Tom’s Big Picture

This is a new series of articles where I hope to share some of things I’ve learned in running my own business and successfully extricating myself from Corporate America. While I will not get into the specifics of my businesses, I think I can offer an analytical perspective (that is, information on the basis of facts and reality instead of wishful thinking) absent from most discussions of entrepreneurship. In particular, I have noticed that many of the conservative countercultural types like myself have “engineering” mindsets- it’s almost necessary, as being countercultural means that you can make independent decisions based on objective information, and that you have the moral courage to overcome the herding instinct and take action on your convictions. So that’s why I title the series “Engineers & Entrepreneurship”, because I have a typical engineer personality- but the information will be valuable for anyone of a similar mindset, independent of formal education.

One trend I have noticed is that your typical business owner, while certainly not stupid, is NOT analytically-minded, and more often than not is merely a mediocre study (the “pointy haired boss” in the Dilbert strips, like most stereotypes, is funny because it is a humorous exaggeration of a core truth). I think this is a shame, as the world would be a better place if more businesses were run on the basis of reality rather than the mish-mash of statistical and logical fallacies in your typical business book. If more of my fellow analytically-minded countercultural conservatives were liberated from the cubicle, I see a number of benefits:

A. Higher incomes and flexible schedules enable homeschooling, a positive social good. A higher income also makes it easier to support a large family, another social good among our people.

B. Higher incomes, especially incomes not dependent upon a single employer, can help relieve social status concerns regarding holding countercultural conservative convictions, and enable greater independence of thought, and greater confidence to avoid the herding instinct. While the herding instinct is usually healthy, in a toxic culture such as ours it is counterproductive.

C. The more of our people who are liberated from the cubicle, the more Corporate America will have to pay those that remain. Supply and demand. And the glad-handing salesmen types usually reaping most of the rewards in business cannot run their incredibly complex business empires without an army of engineers, programmers, and other analytical minds behind them. The former have been too richly rewarded relative to their contributions and the latter too stingily.  We see this same unfortunate trend in the church, as the retail salesmen of the faith (megachurch pastors/evangelists) are elevated beyond their capacities (see The Peter Principle) into teaching roles that should be reserved for engineering minds of the faith, or theologians.

D. Not everyone can or will own their own business. Not everyone should- I will even try and provide a framework for making that decision later. But those of us who do own our own businesses can employ similarly-minded people, offering an employment framework more in-line with a counterculturally conservative lifestyle.  This is especially important in light of the preponderance of self-appointed “thought police” who will harass people based on their politically incorrect views by trying to get them fired from their job.  How refreshing it would be for many to be able to speak their mind without fear of losing their job!

So without further introduction, my first offering on the subject:

Why do smart people work for others instead of running their own businesses? According to the book The Millionaire Next Door, the typical millionaire in our country is someone who runs a small business in a small-to-medium size community, who sometimes has a college degree, more often than not with a GPA of around 2.0. When questioned about academics, their attitude is often along the lines of “why try and be smart when you can hire smart people so cheaply?” Why do the 4.0 students end up working for the 2.0 students (even the 4.0 students who are self-employed tend to gravitate towards income-self-limiting trading-time-for-money high-stress occupations like medicine and law- so while some may earn as much as their lesser-skilled analogs in business, they’re working a lot harder for it)? A number of possible reasons:

• 1. First, and foremost, there is survivorship bias. Less intelligent people aren’t as skilled at appraising risk, and are generally more confident and optimistic (yes, ignorance is bliss!). For example, if 100 dumb people go into a risky business with a lot of debt, 95 of them might fail and declare bankruptcy; the other 5 will succeed spectacularly due to random factors. On average, this is a bad bet. However, we only hear about the 5% who succeed, who of course think their success is due to something innate in them, usually their ignorant “think positive” personality orientation, when in fact their success is just an atypically good roll of the dice. I think this is where a lot of the nonsense in the business book section of the bookstore comes from- only people unable (or morally irresponsible enough) to comprehend risk take big gambles, and the few of them who win big from the slot machine attribute it to their risk-taking orientation. Then they put on big seminars where they teach you to internalize their risk-taking orientation…which leads us to the other side of the coin…
• 2. Intelligent people in corporate jobs tend to underestimate their own risk and overestimate the risk of a business. There is no job security in large companies anymore; in fact, I would argue that a small businessperson with a broad base of customers is more secure in his income than a cubicle-dweller in the same industry; there is, of course, no way to prevent against systemic risks in a given industry- but a businessperson at least has the freedom to start another venture in a different, non-correlated industry. I had people tell me when I was first starting out that I was crazy to leave my corporate job because “you can’t get health insurance if you’re self-employed.” Of course, Blue Cross will sell you group health insurance (e.g. a husband and wife both working for the same business qualifies as a “group”- and in Texas at least, BC/BS and other companies are required by law to offer coverage to small groups at a non-discriminatory price) for the right price- a lot more expensive than $1000-a-year company-subsidized insurance, but as long as the income tradeoffs are right, the costs are irrelevant.
• 3. Irrational concerns about social status. As John Derbyshire notes*:

Towering over all these lesser scams is the college racket, a vast money-swollen credentialing machine for lower-middle-class worker bees. American parents are now all resigned to the fact that they must beggar themselves to purchase college diplomas for their offspring, so that said offspring can get low-paid outsource-able office jobs, instead of having to descend to high-paid, un-outsource-able work like plumbing, carpentry, or electrical installation.

