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Quote of the day:

High performance people are generally self-improving through experience, observation, introspection, reading and discussion (As long as they have stunning colleagues and big challenges)

Slide 115 of 128 from the Netflix culture presentation.

At the end of November, I mused about public sector's problem of attracting and retaining top-notch talent:

Ben Bernanke's salary as chairman of the Fed is just over $191,000. Henry Paulson as CEO of Goldman Sachs made $16.4 million according to Forbes. [...] I find it very hard to believe that compensation plays no role whatsoever in an individual's choice of employment.

This all seems terribly obvious to anyone who thinks about it, and Nate Silver has commented on the same phenomenon with a real-world example:

In retrospect, it is clear that regulators did not have the human capital to keep up with the financial industry, and to understand it well enough to be able to exert effective regulation. Given the wage premia that we document, it was impossible for regulators to attract and retain highly-skilled financial workers, because they could not compete with private sector wages. Our approach therefore provides an explanation for regulatory failures.

That is, the excessive wages paid by Wall Street not only lure talent away from other parts of the private sector, but also from the public sector, where employees are subject to government wage controls. The very people who might be the most capable of enforcing regulations on the banks instead wind up working for them.

This is a very real problem. Some of the work that I did in my first job after college at KPMG involved valuing intellectual property in conjunction with international tax disputes. We had our economists, and the IRS had theirs. The thing was, however, that our economists were better than the IRS's, because if someone at the IRS was any good, we'd hire them away and treble their salary. Part of a good regulatory reform plan, then, would be to increase the salaries paid to employees at institutions like the Fed, the Treasury, the IRS, and the FDIC.

So how do we solve the problem? Tripling an IRS economist's salary probably means they're making in excess of $400K/year, which is more than the President makes. Is it feasible to have regulators that make more than the President?

A friend told me she disagreed with my post the other day on big media's relationship with YouTube:

I totally disagree with your media article. NBC gets revenue from Google for sharing their content–this will never happen in a way that works for both. NBC should be allowed to host the shows on their own site with the ads they would like to include on their own site.

I think YouTube needs to take off all its questionable content. Just because people have trouble enforcing certain rules doesn't mean that there is no reason for intellectual property protection. YouTube makes most of its revenue off of encouraging people to rip things off of other sites. It doesn't produce anything, and, as a platform, I don't even like it that much.

It struck me that I didn't flesh out my argument on what YouTube is good for very well — mostly because it wasn't the point of my post — but that I probably should. First off, a couple of things.

NBC can do whatever it likes with its content. It owns it, and should be allowed to do whatever it wants with it. I think it's in their best interest, however, to leverage YouTube rather than fight it wholesale. (The same holds true for the music industry.)

In fact, NBC does host their own content at NBC.com and in other places (Hulu). You can watch whole episodes of e.g. Heroes and many other shows for free, on demand. I think they've done a remarkably good job in leveraging the excitement of the fans as well as doing some interesting stuff by embracing other kinds of media, most notably the Heroes webcomic.

It terms of showing TV shows that have actors and scripts and story arcs, YouTube isn't the best platform. Hulu is preferable for a number of reasons:

1. Hulu is more reliable. YouTube streams die on me 20-25% of the time no matter their quality.
2. Hulu's UI is better for streaming a whole show.
3. You can pause and restart an episode later on even after you've closed your browser.
4. Queueing is excellent. Subscriptions are excellent.
5. It is trivially easy to download content from YouTube without anything more fancy than a bookmarklet. (Note: I didn't use that script, I wrote my own for Chrome but it looks similar.)

Where Hulu does NOT shine is permanence. This is driven largely by content deals with networks, so Hulu isn't to blame, here. It is frustrating to embed a Hulu clip in something like a blog post and have it be expired in two weeks. This breeds ill will towards Hulu, even though the network is the real culprit.

YouTube's strengths are:

1. Permanence (copyright infringement claims aside)
2. Quantity and quality of HD clips
3. Sheer ubiquity
4. The UI lends itself better to interacting with shorter clips than any other web video service

If I were NBC, would I want Heroes on YouTube? Not in its entirety, no. I would certainly have some HD trailers and teasers for the various episodes available, and if viewers wanted to upload their favorite short scenes and mashups, I wouldn't want them deleted. It's all good publicity for the brand and it costs me nothing. (And indeed NBC is pretty lenient, as far as I can see.)

I would use these clips to drive people to the homepage for Heroes at NBC.com, and/or on Hulu.

