Is Delusion Ruining Your Life? Let’s Talk Dunning-Kruger

Are you delusional? Let's talk Dunning-Krueger

If you are suffering from Dunning-Kruger, it means that you are suffering from delusion. And if you're suffering from delusion, that means there's a large disconnect between reality and what you believe to be true.

Don't let delusion ruin your life! Delusion is one of the key reasons why people end up miserable, alone, and depressed. The delusional person is one who thinks they deserve riches and accolades, while not putting in their dues.

When it comes to reaching financial independence, it is vital to be congruent with your beliefs and your true abilities.

Don't Be Delusional About New Ventures

Now that I've published my view that blogging is the best business in the world, I'd like to pump the brakes for the most enthusiastic of you who now think freedom from a tyrant boss is just around the corner once you start a website.

Anybody can start a business, but not everybody can generate enough money from their business to live a comfortable lifestyle. Capitalism, ironically, ensures that everyone will not be successful. Capitalism is what causes an uprising, even though our standard of living has never been higher!

I made the case years ago that real entrepreneurs are successful. I defined success as being able to generate at least the median per capita income for your city after three years of full-time effort. Those entrepreneurs who've been trying for far longer, while earning far less were clearly agitated by my stance.

But everyone knows the more you spin your wheels in the mud. You'll get so trapped until one day the cannibals will hear your cries and start hacking off your limbs until you die.

I don't want you guys to ruin your lives because of an entrepreneurial pipe dream. Therefore, let me share with you a warning story of what may become of you if you don't recognize reality.

Dunning-Kruger: Delusional Entrepreneur In Full Effect

Let me share with you how delusion has hurt one aspiring entrepreneur.

I met a guy, let's call him Roger, three years ago at Finovate, a financial innovation conference in San Jose. At the age of 35, he was an enthusiastic fellow who started a video website teaching people how to save money. It wasn't a novel idea, but you don't need to reinvent the wheel to create a successful business.

Over the course of the two-day conference I kept seeing him speak to female attendees. This would be fine if the ratio was relatively balanced. But these types of financial innovation conferences are never balanced. Women made up around 20% of the crowd.

During lunch break the next day, he asked if he could join my table. The table consisted of three guys and an attractive woman. I told him sure. He proceeded to gleefully show me all the cards he picked up from the women he was talking to.

Sam, meeting people, especially women as a founder is awesome. I'm having so much fun!” Roger whispered in my ear, careful not to let the woman to my left hear. Clearly, she was his next target.

The Shifty Entrepreneur

Although Roger was a relatively normal looking guy, he was extremely geeky and socially awkward. He's the type of scatterbrained person who speaks 90% of the time in a conversation and then wonders why the other side hasn't listened to a word he said. There are many, many people like Roger at these conferences for some reason.

Roger told me he was dedicated full-time to his business. He planned to stay with his parents in San Francisco while he worked on his startup. That's pretty honorable given most guys in their mid-30s would do everything possible to stay away from mom and dad.

When I asked him where he plans to meet up with all the women he so proudly met at the conference, he mentioned, “at a bar or a coffee shop, of course!

Despite knowing about my site, Roger never asked if I could help him spread the word about his business. I was waiting for the ask, but it never came. He was too excited to think about business at a business conference.

Three Years Later – Still Delusional!

Delusional Entrepreneurs And the Dunning-Kruger Effect

Fast forward three years later, I was walking down the street when I saw Roger at a coffee shop with a female friend I know in PR. Ah hah! So Roger was still at it. He's grinding away at his startup while trying to find love or excitement as a startup founder in San Francisco. Good for him!

I didn't want to intrude on their conversation, so I let them be. But I did text my friend later that evening and asked her how her meeting with Roger went.

Sam, you should have said hi!” she responded. “Roger is looking to sell his company. Know of anybody interested in buying?

The first thing I always do when evaluating an online property is look up its traffic figures to get an idea of what type of revenue it could be generating. I've got a simple formula I use where I take the number of pageviews a month and multiply it by 1 – 10 cents to get the estimated monthly revenue range.

No Business Progress Three Years Later

After three years of working on his business, I was expecting Roger's site to have at least 100,000 pageviews a month, equivalent to roughly $1,000 – $10,000 a month in revenue. Unfortunately, his traffic figure came out to just 1,200 a month, or only $12 – $120 a month in revenue! Holy crap. What has Roger been doing all this time, hitting on women instead of conducting business?

Before responding to my friend's question, I asked her what else Roger was up to and she said, “He's still living at home with his parents in San Francisco. He's looking for a part-time PR person to help spread the word and has a bunch of free interns out of Asia he's using.” She then proceeded to ask, “How much do you think Roger could sell his site for?

I responded, “Maybe about $3,000 – $8,000.” The figure is based off roughly 2X – 5X annual revenue.

WHAT?” she responded. “Why am I wasting my time with this guy? He's never going to be able to afford my PR services. He made it sound like his business was doing well and just wanted to move on to something new.

Welcome to the world of smoke and mirrors! :P” I responded.

Related: How Much Can You Really Make Online?

Dunning-Kruger Makes People Ridiculous

On the one hand, I understand why Roger can't let go of his business. It's his baby, and nobody gives away their baby before adulthood. I'm sure Roger spent many hours building content and marketing his business. Further, his position as startup founder enables him to speak to plenty of women he would never have been able to speak to before.

On the other hand, if you are almost 39 years old, still live at home with your parents, and only generate ~$1,200 a YEAR in revenue from a business you spent three years of your life working on, then you've got to face reality that things aren't happening. Roger deciding he wants to sell his company is a step in the right direction. However, his asking price is not.

Roger told me he's looking to sell for $3 – $5 million! ” texted back my friend.

Of course he said that, dear friend. He's trying to impress you.

Delusion Can Hurt Your Finances

Roger believed in his failing business so much that his net worth is probably equivalent to that of a typical college student: zero-to-negative. Unless his parents have money, Roger is going to be in financial misery for the rest of his life. He's actually been working on his business for five years. When I met him three years ago, he had already left his job two years prior to work on some prototype video content.

If you've been out of work for five years in your 30s, it is brutally hard to get back in, especially if you have nothing to show for your time away. It took me five years to find an ideal job as a varsity high school tennis coach after a couple hundred rejections from tech companies, despite having a site that's doing fairly well.

Given everything is rational in my world, I'm perplexed by Roger's situation. Perhaps his parents are rich since he did attend a private high school. But my friend says his parents didn't have money when Roger was growing up. Then I found out what Roger could be suffering from based on the passage below.

Related: Reflections On Making Money Online Since 2009

The Dunning-Kruger Effect

Here's a passage taken straight from Wikipedia:

The Dunning–Kruger effect is a cognitive bias in which low-ability individuals suffer from illusory superiority, mistakenly assessing their ability as much higher than it really is.

Dunning and Kruger attributed this bias to a metacognitive incapacity, on the part of those with low ability, to recognize their ineptitude and evaluate their competence accurately.

Their research also suggests corollaries: high-ability individuals may underestimate their relative competence and may erroneously assume that tasks which are easy for them are also easy for others.

Dunning and Kruger have postulated that the effect is the result of internal illusion in those of low ability, and external misperception in those of high ability: ‘The miscalibration of the incompetent stems from an error about the self, whereas the miscalibration of the highly competent stems from an error about others.'

Dunning-Kruger Effect And Delusional People

The phenomenon was first observed in a series of experiments by David Dunning and Justin Kruger of the department of psychology at Cornell University in 1999.

The study was inspired by the case of McArthur Wheeler, a man who robbed two banks after covering his face with lemon juice in the mistaken belief that, because lemon juice is usable as invisible ink, it would prevent his face from being recorded on surveillance cameras.

