Update 10/3/2020: You can hear Dan and a guest discuss the risks presented here on this podcast.
My all time favorite podcast is the Tropical MBA. I’ve been listening to it for most of my entrepreneurial journey. It’s an entertaining and insightful look into the modern small business.
The podcast hosts Dan & Ian have developed lots of useful frameworks to think about decisions in business. They’ve coined concepts like “Rip, Pivot, & Jam” about innovating within proven value chains and “if it makes you money you shouldn’t be doing it,” a rule of thumb for where an entrepreneur should spend their time (and money.)
I’m a huge fanboy.
But I take issue with one of their key theses, “The Thousand Day Rule.”
The Thousand Day Rule is a pattern that they noticed where entrepreneurs needed about a thousand days, or 3 years, to build a business that surpassed their job income.
At best, the Thousand Day Rule is incomplete. At worst, it’s destructive to new entrepreneurs.
Most Businesses Aren’t Successful
Miracle Max : Whoo-hoo-hoo, look who knows so much. It just so happens that your friend here is only MOSTLY dead. There’s a big difference between mostly dead and all dead. Mostly dead is slightly alive. With all dead, well, with all dead there’s usually only one thing you can do.
Inigo Montoya : What’s that?
Miracle Max : Go through his clothes and look for loose change.The Princess Bride
The foundational problem with the Thousand Day Rule is that it’s a form of survivor bias. In other words, it’s an observation of winners in an environment that has weeded out all the losers.
It’s a pattern that discounts:
- All the entrepreneurs who lived on their boyfriend/girlfriend’s couch until the inevitable breakup.
- All the folks who banged their heads on their business for years and had to toss in the towel when a baby came into the picture.
- All the scrappy, smart people who became extinct by their own personal comet.
According to the US Bureau of Labor Statistics, 1 in 3 are dead by the time 1,000 days rolls around. Add a couple of years and 50% of all businesses are dead at the 5 year mark.
Now, you may be thinking 1 in 3, 1 in 2, those aren’t great odds, but they’re not terrible either.
However, those are statistics for businesses that have folded completely.
It’s not 1 in 2 businesses thrive, it’s 1 in 2 businesses aren’t completely dead. And there are a lot of businesses out there that are mostly dead.
“It’s Going Okay”
“And I declared that the dead, who had already died, are happier than the living, who are still alive.”Ecclesiastes 4:2 Ye Olde Bible
If you ask one of those mostly dead business owners how the business is doing they’ll say something like, “Eh. It’s going okay.”
They’re businesses in a declining market. They’re businesses where the pipeline is weak. They’re businesses that have customer concentration issues, but can’t clone their key customers. They’re businesses with huge audiences that can’t seem to get enough of their readers to pony up cash. They’re businesses that cover the bills, but only just that. They’re businesses where the math doesn’t work, pivot after pivot.
If the entrepreneur is the jockey, there are businesses that are bad horses and there are businesses that are on bad tracks. And of course there are bad jockeys.
Entrepreneurs stay in these situations- sometimes for years and years.
It would be better if they failed completely, but perseverance, support, lack of options, and the possibility of solutions keep them in the game.
How common are businesses like this, these “almost dead” enterprises?
There are enough out there that author Mike Michalowicz is building his name as a business thought leader around “eradicating entrepreneurial poverty.” (https://www.google.com/search?hl=en&q=Mike Michalowicz eradicating entrepreneurial poverty)
I’m At 4,500 Days. What Am I Doing Wrong?
“Dude, you’re not running a non-profit. You have to make money.”One of my friends after looking at our income statement a couple years ago
I’m around twelve and a half years into my entrepreneurial journey.
My business has been in the “mostly dead” category of businesses for the majority of that time. I’ve told lots of people, “Eh… it’s going okay.”
Which isn’t to say that it’s been a smoking wreck. It’s paid my bills, zeroed out my debt, bought a house in a somewhat expensive city, supported a small team, and afforded me time and enough money to travel a couple times each year.
But the return in cash on my investment of time, energy, and money has been abysmal.