But it was the news program format that I was mainly concerned with the other day. YouTube does shine when it comes to interviews with public figures. In this respect, news organizations almost perform a public service, but the problem with their ownership of their content means that if a politician does something boneheaded, it's largely forgotten in a relatively short time as the content is locked in a media company's footage archives, relegating it to little more than ephemeral conversation for the public's needs and wants.

Of course, it's not NBC's job to do what's in the public's best interest, it is their fiduciary duty to maximize shareholder value. However in this case, I believe that these goals are one and the same. After all, we can't be sure that The Daily Show will be around forever…

YouTube is a perfect environment for these single-issue clips thanks to its ubiquity and permanence. If a content owner like NBC wants to keep whole episodes for their own web property, that's fine. But I think they should allow (and promote) uploading of shorter clips, like the segments from Meet the Press that I lamented the other day. Use these clips to drive people to NBC.com. Your brand gets free publicity, the public benefits, and it has cost you nothing.

If CBS has filed copyright infringement notice with YouTube, would most of us have seen the first-hand footage of the trainwreck that was Sarah Palin this past election season? Probably not — the number of folks in my generation that watch news programs on TV is vanishingly small…

I regularly embed YouTube videos into some of my posts. Mostly they're interviews and the like. This morning I was scrolling through some of my older entries, and I wanted to re-watch Tom Brokaw quizzing President Obama on Pigouvian gas taxes. So I clicked play, and lo and behold, the video has been removed due to a copyright infringement claim from paramount_vfp.

Um… what?

As a large media organization, how stupid could you possibly be?

Look, people of my generation rarely watch shows like Meet the Press. Most people of my generation have never even heard of Meet the Press, let alone know what it is. They do, however, know what YouTube is. They know what search is. They know that you find video content by searching YouTube for whatever it is you're looking for. Ergo, YouTube is the perfect platform for spreading your brand if you are a media company.

This isn't rocket science, folks.

I understand that NBC wants to keep their content all under one roof, but frankly, they do a crappy job of it.

• The search interface sucks
• You have to watch an ad before you can view the shortest of clips
• Consumer's don't go to NBC.com to find A/V material because they don't know or care that MTP is an NBC show
• NBC has a crap API for embedding videos. (Want a video to start at a specific point? Think again.)
• Google is the largest search engine, but it doesn't find MTP clips very effectively.
• YouTube is the second largest search engine (larger than Yahoo!, even), and MTP clips are nowhere to be found.

Old media hasn't figured out that consumers aren't going to keep searching for that clip unless they really need it, and most video watching on the web isn't done out of necessity — it's done out of a casual desire to see something, and if the barrier to watching this content is too high, the consumer will simply give up. Everyone loses. (Note that this doesn't necessarily apply to television shows.)

The NYTimes figured this out the quickest of all large media companies. They discovered that people aren't interested in paying to access content that they only read casually. (Newspapers aren't essential daily reads anymore — they're third class media citizens that just happen to to most of the journalistic heavy lifting.) So they decided to open up the archives of the paper itself and make as much of their content freely available as they possibly can, in as many ways as they can. 28 years of content starting yesterday. If that's not capitalizing on the long tail (ugh), I don't know what is.

By constructing useful metadata, the NYTimes will allow individuals to find what they're looking for either by using search engines like Google, or by using the NYTimes' own search engine. By getting the metadata right, they're going to maximize the impact they have on the Internet, which in another ten years will be more important than a stack of cheap paper sitting on the breakfast table.

What NBC should be doing is partnering with Google and uploading entire programs to YouTube in HD, particular news programs like Meet the Press that lend themselves to cropping into shorter news segments where specific sections can be embedded by bloggers, further maximizing a program's impact. So an entire Meet the Press episode might consist of an NBC-constructed playlist residing in a Meet the Press YouTube channel that you can "Play All" on, with each discreet topic having its own video that can be linked to or embedded. Think President Obama's Change.gov channel, applied to a Meet the Press concept.

NBC would then provide a brief synopsis of the episode so people can actually find the video they're looking for. Better yet would be a full transcript like they currently provide for shows just like MTP and 60 Minutes. However if that's asking too much, they could still drive traffic to their own website by providing a link to the fulltext transcript on the YouTube page itself.