Now, I’m not anti-college ideologically as some in homeschooling circles, as I do think a conservative liberal arts education is useful for exceptionally bright children, the top 10%, as college used to be. And it’s necessary for more technical occupations like engineering, medicine, etc. But for most people attending college these days, it’s a game of pretending to a middle-class lifestyle by sitting in a cube instead of making a very respectable living doing real work. This is about the silliest social status game that our people (who are very silly about social status games in general) have ever dreamed up.

An epiphany moment for me occurred in 2001. My wife and I were newlyweds living in Georgia, in an exburb of Atlanta, attending a middle-class church. Most of the young couples we knew had various jobs as middle managers in the highly-service-oriented Atlanta economy. We were first starting out in our little two-bedroom apartment, and most of the couples had been married a good bit longer than us (maybe 5 years or so) and had already bought their first home. We were quite impressed, of course, visiting their various homes, and amazed at the apparent debt people were willing to go into, as Georgia prices are significantly higher than Texas prices. Most of the couples in the class were clearly middle-class in their mannerisms and outlook on life (very focused on advancement up the corporate ladder, getting their MBA’s, etc)- and though I was raised in more of a hybrid working-and-middle class home, I found myself, especially with my new job right out of college as an engineer, adopting this mindset as well. I was very impressed when I heard that just two steps up the management food chain from where I started, someone could make over $100k per year; of course, they worked 90 hours a week, but I wasn’t thinking about that.

Anyway, there was one person in the class who didn’t fit the middle class mold (his wife did, but he didn’t); this person was Jim, who was the third-generation owner of a local tire shop. Jim was about 28-30 years old, and definitely had more “working class” mannerisms and outlooks on life. Jim’s tire shop was the very epitome of a local tire shop- stacks of papers everywhere, grease stains on the floor, five-year-old Car and Driver issues next to an even older coffee pot in the waiting area, with burnt Folgers and a grainy 1980’s-era color TV mounted on the wall. Jim’s shop also offered a “drop off” service for customers where one of his employees would drive you in one of their beater cars (a luxurious chauffeured experience in a 1984 Accord, all the while with the driver smoking a cigarette out the front window) to the local mall or wherever while your car was being worked on. In other words, Jim’s business was about as non-middle-class as you can get.

Well, one day we were invited to Jim’s house for a social. As we followed the directions to get to his house, we immediately noticed something telling about his neighborhood: Jim’s house was on the lake, which in this area meant the lot itself started at $100,000 (this was 2001, so probably more now). And then we pulled in his driveway- huge didn’t even begin to describe the size of the house, at least to my two-bedroom-apartment acclimated eyes back then. After I recovered from the cognitive dissonance of seeing my entire middle-class outlook on life shattered, I eventually got around to asking Jim about his business later that night. I’m sure I wasn’t nearly as slick as I wanted to be, but after Jim dropped some numbers about the number of tires he sells and some simple arithmetic when I got home, I figured a rough estimate of an income of $400,000 per year from his tire shop; that’s income, not sales.

Jim helped me “get my mind right” about the debt-driven middle-class go-to-college-to-get-a-job-so-you-can-earn-and-consume treadmill- there are too many mice eating that cheese. Just by sticking my head out of the cube, he showed me a whole new world of possibilities for those willing to let go of middle class pretensions about social status.

Later that year, I heard some of the men make a couple of snide comments about Jim’s business, from a snooty social status point of view. I didn’t bother to defend Jim, as they just needed to soothe their middle class egos by making fun of him a little bit; he was laughing all the way to the bank anyway.

Which do you value more when it comes down to it?  The social respectability of you middle class salaried job, or your financial freedom?  Most realistic entrepreneurial opportunities will not allow you to retain both.  After all, doesn’t it feel good to claim to work for such-and-such company, to be part of a large organization?  Are you really mentally prepared to be your own employer?  Or is this just an escape fantasy for bad weeks at the office?  Only a burning desire to help plow through the hard work, and a good bit of luck, will suffice.

More to follow…questions/comments welcome.

*Regarding the Derbyshire article linked to: I disagree with Derbyshire’s critical comments about teachers.  Teachers are as much the victims of the problems of our educational system as students.  The benefits accrue to the administrators, union bosses and various other bureaucrats who claim to have “educational” jobs (usually very high-paying ones relative to teachers) that conveniently don’t involve directly interacting with students.

This entry was posted on Monday, February 12th, 2007 at 12:13 pm and is filed under Business. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.