Watch CBSN Live

For entrepreneurs, odds of success are low

How hard is it to become the next Steve Jobs, Bill Gates or Mark Zuckerberg? Elaine Chen, a senior lecturer at MIT's Sloan School of Management, puts the odds of even a high-profile startup making it big at less than 1 in 10.

Chen's oddsmaking is based on information from Paul Graham, head of the prestigious incubator Y Combinator. Graham recently tweeted that 37 out of the 511 companies it has invested in are valued at, or have have sold for, at least $40 million. Among Y Combinator's major successes are Airbnb, which allows people to rent out space in their homes; Dropbox, a provider of online storage and web hosting; and online media site Reddit.

The National Venture Capital Association estimates no more than 20 percent of venture-funded companies ultimately generate substantial returns for investors. Twice as many venture-backed startups fail, while another 40 percent are modestly successful, odds that Chen notes should dissuade entrepreneurs with dreams of getting rich quick,

"Moreover, starting a company to get rich is absolutely the wrong motivation," she writes on Xconomy. "Instead, founders should start a company only if they are truly passionate about what they are trying to achieve, are comfortable with the high-risk, high-gain nature of entrepreneurship, and can tolerate the uncertainty, hard work, and emotional challenges along the way."

Microsoft (MSFT) co-founder Bill Gates, Facebook's (FB) Mark Zuckerberg and Dell founder Michael Dell all dropped out of college. Others such as Sean Parker have had their ups and downs. Parker was a co-founder of the file sharing service Napster, which was shut down in 2000 after losing a legal fight with the recording industry over copyrights. He was an early investor in Facebook but was forced to resign after he was arrested but not formally charged with possession of cocaine. Later, Parker invested in Spotify, where he serves on the board, and is now a venture capitalist. He reportedly has a net worth of $2 billion.

As Chen notes, founders of new companies have to be prepared to go with little or no pay until the business starts to bring in significant revenue. That's one reason why it's critical for new business owners to secure funding from outside sources, such as a government grant, "angel" investors who back fledgling companies, or family and friends.

People who can't afford to start their own business can prepare themselves for the challenges that lie ahead by adopting what Chen calls "entrepreneurial thinking" in their day-to-day work.

Entrepreneurship, like everything else, is much easier to talk about than actually do. Luck also plays a role as does timing. But for the fortunate few who catch lightning in a bottle, the rewards can be enormous.

View CBS News In
CBS News App Open
Chrome browser logo Chrome Safari browser logo Safari Continue