Everyone wins in a model like this:

• Bloggers get, great, embeddable, first-hand material
• NBC maximizes consumer exposure to one of their premier brands in a way that a home-grown system never could
• NBC gets revenue from Google for sharing their content
• NBC doesn't have to pay the costs associated with developing their own video-serving platform and hosting their own videos

When are the large media organizations going to figure this stuff out? When are they going to learn that they can still win in this new medium simply by sharing their own content in higher quality than others can copy and upload? When are they going to figure out that you can sell a lot more by doing this? (Just ask the guys from Monty Python.)

When are they going to figure out that lawyers and DMCA takedown notices are expensive and counterproductive and piss off potential customers? Everybody loses in a protectionist business model.

(In an amusing bit of irony, the Meet the Press website actually links to the very video that I originally embedded. This is not unlike yesterday's blunder by Universal.)

A smattering of things I'm consuming:

• Myron Scholes Global Markets Forum: Evaluating Obama's Proposed Stimulus Package from Chicago's GSB.
• How Harvard Law threw down the gauntlet to the RIAA
• Has change come to biology? Stem cell research under Obama
  Windows 7 — What's the rush?
• The once and future e-book: on reading in the digital age (Excellent)
• Don't work for assholes

From a microeconomics exam recently. The source article is "How a Drug Maker Tries to Outwit Generics" from the WSJ. (If that link doesn't work, here is a PDF of the fulltext.)

Describe the nature of demand for Provigil. How much market power is there and why? If Cephalon raised the price of Provigil by 74%, with no apparent increase in production costs, does that mean that Cephalon was not initially pricing to maximize profits from Provigil? By raising the price, are they now profit-maximizing? Discuss. How would you expect the introduction of generics to affect the demand for Provigil? The price of Provigil has been raised before Nuvigil is launched. Discuss how the demand for Nuvigil would have been affected if the price of Provigil was not increased. Evaluate Cephalon's strategy as a means of achieving its goal of corporate profit maximization.

Provigil is in extremely high demand; the trouble is that it is expensive, and it is almost never covered by people's insurance. Right now, the average wholesale price (AWP) for 30 count of Provigil 200mg is $361. Provigil is also in an interesting place in terms of patent protection. It's not a new drug, and through manipulating pharmaceutical patent law, Cephalon (who acquired the IP for the drug when they bought out Lafon) has been able to extend the life of the patent two or three times.

In healthcare, supply and demand do not function freely. In Provigil's case, there is a distortion: one needs a prescription to buy it. In terms of price, there is another distortion: third party insurers will not pay for it. (9 out of 10 times it requires a prior authorization, which is almost always denied.) There are substitutes for Provigil. While it is the only drug of its kind, the stimulant ADHD medications promote wakefulness as well, though they often have other undesirable side effects, and are contraindicated in patients with anxiety and panic disorders and in patients with cardiac arrhythmias, hypertension, etc. Provigil, with its different mechanism of action, does not have these limitations because it does not function like drinking a cup of coffee. It simply removes fatigue and promotes wakefulness in the same way that it's opposite, Benadryl, makes you sleepy and dopey. (Indeed, Benadryl is a messy antihistamine that works in the body and in the brain, and Provigil is a pro-histamine that works only in the brain.)

Because of the lack of competition within the pro-histamine drug class, Cephalon does have some market power. In my view, Cephalon was not profit maximizing for the long-term until these recent price hikes (more on that in a bit), because Provigil has always been expensive relative to its other patent-protected, cross-class competition (ADHD meds). Had they priced their medications right along at $100-150/month, they might have made up in volume what they would have lost in price. It's not possible for me to know that, but I know that there is quite a bit of off-label demand from prescribers who would like to use Provigil, but cannot because it's too expensive to buy out of pocket for most patients, and the majority of insurers will not cover it. The only way to know this for sure is to wait until the generic is released, and then see if there is a generic modafinil boom. I expect that there will be because it's an excellent drug for many conditions that it's not technically indicated for. (When I did graduate psychopharmacology, the one of the answers for many of our case studies was often modafinil, with the inside joke being "Just kidding, it won't be covered so let's not waste our time.")

Now that Cephalon has raised the price by 74%, they are potentially sacrificing profits for the short-term, but maximizing them for the long-term. In the short-term, they are only potentially sacrificing profits because Provigil is never covered without a prior authorization to begin with. As patients not buying the drug out of pocket all have PAs in effect, that authorization does not expire just because there's a price bump. Those prescribers who are successful in getting Provigil approved for their patients are unlikely to have a harder time getting it approved now that the price has gone up, because that's not how the PA process works (even though I know that's probably counter-intuitive).

