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A Big Difference Between Trading For Yourself And Startups

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Startups entail assuming a lot of risk.  The outcome is highly variable.  Volatility reigns. At the outset, you don’t know if that startup is going to be a rocket ship or a failure.  All you know is a lot of them fail for a large variety of reasons.  Most people overestimate the failure rate of startups.   At a conference I was at a family office said they had been investing in startups for around 30 years and their failure rate was about 50%.  Those are good odds from where I come from. 50/50 with the upside that a startup can bring.  I’ll take that trade all day long especially if I can figure out ways to improve my odds.

There are a ton of resources today for startup entrepreneurs that didn’t exist before.  You can improve your odds if you want to and work at it.

Back in the day if you became a trader for a firm, you assumed a lot of risk. Markets are volatile, and so is the day to day job.  If you were a point and click, or a program trader for a firm it didn’t matter.  Some things were the same every day but for sure every day was different.  There is a lot in common between the firm trader and entrepreneurs or employees of startups. If a firm trader blew up, the firm took the heat.  The trader lost their bonus and probably their job.  But, they had skills to get another job in a different industry.

As an independent floor trader it was similar, but with a big difference. The outcome was highly variable.  We used to say the rule of thumb on the floor was 9 out of 10 failed.  90%.  You used to see a lot faces come through Membership.  I know.  I chaired the committee.  Sometimes successful independent traders did get lucky but most of the traders I knew that really made it big weren’t lucky.  They worked hard at their craft and were super skilled.  I was like a lot of people down there.  Just a middle class kid who knew someone who did alright on the floor.

The independent floor broker had it slightly easier.  They got paid commission on orders they filled but they had to compete like hell to get them. They also had a lot of overhead with clerks and other things.  Plus, one error filling an order could wipe you out.

The difference for the independent floor trader was that when they assumed a lot of risk, they could be wiped out.  Build a position over time, have it go against you big and you were tap city.  Not just failure and go get another gig.  Wiped out.  A debt that will stick with you for the rest of your life that is so huge you never have the chance to pay it back.  Plus, often times you didn’t have any skills for a job in the real world.  Whatever you would go it was going to be an exceedingly hard interview and an arduous path to a job.

Interviewer, “What did you do at your last job?”

Bust out trader, “I stood in a pit yelling and screaming with a bunch of people trying to buy and sell.”

Interviewer, “And how does that translate to this audit position you are applying for?”

I saw it happen with traders that were a green.  I saw guys in their fifties that had been successful their entire careers that lost it all in a week or month on one trade.  In the mid 2000’s they carried grain spreaders out of the pits in body bags.  In the late 1980’s, the Eurodollar three month spreads had never ever gone negative but they did then.  I knew a guy in the Bellies that was considered one of the best traders ever on the CME floor.  Lost it all.

Independent floor traders like me are dinosaurs.  We don’t exist anymore.  We used to grow “locals” in Chicago like Midwestern farmers grow corn.

People would move from all over the world to come to the Chicago trading floors for opportunity.

People wonder who will move to places like Chicago where the cost of living is out of sight and getting more expensive.  Entrepreneurs will. Why?  Because the delta between success and failure is so huge and so variable.  They aren’t immune to costs of living but they put it on the back burner because the chance at the brass ring is there.

When I talk to people about startups, I carry that floor experience with me.  I know what it’s like to have it all on the line with the potential of being wiped out in the blink of an eye.  I also know the psychology of trekking to a city for opportunity.  When the people I talk to speak, I listen closely to them and watch their body language.  For many of them my conclusion is I think people are too fearful of becoming part of a startup.  I can understand being fearful of investing in them.  But, to be a joiner?

If this was 1980 and you said you were going to the floor and wanted to be a trader you might get some pushback.  But, the odds were pretty good that someone knew a few people from somewhere that had made a pretty good life for themselves on the trading floor.  The risk didn’t seem so great, even though it was.  The trappings of success were tangible.

That was my story.  I literally was in a bar on a Thursday night and met an old coach who was a trader.  He told me to quit my job and he’d have me making $100k per year in three months.  So I did.  It didn’t work out exactly that way for me but the path to success isn’t linear.

The same can be said for someone who says they want to go to San Francisco and pursue a startup dream.   Yes, a lot don’t make it but enough of them do that it doesn’t seem so outlandish.  The risk is still there but at least it’s a lot less risky than being an independent trader.

If you are a wealthy kid, don’t start or go work for a non-government organization.  Don’t work for government.  Don’t settle and do what other people want to program you to do.  Go build something or join someone that is building something. Bill Gates was a rich kid.  He had more influence on society by creating Microsoft than he ever will with his foundation.  Those kinds of kids can afford to fail since they have a built in family safety net.

If you are a middle class or poor kid, why not go work for a startup?  What have you got to lose?

I think it’s time we changed the conversation all over America about startups, fear and failure.  If a startup fails, the sun comes up the next day.  You might have lost some paper equity.  It’s painful for sure.  I know because I have had it happen to me.  But, you can find another gig and give it another try.  The sun will come up and you won’t be ruined.  You won’t lose face.

In Chicago and America, we need to grow startup employees and entrepreneurs like we grow corn.  It’s starting, but we need to go faster.  Much faster.

We have capabilities and technology like we have never seen in human history.  The potential to create something huge is limitless.  It doesn’t matter where you are from.  No one is holding you back.  You just have to put yourself in a position to be successful.  Only a person can do that.

My fear is that the statistics are showing that less and less people are getting into startups. Fewer entrepreneurial companies are starting.  Fewer small cash flow businesses are starting too.  That’s despite the amount of capital being committed to startups.

I saw a tweet the other day that said there were 1000 VC funds in the market right now.  That’s in addition to the funds that are already out there.  Where is that capital going to go if companies don’t start up because people are too filled with fear and disinformation about starting them?

We have a lot of work to do and it’s time to really ramp up the conversation around it.  Kids ought to graduate middle school and know how to spell “entrepreneur”.  They also need to know what it feels like to be one with no strings or qualifiers attached.


Source: http://pointsandfigures.com/2018/11/09/a-big-difference-between-trading-for-yourself-and-startups/


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