Looking to gain financial freedom by starting your own business? I’d urge caution. Most well-paid employees are better off sticking with their jobs, spending less than they earn, and investing the difference in the markets over the long-term.
Don’t get me wrong: I’m self-employed, and I’d only go back to corporate life as a last resort. I’ve also worked for several start-ups, and I co-founded one that’s still in business.
I can confirm that start-up life can be exhilarating, especially if you really believe in your product or service.
But as a sensible route to modest wealth, I’m skeptical.
I also believe there are far better ways to secure lifestyle freedom than starting your own business.
Here are seven things to consider before quitting your day job. If you’re going to take over the world, it surely pays to know your enemy?
1. Your innovative business will almost certainly fail
I know it’s a great idea. I understand you’ve done years of research, talked to friends and family, and maybe even started working on the business in your spare time (good – but watch out for legal claims by your employer).
Will you succeed? If you’re opening a Subway franchise or taking your current skills freelance, perhaps. But if you’ve thought up, say, a new Web technology, then you’re more likely to make a splash in the deadpool.
Like writing a novel, starting a business is easy to do, yet the outcomes are hugely polarized between the handful of highly visible winners and the sunken iceberg of also-rans.
Hundreds of thousands of novels are written every year. A few thousand make it into the bookstores – where only a tiny number remain on sale for years. Similarly, while we all know the success stories, most innovative businesses fail. And while your business is failing, you’re not getting paid – in fact, you’re probably seeing your savings disappear.
This isn’t to decry the idea of starting a company to try something new. It can be an amazing ride, even if you do fail. You’ll learn all kinds of new skills, discover late night takeaway food you never knew existed, make great contacts, and maybe even create something cool.
But statistically speaking, rounding down to two decimal places: there’s next to no chance of your innovative start-up business making you rich.
Better to find ways to live like a billionaire without risking your life savings.
2. Your start-up business will destroy your life
I don’t mean that being a start-up CEO will kill you (though it might). I mean you can kiss goodbye to your current way of life.
Unless you’re very lucky (as opposed to talented or smart, which aren’t enough to guarantee anything) you’ll work harder at your own company than you’ve ever worked in your life.
Evenings and weekends will become merely annoying breaks where it’s hard to get hold of employees and customers (not that it will stop you trying). The gym? A tax on your good intentions that you’ll pay in January and rue as your weight balloons – assuming you find the time to eat.
If you’re lucky then after a year or two you’ll fail and get a job before the medical, financial or social damage becomes too great. Perhaps you’ll even get a pay rise, thanks to the new skills you’ve learned.
But many businesses do not fail fast – rather they just never really succeed.
“This time next year Rodney we’ll be millionaires! Or scrounging money for the rent!”
If you’re unlucky you’ll limp along for years, working twice as hard for half your old income, and never getting that reality check.
If you’re very lucky you’ll succeed. Maybe you’ll point out this gloomy article in a speech at an industry awards dinner!
But by then you’ll know just how fortunate you are.
3. You’ll be too busy to make any money
My father used to work with a Cambridge PhD who hadn’t been promoted in a decade. It puzzled my dad, since the guy breezed through his day job with obvious ease.
Did he lack ambition? Had he done something untoward with a senior manager’s wife? No, this man eventually explained to my father: he was just too busy making money to handle a promotion.
I don’t remember how the guy made money exactly – I heard the tale when I was a kid. I think it was stock picking, but it could have been betting on the horses. I do remember though my father explaining with obvious incredulity that his clever workmate admitted he only ever ‘worked’ until his lunch hour. In the morning he’d conscientiously do what was demanded of him by his employer (but no more) and then after lunch he’d concentrate on making real money.
I don’t know if you’d get away with this in today’s office environment (where you need a guidebook just to survive
Start a business and you can forget all about such freedoms.
A capable friend of mine who runs her own company has spent two years trying to find time to set-up a passive index tracking fund.
Don’t think she’s lazy or stupid (though I’ll grant you she’s disorganized). She simply believes she should put some thought into how she’ll invest for the next 20 years, but she hasn’t found or made the ‘headspace’ to do it. (C., if you’re reading here’s why you should invest in an index fund. Again).
At least my friend hasn’t given her funds to a sub-optimal financial advisor to piss down the drain of high charges and chasing hot sectors.
I dread to think how many time-starved entrepreneurs have to work twice as hard because they outsource their finances to idiots who whittle away their returns.
4. Friends and family will become tick boxes you ‘do’
- Your husband or wife will give up trying to make dates with you in your own home.
- Your girlfriend and boyfriend won’t be your girlfriend or boyfriend soon enough.
