I Told My Friend Not to Start a Business. Here’s Why…

I’ve made my living running this blog for the past five years. I owe a lot to this blog. It’s enabled me to travel, take on interesting side projects, communicate with thousands of people and live well.

Given my positive experience, you’d think I’d encourage other people to do the same. Except when my friend asked for advice about starting something similar, I told him not to do it.

It wasn’t because I was afraid of competition. My friend was planning to start up a business which wouldn’t compete with mine. Even if it did, that’s rarely a problem. I spend more time collaborating with people who write about similar topics than competing with them.

It also wasn’t because his idea was bad. In fact, it was actually pretty good. Which is saying a lot because literally 95% of business ideas people share are terrible. (Interesting side note: whenever someone makes me promise not to steal their idea before they tell me about it, I know it’s going to be terrible. Real entrepreneurs aren’t worried about people stealing their ideas.)

No, the reason I told my friend not to go into business was quite different. The reason is not actually about business at all, but something general enough that it can apply to many, many life decisions without you realizing it. Let me explain…

Winner Takes All and Exponential Growth

Success isn’t the same in all fields. Some areas show relatively rapid initial gains, followed by increasingly difficult long-term gains. Some areas show relatively slow initial gains, but those improvements accelerate so that improving them becomes easier and easier.

I wrote an entire article outlining the difference between these two types of growth here.

Blogging is a clear example of exponential growth. The more effort you put in, the higher the return on investment. When I started this blog, my hourly rate of income was zero—putting in a lot of effort for literally zero pay. Then I remember my first month I made any money at all, which calculated as an hourly rate would probably be only a few cents per hour.

For me, the time from zero income to earning enough to surpass the poverty threshold was about five years. The time to go from that to comfortably earning six figures was only three. That’s the power of exponential growth.

But that growth also means that if you’re not going to be in the game long-term, it doesn’t make sense to get started. I knew when I started my blog that I wanted to go full-time with an online business. I wasn’t clear exactly how I would do it, but I knew that my goal wasn’t to make a little extra side income, but to do it full time.

My friend, in contrast, already knew he didn’t want to do online business full-time. For him, it was just a side activity to generate a bit of extra revenue.

That’s why I told him not to do it. If he wasn’t prepared to invest fully, he would only see the beginning part of the exponential curve—the part of the curve where there is a pretty poor return on investment.

I argued that he’d be a lot better off doing freelance work. A freelancing business also has a build-up time, but the curve is a lot flatter than for a product business. That means you earn more in the beginning, but your final earning power is also more limited than it is with a product business. A flatter curve may be less exciting, but it’s exactly what you want when you aren’t going all-in.

Things Worth Going All-In

Of course, not all areas of life show accelerating returns. Perhaps most don’t. Fitness, relationships, health, attractiveness, cooking, travel and languages all have diminishing returns over the long-run. That means you can probably reach a satisfactory level of those attributes just through normal, daily habits.

Careers tend to be different, showing somewhat accelerating returns. The best in the business out-earn the second best by a large factor. The best programmers are an order of magnitude more productive than the average. The productivity of top performers far outpaces the median employee. As a result, the best tend to out-earn the average by a large amount.

Worse, this inequality is probably growing. Economic inequality is rising. Economist Tyler Cowen argues that the increasing inequality may not be due to corrupt governance or pilferous bankers, but simply the increasing magnification in productivity between the best workers and the worst. In his words, “average is over.”

All of this suggests to me a couple things:

  1. Skills related to your career are probably the most worth obsessing over, since non-career skills experience diminishing returns while career skills experience accelerating ones.
  2. If you want work-life balance, avoid the fields with the sharpest curves in success. Athletes, actors, architects and authors all compete in fierce winner-takes-most environments, so if you plan to pursue such a career, it better be your top priority.
  3. If you make any career moves which are only short-term or part-time, pick flatter growth curves. That means a job instead of freelance; freelance instead of blogging; blogging instead of a start-up. Sharper curves mean you’re taking on far more risk for lower reward if you don’t plan to go in one-hundred percent.

What are some other implications of accelerating returns? Do you agree that most careers show this trend? Can you think of some exceptions? Share your thoughts in the comments.

Being Honest with Yourself is Hard

I remember talking to a psychologist once about the difficulties of social science. She told me that the easy thing about being a physicist is that most people aren’t very familiar with physics—stars, quarks and gamma rays—so if you’ve done the research and have good reasons to believe something to be true, people will take you at your word.

In contrast, most people are incredibly familiar with the subject of social sciences: people. They already have many beliefs and intuitions about how people are. Therefore, when you do the research and find out something about how people behave that contradicts their intuitions, they won’t believe you.

There’s a similar phenomenon with self-knowledge. Knowing things about yourself should be the easiest thing in the world. After all, each of us has a lifetime of research on the subject of ourselves. We are our own experts.

But that expertise can also be misleading. Not only do human brains suffer from a wide variety of well-documented biases: overconfidence, placebo, loss-aversion and prototype effects, it may even be that we are hard-wired to be self-deceptive.