The authors noted that earlier studies suggested that ignorance of standards of performance lies behind a great deal of incorrect self-assessment of competence.

Over-Estimating Your Competence Is Dangerous

This pattern of over-estimating competence was seen in studies of skills as diverse as reading comprehension, practicing medicine, operating a motor vehicle, and playing games such as chess or tennis. Dunning and Kruger proposed that, for a given skill, incompetent people will:

  • Fail to recognize their own lack of skill
  • Inability to recognize the extent of their inadequacy
  • Fail to accurately gauge skill in others
  • Recognize and acknowledge their own lack of skill only after they are exposed to training for that skill

Dunning has since drawn an analogy – ‘the anosognosia of everyday life' – with a condition in which a person who experiences a physical disability because of brain injury seems unaware of, or denies the existence of, the disability, even for dramatic impairments such as blindness or paralysis: ‘If you're incompetent, you can't know you’re incompetent.… The skills you need to produce a right answer are exactly the skills you need to recognize what a right answer is.‘”

Wow! This is exactly it! Roger fails to recognize that no matter how hard he tries, not enough people are coming to his site to provide him a livable income stream.

Yet, he refuses to give up after five years and get a job. If the women he keeps tricking to go out with him  would simply tell him the truth about his failing business, he might have not ruined his financial situation. But once again, confrontation is hard, even for parents who are housing a 39 year old man child.

My Own Delusions

I know some of you think I'm being too harsh on Roger. However, it's important to realize that because nobody cared enough for Roger, nobody was willing to tell him the truth!

I just don't want any of you to turn out like Roger – delusional, and wondering why you've got nothing in your bank account in the second half of your life due to some fantasy. Given there's no rewind button, we must speak with absolute truth.

Here are several of my Dunning-Kruger issues:

1) I believe all outcomes are correlated with effort, which is a failure in accurately gauging the skills of others. Often, my simple mental response to people who are struggling is, just try harder. I sometimes get frustrated when someone I care about doesn't understand something or do something efficiently just because I can.

This is why I pray for patience all the time. I don't want to be a tiger dad who causes his kid to rebel. Every failure I have is attributed to not trying hard enough. This traps me into forever trying hard despite having enough and wanting to rest!

2) I believe everything I write is logical, and therefore should be followed. How can people disagree with my thesis if they haven't also spent hours researching and writing about a subject for the past eight years? But of course, you'll read plenty of different viewpoints in the comments section that also hold true.

3) I believe the commenters who spit vitriol have something going on with their own lives. After all, happy people don't attack strangers on the internet. But in reality, I might be suffering from Dunning-Kruger because I wrote an offensive article.

I've tried understanding other viewpoints with posts such as, Explaining Why The Median 401k Is So Low (to counteract my 401k Savings By Age post) and The Only Reasons To Ever Contribute To A Roth IRA (to counteract my anti-Roth IRA post).

4) I believed I was the best father because my children almost always behaved while with me. But the reality is, I was simply taking them to fun places and feeding them yummier foods. As a result, of course they behaved better with me than with their mom. I had a huge blind spot as a dad.

Other Fun Dunning-Kruger Examples

Daenerys Targaryen, Mother Of Dragons? Nailed it!
  •  Thinking you're an attractive person, thereby holding out for the perfect attractive someone, only to end up alone. Let's face it. Most of us are not attractive! The sooner we realize this, the sooner we can recalibrate our expectations of finding the perfect match. Most of us are not witty or funny either. So if we are unattractive, boring, don't know how to listen, and have an unsuccessful career or business, it's time to shoot lower.
  • Thinking you made a good real estate purchase when there are foreclosures all around you several years later.
  • Believing you wrote a best seller because your writing was so great instead of the fact that you piggybacked off your major corporation, like the New York Times.
  • Believing you are a great cook, despite your family throwing away the leftovers.
  • Believing you are an amazing CEO when your dad gave you the job.
  • Constant gamblers.

The Best Way To Get Rid Of Delusion

I used to think the best way to get rid of delusional thinking is to be an entrepreneur or play sports. Scores don't lie. If you lose 1-6, 0-6 you suck compared to your opponent. If you are only generating $1,200 a year in revenue after three years as an entrepreneur, your business model isn't working. There's nowhere to hide.

That said, I continue to see cases like Roger who aren't willing to face reality all the time. I also continue to see great stories of triumph against all odds. Therefore, there must be a combination of humble realization and stubborn persistence in order to achieve your dreams. If you see a friend suffering from Dunning-Kruger, try to talk some sense before it's too late.

Work On Your Business Idea On The Side

For those who long to escape full-time employment, I strongly recommend moonlighting on the side while working a full-time job first. Even if you have to work from 7am – 7pm, Monday – Friday, you're still left with 4am – 6am, 8pm – 4am, and all weekend to work on your side business.

Only after you've gained some traction should you consider taking the leap of faith and going out on your own. If you haven't made at least a livable income stream after three years of working full-time on your business, it's time to get a job or pivot to something new. After three years, employers begin to shy away.

For everything else, it's important to find congruency in how you see yourself and how others see you. It's vital to ask the people closest to you to give an honest assessment of your strengths and weaknesses. When there's a mismatch, do your best to accept and rectify the situation. Otherwise, you might wake up one day wondering where it all went wrong!

Perpetual Failure: The Reason Why I Save So Much

Three White Tenants, One Asian Landlord: Story About Opportunity

Subscribe To Financial Samurai

Listen and subscribe to The Financial Samurai podcast on Apple or Spotify. I interview experts in their respective fields and discuss some of the most interesting topics on this site. Please share, rate, and review!

For more nuanced personal finance content, join 60,000+ others and sign up for the free Financial Samurai newsletter. Financial Samurai is best personal finance site in the world. No delusion!  

115 thoughts on “Is Delusion Ruining Your Life? Let’s Talk Dunning-Kruger”

  1. I can’t tell if the chart you show illustrating the DK Effect prepared by is being ironic by using the incorrect homonym “No” instead of “Know” on their x-axis before “Nothing.”

  2. I appreciated the article. I suffer from the 2 delusions you mentioned you suffer from. It’s kind of freeing. Thanks for including this post in your last newsletter.

  3. Sam, I follow your newsletter consistently. In one of your post, you mentioned about starting own business is risky but a good strategy for financial independence. I do full time job and because of various reasons i started that adventure of my own business. Its been 1 year so far, business is not profitable yet but sales growing slowly. I will give 1 more year before call it a day.

  4. Interesting article Sam. I think I’m a sufferer sometimes. I’m dumb enough to think I should give it a go.

    By your metric my blog is a failure. I write about Airbnb hosting at I only get a few hundred visitors a month and have only generated about $310 after a year of writing.

    But I don’t only write intending to profit. I did it initially because I thought friends could benefit from the research and planning I put into setting up my own home as an AirBNB so I could go to Europe for four months. Then as I tried different experiments with it (such as trying to include bike rentals etc with the Airbnb) I found writing for an audience (even if an imagined one!) helped clarify my thoughts on such projects and force me to fully think the whole process through.

    I do want my writing to make a profit, but I don’t want it to replace my day job. I want it to provide one extra income stream among several others – my day job (lawyer), my rental property, my Airbnb property, and my writing.

    It’s fun to write. And it’s taught me a lot. Lawyers are notoriously bad at content marketing, and I think the experience will help up my game on that front.

    I plan to write more despite the fact I’m howling to the wind. Besides, I’m to dumb to know when to stop.

  5. Love the bracing reality of this post. I agree that sports and entrepreneurship will give you the harsh feedback in a hurry. And, of course, it’s hard to know if you are delusional or not until you try.

    So I agree that going for it on the side is the smartest course–and not advice I’ve always taken myself!

