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 BLOG >> June 2012

Optimize your life [Decision Making
Posted on June 28, 2012 @ 09:26:00 AM by Paul Meagher

What objectives are you trying to maximize in becoming an entrepreneur?

Do you want to maximize your wealth, your leisure time, your freedom to do as you please, time with family, or some other aspect of your life?

In mathematics, if you want to optimize a system, you need to define what the objectives of that system are and rank those objectives in order of importance. Only then can you start to optimize the system.

So how do you determine what are the most important objectives in your life? One way to figure this out might be to do a thought experiment in which you ask yourself how much satisfaction or "utility" you might gain if you were to double the current level of some factor related to one of your possible objectives. For example, if you doubled your monthly income would you derive more satisfaction/utility from that relative to if you doubled the amount of leisure time you had per month, or the number of hours with family, or the number of hours you could dedicate to self-directed projects? Under this doubling regime, ask yourself what objective would produce the biggest gain in net satisfaction and then weight that objective accordingly in optimizing your life.

Once you have a main objective that you want to maximize, the next step is to determine what variables influence that outcome the most. You should also distinguish between the variables that are under your control (e.g., number of cattle, number of planted acres, etc...) from the variables that are not under your control (e.g., weather, government policy, etc..). Decision making is mostly about optimizing the level of the variables that you can control.

Usually when we are taught optimization techniques such a linear programming we are given examples that involve figuring out the price and quantity of widgets to produce in order to maximize revenue. I would argue that you might want to consider using these techniques to optimize at a higher level, the level of your overall life satisfaction.

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Age of founder and life cycle patterns of consumption [Finance
Posted on June 26, 2012 @ 05:30:00 AM by Paul Meagher

Adeo Ressi has written an article in which he attacks the notion that there is a peak age for entrepreneurship, which some have claimed to be around 25 years old. He concludes his analysis with the following comment:

Age is only one factor among many to predict the success of entrepreneurs, and anybody at any age can break any molds put forward by “experts.” However, it’s clear that the stories of a few “college-dropout turned millionaire” (or billionaire) startup founders have clouded both the mass media and the tech industry from reality. We have romanticized the idea of a young founder because, well, it’s a great story, but these stories are not the norm. In the end, classic biases of gender, race, and age need to be discarded for a real science of success.

In general, I agree with Ressi that you can be a successful entrepreneur at any age, however, I don't think we should ignore the fact that there are some factors that might make it easier for an entrepreneur to succeed at an earlier age than a later age. One of these factors is our life cycle pattern of consumption. When we are younger there are fewer funding conflicts between our business and our household. As we age and our families grow, there is an increasing conflict between funding a new venture and funding the household with the household getting a larger share of available funds. Finally, as we near retirement the conflict weakens, but by then we might be ready to retire rather than wanting to invest in funding a new line of business.

Under this analysis, it is not the magic dust of youth that leads to startups being run by young founders, rather it is because there is less conflict between funding the startup and funding the household. This is not to say that older entrepreneurs cannot fund startups at a later age, but they need to be cognizant that this conflict potentially exists and they need to manage it appropriately. It would be nice to use the funds from a business you started at a younger age to buy your family all the good things in life, but you might be digging your own entrepreneurial grave by doing so. If you want to start a business later in life, and capital is scarce, you need to run a lean household in addition to a lean startup.

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