- Your soulmates will be the people you pay at the end of the month.
- A former workmate will show up in a fancy car looking healthy and inviting you to take a rejuvenating weekend break at his new holiday home, which you can’t afford the time to go to, let alone the travel fare, let alone the mortgage.
Okay, I’m exaggerating. A bit.
Your spouse may have an affair instead, just in case your company does strike it big.
5. Your talents and skills will wither away
Love writing code? Don’t start a software company.
Love writing? Don’t start a publishing company.
Born to cook? Stay out of restaurants.
The boss of any successful company isn’t the top artist or craftsman. He’s the top sales guy, the rainmaker, the inspirational leader. And that’s fine, unless you love what you’re doing.
The best model for a start-up CEO is Steve Jobs. He was bright, brilliant, interested in everything – but essentially unemployable.
If your job is your vocation and you’re good at it, you should probably keep doing it. Don’t trade it in for paperwork and worrying about the bills.
6. You’ll spend all your time dealing with staff issues
Here’s a dirty secret that few business books will tell you: Half of a start-up founder’s time is spent dealing with people.
Ultimately your team is the key asset that will mean success or failure for your company.
Unfortunately they are also human beings who will:
- Get sick, sometimes seriously
- Have elderly or infant relations who will get sick
- Get sick of someone else on the team
- Believe someone else is jeopardizing the whole project
- Be the person who is jeopardizing the whole project
- Fear they’ve made the wrong move in joining your start-up, and take up half your time and theirs with demands for motivational pep-talks
Perhaps you relish all this. You certainly should if you’re starting a company.
If you don’t, then there are libraries of literature written about how to deal with people. I don’t have the answers – I’m just warning you to get reading.
With luck it’ll stop you starting a company in the first place.
7. It will be you who takes out the trash
Hey, Trump Jr., you know that superstar team you’ve recruited? You forget to include someone who’ll manage the company website. Also, there’s no one to sort out the phone lines into the office. An office that has no furniture in it because only you have a company credit card, which means it’s you who has to go shopping for desks and Macs.
Et cetera, et cetera.
Trust me on this – however efficiently and comprehensively you delegate, at some point you’ll empty the bins, clean up the junk mail, and be the person who sorts out the broadband.
And then on Tuesday you’ll have to do it all again.
Don’t think this stops when the business takes off; you just get a classier version of the jobs no one else wants.
Why? Because those jobs have to be done and it’s YOUR company, so you’ll do them. You’ve got by far the most to lose.
So should you start your own company?
Starting up a company comes with a great undertow of extra work to keep yourself in business, even before your innovative idea has been brought to market.
Don’t think a Venture Capitalist is going to pay for that. Unless you’ve got a proven track record of starting companies (in which case you’re already rich and none of this applies) then VCs will want to see you’ve put your life into your new company before they’ll invest. They want their money to go entirely into bringing your new product or service to market, not on making your life easier.
In summary:
- If you truly want to be the next Steve Jobs and you’re prepared to risk being just another Joe Schmoe, then you should start your own business. You only live once.
- If you’ve got a great idea, a desire to change the world, and you truly believe failing would be better than doing nothing, then start a company.
- If nothing less than $20 million in the bank will do and you can’t sing, act, or kick a football like Lionel Messi, then starting a business might be your only option.
For most of us though, I believe a better solution is to save and invest enough money to make your job optional.
Still want to start your own business? Good for you, I wish you the best of luck! I’d also suggest you email this article to your fellow co-founders or employees.
Best to shake out the weak before you get started…
Comments on this entry are closed.
I just want you to know you are a douche for putting this up…I have took the liberty of printing out this blog and putting on my wall for the biggest inspiration to SUCCEED….Meaning obtaining happiness in my business, my family, and with me….POW!
Good luck with your business Warren. I hope you don’t feel the need to insult anyone else on your journey; in my experience such things come back to bite you.
Then again, perhaps you’re in the hip hop game or similar?
Also, writing succeed in capital letters doesn’t guarantee success, just as an FYI.
Hope you learned something from the piece regardless.
There’s only one loser reading on this page and it isn’t The Monevator Warren. Did you even read the essay? You could learn from it. I came here from Neil Patel’s site quicksprout where he wrote a very similar article:
http://www.quicksprout.com/2009/07/28/thinking-about-starting-a-business-here-is-why-you-shouldn%E2%80%99t/
(The Monevator is in the comments).
Neil Patel has made tens of millions btw Warren. Listen and LEARN.
Nobody is saying don’t ever do a business. These guys are saying: know what will happen, and be prepared for it, and don’t do it if you can’t/aren’t.