  6. Hi Sam! why did you try to join tech start-ups if your main goal was to stop being and employee and be free?

  7. Damn you FS!

    I’ve had a DK post in my drafts for about 2 years now and then you go and post this before I got around to posting mine.

    I may have to just face up to reality that I’m a crap blogger and give up.

    Anyone want to buy my site, will do a 1 million discount (that’s 20%) for FS readers? ;)

    Loved the post, I’ve heard the lemon juice story before, you really couldn’t mate that sort of thing up could you?!

  8. Interesting post. I think even outside business, our popular culture encourages inflated self-worth. There’s lots of trash-talking and braggadocio in schools, and I wonder whether kids ever grow out of it. It’s cute when a 6th-grader thinks he can be an NFL runningback, but it becomes delusional when he’s second-string on a high school team and still telling himself that — leading him to neglect more fruitful pursuits. Parents can be the worst, as lots of people on here have commented. My mother totally encourages/enables my sister to keep spending her small income (from an unrelated part-time job) to produce her terrrrible art, which never sells because it’s terrrrible. Parents are not being helpful when they abet long-term failure, but I think D-K inability to perceive incompetence in one’s self can be even stronger with reference to one’s children! I think, as you point out, some honest criticism would be helpful, and not just in income and finance but in our culture at large. People need to see the nobility in admitting limitations, then managing an appropriately frugal financial life, and an appropriately modest personal life.

  9. I’ve known many dudes like Roger. There’s no getting through to them until they are ready to grow up and face the things about them/their businesses that need to change.

    Businesses take time to grow, but few of them require spending so much time pitching to pretty women.

  10. Very interesting post.

    I am a firm believer of the power of positive thinking, law of attraction, some may call this a “fake it ’till you make it” mentality but it all requires action behind it. This is what I feel that what most Rogers aren’t getting. You reap what you sow..and water. An ill-watered goal can’t grow.

    Mathematically, a bodies potential energy is just the energy it would have it if MOVED.

  11. This is so great. I’ve been fascinated by the Dunning-Krueger Effect ever since I heard about it on a podcast (Freakonomics I think?). But the way you’ve laid it out makes me nervous my brother might suffer from financial D-K. :[ I guess I’d better talk to him.

  12. This was one eye opening article. It seemed to take all of the things that have been in the back of my mind and push them front and center for observation and analysis. I’m in the “read it and letting it sit for a minute” phase. Next I’ll be reading it again to see what especially jumps out at me. I did, however, want to comment before I forgot. Thanks for the great post.

  13. Hi Sam,

    Feel the below Quora response sums up the Dunning-Kreuger effect for intelligent people (the corollary mentioned in the wikipedia article)

    I am continually baffled by the phenomenon of the people who were so-so academically in high school/college and are absolutely raking it in in their business or professional life. Summed up wonderfully in the above quora link:

    “But who’s labelling the axes? I’d love to think I’m a bunch of standard deviations up the positive end but I’ve just argued that that’s illogical. The fact is, the guy who graduated high school and can add up the change in his pocket is probably doing better than me, a twit who accumulated only letters and acronyms on both sides of his name. What do they achieve? They just make it more time-consuming to sign letters. Even preschoolers recognise the stupidity in that. That’s why they give each other nicknames…”

  14. This is what I refer to as being completely self-unaware or the total failure to identify what you don’t know, which is critically important. As a senior director in a tax consulting firm, 10 times out of 10, I’d choose to work with the first year associate with no previous work experience if they wanted to learn and would listen. As opposed to the mid level associate who thought he knew everything, was untrainable, and would argue with me — 3-4 years his senior — about why I was wrong about a legal rule I was 100% right about. I’d rather work with someone with no experience but a willingness to learn, than someone with an enormous ego who is completely self-unaware. It sounds like this was your Roger.

    1. Now imagine if the mid-level associate was a sponge and took everything up you said. You know that the person is going to get promoted and paid because he or she will be loved by you and other senior management.

      Learn how to manage upwards people who still have jobs and want to get higher on that ladder!

  15. NOW you tell me! Haha, I actually took your advice and set up my site from your first post.
    I think this follow up post is a good one and good for you for writing it.

    I will keep looking for this effect in my work but honestly, in my life I think I suffer from the opposite at times. It is a real frustration for me at work when people will consistently choose emotion over logic at work.
    In fact, its one of the primary reasons that I want to be financially independent. Freedom from the bullshit of peoples overly emotional view of reality.

    One Dad

    1. Hah! Well, good job for starting your site because 98% of the people who read one of my articles will not do anything. Action really is the key to everything. But, I’m happy if people read and get entertained and think more as well. Good luck with your site!

  16. Had a classmate in grad school who was barely surviving the program, but always talked of getting a double PHD after graduating our program. This was 9 years ago, and the state registry tells me he still has not passed his board exam, yet alone move on to do double PHDs. He was the first guy that came to mind when I read this post. Have a friend who has always lost money in trying to beat the market, but still thinks that he knows more than others, and can make money beating the market. As for myself, I always thought I was more attravtive than I actually am. I am only recently begining to realize/accept that I am quite average looking. However, there are people who are actually extremely good at what they do, and are quite aware of it as well= arrogance. Great post.

    1. Hmm I had a close friend in high school who had a 3.0 GPA but also always talked about going to Harvard and then becoming a doctor like his brother as well. He ended up going to Virginia Tech, a good engineering school, and graduated with a 2.6 GPA. He’s not a doctor, but he actually finally made it to Computer IT stuff with the government that pays pretty well.

      I’m curious, why did you think you were good-looking, and what made you realize you were average or not so much?

  17. Ten Factorial Rocks

    Sam, yet another winning post. Did not know the name DK till now, but know its symptoms well as I see often in my workplace! What would you call a blogger who has only 10,000 views per month after 6-7 months of blogging and with 70 posts? ‘Try harder’ camp or ‘DK likely in 3 years’ camp? Haven’t done any marketing whatsoever and don’t know the right ways to do it. As I commented in a previous post, the first 2 years of blogging are probably the most challenging. So, I feel passion is the main driver and the motive should be honest, which in Rogers’s case did not appear too sincere.

    If I consistently put out good and useful content, eventually more people will realize the value and swarm in to absorb the content. That’s what I tell myself! Your views are much appreciated.

    1. I think that’s pretty good progress. 10K/month is a nice milestone. Always think in milestones on your journey to keep progress.

      My best tip for you is to come up with a name people can call you. It makes it more personal.

  18. I am 40, about $5-7m depending on how you value my businesses and assets but the NW growth is now accelerated because it seems that the 1st million is the hardest. I am in medicine and from a middle-class immigrant family and graduated with $350k educational debt, which means about 7 years ago, my net worth was basically $0 (was in debt my entire adult life until I turned about 33).

    My goal is to continue growing my NW at 10-20% a year as long as possible.

    If I could hit $20-30m in the next 10-15 years and $100m by 60, that would be cool. Maybe try to get a billion by 80. It will be ok if I don’t get there because I am not amassing this money for myself or my family. Keep in mind, I don’t think of these things much, I actually just crunched numbers to come up with this just now.

    I’m more interested in the journey and the reasons for it, which are listed below.

    1- I enjoy creating businesses and hiring people and creating value in society. I would rather do this than most other things. When I go on beach vacations, I read about science and businesses. So what I do is hardly just “work”, in my opinion. Also, the bigger your business gets the more freedom you actually have, although most of us don’t exercise that freedom, because in our free time, we like to work more lol. In other words, my businesses are more passive once they make a lot of money than when they are struggling.

    2- My goal is to empower and help other people in this world. However, I am a horrible writer. In fact, when you talk about blogging being easy and/or passive, I think it is your “inner Dunning-Kruger” assuming that writing blog posts is easy or passive. If you paid me $1m per year to write 1 page per day, I’m not sure I would take that offer (and I know I would help very few because of my terrible writing skills)!