What Cephalon will do is bump Provigil's price while there's still a brief amount of time left on its patent. Then they will release Nuvigil, while Provigil still has some patent life left. (Usually it's a 6 to 9 month window on the patent for the old drug.) Nuvigil, priced in a more friendly fashion will almost immediately replace Provigil as the drug of choice. Cephalon will fund lots of studies that show that Nuvigil works great for those off-label things that prescribers have been using Provigil right along for, they will win FDA approval to use Nuvigil for these now-approved indications, and they'll market the hell out of Nuvigil for these new uses.

In the meantime, the patent protection on Provigil will come to an end, just as Cephalon's marketing campaign for Nuvigil is winding down, and most patients that were on Provigil will have been switched to Nuvigil (because it's cheaper and ostensibly "better"), and then generic Provigil will hit.

For about two months, the prescription benefit managers (PBMs) will do nothing. People will fill their monthly Nuvigil scripts, and then the clinical pharmacists working for the PBM will have finished their research, made their recommendations, and the formularies will change. Nuvigil will suddenly require a prior authorization, and pharmacies will begin faxing doctors' offices to change from Nuvigil to the newly-generic Provigil. And doctors will sign off on this switch back to the old drug because doing prior authorizations is a giant pain in the rear, and the opportunity costs associated with taking 15 extra minutes to fill out paperwork for each Nuvigil Rx is enormous.

Nonetheless, Cephalon is profit-maximizing in the long-run by doing this because despite the delayed shift from Nuvigil back to the generic Provigil, there will be some folks that remain on the Nuvigil. How many will depend on pricing. So long as Cephalon isn't price-gouging on the new drug the way they are on the old one, PBMs may be more lax about requiring PAs or trials of other drugs before approving the Nuvigil. (Instituting a PA, after all, creates inefficiency and requires the hiring of more personnel to process the PAs, etc.) Gouging is, of course, a relative thing.

This kind of behavior happens all the time in the prescription drug industry. AstraZeneca did it with Prilosec. They jacked the price of 40mg Prilosec way up (AWP is currently $247, though it was over $300 just a few months ago), released 40mg Nexium at a lower price (AWP currently at $181), and then generic Prilosec hit the market, and took back a bunch of marketshare, but not all. Nexium remains a very profitable drug, despite there being the evidence that suggests that it is only marginally better than Prilosec, if that. (Most AstraZeneca-funded studies compared 20mg of Prilosec to 40mg of Nexium, and only published this detail in the fine print. I actually had a talk with an AstraZeneca sales manager about it a few years back after he moved to Forrest, and he admitted that Nexium was only created to perpetuate the revenue stream.) In the industry, we call this game of patent-extension "evergreening" and there are a huge number of drugs that bear this label: Lexapro (based on Celexa), Nexium (Prilosec), Nuvigil (Provigil), Clarinex (Claritin), Xyzal (Zyrtec), Pristiq (Effexor), Trexima (Imitrex+Naprosyn); the list goes on and on and costs the healthcare system billions every year.

An example of a company that didn't do this, and is NOT profit-maximizing is Sanofi-Aventis with Xyzal, which I mentioned above, and they ended up with a drug that was dead in the water on arrival. Xyzal was supposed to replace Zyrtec which was losing its patent protection, but because SA didn't take the necessary steps the way Cephalon is and AstraZeneca did, their drug went nowhere. It was released about a year ago, and I can count on one hand the number of prescriptions I have filled for it. Zyrtec, on the other hand, was one of our fastest movers. (And is now available over the counter which killed script volume for it.) On the other hand, Sanofi-Aventis is still making money from the over-the-counter sale of the old Zyrtec, so they are maximizing profits in the second best way. (Having a patent monopoly for an Rx-only drug is more lucrative because you can charge prices that you'd never make up for even with the oceans of relatively undistorted free-market OTC volume.)

In my 8 years in the pharmaceutical industry, Cephalon is a company that I simultaneously loathe and admire. I dislike them because their drugs are very expensive when common sense suggests that they probably shouldn't be (Provigil was invented in the 1970s). On the other hand, I find myself admiring them because they are incredibly legally savvy. If this savvy is present in their pricing discussions — and I have no reason to think that it is not — there is a good possibility that they are indeed profit-maximizing within their legal constraints. I know that earlier I suggested earlier that they might make more money in volume if they lowered their prices, but most PAs will not be approved unless the indication is on-label or you are a specialist, and since Provigil only has one indication, they might indeed be profit maximizing inasmuch as they can realistically be in a heavily distorted market. The information asymmetry here means I can do no more than speculate.

