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Right and Wrong Reasons to become and Entrepreneur

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.

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.

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.

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?

18 Comments

  1. kevin drevik
    kevin drevik April 26, 2017

    Interesting article. You are correct that you often hear about how great it is to be an entrepreneur, but not the pitfalls. I’ve considered getting a franchise store (woodcraft), but the issue of hiring good people is a concern.

    FYI, found your site by the comment you left on “1500 days” blog

    • fulltimefinance@fulltimefinance.com
      [email protected] April 26, 2017

      Welcome to the site Kevin. I assume you meant like woodcraft . Com? It reminds me of the snapon man in the car world. Did you ever run the numbers on costs?

    • Ms. Frugal Asian Finance
      Ms. Frugal Asian Finance April 27, 2017

      I think starting one’ own business always takes a lot of time and resources. You can pick your own hours, but if it’s a labor-intensive business like a burger franchise and if you don’t make a lot to delegate to other people, the business will eat up your whole schedule.

      • fulltimefinance@fulltimefinance.com
        [email protected] April 27, 2017

        I can validate that. My coworker mentioned an average number over the last five years of 70 hrs a week.

  2. Jim @ Route To Retire
    Jim @ Route To Retire April 26, 2017

    A lot of great points throughout this post! I’ve heard stories similar to your coworker’s where the entrepreneurial venture turns out not be what they signed up for.

    I’ve dabbled in small business ventures on and off, but most of what I do, I’m aiming to do more as a side hustle than a replacement career. I’ve written and published books, formed a real estate company for the rental properties were starting to build up, and then, of course, started my personal finance blog a couple years ago.

    For me, I haven’t had any major “fails” for any of those that would constitute them as not good, but I would say that all three came with some good learning curves. The first rental property in particular was tough because I was still young, determined, and of course, stupid so I had bought a house in a bad area. However, all has turned out Ok and I’m very happy with all three ventures.

    — Jim

    • fulltimefinance@fulltimefinance.com
      [email protected] April 26, 2017

      Glad to hear they’ve worked out for you. I actually wrote the last three posts on failure in the order they appear when considering my wife’s freelancing move. It’s good to look at things from all angles.

  3. the magic bean counter
    the magic bean counter April 26, 2017

    Good post. I’m not sure I have the desire to be an entrepreneur, but I admire those that are.

    • fulltimefinance@fulltimefinance.com
      [email protected] April 26, 2017

      Ultimately I do as a side hustle, but not as a primary income source. It’s certainly not for everyone as a side hustle or full time gig.

  4. I completely agree with your comment on franchises. Setting up the company to collect the franchise fees is where the money is at! Scalability!

    In the coming months, I’m going to invest a few thousand with a business partner to look to build a company using a subscription box framework. Will be a great project for the 2 of us…

  5. Mustard Seed Money
    Mustard Seed Money April 27, 2017

    Outside of my blog I really haven’t done too many entrepreneurial activities. For the most part I was ok with not being the boss. However, as I get older I have found myself looking for more ways to become entrepreneurial.

    While I would hate to fail I definitely would love to own my own business as some point and see if I had an eye for finding talent and retaining the talent to make it grow.

  6. Joe
    Joe April 27, 2017

    My dad is a serial entrepreneur. It’s just the way he’s built. He can’t take order from other people and just need to be in charge. Your points are very valid especially the long hour. Entrepreneurs work a lot more than 40 hours per week. It’s a big time investment.

  7. Leo T. Ly
    Leo T. Ly April 28, 2017

    Sometimes when you have a decent paying job and it’s quite stable, it’s quite difficult to overcome the opportunity cost if you want to start a new business. At the same time, the risk factor and need of your family also determines if you can take on that risk, comparing to when you were still single.

    As much as I love to be an entrepreneur, I cannot risk putting my family’s wellbeing in jeopardy. I just need to find a way to satisfy both.

    • fulltimefinance@fulltimefinance.com
      [email protected] April 28, 2017

      Very good point, becoming an entrepreneur does add additional risk. Our risk tolerance changes over our lifetimes, so there may be times where becoming an entrepreneur makes sense. Other times it may not.

  8. K.P
    K.P April 30, 2017

    This is a great post. I think everyone interested in starting should read it and heed the risk/reward. Thanks for the value you’re creating.

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