Great read! Love your writing style, a motivational and de-motivating post at the same . So many points are true. I’m still going for it though!
Oh how right you are, Monevator.
Every start-up book, MBA module and blog should show the power law distribution curve of failure rates, instead of the misjudgements from survivorship bias you mention and availability misweighing bias of focussing on the 1 in 1000 successes.
But where’s the money in a professor starting the MBA entrpreneurship module with “over 90% of you will fail to launch a successful business”?
Jeff Bezos of Amazon.com secured capital from his parents in part by a little lie, saying he had a 70% chance of failing within a few years… he didn’t want to say the truth that it’s 90%+.
Solid franchies, local hairdressers or fish and chip shops have a higher success rate.
But the overconfidence of the average wannabe entrepreneur will ensure they plough all their capital into a hair-brain million dollar mousetrap idea. Capitalism is red in tooth and claw.
I was struggling with this at some point last year, and I eventually decided that the risks were too great in comparison to the rewards. I now lean toward simply passive income, investing wisely, and getting out of the rat race. Far more achievable, and, once I do them, I have a luxury of failing that I simply cannot afford now.
Great post!
.-= Kevin@InvestItWisely on: Precious Metals Are on Fire! =-.
There is an extremely high failure rate in start-up businesses – but that’s not because its extremely hard to succeed, its because it’s extremely hard to succeed if you’re not very good at business.
Followed by all the other reasons “not to go into business” all of which only apply to someone who is failing as a result of there poor business skills.
You say “if you like cooking don’t become a chef” etc. But true business people don’t follow there one dream of cooking/writing code/writing articles, they follow there dream of wanting to succeed and wanting to make money.
Thanks for your comments Martin.
I agree with your last point. I don’t say “if you like cooking, don’t become a chef”. I say “if you like cooking, don’t open a restaurant”. A restaurant is a business…and as you say requires someone who wants to be in business, not somebody who wants to make a nice meal.
Regarding your first point, we’ll have to disagree. I have seen lots of smart business-minded people run failed companies over the past 20 years. I don’t know what your profession is, but if you’ve not been closely involved in business you can get misled by ‘survivorship bias’.
In other words, you see the successful companies run by business-minded people and you can think ‘I need to be business-minded to succeed’. Well, you probably do, but it’s not enough – starting and running a successful business is also down to unpredictable things like luck, personal capacity for pain, sacrifice, and much more.
Been There Done That, and of your points applied to me. 1-7.
Just sharing.
Great article.
You are a person with negative attitude, any how thanks
@Mohammed — Thanks for taking the time to comment. By all means go off and read only positive stories about how anyone can succeed in business “if only they really try!”
Then ask yourself why not every entrepreneur is successful – in fact, why 80% of new businesses fail.
I have nothing against starting your own business. I am doing it myself, again. But go in with your eyes open.
The post I have written above would have been much more valuable to me had I read it a few years ago then yet another “man up” style booster piece. It makes you aware of some *true* hurdles that lots of pundits (many of whom appear to have never actually started a business, but like to tell people how to do it) choose to ignore.
Hopefully some other readers will feel the same, though unfortunately I think you have to live it to experience it.
I have to admit, I definitely agree with you. The risks of starting a new company are quite large, that’s why in my opinion, you should only do it if you have NO DEBT, can still go back to living with your parents if it fails (lol) and are prepared to work 24/7. That said, if you are good at being the “rain maker”, “manager”, “pep-talker”, etc. and are a dogmaticly hard worker starting your own business can also have a lot of opportunity. I have been around small business consultants and entrepeneurs since I was five years old, in that time I have seen businesses that have been designed poorly fail while others succeed to become 18,000,000$ companies (mostly in plumbing). I think that if you are going to start an innovative company though, the best time to do it is in college. If you go to a good enough school you are surounded by highly bright eyed talented people, experienced academics, and business starters turned professors. I think it is also important to say that if a company has no over head it is MUCH better for when it fails.
In case you’re banking on the Venture Capitalist boys to bail you out… 3 out of 4 VC firms… fail… Not good odds!
Here’s the scoop:
http://online.wsj.com/article/SB10000872396390443720204578004980476429190.html
I agree with certain aspects of this article. However, in my case I aspire to live in Britain’s richest areas, own my own plane, have more money than most of the population of the UK. I am not scared of the prospects of suffering due to opening my own business, as my ‘ crazy dream’ which people would state is unattainable, is my ultimate drive to go through the hurdles of becoming very wealthy. In essence, it entirely depends upon the individual and what they hope to achieve with their business. If you are at the top of your game at the firm you work for, then stick to that. However, in my case I aspire to live the ‘ high life’ as they say.