The Portfolio article that I linked in my last piece made reference several times how people involved in both regulatory affairs and investment banking weren't "smart enough" to understand the toxic investments they were buying, selling, and (supposed to be) rating. That got me wondering whether there is a correlation between employee intelligence in the private sector vs the public sector for finance types and economists. Theoretically, the private sector should attract the best and the brightest because it pays the most.

The highest paid government official in the United States is the President himself, who makes a salary of $400,000 a year, not counting ancillary benefits.

While it's never been easy to make this kind of money in the private sector, it's certainly possible. Ben Bernanke's salary as chairman of the Fed is just over $191,000. Henry Paulson as CEO of Goldman Sachs made $16.4 million according to Forbes. There's two orders of magnitude difference there. Obviously there are other benefits associated with being a highly-ranked government official, but those benefits are generally in the future when one leaves the public sector for the private. I won't get into discount rates and net present values, but generally this road can be profitable, though probably not profit-maximizing.

Another common trend is for an individual to make his or her fortune in the private sector and then move to the public sector. Henry Paulson is probably the epitome is this type of individual. I think this road is probably the more profit-maximizing of the two possible pathways thanks to compound interest.

But there are many people who don't migrate from one to the other, and is there a correlation with relative intelligence of one sector over the other? Firms are profit maximizing, and people are theoretically utility-maximizing, with money being the most fungible obvious resource for maximizing that utility. That suggests that the private sector should, on the whole, be able to "outwit" the public sector much of the time because they're able to cherry-pick the best and the brightest with the leftovers going into the public sector, all other things being equal.

Finding public sector work more rewarding than private sector profit maximization will always play a role in determining which jobs people take. If a person gets greater utility from the fulfillment doing work in the name of public service or teaching than they would get from a greater salary in the private sector, they won't migrate. On the other hand, I find it very hard to believe that compensation plays no role whatsoever in an individual's choice of employment.

Thoughts?

Felix Dennis who comes from humble beginnings:

An art college drop out, Dennis left home before his sixteenth birthday, and lived in a number of bedsits. Dennis started his career in publishing with Oz magazine, the Sixties counterculture magazine, initially as a successful seller, through which editor Richard Neville realized Dennis' potential business acumen. Dennis had earlier contributed to a television discussion on the counterculture, which Oz reprinted; the first magazines Dennis sold had been Neville's only available means of compensating him for using this material.

Oz was prosecuted for obscenity in 1971. All three editors were found guilty of corrupting children, and given jail terms with hard labour, although Dennis himself was given a shorter sentence because the judge, Justice Michael Argyle, considered Dennis "very much less intelligent" — and therefore less responsible — than his co-accused. It was such a cutting remark that it allegedly drove Dennis to create a business empire to prove the judge wrong.

Revenge empire? Interesting, if true.

Some quotes from this article, which somehow manages to be simultaneously annoying, enlightening, and heartening. Probably quite a bit like Dennis himself, if his writing is a window into who he is as a person.

The key, I think, is confidence. Confidence and an unshakeable belief it can be done and that you are the one to do it.

Tunnel vision helps. Being a bit of a shit helps. A thick skin helps. Stamina is crucial, as is a capacity to work so hard that your best friends mock you, your lovers despair and the rest of your acquaintances watch furtively from the sidelines, half in awe and half in contempt.

[...]

If you wish to be rich, however, you must grow a carapace. A mental armour. Not so thick as to blind you to well-constructed criticism and advice, especially from those you trust. Nor so thick as to cut you off from friends and family. But thick enough to shrug off the inevitable sniggering and malicious mockery that will follow your inevitable failures. Not to mention the poorly hidden envy that will accompany your eventual success.

Consider carefully this shortlist:

• If you are unwilling to fail, sometimes publicly, and even catastrophically, you stand little chance of ever getting rich.
• If you care what the neighbours think, you will never get rich.
• If you cannot bear the thought of causing worry to your family, spouse or lover while you plough a lonely, dangerous road rather than taking the safe option of a regular job, you will never get rich.
• If you have artistic inclinations and fear that the search for wealth will coarsen such talents, you will never get rich. (Because your fear, in this instance, is well justified.)
• If you are not prepared to work longer hours than almost anyone you know, despite the jibes of colleagues and friends, you are unlikely to get rich.
• If you cannot convince yourself that you are "good enough" to be rich, you will never get rich.
• If you cannot treat your quest to get rich as a game, you will never be rich.
• If you cannot face up to your fear of failure, you will never be rich.

