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, which was 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!
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 because 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.'
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, but 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 a couple 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, which 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).
Other Fun Dunning-Kruger Examples
- 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.
- Being a 4.5 rated tennis player with a losing record, but only willing to play 5.0 opponents. Hi Ihsan!
- Thinking you made a good real estate purchase when there are foreclosures all around you several years later.
- Confusing brains with a bull market by buying health and fitness stocks.
- 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.
- Thinking you can consistently outperform the broader stock market.
- Constant gamblers.
- People who want to achieve financial freedom, yet don't bother to track their finances.
- People who don't believe that fear is one of the biggest motivating factors for change.
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.
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!
Related posts about Dunning-Kruger and delusion:
Perpetual Failure: The Reason Why I Save So Much
Three White Tenants, One Asian Landlord: Story About Opportunity
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I can’t tell if the chart you show illustrating the DK Effect prepared by artandtechnology.com is being ironic by using the incorrect homonym “No” instead of “Know” on their x-axis before “Nothing.”
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.
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.
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 thecurioushost.com. 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.
If you’re having fun writing your blog and not sacrificing your livelihood doing it, then it is a success!
Yep – seek balance in everything I suppose. Thanks
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!
Hi Sam! why did you try to join tech start-ups if your main goal was to stop being and employee and be free?
Curiosity and the desire to go on a new adventure. I found the perfect balance in consulting for several fintech startups for 15-25 hours a week a couple years ago instead.
Related: A New Adventure Beings: Consulting For A Tech Startup
Now, I’m coaching HS tennis and it is pretty fun!
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?!
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.
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.
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.
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.
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.
Hi Sam,
Feel the below Quora response sums up the Dunning-Kreuger effect for intelligent people (the corollary mentioned in the wikipedia article)
https://www.quora.com/What-are-some-signs-you-are-smarter-than-average/answer/David-Moore-408?srid=uZXlS
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…”
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.
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!
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.
Cheers
One Dad
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!
Sarah Palin
I think she was a Vice President candidate for seven days, that’s pretty cool.
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.
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?
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.
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.
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.
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!
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!
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.
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?
Thx
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.
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.
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…
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.
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.
His book had a lot of great advice. Highly recommend.
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.
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.
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.
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.
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!
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?
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%.
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.
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?
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.
Great article.
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.