    Given that my communication skills are crap, the biggest way for me to make an impact is to create a $100m+ nest egg and then give away 90%+ of it away in the latter half-cycle of my life (if I get there). If not, it will get passed along when I die, which could still help a lot of people. Therefore, as far as NW goals are concerned, I think much less in terms of how much I will end up and much more in terms of “how many people could I educate with this amount and would that be enough to create an impact on the world to drive us away from illogical thinking processes and potentially destroying the human race”. It turns out that that number is probably in the several trillions, so there is no limit, in my mind.

    I have a Warren Buffett mindset in this regard but without his exceptional brain.

    As far as the $100k losses are concerned, the way it works is every few months, I will try something different in one of my businesses. Maybe put an extra $15-20k in a new idea or person or concept. Most don’t work, but when something works you can get a nice 10-100x return. Also, you take the $100k off of your income so after-taxes, it is only a $50k loss usually spread across 5-10 ideas. If I decide to stop taking risks, I could get an extra $50k per yr to invest. If I continue taking calculated risks though I can stumble upon something that nets me an extra $200-300k per yr for over a decade (sometimes you find something that makes over $1m annually or on one shot). Growth matters to me and you can’t grow greater than 6% annually for long periods unless you are willing to take risks.

    1. Ten Factorial Rocks

      Inspirational story. Wish I had your guts! To do this year after year, knowing one success will easily make up for many failed ventures takes serious courage. This is commendable!

    2. If you ever get to a $100 million nest egg, I’ll be happy to take 10 million of it from you and help give it away with great communication skills. After all, I do own a large website!

  19. I’ve started and closed multiple businesses. One of my strengths is knowing when to shut down. I’ve noticed whenever I shut down, many of my friends and family like to say “sorry to hear that” or some phrase.

    They are missing one key component of success, mainly, that it is path-independent. My goal is to find as many ideas as possible, test them, and then walk away when they are bad and throw money at them when they are good.

    I highly recommend to everyone when you start a business or side-hustle, at every step along the way, you know how to “unwind” your trade with the least amount of loss. As a result of my strategies, just about every year I lose $100k in some venture (usually I lose that amount in multiple ventures combined), yet I make over 10 times that in the good ventures and the growth rate continues to hum along at 20% or so (the profit rate is growing faster than that).

    I don’t consider myself to be exceptional in any other way except that I have a very low opinion of myself and my tiny brain, and, therefore, I am shocked by success but am comfortable with failure. Be comfortable with failure! I would rather create 100 businesses, lose on 99, and make a killing on 1 than have 1 mediocre success.

    1. Wow, that is inspirational my man. I’m too risk averse to losing $100K a year for many years, which is partly why I don’t even bother to advertise. This is fearful thinking on my part, but I know if I can spend $1 to make $1.1, I should. And I need to spend money to test things out to see what sticks. This is obvious, yet I don’t do it.

      I think part of the reason why I don’t take more risks is b/c I’m way, way past what I thought I could have earned online. There’s always more to be made.. and I’m afraid of getting trapped in the rat race of entrepreneurship, if that makes sense. Just this morning, my $200M+ net worth friend said he has to continue working to keep up with the Zuckerbergs. It is nuts! There’s never enough until you say there is enough.

      But your comment and other comments have encouraged me to use some of my cash flow to grow the business this year, rather than just build a sweet deck off the master bedroom in order to sunbathe, do yoga, and drink some wine!

      How do you know how much is enough for you? Can you share roughly your age, income, net worth and goals?


      1. A person with a 200 Million + net worth shouldn’t be saying that. He or she will never be satisfied. All their physical and material needs are long taken care of with that kind of money. It’s the psychological, emotional desires. Probably envy and jealously.

        Honestly sad that people think like that but greed can be a bottomless pit.

        1. I think you are assuming that the $200m NW guy’s goal in life is to relax by the beach. It’s not always envy that drives people. Many of us are driven by the need to add value to society and also don’t believe looking in the rear view mirror is the way to move forward. That’s why someone like Bill Gates is curing malaria when he could just be relaxing on a yacht with models.

  20. Yeap, I used to think I was a great engineer, but it turns out I was only mediocre. It’s hard to face the truth. It’s good I realized that other people are smarter than me, though. I could move on to something else.
    Good luck to Roger. You never know…

    1. Joe, I found being a very medioce accountant/finance manager has done well for my career, which I plan to give up soon when I FI. Hats off to the vast majority of workers, who are “mediocre” employees. We make up most of the workforce.

    2. Read Scott Adams (creator of Dilbert). He talks about how he leveraged being not terribly good at a number of things into his current niche that is quite lucrative. Being a good engineer is hard. But being a sales person who can speak fluent engineer is a smaller subset. If you are deliberate you can turn being a mediocre engineer into being an amazing X with experience/understanding of Y and engineering.

  21. LivingReturns

    As I did a quick memory scan of former corporate bosses, I realized those most fond of saying, “Hey, fake it till you make it!” were also the most likely to suffer from the Dunning–Kruger effect. :-) …which reminds me of another boss who insisted there is too often an inverse relationship between competence and competence. I’m a fan of realistic determination and doing more listening than talking. I guess that means I should stop typing. :-) Cheers.

  22. I read something today about how the IRS considers you a hobby if you have not earned money in 3 years. In other words, you can not take tax exemptions for your business after 3 years if you have not turned a profit. That seems like a good time frame and goes hand in hand with your thoughts here. I am a bit surprised by his poor performance and thinking it was a hit. If he had just spent some of his off time (meaning all of his time since he did not work and lived at home) reading your site, maybe he would have figured this out.

  23. JustAnotherEngineer

    This may be a slightly different phenomenon, but I think some people think because they’re competent in one skill, it automatically translates to other skills.

    My admittedly purely anecdotal evidence…

    I have several friends who are photographers. Two of them went a more traditional route by getting graphic/fine arts degrees first. When I ask them how floundering businesses are going, they always tell me that clients don’t appreciate their style or aren’t willing to pay what they’re worth, etc. Both of them are good photographers, but aren’t monetarily successful even though they’ve both been in business for more than 10 years. (They’ve been able to stay in business/hobby for many years thanks to their much more successful spouses).

    My third friend is an engineer by day, photographer on the side. When I talk to him about his part time business, he talks about how he reinvested his first year profits upgrading to pro quality gear to make it easier to create great pictures, optimizing his workflow to ensure he always meets deadlines and doesn’t allow photography to become his second full time job, always being early so his clients never have to wait on him, under promising/over delivering, etc. It’s obvious his industrial engineering background and MBA have served him well in this side job. I didn’t realize how well until we were talking about the first piece of rental property he recently purchased. I was curious and asked him about the loan process. Turns out, there was no loan – in his fourth year in business, he made about $80k.

    I tried talking to my other two friends about some of his ideas. Since he wasn’t a ‘traditional’ photographer, they weren’t even willing to listen. They’re good photographers – not as good as he’s become – but still much better than your average ‘pro’. However they refuse to admit that being a good photographer doesn’t translate into being a good business person.

  24. I wonder why your PR friend didn’t find the information you easily found about Roger’s company. From your description he sounded like a mediocre Amway salesman.

    I think the most common delusion people suffer from is believing they’re smarter than others. They believe they can beat the market, flip houses when they know nothing about real estate or doing repairs, or start a blog and make a killing the first year with minimal effort.

    1. Many people don’t know how to check site statistics or evaluate potential revenue generation. Given most companies are private, finding out the nitty gritty is difficult without disclosure from the owner. And of course, you can simply lie about your statistics and revenue to create the illusion of success.

      Good one regarding those believing they can outperform the market over the long term. I’ve added that one to the list!