Built to Lie

A common problem in doing research via surveys is that people will lie to create a favorable impression of themselves. Social desirability bias is so widespread that it can suggest conclusions which are mathematically impossible.

A 1994 survey of men and women asked them to count the number of sexual partners they have had. In this survey, men were found to have 74% more sexual partners than women.

Counting only heterosexual partners, however, you can demonstrate mathematically that the average number of partners for men and women has to be exactly the same (assuming an equal gender ratio). It takes two to tango, and likewise, for every man who has had a female partner there must also be a woman who has had a male partner.

Here we don’t need sophisticated methods to show people are lying, the math does it for us.

Not convinced about the math? I explain a bit more detail the mathematical proof in this comment here. I’m grateful to MIT’s discrete mathematics course for the original idea.

People don’t just lie to experimenters however, we lie to ourselves. Being willfully deceptive is hard work. There’s a chance your story will crack and the lie will be discovered. Police interviewers have long known that talking to someone long enough will often lead to them incriminating themselves because they couldn’t sustain their lie.

Lying is a lot easier if you don’t know you’re doing it. Social desirability bias doesn’t just influence what we tell other people, but what we tell ourselves. After all, if we want to maintain a rosier picture of ourselves than we actually possess, it helps if we believe that rosier picture as well.

This results in absurd statistics, such as most drivers claiming to be above average in ability. If you believe you’re the best, it’s easier to get others to believe it too.

Self-Honesty is Hard

Because we’re designed to lie to ourselves, truly knowing oneself can often be difficult. Are the motivations you pursue the genuine logic behind your actions? Or are they self-deceptions, elaborately constructed to help you pursue different goals while you can honestly claim to be pursuing something else?

One common pattern of self-deception is claiming to pursue higher motivations, while actually being driven by baser ones.

Consider drinking wine. A high motivation for only wanting to drink the finest wine is that you have well-developed and discerning taste. You, as a sophisticated, cultured individual can readily tell the difference between a bottle which costs $100 and $10. The price may be higher, but with it, comes higher quality.

Except in random, blinded taste tests, many so-called wine experts couldn’t even tell the difference between red wine and white wine.

Maybe a more cynical story is that your love of fine wine is an elaborate self-deception. The intrinsic qualities of the wine aren’t what make it taste good, but the fact that it is rare and expensive. Your brain fakes discernment on flavor, when it really cares about boosting the image that you are cultured and sophisticated.

The simple view of this story is that the two wines have no difference, and therefore you’re a gullible fool for purchasing the expensive one.

But I don’t think the simple view is correct either. When you include knowledge about the vintage and price, people will actually enjoy the expensive one more. The deception isn’t that there is no difference between the quality of the two wines, because there is. Instead, the deception is that the quality of the two wines depends solely on the flavor, omitting the knowledge surrounding it.

Picking on wine lovers is an easy target, but I believe this kind of self-deception is commonplace. Why do people prefer books to blogs? Shakespeare to soap operas? Is it actually intrinsic differences in quality or is it hidden signalling?

Untangling Self-Deception

My instinctual reaction to learning that there may be large patterns of self-deception is to correct it. After all, if we lie to ourselves constantly, how much better off would we be if we could just be honest with ourselves?

However, many of these self-deceptions are probably useful. They evolved because they were more adaptive than having to know the truth about yourself, and many of them likely remain adaptive to this day. Radical honesty is not the best policy.

Consider a friend of mine who enjoys drinking excellent wine. Does my careful explanation of the fact that his appreciation for good wine is heavily influenced by price and status help him enjoy the wine any more? It probably does the opposite, making him feel angry at me for revealing this truth or foolish for believing it. Both of us are worse off.

But even if a lot of self-deception probably is useful, an inconsistent theory of life makes decisions a lot harder. When you can’t be entirely sure of your own motivations for your behavior, its much harder to have a stable theory of how you should try to live in the world.

The constant popularity of life philosophy, from religion to self-help, shows that most of us grapple constantly with uncertainty over the best way to live our lives. The fact that we may be hardwired with built-in self-deception seems to make that path much foggier.

Conducting Experiments on Your Own Behavior

Science, of course, is a potent tool in helping us understand ourselves. But a science of human nature often only gives broad principles, and even those are often riddled with exceptions.

Instead, I think each of us needs to treat our own behavior and motivations as something worth investigating. Not merely through introspection, which runs the risk of bumping into the numerous hard-wired self-deceptions, but through observation.

One way to do that is to keep a journal of your thinking about things. Write down your supposed motivations, then ask what those motivations would actually predict. Then, when you’ve had more experience, look back and see whether those predictions are true.

Maybe you believe you fear switching your career because it might set you back financially. However, when you actually make the switch you are earning less money but it doesn’t bother you. Digging deeper, you realize that you were actually worried about being criticized by the people around you.

Journaling is probably one of the best tools for combating self-deception, since you aren’t able to creatively reinterpret past experiences with the benefit of hindsight. Instead, you can examine exactly what you were thinking at the time.

Getting this kind of self-understanding may be difficult, but I can’t think of a better subject to study.