P.S I am only 18 years old and I have these dreams!!
Great article, resonates hugely 4 years in. There’s piles of positive stuff that are reasons to continue but the downside is real and it can be hard to admit that even profitable growing businesses may not get you what you wanted when you started.
KateM — Huge thanks for chiming in with that, I think there is a bit of a gulf here with those of us who have done it and those who have read the books and got inspired, but have yet to try. We all have to start somewhere so I’m not disparaging them at all, but forewarned is forearmed as they say.
Good luck with your business in 2013, and hope you eventually get exactly where you want to be.
I wish I would have read an article like this before I threw my life away. I especially liked the comment about the lucky ones failing right away. Unfortunately I was too stubborn to give up and rode my business into the ground. It took 12 hellish years to do before I finally gave up. By then I had also destroyed my personal life as well. I would also make sure that you are starting a business for the right reasons and not because you’re having a reaction to any antidepressants you may have been given by your doctor. It sounds far fetched but a lot of people go manic when they start taking that kind of medication and think that they can take on the world, Believe me I learned the hard way.
Hi,
I very much enjoyed your article. I think a distinction should be made from a random ‘innovation’ based start up and other businesses. I would imagine professionals who worked in a given industry then open their own practice have much higher success rates i.e consultants, freelancers, surveyors, agent, lawyers, designers etc. Most have build up their network, lower overheads so failure is less likely. It is like a job but with an unlimited share of the upside. I have sold two businesses for a substantial business and now operate a third. None were particularly more demanding than my first job. The reason is that I operated it like a consulting practice first (with existing contacts) and gradually expanded with cash flow.
Dear Mr. Monevator,
I wish I read this two years ago. You are right. I have lost my money, sanity, and relationships by trying to be an entrepreneur.
I have always been the shy, studious type. I never was a great salesman. I don’t know what possessed me…I loved writing code. People say I have good work ethics, they always say I’m a hard worker with attention to detail.
But I never understood that a big part of entrepreneurship is to know how to sell…and even that does not guarantee success.
Ah well. This proves that I am a better suited to be an employee. At least this would motivate me to work hard when I find a job. The 9-5 people don’t know how good they have it.
Thanks Matt, very game of you to share your experiences here. I wish you all the best in your 9-5 coding career! Read our posts on investing; plenty of ways to get richer with that skillset and the right regime.
Now and then I have to delete abusive comments on this post from people who for some reason think I’ve set up a website to “put people’s dreams down” (with swearing). Nothing could be further from the truth.
As I say above, if only starting a business will make you happy, do it yesterday! But know the risks, and the odds, before you do.
This is a great article, because it’s fair and it’s true.
Five years in, we’re through the most dangerous part: 250 staff, $50m in sales, and no longer dependent on external capital (touch wood). But getting here has been almost indescribably tough — and it is partly just dumb luck that we got the right people on board at the right time.
Oh, and it doesn’t really get easier as you scale (although the texture changes).
An actor I knew once counselled: never be an actor. It’s a sickness. Never be an actor unless you cannot conceive of living with yourself any other way.
Statistics don’t tell the whole story. What if the 90% who fail did so because they were reading too many articles like this? (Or, listening to too many well-meaning friends, family etc. who tell them to be “realistic”). Psychology matters. If you believe your chances of success are small then you probably won’t put the necessary work in. Likely, a 90% failure rate is the result of a self-fulfilling prophecy, not a fundamental law of the universe.
But let’s assume you’re right, and only the 10% are truly cut out for creating and running a successful business. The danger of your article is not that you’ll put off those poor souls who just aren’t cut out for business success. According to your assumption, they’ll learn their lesson anyway and accept that they must live a mediocre life and can only become rich by the time they are in the nursing home.
No, the danger of your article is that some of that 10% who have the drive and determination to succeed will be reading your article and will be put off. It’s not at all a foregone conclusion that they will know themselves well enough to avoid this outcome. All humans self doubt and it is very important that you don’t sow seeds of doubt in a person’s head. If your article discourages even one potential business idea then it is causing harm and shouldn’t be live on the web. Instead of being merely neutral, your attitude could be causing harm. Can you live with that?
@Jessie — The statistics are as they are. Most businesses fail — especially if “fail” means do less well for money than they did when they had a job. You can go and research the statistics for yourself if you like. I am not some overlord who changes the world by writing articles about businesses. 🙂
I think you’re onto stronger ground with the family and friends comment — I am sure many people are put off. I doubt many who start fail because of this though. I suppose it could be that the failure rate is higher because businesses that shouldn’t get started start, and those that should don’t, because of these influences. Seems highly unlikely though.