I could likely find a job that would increase my personal income by at least 75%- even today (with the caveat that my actual hourly rate is probably high, because I work less than half of what I would at a straight job.)
One of my peers whose business died off years ago tells me everytime he sees me, “Hey man, you want a job, you let me know.” He works at Nike as a software engineer making ~$175,000 annually.
For me, my income trajectory looked like this:
- Year 1: $11,000
- Year 2: $13,000
- Year 3: $24,000
- Year 4: $43,000
- Year 5 : $21,000
- Year 6: $26,000
- Year 7 – 10: $40,000 – $50,000
- Year 11+: ~$115,000
In 12 years, I’ve tried *a lot* of things- more than about every entrepreneur I personally know. I haven’t been sitting on my laurels. I’ve had successes and failures. I’ve taken hard hits. I’ve watched plenty of my peers’ businesses take off doing far less than I’ve done. And I’ve watched many others fall by the wayside.
Death Comes Even to the Able
“Come back with your shield or on it.”Plutarch, of a spartan mother to her son.
A friend of mine named Don ran a web design agency for around 4 years. He sold it to a large agency and came onboard as their director of operations. The deal was essentially a smarter version of closing shop. Don had accounts receivable to the tune of ~$75k and payroll due with no actual cash in the bank and all his credit cards and relatives tapped. Rather than lighting it all on fire, he went to his network and found someone who would cover payroll and take care of his team if he came onboard.
As an employee, Don was instrumental in growing the agency that had acquired his by more than 100%. He was their secret sauce and enjoyed a nice salary and bought a house and a fancy new car.
After a couple years, he left and worked for a training company. Then left that to become a consultant. Then he picked up a gig as a part time director of digital for another large marketing firm.
He basically created a situation where he was making good money as a consultant *and* employee, with employee benefits, and wasn’t working hard in either role.
Recently, he returned to buy the agency that had originally acquired his.
All this to say that Don is no chump.
Among our peers he’s known as someone who is smart, skilled, and an all around wonderful human being.
But his original agency still died.
Business is inherently a gamble. Skill skews that gamble. But even poker world champions lose tournaments.
As entrepreneurs, we’re proud of what we’ve accomplished and we tend to fall prey to self-serving bias. We attribute our successes to our skill and our failures to bad luck. While in others we attribute their successes to luck and their failures to a lack of ability. (https://en.wikipedia.org/wiki/Self-serving_bias)
When you work hard, face down obstacles, problem solve, and things work out it can seem like it was fated.
If you never put your soul into an enterprise and still had your ass kicked good, it’s hard to understand that it’s a possibility. That that world exists.
And that’s why the Thousand Day Principle is dangerous.
“Hope springs eternal… “Alexander Pope
Most businesses do not thrive at the 3 year mark. Regardless of the pluck, intelligence, or drive of the entrepreneur.
And in those intervening years things are murky. Really murky.
Above, I gave a laundry list of how “mostly dead” businesses still struggle. That entire list is of solvable problems.
However, the skill and resources needed to solve them is not uniform.
There certainly are businesses where the obstacles are manageable for a burgeoning entrepreneur and they will make that thousand day criteria by simply applying themselves and slugging it out.
However, there are many businesses where a new entrepreneur may be facing a challenge a veteran knows is not worth overcoming. Or a challenge that requires deep skill, experience, or capital.
And it’s not clear to them. Because all true entrepreneurial challenges are god damned murky.
But if a new entrepreneur thinks, “I’ve just got to stick it out for one more year and the tide will turn,” they’ve set themselves up for a hard road on the false belief that they’ve just got to survive to the next round.
“Everyone loves a winner.”SSgt Rubalcabra, 2nd Platoon, Platoon Sergeant
The Thousand Day Principle actually functions very similar to the narratives that Dan and Ian criticize the gentiles for:
- Getting expensive college degrees to land “good” jobs.
- Sacrificing the first half of life to save for retirement.
These are all narratives that imply certainty.
But that’s not the game we’re playing. This is poker, not chess.