  25. Sam, Two things that have kept me from starting a blogging business are:

    1. Ease of entry means anyone with $10 and an internet connection becomes my competition,

    2. I can’t find a way to get an “unfair edge”. I think Buffett calls it a durable competitive advantage.

    How do you reconcile those issues with blogging?

    1. My biggest competitive edge is people realizing it so cheap to start a site, and yet they still don’t start a site. Even journalists with writing backgrounds aren’t willing.

      Based on literally millions of data points I’ve collected over the past eight years, only about 3% to 5% of people ever actually do something. The greatest competitive advantage as being one of the 3 to 5%.

      1. I should have been more clear — I already have a business. So, I have the liberty to hyper-scrutinize any additional business I were to start.

        Your response is geared toward non-starters. Your advice to them makes sense.

  26. Hi Sam,

    Great article. You wrote: “I’ve got a simple formula I use where I take the number of pageviews a month and multiply it by 1 – 10 cents to get the estimated monthly revenue range.” I saw you had that in another article you wrote.

    I was wondering where you got this number/ formula from? Is this solely based on ads that you place on your website?

    1. Hi Marco,

      It’s based on my experience buying and selling websites and running several websites over the past eight years.

      10 cents per pageview is considered top 10% optimization. The revenue doesn’t just come from ads, but from business partnerships, sponsored content, e-mail engagement, own products etc. So many ways to earn. Online income diversification is tremendous.

  27. Sam, I wonder if you live in a bubble. What I mean is, I grew up in a low income financially irresponsible household and have seen people who live paycheck to paycheck. I have one family member that wants to renew a passport, for $110 today, in spite of being on unemployment plus not having used it at all the last 10 years. WTF?

    I also see the payroll where I work, and can see that our 401k participation rate is around 50%, and many who participate don’t put in more than the company match amount, which is up to 6%, some put in even lower amounts. Only a few put away the IRS maximum.

    This is living outside a bubble. Nothing surprises me when it comes to financial irresponsibility.

  28. The way you introduced Roger in the post, it seems like he was always in it to meet good looking women. He was experiencing the “Boober” effect.

    What makes you think Roger is delusional and not just a liar? If he told your PR friend that he was hoping to sell his website $10,000, she wouldn’t do business with him. So he lies instead. I have met people who have told the same lie so often, they have convinced themselves it is the truth. However, I have broken down several people’s lies with hard facts until they admit that their initial statement was a lie. There was no delusion, they just chose to tell a lie because it was advantageous to them. Everyone has some delusions but my experience is that most lies are deliberate and knowingly told.

    1. I gotta tell yah, the “Boober” effect is so real here in the SF Bay Area. So many founders get ENORMOUS egos b/c so many of the founders were nerds growing up who were not very popular. So now it’s time to “catch up” to all they have missed. B/c they are catching up, they take their position and actions to the extreme.

      Perhaps Roger is a liar. I don’t know him well at all. I’m just looking at reality and comparing what he said to my friend.

      But it’s hard to lie about traffic and revenue figures b/c the internet is pretty darn transparent with these sorts of things (less so revenue).

  29. David Michael

    From my experience of having a successful business for 20 years, I found that it is very important to keep your day job for the first 3-5 years until you are generating similar income. So if you’re making $50,000 a year, don’t quit your regular job, especially if you have a family, until you can generate another $50,000. When I discussed leaving my teaching job after 16 years, my wife rolled her eyes and related a few down to earth comments like, “really?”, “are you nuts?”, etc. We settled on…”Okay, make the same take home salary, and go from there”. It took about 4-5 years and I accomplished it.

    What I found out as a small business entrepreneur, especially as compared to teaching, is that small business with 3-5 employees is one of the hardest ways to make money in the universe. Nothing is guaranteed and the founder/boss is responsible for the livelihoods of employees. At least 80% fail over the first five years, and it keeps going over the next five. I went from 40 hour weeks to 80 hour work weeks with twice the anxiety, turmoil, and challenges. Had I known it would be so hard, I would have waited until my 30 year teaching retirement, and started it then with a nice monthly income to bail me out.

    So, in retrospect, anyone who starts a business, especially with employees, is a bit delusional. Yes! There are those that make it. And, you read about Steve Jobs, etc who really make it. But the reality is…most do not. The same is true in the blogging world. So Sam…next study for you is…how many people make $2000 a month as a blogger? I suspect it’s one out of a thousand or maybe 10,000. My best advice…again…is don’t quit your day job until you make your same salary. Take it from a 20 year veteran. It’s always greener on the other side of the street, until it ain’t.
    Delusions vs. reality. It seems Trump is a living example of this. We’ll see.

  30. Great article it got me think where I fall on the spectrum. What if you aren’t an elite, but you aren’t a Roger either. I assume the 3 year trial is the final judge of what side of the fence you are on. Confidence can take you a long way!

  31. The Green Swan

    Spot on with American Idol as an example. This sort of behavior is very easy to get sucked into watching or keeping tabs on instead of confronting and straightening someone out. I can’t say I’ve recently come across a personal example, but this post is a good way for us to check ourselves in a way. It’s also something to keep an eye out as we meet and work with new colleagues. I would not trust someone with these traits.

  32. I didn’t realize there was actually a name for such a thing. How fascinating. There definitely are people who are quite delusional about their abilities. I’ve had experience with a few people like this when I was a manager. For example, one guy really thought he deserved a raise and a promotion after only working for six months. He didn’t realize that close to 90% of the people he worked with couldn’t stand him.

    The American Idol example is another great one along with all the talent shows like So You Think You Can Dance. Of course some contestants know they suck and just want to try and get on TV but plenty of them really think their skills are so much better than they really are.

    I’m surprised Roger’s parents have put up with him for so long. I don’t think I could manahe having a son living st home with me in his 30s for that long who was barrly running in place. I’d have some serious conversations with him, help him realize his finances need serious work and make him get a job. Probably easier said than done as a parent but ultimately getting adult kids to be financially independent is super important.

  33. Interesting post. I personally agree that when you’re doing something unsuccessful for so long, you should change, or at least you should do other things in addition to that activity.
    I believe the ideal situation is where you have multiple activities that you like, and can earn an income from each one of them. They can compensate each other.

  34. There are few things in my life as annoying as having to work with a D-K-disabled colleague. They tend to write crappy code, not recognize that the code is crappy, and fight you every step of the way as you try to get them to change it. Things I would willingly do instead of working with a D-K-disabled person:
    1. Bang my head against a wall repeatedly
    2. Eat eggplant for a week (I really really don’t like eggplant)

  35. Sam – you’ve authored many fantastic articles. This is one of your best and that is a high bar! This connected with me on so many levels.

    First – we all know a “Roger”. They live in a world of their own delusion. For him, that is a survival mechanism. I don’t expect Roger to change. Seldom do any of them change.

    The comments about effort are so true. I worked for a firm for 20 years. I worked my way up and did all the hard jobs. After 10 years, I was given a sales/strategy assignment for a territory we had never been in and with a product mix that was less than ideal. I banged my head against the wall for 2 years with no sales but never stopped giving full effort and never stopped thinking about how to approach things differently. Finally after a couple hundred meetings and probably 75 plane rides things clicked. The hard work allowed me to get lucky. That is what Roger is missing.

    One of the keys I found is I became much better at finding out what made the person I was speaking with worried and what made them happy. People then wanted to buy from my firm even when it was less than optimal! I actually talked someone out of a sale because I thought they were making a mistake. This led to a huge and appropriate sale only a few months later with the same client. This is a concept Roger would have trouble understanding.

    I left the firm a little more than 10 months ago. Management became full of vindictive and small minded people. I was fortunate to have means to do so. My wife also has a solid business.

    I now invest my money in stocks and real estate (using a few of the platforms available). I also carved out $50,000 last May and invest in options. I treat it like a business. I am always studying and try to learn what others know. I have goals for this “business” but understand it will take hard work. Honestly, I always feel inferior! Roger could use a dose of that.