As I say in the article — and as someone who has started and sold out of businesses, and who works for myself — getting through an article like this with a few doubts is the very lowest hurdle you will face in starting a business. So yes I can certainly live with it. 🙂 Especially as anyone who does go on to start a business after reading it will *definitely* be better-placed from reading my article and knowing some more of the pitfalls.
Finally, I say in the piece that if you really want to start a business, start a business. There are some things we all do that we know statistically we shouldn’t, but we do for whatever reason. If you (/someone) has a burning life ambition to try, then they absolutely should try. In this instance “trying” is addressing the burning desire, not succeeding.
This is a truly ridiculous statement to my mind, but I’ll let it go as it seems your heart/thinking is in the right place overall.
This is totally true especially when your starting your business. Starting a business has been the most spiritual fulfilling experience I’ve ever had. I no longer clock watch, or be forced out of bed, I forgot what it feels like for the Monday morning blues, the everyday is like a weekend day to me.
Running a business has allowed me to do what I could never have done without
*live and be with my wife in South Korea
*spend weeks in hospital by my wife’s side when she was sick
*help to provide a Visa for my wife with a UK based income
*take off the most memorable days of my life with no notice
*remove negative people from my life and choose who to work with
*get into the best shape of my life
*saved more money more than I ever imagined possible
*professional develop skills that will serve me for the rest of my life
*watched other business owners thrive with my input
The points you’ve made apply to freelancer or business owners that own their own job. Business owners that work IN their business rather than ON their business. The secret to a successful business is putting the systems in place so that it can run itself with the least amount intervention.
This article is spot-on. I have travelled this route myself (15+ years in) and you have highlighted all the pitfalls exactly. I’d add a number 8 – Difficulty of cashing out when you don’t want to do it any more.
The people disagreeing with the article clearly haven’t been there! (and the people with the drive to stand a chance of succeeding will just do it anyway, nothing will put them off)
@SpreadsheetMan — Cheers for that. You’re right about exit complications, too. It’s particularly difficult if you don’t own it all (although as you’ll known owning it all brings its own challenges, too, if you’re considered indispensable…)
I know many people who either co-founded or were early key employees granted equity in companies that remained viable or even mildly successful at the lifestyle level who stayed locked in for years who couldn’t release the value of their shareholdings, and more than a few who eventually threw in the towel and left anyway.
Dealing with staff issues is no cup of tea I AGREE! It’s why I decided to keep my business staff-free and just run it with me and my wife. Heck, it’s 3:29am here in San Francisco as I type this, but I wouldn’t have it any other way.
Hell is other people, as the saying goes! 🙂
Sam
@Spreadsheetman – Actually, I think one of the best reasons to start a business is b/c of the equity component. To be able to earn income AND sell your business for multiple times earnings or revenue is what next level richness comes from. I’m just drafting a post about this subject now.
I have been very lucky to start a successful small business (can anyone see survivorship bias when reading these comments?) without quitting my day job to do so. I absolutely love it and love the challenges that come with it, right down to cleaning the workshop at the weekends.
But your article is unnervingly on point and I laughed aloud about never having time to do anything with anyone and human interactions becoming checkboxes… maybe I shouldn’t laugh but if I wanted to cry then I’d have quit a long time ago. It’s strangely liberating.
Good article.
Most start-ups will fail. In fact, all businesses fail eventually. Being aware of this is not negative thinking. The hard and lucky part is to be one of the minority that makes enough money soon enough to make the rest of the ride enjoyable regardless.
Many businesses will fail because of unrealistic expectations, not just in terms of the hours and sacrifices, but crucially too high expectations for sales and underestimating costs.
Friends and family will say it’s a great idea. Independent market research respondents indicate they would buy; but then find a reason not to.
I too founded a company, and it gave me financial independence. I did it because I knew I couldn’t do anything else and my head is wired for business. I worked hard at the time, but with hindsight I can see that a massive slice of good fortune is required to be doing the right thing at the right time in the right place. I suspect this is not uncommon. Anyone who claims success is just down to skill and hard work needs a reality check.
I would encourage anyone who wanted to try, and sometimes it’s the people who keep trying that are most likely to make it eventually. But it’s unlikely to be an easy path for all the reasons your article covers, and not everyone can afford to try more than once.
A thought-provoking article as always.
I agree with every single word that you said and this is what I advise if i’m asked for. I worked both for the government, big corporation and now in a start up (in the UK by a millionaire guy who’s life dream is to own a house by the sea in Spain, I still wonder what did he start this start up for). And I have figured out in about 10 years into my career that the best way is to become a middle manager (good pay but some of the job can be delegated;)) and have time to do your side hassle.
