Why the MIT Blackjack Team Became Entrepreneurs 61
An anonymous reader writes "The MIT Blackjack Team, made famous by the book 'Bringing Down the House' and the movie '21,' learned important lessons about running a business when they were beating casinos in the '80s and '90s. Key members of the team went on to start influential tech companies like SolidWorks and Stanza and invest in startups. Why did they do that instead of becoming, say, hedge fund managers? MIT entrepreneurship leader Bill Aulet moderated a team reunion panel in Boston, and he writes that the themes that carry over from blackjack to startups include staying disciplined, playing for the long term, and not taking unnecessary risks. And, of course, disrupting the powers that be."
Because they had the money to become entrepreneurs (Score:5, Insightful)
That is what is really the reason, in my opinion. They made enough off of their BJ work that they could afford to take high level risks without losing their house (literally) and they didn't need investors so they would own all of the rights to their products.
There are tons of people who are great programmers or have good ideas that don't bother because they need to work day-to-day to pay their bills and make sure their family has food on the table.
Re:Because they had the money to become entreprene (Score:5, Insightful)
Hedge fund managers = lottery winners (Score:4, Insightful)
Only when we realize there is no correlation between skill and success in Wall Street, we would structure their risk/reward ratios in a more sane manner and bring some kind on sensibility to the market. Think about it. If the market is all knowing and all powerful, then why do companies that go under the market, get bought by private equity and then come back into the market and get valued highly?
Re:Because they had the money to become entreprene (Score:5, Insightful)
Apologies for drifting off-topic, but my perception of risk is very different from yours.
You stand to lose a good deal more than that. You stand to lose:
So the risk equation you're looking at is that you stand to lose at least double the salary you pay yourself (what you lose, and what you give up as opportunity cost) and probably a good 50% overhead on top of that on the downside. The upside is effectively unlimited (see Google, Facebook) but the chance of failure is pretty high. I leave it as an exercise to the reader to research the failure rate of tech startups.
An alternative is a pretty reliable 10% annual return through run-of-the-mill stock investments.
My rule of thumb is, if the ROI is not better than you would get from an index mutual fund, then you should either be getting substantial non-financial rewards (doing what you love, feeling that you are making the world a better place, etc.), or you should liquidate everything and invest to get the reliable dividends you can't produce for yourself.
Plenty of risk (Score:5, Insightful)
What's really high risk about starting your own company?
Depends on the company you decide to start. A small consulting firm hardly has any risk other than opportunity cost. A manufacturing company on the other hand has very substantial capital requirements which involve a lot of risk. A software company can have relatively low startup costs but scaling it typically involves quite a lot of risk due to the expense of trying to sell the product.
If you're just developing software, it doesn't cost anything but your time (and the other developers), and the cost of a few computers.
Not even remotely true. Look at the income statement of any software company. Microsoft, Oracle, you name it. Go ahead, we'll wait... You'll notice that engineering costs are about 10-15% of the total cost of running the business. Most of the cost is in sales, marketing and administration. You will not have time to both build the product and sell it at the same time. To get any scale you are going to have to hire people to help you and your burn rate just increased dramatically. Furthermore if the product you are making is non-trivial you'll probably need additional developers with their attendant salary requirements. That means you need to find more money. Banks generally will not loan to you without a personal guarantee and assets to back it up which means you quite likely will be either betting the house (literally) or you will be selling significant percentages of the company to raise equity investment. Pretty risky either way.
If you can develop a well needed product, the payout is immense.
Speaking as someone who has started several companies, even if your product is in demand that is no guarantee of a big pay day. It's a LOT harder to build a successful business than do just build a good product.
Re:Because they had the money to become entreprene (Score:4, Insightful)
Re:Because they had the money to become entreprene (Score:4, Insightful)
The risk is that you don't just develop a product, you need to market it, actually get paid by people for using it, manage other people, pay other people before actually having any cash flow, etc.
Start-up capital doesn't reduce risk, it creates a buffer on cashflow.
Risk tolerance is what differentiates an entrepreneur. A *successful* entrepreneur also needs discipline and vision.