Risk it All vs Steady Paycheck

Is it better to risk it all for a big outcome or count on a steady paycheck to create wealth?

Having watched tens of thousands of Founders live through the answer to this question, I can tell you it comes down to 3 related factors — our age, our earning potential, and our exit options.

When we answer this question, we often subconsciously fill in some of those values in our minds. So perhaps we say, "The paycheck is better!" because we're thinking about a 45-year-old professional making $300,000 per year.

But when we say, "The big outcome is what matters!" we might be only considering that risk for a 28-year-old without a mortgage or kids. Either way, the conditions drive the argument, so let's talk about those.

It Depends on Our Age

Risk is always risky, but comparatively, life is less risky when we're younger simply because we have more time to make up for things and often fewer consequences (kids and mortgages) to account for.

When I was 19 and starting my first company, people would brush off my risk and say, "You're so young, it doesn't matter if you fail," which really pissed me off because all I could think was, "I'm eating Beef-a-Roni for 3 meals per day and I can't get money out of the ATM because I don't have $20 in there." It didn't feel very un-risky.

But what they meant was that I had my whole life to make up for making bad bets. Which was as true as can be. What I would come to learn was that every decade that went by was really just giving me less opportunity for risk because my consequences kept getting exponentially higher. At some point, the downside of risk (not being able to pay for your family) is a lot more important than the upside of it, and that's just a factor of age.

It Depends on Our Earning Potential

Years ago, the Founder of Pandora Music was asked how he felt about taking a company public and "only" earning less than $20 million on the transaction. His response "How else was I going to make $20 million?" Exactly.

We all love this fantasy where there's this alternate universe where we magically make 2 to 3x what we're making now. (It does exist; it's called Accenture, and there's a reason people churn so hard in that business.) But unless we've got the potential to make massive amounts of cash (I'm thinking north of $250k per year), the amount of money we're likely going to make in salary is just never really going to add up to anything exponential.

That's simply because, at some point, life is just expensive, and if you're under that threshold, you never really get to save and invest "life-changing money." So if our earning potential in a regular salary really never can get geometrically higher, then the only way we're going to die with a mountain of cash is to have risked something to get it.

It Depends on Our Exit Options

This is the curveball, friends. We tend to think of "big outcomes" in terms of "all startups can have big outcomes," but what we miss in that equation is how many "exit options" we even have.

For example, if the only way for us to make our big money is to go IPO, the probability of doing that (depending on how far along the startup is) is insanely low. As an example, 108 companies went public in the U.S. in 2023, up from 71 the year before.

Statistically, the larger our exit, the less likely we'll be to get there. We have to consider how many exit options a startup has. For example, if the two of us start a company and we sell it for $2 million (without investors), our probability of making $1m each is way higher than if we had to IPO to get the same money out as an early employee.

While the steady paycheck sounds "boring," it's a pretty good deal if we stack up all of our factors on the wrong side of the equation. The more time we have to make up for a bad bet, the less earning potential we're sacrificing, and the more potential options to cash out we have, the better off we are. But if we're already making a ton of money at the end of our career, it's hard to justify hitting the reset button for a bigger payout.

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