I agree with everything you said – starting a new company is a bitch.
I started two, but really one company was just me doing freelance consulting as a software engineer. So that barely qualifies as a company. I did make enough money from that early on that it really helped me retire early.
I started the second company with a partner. We did OK, but we really never thrived.
Loved it! I went through a lot of these thoughts when I “retired” and told myself that I’d like to start my own business. I had to remind myself that I really didn’t, what I actually wanted was to “start my own extremely successful” business. As you say, that would be more down to luck than hard graft, especially in my fifties. I listen to a podcast, “How I Built This” which interviews successful entrepreneurs and it’s surprising how many put their success down to “luck”. Everything else – the graft, spotting opportunities, managing other people, giving up weekends etc. – is merely a given. You need the breaks on top of all that. On the other hand, there are also plenty of business autobiographies where the writer is convinced that they made their own luck and it’s all down to them.
It’s always good to put all the info out there so people have a better chance, especially in today’s corporate wonderland where everything tends to be super-positive guff, whether you’re at work or even in private life. ( hence the massive self-help book industry )
I had a go, but pulled out after a lot of research and observation (also some excellent advice which was not necessarily complimentary about the suitability of my character) because it was a question of putting my life savings on the line when I’d probably not be able to make that up again via the conventional route if I failed. Most people have no idea how immense the obstacles are, the establishment (including all your potential competitors) will gatekeep you out to the death. You need so many variables to be in your favour, but mainly an unbelievable support network and random luck; I worked in a startup and had no idea at the time how amazing it was that we survived to the sale point.
A lot of self-employed people today driving around in various vans thinking they’re entrepreneurs actually don’t even have a job, they’re breaking even or losing a little all the time but don’t want to give up. So they can go on for a few years racking up credit card debt while working terrible hours until they have a breakdown. (almost all couriers in the gig economy) I’m not saying it’s hopeless, just know all the facts first before diving in; check out whether another option wouldn’t be better and if you can afford the spin of the wheel at your roulette table. (Are you young enough to start again; can you access more funds later, like an inheritance to avoid poverty)
Very good, and a lot of truth in this. All those business that fail — the 90+% — all fail in the same way, too.
It’s a bit like riding a lion. All your friends in their jobs say — “Hey that’s cool: you’re riding a lion.” And all you can think is: “I wonder how I’m going to get off this thing alive.”
And don’t let your children start a business either. That’s £66k he and I wont see again.
An excellent counter to some of the more damaging guff in Kiyosaki’s Rich Dad Poor Dad (I’ll admit some of it is great though).
But if you’re not going down the entrepreneurial route then at least make sure you’re earning in the top 10% at least, preferably top 5%, of the population – if you want to gain financial freedom through your chosen profession.
Freelancing/contracting is a happy halfway house for many, higher earnings with far less risk than a real business.
Pride aside, who cares if you are a disguised employee in many cases?
You can always turn entrepreneur after you’ve made your first million.
I would love to hear some of the success stories from some of the older negative comments on this article. I think there is a greater than 90% chance that there won’t be any…
I can understand why it might upset people, but only because its a very direct article and there are some people in life that just can’t cope with that
@The Investor By the way, I meant to say, that was a classic putdown to Warren in the first comment about writing “success” in capitals. I hope Tony Robbins reads and takes note.
Click bait titles are always likely to attract negative trolls! 😉
With regards to point 5, I read in someone’s blog that the worse thing they ever did was turn a well loved hobby into a business because they no longer enjoyed doing it, not when they had paying customers to please, deadlines to meet etc!
I value my free time too much to start my own business. Plus, I don’t mind working for ‘The Man/Woman’ – easier to just put up with a bit of corporate bullsh!t, do as I’m told and get paid for it!
Nice article. One thing I’ve found very interesting in this area is attending the local university’s (Edinburgh) “eClub” (entrepreneurs club) who run a great series of talks – open to the public, not just uni folks – from business founders. One thing which becomes very clear after you’ve been to a few of them is that a common strand is the personal sacrifice involved (and most of the other points mentioned in the article have come up too I think). Not sure how widespread this sort of programme is across the country, but I think it’s a great initiative by the university.
Great article. Totally agree.
