What is this career?
Tech entrepreneurship involves founding new companies in the technology and biotechnology industries with the aim of achieving large-scale positive effects. You can enter this path straight from university if you can find co-founders and an idea, but people enter this path from many stages in their career. A highly useful first step is learning to program. It can also be useful to gain some general business experience, especially from working in a small company. After starting, many people aim to join an ‘incubator’, the most prestigious of which is Y Combinator, before moving on to receive venture capital funding. Schemes like Entrepreneur First aim to help you before you even have an idea or co-founder.
Potential for immediate impact
Direct impact potential
Entrepreneurs who produce innovative products that benefit their consumers and have positive externalities have a large direct impact. In part, this is because if lots of people are willing to buy something, and the company is not exploiting a market failure, then the consumers are getting excess value (‘consumer surplus’). Further impact comes from innovation, because innovation is a public good. The high risk of entrepreneurship also means that it’s likely not enough people pursue it in order to gain personal status or wealth, so society is likely to be undersupplied with entrepreneurs. One study estimates that for every $1 of profit earned by an innovator, $50 of benefits are generated for society at large.1 The technology sector seems particularly high-value, because it has been a major source of transformative innovations in the last couple of decades, and this seems set to continue due to the expanding scope of software.
One concern is that some companies within technology have been accused of exploiting addictive tendencies to gain users, so the fact that a product gains lots of users may be a poor indication of its value in these cases. Others have been accused of anti-competitive practices, which might stifle innovation. Another concern is that speeding up technological progress without a corresponding increase in wisdom may be harmful overall in the long-run, since it increases systemic risks.
Overall, it’s very difficult to assess the impact of individual entrepreneurs at the margin, so we’re highly unsure about the average impact.
If you are suited to this path, tech entrepreneurship is on average one of the highest-earning career opportunities, though the risk of failure is very high. We’ve found that people who have received venture capital funding or entered Y Combinator have on average earned millions of dollars per year (from increases in the value of the stake in the company), though over 50% only ended up receiving a modest salary of US$30,000-100,000 per year. If you can make it into a seed accelerator, then you have a reasonable chance of going on to receive venture capital, so entering a seed accelerator predicts earnings of several hundred thousand dollars per year. On average, US entrepreneurs earn about 18% more than similar people who remain in salaried jobs.2
One major advantage it has over entrepreneurship in other sectors is that you don’t need as much capital to enter. This means it’s possible to start from a younger age and with less personal wealth. It’s also easier to iterate your idea, which reduces the personal risk, though should also reduce the expected payoff.
Founders of tech startups have plenty of opportunities to meet influential, wealthy people within the technology industry. The technology industry has the potential to bring about transformative changes to society, so contacts in this industry are particularly valuable.
Potential for long-run impact
Starting a tech company will force you to rapidly learn highly useful entrepreneurial and technical skills, meet lots of people, and it looks impressive (even if your business eventually fails, at least in failure-tolerant cultures such as the US and UK). Overall, we think it’s one of the best options for career capital.
This career path has a very high variance. The majority of businesses don’t succeed, and the people who end up in the top 1% take most of the gains. If you think you might have a shot of becoming a high-potential tech entrepreneur, then it’s very valuable to learn more about your potential.
To get started, you’ll need to come up with some startup ideas, find co-founders, and develop a prototype. It’s very useful to be able to program. You can then apply to a seed accelerator. Read more about the traits the Entrepreneur First program focuses on here.
What does it take to progress?
Successful tech entrepreneurs are very intelligent, motivated, deeply interested in entrepreneurship, and willing to break the rules.3 They often studied quantitative subjects at top universities and have been involved in business from a young age. See more on the traits of top entrepreneurs and the predictors of success in entrepreneurship.
If you’re going to be working on the product side of things, being a great programmer, hacker or designer is what’s needed. The business side requires salespeople with strong social skills, who are able to cut deals and persuade key stakeholders to back the venture. Early on, you’ll need to be well rounded and probably have some technical skills, since two or three people will do everything in a small startup company.
The work can be highly motivating, since you have a huge amount of autonomy and do interesting and challenging work, with smart, action-oriented people. However, the long hours make it difficult to fit around a personal life.
Overall, this is a tough, high-risk path. Make yourself familiar with some startup ‘horror stories’ before you consider it.
- Read our summary of the case for tech entrepreneurship
- Our work on the predictors of success in entrepreneurship
- All our resources on entrepreneurship
- The Founder’s Dilemmas – evidence-based exploration of how to take the right decisions as a founder
- Paul Graham’s Essays – widely regarded as the key resource for would-be founders
- The Lean Startup and 4 Steps to Ephiphany – widely regarded as the leading introductions to best-practice entrepreneurial strategy.
Want to use entrepreneurship to do a lot of good?
We’ve helped for- and non-profit founders identify how to use their skills to have a big impact. We’d be happy to see if we can help with your specific situation.
Get in touch
Notes and references
- Schumpeterian Profits in the American Economy: Theory and Measurement, William D. Nordhaus, NBER Working Paper No. 10433, Issued in April 2004, LINK ↩
- “After conducting and presenting an array of robustness tests, we find as a lower-bound estimate that on average (at the median) a person who chooses to become incorporated self-employed earns about 18% (6%) more than he was earning as a salaried employee. In this sense, entrepreneurship pays.” Does Entrepreneurship Pay?, The Michael Bloombergs, the Hot Dog Vendors, and the Returns to Self-Employment, Ross Levine and Yona Rubinstein, July 2013, LINK ↩
- “It is a particular combination of traits that seems to matter for both becoming an
entrepreneur and succeeding as an entrepreneur. It is the high-ability (as measured by learning
aptitude and success as a salaried worker) person who tends to “break the rules” (as measured by the degree to which the person engaged in illicit activities before the age of 22) who is especially likely to become a successful entrepreneur.” Does Entrepreneurship Pay?, The Michael Bloombergs, the Hot Dog Vendors, and the Returns to Self-Employment, Ross Levine and Yona Rubinstein, July 2013, LINK ↩