Ann is the co-founder of Hummer Winblad Venture Partners which opened its doors in 1989. It was the first VC firm to focus exclusively on software. Since that time, 45 of its portfolio companies have been acquired or gone public. She began her career as a systems programmer at the Federal Reserve Bank. In 1976 Ann co-founded Open Systems, Inc., a top selling accounting software company, with a $500 investment. She operated Open Systems profitably for six years and then sold it for over $15 million.

$15 million in 1982 dollars is worth approximately $50 million today using GPD per capita measure, which is the appropriate metric for this kind of thing.

From page 299 of Founders at Work: Stories of Startups' Early Days:

When I went there, it was the first real business experience I had — although I had had part time jobs. I'd never been in a corporation, and it felt so glamorous to have a cubicle. Minneapolis is a bright city. There's the Nicollet Mall and you were right downtown in the city. It's like getting a job in San Francisco.

But it just wasn't inspiring. No one was chomping at the bit. I actually can't remember — I knew I was going to quit, but I can't remember the moment where I thought, "I'll quit and start a company." I still felt very empowered, like, "This isn't this hard a job. This is a big job and I've already gotten promoted once in the first 3 months and I know I can earn money. I can always come back to this, so why don't I break out?" So the three guys from the Federal Reserve that started the company with me — one guy did quit his job and the other two took a year sabbatical, just in case this didn't work. They held on to the safety ring.

There were not a bunch of people saying, "Start a company, start a company. Let's do this. Let's build something from scratch." It's so long ago now that I just remember the general feeling that there was very little to risk. I was somehow already fully trained for anything that might confront me. Of course, all that is false; there's a lot of risk and you are never fully equipped to… you just have to be very adaptable. It turned out that I was adaptable. I didn't know that until I did that, but it was just a feeling of fearlessness. "What's the risk? What will I have to lose? I'm sure I can do this." It was not cockiness, just that moment you feel in your youthfulness that you are sort of empowered to achieve.

I think what does separate some entrepreneurs from other entrepreneurs is we're not handwringers. We don't worry about the unknown. We don't really worry about the risk points ahead. As you get older and you get more experience, you train yourself to think ahead about the risk points versus just to take the next hill. But non-risk-takers and non-entrepreneurs would have really big headaches about this. They would need some level of comfort and safety.

That's something that we look for in entrepreneurs — that they have the courage to do the job. That they'll have the ability to judge the business situation. They'll have the ability to lead people. They'll have the ability to interact with the marketplace and to really build confidence into strategy.

I've been doing a lot of reading lately, and today I was reading "Hiring is obsolete" by Paul Graham. I loved it, and the section on risk really stood out to me, and I'd like to highlight some specific bits.

So what you should invest in depends on how soon you need the money. If you're young, you should take the riskiest investments you can find.

All this talk about investing may seem very theoretical. Most undergrads probably have more debts than assets. They may feel they have nothing to invest. But that's not true: they have their time to invest, and the same rule about risk applies there. Your early twenties are exactly the time to take insane career risks.

The reason risk is always proportionate to reward is that market forces make it so. People will pay extra for stability. So if you choose stability– by buying bonds, or by going to work for a big company– it's going to cost you.

Riskier career moves pay better on average, because there is less demand for them. Extreme choices like starting a startup are so frightening that most people won't even try. So you don't end up having as much competition as you might expect, considering the prizes at stake.

…

But it's not necessarily a mistake to try something that has a 90% chance of failing, if you can afford the risk. Failing at 40, when you have a family to support, could be serious. But if you fail at 22, so what? If you try to start a startup right out of college and it tanks, you'll end up at 23 broke and a lot smarter. Which, if you think about it, is roughly what you hope to get from a graduate program.

Even if your startup does tank, you won't harm your prospects with employers. To make sure I asked some friends who work for big companies. I asked managers at Yahoo, Google, Amazon, Cisco and Microsoft how they'd feel about two candidates, both 24, with equal ability, one who'd tried to start a startup that tanked, and another who'd spent the two years since college working as a developer at a big company. Every one responded that they'd prefer the guy who'd tried to start his own company. Zod Nazem, who's in charge of engineering at Yahoo, said:

I actually put more value on the guy with the failed startup. And you can quote me!

So there you have it. Want to get hired by Yahoo? Start your own company.

The entire essay is absolutely worth reading for anyone interested in starting their own business.