I did an MBA degree and found it valuable in terms of exploring what should a company’s strategy and USP be… The problem with many start ups is that they just are not doing anything particularly different or interesting to the existing companies… Or because they are competing so much on price it becomes hard to actually make a profit (see Uber or some of the UK challenger banks)… Even Facebook went many years before making any profit, but I expect there was always a long term plan there…
Good luck everyone! I hope those with business ideas succeed but remember that in today’s world the Facebooks and Googles of this world have huge innovation labs where they spend billions to try and come up with the next big thing… There are many great businesses still out there yet to be created but be careful that you don’t pore your life into a business which could easily be copied or disrupted by one of the bigger players…
“Like writing a novel, starting a business is easy to do, yet the outcomes are hugely polarized between the handful of highly visible winners and the sunken iceberg of also-rans”
I had a good giggle at that as I’m a self-published writer of historical mysteries. Fortunately I’m also not the main breadwinner around here. It’s been five years of hard graft and learning a new set of marketing skills, and I’m just starting to make the sort of money I could live on.
Having said that, I’m happy I chose to do this over every other way I might have chosen to make money. I was utterly miserable in corporate life, and the time commitment just didn’t work alongside caring for a disabled child. One of us had to step down from corporate, and I was happy to leave life in the cubicle to my other half who actually LIKED it.
I think that’s the part of the equation you’ve left out–your well-paid job IS the best route to eventual independence, but not if it’s poisoning your life. Or you could love your employment but it’s not that well-paid: what then?
I think the basic principle you’re trying to hammer in is that if you’re pursuing something only because you think it’s a fast track to mountains of cash, it’s not going to work. Doubly so if it’s entrepreneurship. Triply so if it’s entrepreneurship as a novel writer.
I think you’re conflating two things. There is the ‘new’ part and the ‘business’ part. I’d agree that starting your new business with new services is fraught with the risks that you’ve outlaid.
But I advocate that people at least consider selling the services they already provide inside an employment wrapper, outside of it. It will not work for all types of work, and is highly dependent on personal circumstances.
I look at this with the same cold logic that we monevators look at investment fees and insurances.
Employment provides excellent insurances, the foremost of these being continued employment, but also changes in the market for your service, sickness & health leave, and some insulation against your actual performance. These are not to be underestimated, they mitigate significant risks.
However, you’re paying huge ‘fees’ mostly in the form of general overheads: the management structures that exist around you instead of a contract; perhaps your performance covering less capable colleagues; the probably inordinate cost of the IT kit you’re provided with, contribution to the huge travel budget, and training budget, etc, of the company, and so on.
Now you may quibble with those lists, but its a generally accepted rule of thumb that someone charging out their services at a day rate will ‘earn’ twice as much a salaried employee. Put another way, a business would rather buy your services for a short term at £400 per day than pay an employee £200 a day long term. Of course, other costs then need to be borne from that £400, because you have to pay for your own travel and training and so forth.
But I continue to be amazed by those who’ll sit in £50k jobs that they don’t enjoy, when they could be earning twice as much. Exchanging up to £50k each year for those insurances appears highly questionable. Deciding to sell my intellect through a business was the best decision I have made in my life, and it did indeed make me rich.
Good read. Circling back to what this blog is about, feels like choosing to run a business is pretty much like active investment in one stock. As you say that comes with huge risk and potentially huge reward.
Just to respond to Amit, the lesson I have is that your job (whether a business owner or not) should be part of your portfolio considerations. Or more decisively, your future potential for work. A civil servant may be able to be adventurous in the stock market than a similarly renumerated contractor in the oil industry.
On a related note, we must always consider the businesses we work for, if we do not run one ourselves. Many of the risks in the article apply to working for such a business, albeit less severely.
I couldn’t decide whether to retire or to start yet another business. I went for the lattter. 🙂 TBH it’s because of the lack of “get up and go” in the UK that makes things a fair bit easier for those who do have it. Elsewhere in the world everyone else is trying to do exactly the same thing, so more innovation and creativity is needed.
@The X — I broadly agree, for people with the right kind of temperament and self-motivation (which in my experience is rarer than you might think.) I mentioned in paragraph two I was self-employed, and alluded to this alternative route in the following paragraph from the article, with the link taking you to an article that pretty much says what you say (and which is what I do 🙂 ):
This article hails from the days when I wrote without concern for reader comments, and thus doesn’t have a dozen caveats and complications. (Which is why to my ears it reads so clearly I suppose). Hence I wanted to focus on the main thrust — the risks of starting businesses.
Also (this paragraph is directed to the wider audience) I do say multiple times in the article that if you really really want to start a business you should! 🙂 I don’t see this article as negative, I see it as information.
Someone on Twitter re-Tweeted it saying “there will always be those out there trying to discourage you”. Really? I’d estimate there are 50-100 pro-starting a business articles online versus the odd warning like this one.
Cheers for all the extra thoughts and comments, and also the generous assessments.
