I really enjoyed the interview but I found this exchange puzzling:
Emily Chang (quoting Max Levchin): ‘Entrepreneurs aren’t taking big enough risks … ’
Paul Graham: ‘Well, that probably isn’t true because it’s gotten cheaper and cheaper and cheaper to start a startup and when the cost of failing gets lower usually people can do riskier things’
Risk is the potential for loss. If the cost of starting a startup is lower then the potential for loss is lower which means the risk is also lower. More people are starting startups because it is less risky, not more. That means the number of companies being formed is going up; in turn, that means that more people are taking the risk of starting a company, whether they are risking much or not. This might seem a subtle distinction but I think it is an important one.
A week ago I sat down opposite an entrepreneur who built a 24-hour transaction layer on top of the UK’s banking system which runs on nightly batch-processing. It made the transition from 9-3 banking to 24-hour online banking possible. He started out with a really big vision and had to take really big risks and the result was a really big company that created a lot of value economically and socially. It took him two decades and nearly bankrupted him on dozens of occasions. His vision sustained him. It kept him going through all the terrible lows and in the end he shook up one of the slowest-moving industries out there. That was a big risk. That was a big reward.
Emily Chang (quoting Max Levchin): ‘Entrepreneurs aren’t taking big enough risks … ’
Paul Graham: ‘Well, that probably isn’t true because it’s gotten cheaper and cheaper and cheaper to start a startup and when the cost of failing gets lower usually people can do riskier things’
Risk is the potential for loss. If the cost of starting a startup is lower then the potential for loss is lower which means the risk is also lower. More people are starting startups because it is less risky, not more. That means the number of companies being formed is going up; in turn, that means that more people are taking the risk of starting a company, whether they are risking much or not. This might seem a subtle distinction but I think it is an important one.
A week ago I sat down opposite an entrepreneur who built a 24-hour transaction layer on top of the UK’s banking system which runs on nightly batch-processing. It made the transition from 9-3 banking to 24-hour online banking possible. He started out with a really big vision and had to take really big risks and the result was a really big company that created a lot of value economically and socially. It took him two decades and nearly bankrupted him on dozens of occasions. His vision sustained him. It kept him going through all the terrible lows and in the end he shook up one of the slowest-moving industries out there. That was a big risk. That was a big reward.