Prior to the Thousand Day Principle I read an HBR article on new businesses where the author noticed a 10 year trend (can’t find it, but it was published ~2012). If a business could survive for 10 years they would catch a break that would turn the tide. The market would favor their niche, they’d acquire equipment for a burgeoning technology, etc. etc.
It’s more dubious selection bias- in any long enough time frame there are going to be significant good and bad events. Better stated, if you can survive long enough, eventually fortune will smile down on you.
Where the 1,000 Day Rule Might Be Somewhat Useful
The third time I re-positioned our business I hired a consultant, a wonderful and thoughtful fellow named Phillip Morgan.
Phillip specialized in technical firms like mine and I brought him in because I wanted to increase our velocity in getting re-positioned correctly (like all true entrepreneurial problems, we couldn’t reposition by simply noticing a historical pattern in our customers).
Phillip told me, “Hey, I get you want to do this fast. But if you nail your research and marketing it can still take up to 2 years before you see your first customer.”
As a new entrepreneur, if you are fortunate enough to choose the right market, the right industry, and the right business, at the right time, and you work diligently and intelligently and do all the “right things” then you should still plan on a 3 year time frame to replace your current income.
If you sit at the right spot on the table and are reasonably competent: three years.
And even then, it still may not come at three years. It’s going to take what it’s going to take.
And how will you know you got all that right?
After three years, you’ll be sipping mojitos on a Tuesday afternoon with a bunch of entrepreneurs noticing, “You too? Three years, huh? Yep, just a bit of hustle and playing it smart.” While the ones who didn’t get it right out of the gate are dead or hunched over a keyboard in a dimly lit studio apartment.
What Kept Me in the Game
“Time and I against any two.”Baltasar Gracian
I took a class in college on Ralph Waldo Emerson. The professor gave everyone an assignment before the 2 week transfer period was up. It was an essay on an initial reading we had completed.
He tore into every student’s work. All the essays came back covered in red ink with blistering criticism. D’s and F’s across the board.
People were stunned.
Then he told all of us that there were no assignments for the rest of the semester.
We would submit no work.
At the end, we would complete a single essay and that would be our grade for the entire course. And if we didn’t like it, now was the time to transfer.
Students stumbled out of the class shell shocked.
The next class everyone was trying to feel him out. Students were asking questions about what he liked, what his expectations were, etc. etc. The subtext was, “How do we make you happy so that you won’t fail us?”
He stopped the questions and said if we couldn’t handle his setup, then transfer.
The class size dropped to around ten people. It was a room of empty desks.
At the end of the semester, we talked about the final essay and students invariably came back to questions on what he wanted.
He took a couple of these questions and then held up his hands and said, “Look. You have a choice here. You can write what you think I want. Maybe you’ll get a decent grade, maybe you won’t. Or you can write the essay you want to. Your real opinions. What you care about. And maybe you’ll get a decent grade and maybe you won’t. But if you write what you want to and I fail you, at least you did what you wanted to do. Whereas if you try to please me and fail, you’ve lost twice.”
It was a powerful lesson in means and ends. In making choices with no certain outcome.
I’ve stuck it out for twelve years because I love business. It’s deep, complex, fun, and incredibly hard. It’s made me a better person. It has introduced me to amazing people. It’s the best game out there.
And yes, it has given me money, time, and autonomy. Which I’m grateful for.
But if I didn’t enjoy this challenge I would have folded long ago. Because business has cost me a lot too. My health. Piles of cash. My emotional well being and self esteem.
Rather than anchoring expectations to a fixed time frame, like three years, if I were to advise a new entrepreneur, I would say, “Hey, do it for a year. If you don’t like it, move on. There are other ways to pay the bills. If it sucks you in, if you find it fascinating, stick with it. Grow, learn, and eventually something will work.”
Arguably, the inverse of the 1,000 Day Rule is more useful. If after a thousand days you haven’t replaced your previous income and you still want to work on your business, entrepreneurship is probably for you.
If you’ve got blood on your face and you still want to get back into the ring— this is for you.
Featured Image Photo Credit: Maahmahh https://commons.wikimedia.org/wiki/User:Maahmaah