Broadly agree with this article. There are two types of ‘own buisness’. Those who are SMEs and sell that expertise (often to an already established network) and those who are trying to do something from the ground up or move to an area that is outside their SME.
The former is relatively safe, and lucrative. Overheads tend to be low, cashflow tends to be good, if you have a solid network work tends to be available. Always a risk work dries up, but unlikely you have huge expenses that bankrupt you as this happens and can always drift back to being an employee. There is likely to be a ‘max’ to the up-side unless you move from being the SME to being the CEO of SMEs but now you are drifting into the second group.
The second group is where the real risk lies. Mainly because overheads can rapidly consume you and force you back to employment – though you may find you have to start all over again as your skills are no longer relevant. Of course the upside is potentially limitless.
Wow, that was a depressing read! 🙂
I guess I am one of the more fortunate people then. I quit my job working for the man six years ago and have never looked back.
Sure, I have encountered many of the ‘issues’ you present in this article, but now I have a lifestyle business that allows me plenty of time off, whilst earning more than I was when I worked full time. And that was a good wage!
I say go start your own business. You’ll lose a lot of sleep, wonder just why you are putting yourself through all the stress and anxiety, your friends and family might think you’re crazy – they sure won’t believe in what you’re doing, it’s outside of the box for most people.
But when all is said and done, the efforts can be rewarding, both from a personal achievement perspective and with financial freedom.
Great website by the way, it helped me massively with my introduction to passive investing a few years ago. Keep up the good work.
.. Or do as I did and start one when you’re 18. Your friends are all at uni or working at McDonald’s so there’s far less to lose, and you’ve got years to learn the inevitable hard parts without seeing everyone you once worked with driving swanky cars and living the lifestyle.
It took me a while to make a success of it, and I still feel like I haven’t really been, because now I know people who are a lot richer and more successful than me. But I do get to commute by helicopter, so every cloud…
This is a funny read and many parts of it are true.
I’m a fairly young entrepreneur, I became a self-made millionaire in my twenties, I’m now in my mid-thirties and still running the same very profitable company with a medium size team.
I went into it thinking that this was the dream, that it is the ultimate place to be in life, rich, successful and self-made – just how it’s portrayed on the TV. Parts of it are like that but running a business is all about dealing with problems and people.
Often, the biggest problems are the staff. If you’re like me with little or no hiring or managing experience it can be very stressful. Even now with senior managers in place, I still get involved with peoples issues that I just don’t want to deal with.
But this journey has made me a much stronger, more confident and well rounded person, in a very short space of time. I can’t think of anything else in life that could give me that kind of personal development.
It was the right thing to do for me, I don’t regret it. I’d rather work hard for 10 – 15 years and then have the option of being able to retire completely than be earning a normal salary for 40 – 50 years. Now I have the best thing in life, that’s choice, I can retire or semi retire now, move to a warm country or I could do it all over again with another business and a lot less stress.
If its right for you, go for it.
I was convinced when I was younger that the only way to get to where I want to be was to have my own business. After getting properly interested in personal finance (and learning about compounding and how easy it is to invest), I changed my tune. Not as sexy, but slow and steady at least has a higher likelihood of success.
I know this is an OLD post but you linked to it from the latest email and I just wanted to share my view.
Whilst I agree that your family life will suffer, you will have to deal with staff, trash, buying new Macs, and the the worst of all – Clients, it’s still the best decision I ever made.
I spent years bumping along not really sure where I was going, living hand to mouth and have no real goals and getting deep into my 30’s. The company I was working for back in 1990 was about to go bust for the second time and whilst I was having a beer with a colleague he asked me what I had in mind. I said I’d always wanted to work for myself but could never see a way. He said he and another person we worked with had been chatting and would I be interested in coming in? I went home and proudly told my pregnant wife that I was going to start a business (luckily she agreed it was the right thing to do). We sold our car, cashed in the little savings we (she) had and all invested £10k each.
After 25 years I was the only remaining partner, I’ve been through ups and downs but it was, without doubt, the BEST decision I ever made. Working for myself bought such a sense of freedom and drive that when I sold the company I had a maxed out pension, a good rental property, taken exotic holidays, had money in the bank and in savings. Working my 3 year earn out was torture, being beholden to the new MD (who I knew had no idea about the values and potential of my company), it was hard to let go but I was ready. Luckily I sold and left before Covid (it was a design and events company).
Since I left I have the time and money to enjoy life, which I doubt I would have had otherwise.
NOTE: One thing that spurred our decision was that we had lost our first son a year before at just 5 weeks old, it gave me the confidence to take that step and the drive to make it succeed.