The 0.01% Chance

5 February 2010 | 12 Comments

When that first idea pops in your head, it’s easy to be a wild-eyed optimist as an aspiring entrepreneur.  Of course you’re going to change the world – whether that be in search, education, or the music industry.

But what are the real odds that your idea becomes a complete success – that you get to be the next Chad Hurley with your own F-1 racing team ?

The answer?  Not very good.

I culled these odds from informal conversations with a few VCs and think they are approximately accurate (but could be wrong).  Now the pathway from idea to a successful company may be a stretch so the 0.01% chance is too low (but it does make for a good headline).  However, even the odds of creating a company that reaches a market value of greater than $50 million after being funded by a venture capitalist is very low – approximately 5.3% (80/1,500).

With such a low expected value, why do so many entrepreneurs take the shot?

  • Brad Mauney

    Hmm, I've asked myself the same question. I'd say that deep down it's an issue of “psychic reward” for entrepreneurs – it's more about the process of creation. Also, I believe most feel (correctly or not) that they are naturally better than average or have some other advantage working for them. To estimate the true expected value, what's the downside scenario?

  • http://bit.ly/dmK18o Keith B. Nowak

    I can only speak for myself but with the odds clearly against entrepreneurs for financial success, starting a company is about more than that. It is about the desire, or even the compulsion, to create something that wasn't here yesterday and may change the world, even just slightly.

  • http://rafaelcorrales.blogspot.com Rafael Corrales

    Keith is right — for most of us, it's not about the expected value. Yeah it plays a part, but when I think about why I launched my second company, it's a battle of me vs. my evil competitors. Seriously, I see it in terms of changing the world and being the Robin Hood of my industry.

    To be fair, any good entrepreneur is stubborn and thinks they're the exception so your post is a realistic reminder that the odds of success are staggeringly low.

  • Kyle

    There's definitely an overconfidence bias. Reminds me of the studies run every year in MBA classrooms where just about every student ranks themself as 'above average' against their classmates in things like driving or taking exams. Lake Woebegone, anyone?

    I didn't intend this post to be a downer, more of a discussion point. And I agree with Keith's point: the desire or compulsion to create should overshadow any probabilistic expectations for financial reward. Otherwise your chances of success (however you measure it) are probably *far* less than 0.01%.

  • http://KevinVogelsang.com Kevin Vogelsang

    Hunters have to hunt. Artists have to create.

    Said another way, being an entrepreneur is a disease.

  • http://www.kartme.com/phil Phil Michaelson

    And don't forget about the successes that don't raise VC

  • Brad Mauney

    Hmm, I’ve asked myself the same question. I’d say that deep down it’s an issue of “psychic reward” for entrepreneurs – it’s more about the process of creation. Also, I believe most feel (correctly or not) that they are naturally better than average or have some other advantage working for them. To estimate the true expected value, what’s the downside scenario?

  • http://keithbnowak.com/ Keith B. Nowak

    I can only speak for myself but with the odds clearly against entrepreneurs for financial success, starting a company is about more than that. It is about the desire, or even the compulsion, to create something that wasn’t here yesterday and may change the world, even just slightly.

  • http://rafaelcorrales.blogspot.com Rafael Corrales

    Keith is right — for most of us, it’s not about the expected value. Yeah it plays a part, but when I think about why I launched my second company, it’s a battle of me vs. my evil competitors. Seriously, I see it in terms of changing the world and being the Robin Hood of my industry. nnTo be fair, any good entrepreneur is stubborn and thinks they’re the exception so your post is a realistic reminder that the odds of success are staggeringly low.

  • Kyle

    There’s definitely an overconfidence bias. Reminds me of the studies run every year in MBA classrooms where just about every student ranks themself as ‘above average’ against their classmates in things like driving or taking exams. Lake Woebegone, anyone?nnI didn’t intend this post to be a downer, more of a discussion point. And I agree with Keith’s point: the desire or compulsion to create should overshadow any probabilistic expectations for financial reward. Otherwise your chances of success (however you measure it) are probably *far* less than 0.01%.

  • http://KevinVogelsang.com Kevin Vogelsang

    Hunters have to hunt. Artists have to create.nnSaid another way, being an entrepreneur is a disease.

  • http://www.kartme.com/phil Phil Michaelson

    And don’t forget about the successes that don’t raise VC