think of me if I fail and have nothing to show for it. I get the feeling that in America you live a life rather independent of your parents and relatives once you become an adult. In India, the familial bonds, and thus their influences, seem to last quite a bit longer.

Notes

Rough ideas:

Your utility function is over the world, not over your personal contributions. It doesn’t matter who improved the world, all that matters is that the world gets improved.

When you look at it this way, you become a lot less risk-averse. Now, you can go purely by the expected value, even if there is a high chance of failure, instead of looking for safe options that leave you with something even in the worst case.

Now that you look at the impersonal utility function and aim to optimize it consequentially, you start to get other ideas. Basically, the “serve the system” insights.