    1. Thanks for sharing!

      “One of the keys I found is I became much better at finding out what made the person I was speaking with worried and what made them happy. People then wanted to buy from my firm even when it was less than optimal! I actually talked someone out of a sale because I thought they were making a mistake. This led to a huge and appropriate sale only a few months later with the same client. This is a concept Roger would have trouble understanding.”

      This passage you write is very important. Empathize and try to understand the other side. The more you do, the easier it is to make things happen. Relationships are everything. Give me a person who has a high EQ and an average IQ over a high IQ and an average EQ any day.

  36. Fiscally Free

    As was mentioned in the Wikipedia excerpt, this immediately made me think about people overestimating their skill at driving.
    It’s one thing for your average Joe to think he’s better at driving than he is, but I’ve worked with people at car companies who are crappy drivers, even though they basically have to drive for a living.

  37. Duncan's Dividend

    Great article and one that was eye opening given that I didn’t know that there was a specific term for this behavior. While it’s irrational for most people to think that lemon juice would make us invisible, it’s interesting to see the differences in mentalities overall. I can see how many people out there put their blinders on and believe that they are unique snowflakes, when the opposite is true and they are not necessarily doing anything that is unique and value added. Thanks for an interesting morning read!

  38. The Alchemist

    DK is the reason that American Idol was so successful. Everyone I know who actually watched it didn’t watch for the good performers— they watched for the train wreck of the deluded!

    I never trust anyone who has an inflated opinion of him/herself. In my experience, really solid performers (and humans in general) tend to be those who are very aware of their shortcomings and are willing to cop to them. Those most inclined to think themselves “awesome” are nearly always less than.

    The Internet is a great place for the deluded to stroke their own egos, because they can spout their tripe out into the echo chamber of the web and quite often never get honest feedback. If they’re full of it, they’ll largely be ignored. But being ignored is not the same as being told they suck! They are free to take the lack of honest feedback as approbation, and can continue to pump themselves up in their awesomeness. Thus, the proliferation of garbage across cyberspace.

    All that being said, some delusional folks seem to actually succeed, because they are so delusional that they never notice when they’re actually suffering a cosmic smackdown; they just keep plowing ahead until somehow, against the odds, they succeed. Ah, ignorance is bliss!

    1. BRILLIANT observation of why American Idol worked! You are absolutely right about the joy of watching D-K at work. So entertaining!

      When some were rejected, they really had no idea why.

      BUT, I must commend all who put themselves out there and try. Oh man it is scary to face judgement in something you love to do. To get rejected is crushing. So good on you folks for at least trying once! No regrets.

      1. I thought the horrible acts on American Idol were there on purpose for attention because they were so bad. It never occurred to me they may not realize it until now. See how biased we are in our views. Strange.

  39. Sam,

    Thank you for the insights.
    Indeed, observing the suroundings and doing self-reflection is important.

    I also really liked the 1-10 cent to a pageview formula. A broader post on KPIs for evaluating online business performance would be very interesting to read.

  40. Jack Catchem

    I know many people temporarily trapped in such a state because of alcohol/drugs. Especially during a DUI investigation! They attempt each test, perform miserably, and spend the whole drive to jail ranting about how they “passed” each test.

    I spoke to a defense attorney the other day who is just as much of a fan of video as I am. He said it’s a great resource. Once his client gets mad because the defense attorney can’t get a better deal, he cues up the video for his (now sober) client and says “look at yourself! How can I argue against this?”

    I do try and tell people, but reasonable and introspective people are rarely arrested. They say “man, I’m wasted…I should take an Uber.” It’s amazing what an honest self evaluation will get you out of.

  41. As a musician and teacher, I see the Dunning-Krueger effect rear its ugly head all the time. There is a profound difference between perception and reality in my students and colleagues.

    Part of the reason that I went into teaching is that I can recognize this in individuals, help them realize it themselves, and take actionable steps to push past it.

    DK sufferers aren’t destined to a fate similar to Roger’s. They can overcome their deficiencies more often than not because they have the passion and ability – execution sometimes needs to be taught and supported in order for sufferers to take that next step.

    Are some sufferers stuck in the mud? Sure. But those people often make great employees, even though they’re not cut out to be entrepreneurs.

    The reason that people keep coming back to Financial Samurai is because you help them close those gaps, Sam. Your writing stirs reflection and leads people to action.

    1. Please expand on that, Finance Superhero, because it was a thought I had recently about musical progress! I too see people (and see in myself) who don’t get what it takes to play an instrument well. So they spend their time making excuses, either about how gifted and talented someone else is compared to them (ignoring possibility that that talent extends to an ability to figure out how to practice), or about how they just can’t make any progress even though they do practice. I suppose similar to weight loss, where people are dishonest (myself included) with how many calories they actually eat.

      Can you give some examples of D-K in music students?

  42. moral of the story? we can all use a little humility. :)

    great post. I think we all have our failings that we are often afraid to admit.

    To your friend’s credit though, the big talker? Sometimes that’s a form of anxiety, and not just his inability to see things for what they are. People who have anxiety do things to mask said anxiety, and in the case of Roger, and a close family member of mine, they talk to keep the quiet away so as to not make their anxiety come to the surface. Perhaps what your friend needs isn’t just brutal honesty, but time with a good therapist as well.

    1. You make an interesting observation about anxiety and non-stop talking.

      I like the comfortability of silence after a good dialogue. It allows each party to really soak up what was said before resuming the conversation.

      BTW, the guy is not a friend. He’s just a guy who sat down next to me at lunch one day and told me about his business and joy of meeting lots of women at conferences.

  43. Today’s financial climate is similar to 1999, 2008. Had you, any of you Roger included sold a business or blog for $3 to 5 million, VCs would easily give you $10-20 million. In turn which you could raise another round of $100 million provided you HYPED the crap outta your company. With that you would steal hire the CTO of a Fortune 500 to put together a tech team, steal hire HR chief to put together a hiring team, steal hire some operational general managers to put together various operational teams. Give them stock, tell them all they will all be super rich in 5 years when you take your company to the public markets for billions. Then you’ll be a paper billionaire and be in charge of large company you built losing 10s 100s millions yearly. But your company’s market valuation would be high af cause your VCs would constantly talk to the press telling the world how wonderfully spectacular game changing you and your company are. This delusional cycle would continue for 3-5 years until the day of reckoning. The day when loses are too big, or users have plateau now declining. Then 1000s of layoff happen inside of a single year, and 1000s are laid off continuing into year two.

    You tell me, does this sound similar to Blackberry, Zynga, Uber? Funny how Uber investors know for a fact that in 3-5 yrs Uber will be number one in autonomous vehicles by beating out didi chuxing, alibaba, Ford/GM, Google, and Tesla. Check back a few yrs ago, and today still it seems Alibaba, Google, Tesla are far more advanced technology companies than Uber. But Uber is buying up every sensor, radar, vehicle tech company in sight with it’s insanely valued shares, so who knows LOLOL.

    1. Man, the good old days of 2000! I loved that time period! Oh wait, you are right. We’re back, and this time, we all know better :)

      But seriously, the internet has now changed, and the big companies are highly profitable and cashed up (Google, FB, Apple, Alibaba, not Uber lol). Snap Inc. gonna be worth $25B as of today is going to cause huge reverberations down in Venice Beach.

      The key is to turn funny money into REAL ASSETS. I’ve been consistently diversifying into physical real estate and now real estate crowdsourcing ever since 1999 because I want to own something I can touch just in case all hell breaks loose, which it has, multiple times since.

      Buy real assets folks! When all the exuberance clears, at least you’ll have a place to go to the bathroom.

