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.