A few days ago I had a conversation with a former coworker about his business. It’s been nearly a decade since I worked with him, and for much of the last decade he has worked as the owner of a hamburger franchise. Now his franchise is a smaller regional one, but it is one of the hot places to eat in Delaware. Anyway, the first thing I could think of asking him was “How is the Burger Business?” The response was about as negative as they come. Apparently he was making no money for his huge time investment, and was having an impossible time finding good help. We ended our conversation with him telling me that the business would soon be sold and he couldn’t wait. This got me thinking, so many inspirational articles are posted every day about taking charge of your life and being an entrepreneur. However, perhaps not every entrepreneurial opportunity is a good one.
The Right Reasons to become an Entrepreneur
Now, I’m not trying to discourage you from starting a business, and being your own boss. There are many benefits from going your own way. While I do not run my own business I come from a family who has. My father owned a cabinet making business. My grandfather owned a hardware store. His father owned a plumbing business. You could say it runs in the family. In fact my wife is now experimenting with freelance writing, so in a way we may soon have a self employed entrepreneurial business. The benefits are numerous:
- Choose your hours. Ultimately, you choose when you are working. Sure you won’t make money when you’re closed and if your hours are inconsistent your business will suffer. However if you want to shut down at 3 pm to take a walk there is no boss who will take umbrage.
- You make the decisions. How many of us work for a large corporation or even a smaller company where they seem to make one stupid decision after another. I know it drives me crazy and I so wish I could have the ability to run a business and ensure things are done correctly. Having your own business is that opportunity.
- You might be able to follow your passion. Say you want to be a professional photographer. Your chances might be better breaking into such a field as a business than attempting to get a corporate job in the field.
- Potentially exponentially increase your earnings. In theory the sky is the limit when you own your own business. If you’re successful it can be expanded almost infinitely. After all no one ever became a billionaire working for someone else. They all did it by some sort of entrepreneurial activity.
Not All Businesses are Worth Starting
The thing is, not every entrepreneurial opportunity is a good one. Take buying a franchise like my coworker.. no really take it. After the company that owns the franchise rights takes their cut, most franchisers make little money. The real money is in the company that sells the franchise itself. In many cases purchasing a franchise amounts to no more than buying yourself a job. You end up working more than your corporate job, for way less and more headaches. You trade your current boss for the boss of your customers. Restaurants, like my friend’s, are especially known for being brutal to own. All of the issues my friend listed are rampant in the industry: difficulty finding help, low profit margins, long hours for the owner, etc.
Downsides of the Being an Entrepreneur for the Wrong Reason
The wrong entrepreneurial opportunity can lead to:
- Long hours. Sure you can choose your hours, but often to be an entrepreneur you need to put in those extra hours to get ahead of the competition. Often when you first start out there is no one to pick up the slack when you sleep. As such it’s not uncommon that you don’t. It’s a true irony that you can choose your hours, but ultimately you can not take advantage of it and still grow your business.
- You do not always make the decisions. Some of them are still made for you. In my franchise example, essentially my friend has 2 bosses making decisions for him. First, the franchiser can dictate to him. But there is a less obvious boss making decisions, his customers. If he wants to be truly successful and grow his business he has to deliver what his customers want, not what he does.
- Difficulty finding help. It’s a familiar refrain and a common problem. Once a company grows beyond one person, which is necessary to escape some of the long hours mentioned above, it’s very hard to find employees that care as much as you do as an owner. Without good help you will work long hours. With help you may still work long hours to keep them working well and ensure they stick around.
- Variable Pay. In the case of restaurants your profit margins are usually pretty low. Not all businesses have low profit margins (see my comment above about billionaires). But most of them when they are first starting out have variable profit margins. The earlier usually the more volatile. This is not so bad if you’re starting a side hustle, but if you’re starting an entrepreneurial opportunity that you’ve quit your job for, things can be very touch and go financially.
- Your Passion may not turn out to be what you think. It may be that you end up not liking your passion. Or even if you do, perhaps the things that go with it are not that appealing. Take our example a few paragraphs ago about being a professional photographer. Along with taking pictures you might also need to manage your books, advertise, and many other activities that go along with having a business. You may find the appeal of shooting pictures is overpowered by your dislike of these other, just as necessary activities.
- Sometimes becoming an entrepreneur makes it difficult to return to the corporate world. If you buy a business it may take quite a while, or may not even be possible to sell it and get your money back out. You could lose significant funds from being an entrepreneur. Also corporations do not always value your self employed experience as highly as corporate work. As such it may be difficult to get back into the corporate world after becoming an entrepreneur.
- Sometimes Loans are harder to come by. Truth be told a lender tends to look less favorably on Entrepreneurial income than W-2 income. Doing things like buying a house might become more difficult.
Mitigating the Risk of Being an Entrepreneur
That all being said, there is a way to mitigate many of these risks.
- The big one is start your business while still working. You need to be careful here to do it in an area not related to work. Also, you shouldn’t work on it at work. Both could result in you being fired or your company trying to take your business. Companies can generally take a business if they can show you use company resources in its promotion. That could be working on it at work, or even as simply as using knowledge you learned from being employed. That being said doing so will reduce the risk of not being able to get back into the corporate world should you not succeed. It will also allow you to overcome issues with variable pay.
- The second recommendation I have is to start small. Do not sink your life savings into an untested idea. Investigate your market and the opportunity. Give it a pilot run. If it fails miserably you don’t want to start over from scratch at a corporate job.
- The final one is to set limits on your working hours and ensure you set aside time for you and your family. Work life balance is still important whether you are pursuing an entrepreneurial opportunity or working for the man.
Now I’ve spent the majority of this article focused on risks, but I’ll leave you with some inspiration. There is only one way to ensure failure in life. Fail to start. So if you have that great idea you want to try out, go do it. Just consider mitigating your risks along the way.
Have you ever pursued an entrepreneurial opportunity that turned out to not be good?