      1. Just remember the four most expensive words in the english dictionary – “This time it’s different”. Enough said ;)!

      2. Sam, you live in SF! You can go to the bathroom anywhere!;-)

        Seriously great, great column. A poster above mentioned the “I used to be a stud in high-school!” type, and the first people in my life I thought of, while reading this, fit that description exactly. At a certain point, ‘potential’ must turn into results. Decades of evidence are easy for these types to ignore, especially when the alternative would be for someone like Roger to move out, get a roommate(s), a job in retail, and never talk to an attractive woman again.

            1. You guys! Reading this is oxygen. Does anybody else get it?

              Sam your brain in amazing and your posts are consistently thrilling. You have the knack of zoning in on the interesting points of everything.

              You just touched on something that I rarely read about, i.e. diversifying assets out of a business into real and financial assets. I have watched family members start businesses that are very successful and profitable. But I can easily see the end coming — work hard all your life, think you can do it forever, reinvest in the business but don’t diversity wealth, keep borrowing more money, think you can sell any time you want for twice as much as anyone would pay, put all your eggs in one basket, spend far too much on luxuries because you think you are rich, try to impress your own kids and grandkids, and then the day comes when you want to exit and you can’t. Plus the kids and grandkids have expectations you have instilled in them.

  44. Sam this is an enlightening and funny post! You are right. I pray for patience all the time as well. Patience toward others, patience towards myself and others’ patience toward me. Choose unconditional happiness and everything else will fall into place. How’s the coaching gig going?

    1. The coaching is wonderful. Just helped coach our first match to a 5-2 VICTORY against an opponent where we lost 3-4 last year. To see the JOY on the kids’ faces was priceless. Simply amazing and indescribable feeling.

      One kid lost the first set, and was down 1-5, 30-40 in the second set and pulled it out! I was totally present with him on the court, giving him tips and encouragement with each shot. The other assistant coach was sitting on a bench three courts down :)

  45. I think it’s common behavior. It takes time and experience to calibrate your internal expectations against the reality of the outside world.

    I’ve been aware of that for decades, but never realized there was a name for it. Personally, I’m always learning about my abilities (as well as my limitations), as well as those of my colleagues. Most people are fairly well calibrated, but it’s always fascinating to run across someone, especially in their 30s-40s, who isn’t.

  46. I remember that you wrote of Roger awhile back, his wife was a concern previously. Sounds like the Dunning-Kruger effect might have taken that relationship from his life as well. Hopefully you have been/can be a voice of reason to get his life back on track!

    1. The funny thing is, it wasn’t Roger I wrote about last time in my post regarding prestige. It was another guy who thought the exact same way as Roger! The other guy is in his early 40s, married with a daughter, and still coming up here from LA to attend $1,000-$2,500 a head conferences in the lending space (mortgage startup). His situation maybe even worse because he has a family to support and he is spending a lot of money. His monthly traffic is even less than Roger’s site bc nothing works after almost 3 years!

      There are tons of guys like this and start up industry for some reason. It’s great to dream. But after a while, you got to wake up.

  47. Poor Roger, the cannibals will “hear his cries and start hacking off his limbs until he dies.”

    And now we know why. He’s suffering from “D-K”, a truly horrible disease which destroys your self awareness. I sure hope I don’t get it, I don’t want to be eaten by cannibals.

    And, for the record, everything you write IS Logical, other people are just stupid (huh oh, is that a D-K Symptom rising to the surface?? Shoot me, just shoot me!).

    Fascinating post.

    1. I donno man. Let’s say I’m delusional, how do I ever know if I’m delusional?!

      As of now, nobody has commented about my blind spots yet. Telling me what I write is logical feeds my belief that I don’t suffer from D-K!

  48. YuppieWallet

    Interesting perspective Sam, I think when it comes to Roger and other “founders” in the start up world you start to situations like this over and over again. Is it that they are unskilled? Maybe. Is it that they are overconfident? Probably so.
    I think a big part of this new wave CEO is that being an entrepreneur has become “cool”. No one thought Bill Gates was cool and now you have every techie hoping to be the next Zuckerberg.

    It used to be just the geeky tech guy and the recluse that would forgo the typical 9-5 and start something. Now from studies, I have read over half of Harvard, Yale, and Princeton start classes want to found something when they graduate. The dream of running into a $375k a year consulting gig or working at a big bank is dead.

    With the low barriers to entry and multiple medium platforms to shout from the rooftops, you get plenty of Rogers. Trying to “create” for the wrong reasons and having a complete misunderstanding of how to evaluate not only who their customer is, what they want, but also what their business is worth.

    I think tying in psychological and sociological theories into personal finance is FANTASTIC because at the end of the day personal finance decisions are really the study of human behavior.

    What do you think are some of the red flags that show you are a “Roger”? As I am sure all of your readers have met someone like him.

    1. The irony is, you don’t have to kill yourself and spending $300,000 to go to Harvard, Yale, and Princeton to be an entrepreneur. A one year bootcamp and internship right out of high school will do!

      Red flags include:

      * Living at home with your parents over 30
      * Not having a stable job for AT LEAST one year
      * Driving an expensive car and wearing nice clothes while not owning your primary residence
      * Talking non-stop
      * Needing to tell everybody you are CEO, went to XYZ school, and bring up past glories

  49. Go Finance Yourself!

    Never knew there was a term for this. I see it a lot of times with the younger Millennial crowd. Many of them have grown up being the center of attention at all times. Their parents have always told them how great they are and everything they do is wonderful.

    Confidence is by no means a bad thing. But when it gets to a point of delusion, then you’re going to have issues.

    As for you Sam, from what I can tell, you don’t suffer from this at all. I’ve seen you constantly downplay your writing ability when in fact you’re a very good writer. We wouldn’t all keep coming back if you weren’t!

    1. Thanks, but I really can’t write well. My dad tells me this all the time, as do other readers. Thank goodness for readers who highlight some of my grammar and spelling mistakes!

      But, I do know how to make things more interesting b/c I simply want to write what I want to read. It’s so obvious when something is boring. Like after watching the worst movie on Earth, I’m wondering, “Dear Director, don’t you know you just made the worst movie on Earth?!”

  50. Apathy Ends

    Definitely know a few of those types, I find them closely related to the “I used to be a stud in high school” guy that talks about the good old days even though they weren’t good enough to go to the next level – both are delusional.

    Roger is not only wasting prime earning years, he is wasting other people’s time that is actually generating!

    1. Not necessarily,

      Most successful entrepreneurs fail and fail many times before finding success.

      The failure is what contributes to the success.

  51. Charleston.C

    Thanks Sam for the Ying Yang encouragements and words of caution for starting a blog. I feel lucky to have registered a domain and began compiling contents so I wouldn’t get cold feet after reading this post!

    Don’t worry, my day job is still too lucrative for me to quit. But it would be nice to be able to bring in some side income like traveling Nancy so I’d feel less guilty about spending money if I am able to generate some minor profit. Even a couple of hundred bucks a month goes a long way in covering some guilty pleasure frivolous spending.

    From reviewing the few examples shown for blogging revenue stream, it looks like affiliated business partnership is a big nut in making a blog profitable. Would very much appreciate your comments and insights on appealing to potential businesses to form mutual partnerships.

    1. Yes, to everyone… please don’t quit a lucrative job b/c you think you’re going to be an overnight business success! Please moonlight for at least 1-3 years before making a logical leap.

      I love affiliate partnerships because that naturally fit with my content. The goal is to write content that you care about first, and THEN find affiliate partnerships that gel well with your content. You provide a written answer to a problem and then a product solution that is hopefully free or much cheaper than alternatives.

      I would love to earn money through every single product I own. For example, I drive a Honda Fit b/c I love the Fit. How great would it be to also earn money from a reader who ends up buying a Honda Fit as well?

