What if Elon Musk went to Harvard?—The costs of the brain drain.

I routinely run into folks working in finance romanticizing the virtues of startup culture. It’s easy to romanticize when you constantly are fed stories of a group of founders working out of a garage going on to sell their businesses for millions, if not billions. It’s the modern day retelling of the tale of Don Quixote.

How exciting it must be to go boldly into the arena to pursue your dreams and come out the victor. The grass is always greener on the other side I suppose. When I look at the career path of those in finance, I routinely think ‘that would be nice.’ It would be nice to choose a career where you didn’t have to run the risk of burning through all your savings to launch your idea. That’s what jumping in the arena often entails.

This has been the trajectory of many of my friends who have started their own companies. It is a reality of startups. Ramping up a startup can be painfully slow. You can lose your mind conjuring up ways of how you are going to pay your bills while trying to get your company launched.

You may not see the financial rewards of your efforts for a decade. For a lot of founders pursuing their idea means months without any income as they build out their product. They draw on savings until those savings dry up, and then they tap into their credit. It’s months before they have metrics to merit pitching VC’s.

That was certainly the case for me while I was building out my first company. Much of my financial woes had to with me having no idea what I was doing frankly. I put things on my credit card that did nothing to push the needle of growing our company. In one case, I put thirteen hundred dollars into printing company t-shirts—which of course amounted to growing the company by zero customers. In retrospect, I would have done nearly everything differently in terms of being more risk averse and more focused on how we deployed cash.

Knowing that ramping up a business can be financially stressful, there becomes a selection bias towards founders who have a higher risk tolerance and pain threshold. In the tradeoff between pursuing their ideas and taking the short term financial hit due to the ramp up stage, they’ll take the former. They want to be in the arena.

So when I hear folks talk about an idea that they are ready to make the dive into pursuing, but never actually do, I know what is more important to them—the paycheck.

For folks in finance, it happens to be a really nice paycheck. It’s nicer than anything that someone in the first five years of a startup could ever expect to bring home. This is a hard truth about startups. Founders are not bringing home big paychecks; they are constantly having to reinvest in their companies in order to compete in the marketplace. It’s far less lucrative than what an outside observer would expect.

I don’t know much about the inner psychology of Elon Musk, but I wonder what would happen if he had started his career out of college working at an investment bank or a hedge fund. Even with his endless ambitions and truly disruptive ideas, would he forego the paycheck to pursue those ideas? I have no idea what the answer to that question is. However, I do see this dynamic of golden handcuffs preventing talented people from venturing out to work on their own projects all the time.

My wife attended Harvard. When we attend a wedding or a get together of her former classmates, I am struck by how many of them work in finance. It’s like there’s a conveyer belt from Cambridge to Wall Street. These are highly compensated people; a level of compensation that the rest of us mortals cannot begin to fathom.

A lot of them had plans to start their own projects at some point—work for a couple of years and then start their own things when they had enough money saved up. Over that time though they adapt to a certain lifestyle though—a lifestyle that they are never going to give up, and frankly who could blame them for that.

You have to wonder how many potential great entrepreneurs have been lost to these golden handcuffs. It’s the brain drain that has robbed the sciences of some of its best. So many world class minds going to work on the transferring of money in banking. How many Elon Musks have we lost to this industry? How many innovative companies and ideas have not been created because of these golden handcuffs.

It’s something worth thinking about as way we graduate a new class of seniors whose talents will be put to use to find new ways to transfer money. Perhaps there is some intrinsic value of innovation and creativity that we can laud as being more valuable than creating the newest financial mousetrap and the compensation that comes with it.

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