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Nowadays, with wages stagnant and many jobs hard to get, people think of starting a business as a way to make money and have more surety in life. No office politics, the joy of being your own boss, no layoffs, and the like. People also look at successful businessmen and envy their lifestyle and independence. I understand the temptation to strike out on one’s own. But before you make that leap into what I call the “entrepreneurial abyss”, I want to warn you that entrepreneurship carries far greater perils than the mundane-ness and irritants of regular jobs.
There is no doubt that the opportunity for riches is more available to those who can create a profitable business. We see this all the time as the media highlights the shining successes of Google, Facebook and Bill Gates. But underlying it all is a different story.
The struggles and high rates of entrepreneurial failure often get glossed over as the world celebrates geniuses like Steve Jobs who break the rules and change the world. Politicians praise them as wealth and job creators. Glossy magazines drool over their homes and lifestyles.
But the stark, harsh reality is that first-time founders have pretty much zero job security, often have severe financial worries and social lives that barely exist.
But the stark, harsh reality is that first-time founders have pretty much zero job security, often have severe financial worries and social lives that barely exist.
The path of entrepreneurship is full of speed bumps and dead-ends, with no smooth road to prosperity. Entrepreneurs no longer enjoy the perks of a steady corporate job such as company provided healthcare, matching 401(k) contributions, paid vacation days, free weekends and the dependability of a steady paycheck.
A steady paycheck in itself can help build fortunes, no matter how small. I’ve heard many stories of school teachers and factory workers living frugal lifestyles, saving and investing regularly, and building multi-million-dollar fortunes.
A steady paycheck also makes it much easier to get a home loan or finance purchases such as a car or new appliances. Entrepreneurs, on the flip side, have to dig into their life savings just to make employee payroll while taking no salary themselves. They find mortgage and other loans hard to get because their incomes are seen as higher risk.
They spend all their time – morning to night, including weekends – working on their ideas, generating sales and trying to make their business successful. Consequently, their lives often become highly stressful and their relationships often strained to breaking point.
Starting a company is amazingly difficult work. You have no life balance and no family time You will never work harder in your life.
Not to be too much of a Debbie Downer, the reality is that the path to entrepreneurial success is strewn with dead startups with over half of all American startups out of business within five years and most of the companies that survive barely hobbling along. Fully 75% of all startups backed by venture capitalists fail to return the capital invested in them, let alone generate a positive return. And entrepreneurs earn 35% less over a ten-year period than those in paid jobs.
My point is that it’s time to replace our romantic view of entrepreneurship with one that understands that businesses are very, very hard to build from scratch. It’s far easier to collect a one hundred-thousand dollar paycheck as an employee, than generate one hundred-thousand in profits from your own business.
If you’re planning on starting a business, be fully aware of the life-changing pitfalls, financial struggles and high rates of failure. This doesn’t mean you should not follow your dream! Just be realistic and prepared. Make sure you plan ahead and have at least two years of savings to pay all your bills while you’re building up the business. Then, once you commit, do so with open eyes because a large part of entrepreneurial success is about sticking-it-out through the inevitable tough times. You should also know when to draw the line if your business isn’t really taking off, so don’t be overly wedded to your ideas.
I deeply respect entrepreneurs but I think entrepreneurial success critically depends on good planning, lots of saving, a clear view and emotional preparedness of the many stresses you and your family will inevitably shape.
I deeply respect entrepreneurs but I think entrepreneurial success critically depends on good planning, lots of saving, a clear view and emotional preparedness of the many stresses you and your family will inevitably shape. So before you quit your job to become an entrepreneur, assess where you are in life, and what your responsibilities are. Sometimes, it’s just easier to do a venture before you start a family. Other times, perhaps it pays to build up your retirement savings before giving entrepreneurship a shot. Essentially, it pays to have fewer balls in the air so you can better focus on your venture.
As for everyone else, the non-entrepreneurs, I want you to have a lot more respect for people who put their lives on the line to build something from nothing. Treasure the perks of your steady job. Know that the odds of a regular working person becoming a millionaire are way higher than the probability of entrepreneurial success, provided you live within your means and save and invest regularly in a disciplined manner.
Source: The Economist