      Not even a superstar actor or athlete can pick the products they choose to associate with. But you slowly can the more you build your brand. Find out what you stand for and build relationships with those who share your same values.

  52. I have a friend that was delusional about their business. They were convinced that they were running it correctly but they were completely scatter brained and the business was a mess. It wasn’t until they were able to outsource some of the things that they lacked and concentrated on the things that did well until they were able to turn a profit. It took MANY people speaking the truth to them until they finally let go (they were afraid of losing money, even though they were losing money every month). Crazy how when you’re too close to the situation that you have a hard time evaluating things correctly.

  53. I find the second part of the phenomenon even more interesting then the first. I.e. Failures in external perception. I have to present fairly often in my line of work, and of course there is the old adage present to your audience. I force myself to present at an elementary level, but I always feel stupid doing so. I’m just convinced the person reading my stuff will be bored to death and think I’m stupid because everyone understands X. Yet I’m routinely externally reminded this is the right approach based on experience. So I continue to do so despite how my mind perceives the action.

    I like to think I understand my shortcomings. The thing is I’m not sure I care. I’m not dropping everything to start a business. I’m experimenting in something new where I’m learning. If it doesn’t work, then at least I’ll probably learn something. It’s a balancing act between trying new things and taking risks with what you already have.

    1. You have to care and understand about your short-comings just as much if you are working because you have to interact w/ so many other people.

      For solopreneurs, you don’t really have anybody to piss off.

      Speaking to the LOWEST common denominator is generally the best way to grow an empire. Using blogging as an example, the largest blogs are ones that focus on frugality, saving money, minimalism, debt reduction. Why? B/c it’s easier to cut costs than to get smart and grow income.

      This is one of the reasons why I need to diversify my content to more basic stuff. 10 ways to save $5 on your next grocery bill baby!

  54. I wonder why his parents are enabling this? Especially for so long? My Mom has enabled my brother to live at home and do practically nothing, and now she has passed on..he thinks I should support him..LOL, oh the rude awakening he has had.

    1. Failure of parenting is the only reason I can think of. I look at these cases and fear I will give into my child’s delusional wishes and be TOO AFRAID to say the truth after a long enough period.

      Sorry to hear about your mom. Will be interesting to see how your brother reacts! Please do share in the future.

  55. Interesting post and good advice Sam. :)

    “I believe everything I write is logical, and therefore should be followed.”
    Hah! What does logic have to do with people’s actions? :)

    Anyway, I honestly think that sometimes people don’t understand how to gauge whether they’re doing well or not. Sure, if you’re playing a sport against one opponent then it’s easy to tell by looking at the score. But there’s so much more that can cloud people’s views when it comes to business. All of people’s lives are wrapped around it, so we end up considering irrelevant things, worrying about things out of our control, and working on things that in the end don’t matter. (i.e. there’s a lot of emotion involved). Roger definitely wasn’t a success, but I hope he at least enjoyed the ride.

    Still,… How long should I keep trying at something before I consider it a failure? A year, two, three? What determines whether it’s a failure or success? I guess if I enjoy doing it, even if it’s not making any money then it doesn’t matter so much.

    1. Go Finance Yourself!

      The logical behavior quote stuck out to me as well. I just finished reading Predictably Irrational. A lot of it talks about how economic theory is based on the assumption that consumers make rational decision but studies have shown they often do not. Very interesting read on what impacts our decisions.

    2. Alexandru C.

      I was in your steps, best thing to do is to set a plan, in x months I plan to reach this. In case I’m at least 70% close to my target I’ll push for another 3 months. If by that date I don’t reach, I’ll close/sell the project.
      In my opinion you should focus on doing something that you like, but with a small twist, try to see how you could generate money. Maybe blogging about it?

      1. I like this. Having objective metrics to determine if you are making progress is important even if you don’t hit those goals. If my goal is to increase revenue from $0/month to $1,000/month in one year, and I only make it to $500/month, I can still see I am making progress, and evaluate whether it’s worth it to reach my goal half as fast as I originally expected (it’s still $500/month I didn’t have before, after all). But if I’m still at $0/month after a year then clearly I need to do something different.

        1. Steve Adams

          These are good ideas. Then find someone to share the targets with that is willing to tactfully call BS.

    3. Ah hah! To answer your question lies in the third paragraph of the post:

      “I made the case years ago that real entrepreneurs are successful when I defined success as being able to generate at least the median per capita income for your city after three years of full-time effort. Those entrepreneurs who’ve been trying for far longer, while earning far less were clearly agitated by my stance. But everyone knows the more you spin your wheels in the mud, the more trapped you will be until one day the cannibals hear your cries and start hacking off your limbs until you die.”

      and the second to last paragraph of the post

      “Only after you’ve gained some traction should you consider taking the leap of faith and going out on your own. If you haven’t made at least a livable income stream after three years of working full-time on your business, it’s time to get a job or pivot to something new. After three years, employers begin to shy away.”

      Sorry for writing such long posts. I can’t help it.

      1. Very interesting post.

        I think that the definition for “successful entrepreneur” should also include a factor of how much time the entrepreneur is putting into the business. For example, if s/he is generating the median income while only putting in five hours per week after three years may be considered successful.


  56. Smart Provisions

    As a millennial, I often see this in video games, where friends would keep on playing the game thinking that they deserve a higher rank and would put the blame on many different kinds of reasons. However, if they just took a step back and try to understand the game a bit more, then maybe they’ll release that they were overestimating their skill and understanding of the game. Or maybe they’ll stop playing and focus their time on something more productive that would enhance their lives.

    To put it in a non-gamer context, if Roger took a step back to understand his business and market, maybe then he would not overestimate the value on what his business brings and possibly adjust it to meet more of the market’s demands. Or perhaps, he would see that his business is no good, give up on it, and potentially make something better.

    1. I am concerned that video games is a big thing with the millennial generation. Tip for all millennials: stop playing video games and start producing!

      That said, I am currently level 10 in Clash Royale by Supercell. What an excellent time killing game when the business trip flight is late!

      1. Smart Provisions

        Haha, Sam! I think I’ve played video games for the past 17-20 years or so, and while my time spent on games have lowered, I don’t think I’ll have it completely out of my system for a long time. Heck, I still play Pokemon Go (I transitioned from playing hardcore PC games to now seemingly-casual mobile games)!

        Maybe some day, but I think sometimes games can bring some kind of enlightenment into our lives without knowing it.

        1. Wall Street Playboys

          Great post, most people overestimate how much value they have. If we look at talent in general the Internet has made it very difficult to BS your way through. A great example is a Google engineer making $200K out of college while some 50 year old guy working at Verizon complains about the pay discrepancy. No understanding of value.

          On a side note, we strongly disagree with the page view estimate. Some internet businesses can make millions (we’re selling tons of product on a site that does well over $0.25 a page view) on the flip side other sources can be as low as 0.001 per view!

          Maybe 1-10c is a range for personal finance blogs, that we could agree with!

      2. Video games are an unproductive use of time, but young men are going to play anyway. Like Roger, they will learn the hard way or not at all. Some good kids with bright futures, but damn they waste a lot of time (my sons included). I suppose we were not much different at their ages, but with the endless information now available, getting it right has never been easier.

        1. Interesting exceptions – the civilization series can teach a lot about history and compound interest. Versions of Risk can teach geography and let people practice when to be aggressive or more patient. A number of games can help understand general strategy. Minecraft can help learn planning and problem solving as well as provide a great platform for creative thinking.

          If we think of this space with some of DeBonos thinking tools maybe the problem isn’t to little gaming but not enough. Seems wrong but maybe playing lots of games a little will help people learn lots of different rules helping them see what the rules are in the game of life.

Leave a Comment

Your email address will not be published. Required fields are marked *