If you’re in your 20s or 30s, chances are, you have thought of starting your own business. Almost 70% of Taiwanese employees between 21 and 40 want to set up their own businesses, and a University of Phoenix survey showed 63% of those in their 20s are either already or wanting to become business owners. Maybe digital nomads.
The lure of entrepreneurship appears correlated with age, possibly because those in their 20s have fewer responsibilities in the way of children or mortgages, they may have parents that are willing to financially support them, and they may deal better with the grueling hours required. I suggest, with the benefit of a couple of years’ experience, people in their 20s may also simply be less burned out by work. But Minda Zetin at Inc suggests that witnessing startup culture may be another important reason.
The benefits of owning your own business
Noel Whittaker lists the benefits of having your own business as:
- Much more freedom
- Control of your income
- Flexibility of work times and hours
- Choice of when you want to have holidays
- Getting to decide the ultimate direction of the company
- Being your own boss
These are all the sorts of things that people who don’t own businesses often say. But having grown up in a family where my father is the part-owner of a business, my mother was also a business owner, and knowing many family friends who own businesses, I cannot think of a single example to whom all of these benefits apply. (Some, sure, but I think that to have all of them would be very rare indeed).
Owning a business is hard work
Owning a business – in particular, establishing a business – is hard work. Of course, it depends a lot on your level of experience, and the type of business you select. But there is often a LOT of time involved in setting up a business, and that can take years. This can rob you of much of your freedom.
You may take fewer holidays than you are entitled to, or only take them at times when others do not want them, because of your stake in the business. If all of your employees want holidays during the school holidays time, you may miss out on holidays with your children simply to ensure there is someone around to keep the business going. The employee doesn’t normally care about this. The employer does.
Sure, you can be flexible about what hours you choose to work. But I’d bet a lot of business owners choose to work more hours rather than less. Many employees may happily clock off once the hand hits 5 – or even 5 or 10 minutes to 5. The owner is far more likely to stick around to get everything done, and far more likely to take work home with them. Their investment in the business is far greater than the employee’s.
The same goes for working late and weekends. An employee can often find another income source if the business fails, and the failure won’t be considered their fault. The business owner will suffer a big hit to their ego, may lose all of their savings, and may even go bankrupt.
There is always compromise
If you have partners, you may have to compromise as to the ultimate direction of the company. Even if you don’t, the direction is still in part dictated by external forces. There’s the market, your competitors, the government and infrastructure, your suppliers and employees etc. And I’m not sure you control your own income much more than an employee controls theirs. You are simply reliant on someone else paying you now.
An employee relies on the employer passing along their share of the profits. A business owner relies first order on their customers settling their accounts, and on demand for their service/goods. An employee can usually expect to be paid even when business is not going well. It’s the employer’s responsibility to ensure that the money comes from somewhere (even though not all employers live up to this responsibility equally).
A business owner is much more likely to forgo personal income in order to keep the business afloat during times of need, investing for the future. A good boss will go without to keep their employees in pay. And although I don’t have any evidence to support this, I wouldn’t be surprised if business owners, on average, take a lower salary for themselves than they might receive to perform similar duties elsewhere, simply because, again, keeping profits in the business is in their and their employee’s long-term best interests.
A glorious feeling or a massive responsibility?
As Whittaker points out a business owner can say ‘This is my business and it will survive or perish because of my actions’. This is both a ‘glorious feeling’ as he describes it, but also a massive responsibility in my view. A responsibility to yourself and to your family, and a responsibility to your employees.
Most small businesses fail- deadly myth?
One statistic I have often heard is that most small businesses fail in the first 12, 18, or 24 months. In the UK at least, star of Dragon’s Den Duncan Bannatyne says the statistic that 50% of businesses fail in the first 2 years is based on the closure of business bank accounts. Of course, this does not necessarily mean the business has gone under.
In Australia, this (unfortunately undated) article suggests that the statistic that 40, 50, 60%+ of small businesses fail in their first year of operation is ‘Australia’s most deadly business myth’. According to the ABS, quoted by the NSW Dept. of State and Regional Development,
‘Despite what is commonly thought, relatively few small businesses fail. Over the 2 year period 1994-95 and 1995-96, an average of 23 200 small businesses or 6.1% ceased operating in Australia. Less than 10% of these closures were due to bankruptcy proceedings (in the case of unincorporated businesses) or companies being liquidated. The other businesses closed down for reasons such as the owner retiring, seeking a different lifestyle or dying.
The failure of Australian businesses fell significantly during the 1990’s. It is estimated in 1999-2000, there were 3.6 failures per 1000 enterprises.’
Are you willing to risk it?
A 2013 article quotes the ABS as stating that more than 42% of small businesses (of any age) failed between 2003 and 2007, and more than 30% failed since 2008.
These figures still don’t tell us how many small businesses failed in their first year, though. Going straight to the ‘horse’s mouth’, I was unable to find anything up-to-date and specific enough to answer the question about the failure rate of new businesses. Regardless, we can assume that younger businesses are more likely to fail than more established ones, and that even a 30% chance of losing your livelihood (and possibly going into debt or even bankrupt) every 5 years is a lot higher than most people would feel comfortable with.
What is the alternative?
Marianne Cantwell’s ‘Free Range Business’ requires no funding or debt, an immediate start-up for under 100 pounds, no expensive premises, is based on your personality, passions, and the life you want, and is described as playful, flexible, and able to change as you do.
Cantwell suggests that wannabe freerangers take a day off their current jobs to test out the lifestyle.
If your plan is to sit at a café with your laptop all day, try it out. I did this, and discovered it really isn’t for me. I feel too guilty taking up room when not chain-drinking coffees (which my budget and bladder will not permit me to do outside the comfort of my home!), too self-conscious sitting alone, and too uncomfortable on seats not built for prolonged sitting! The reality was, for me, far less romantic than I imagined!!
Later, Cantwell suggests trialling a mini project you can complete in less than 30 days – or, if you tend to put things off – a maximum of one week. You can download the first chapter of Marianne’s book at her website.
Go for it – but proceed with caution
Deciding to start a business is a big decision that should not be taken lightly. What I’d really like to see statistics on is how many businesses of owners with the kind of simplistic view of owning a business outlined above fail compared to those who understand from the outset that it’s not all freedom from working long hours, giving yourself pay rises, and having more holidays.
My point here is not to dampen the spirits of any would-be business owners. There is a lot of evidence to show that owning a business really can be an effective way to wealth (certainly much more so than being an employee), but I do think that the risks that owners take on and the sacrifices that they make, often for their employees’ sake as much as for their business, should be recognised.
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Today’s featured image is my current preferred work space – the beautiful tatami-matted room of our AirBnB near Osaka, overlooking a gorgeous traditional Japanese garden.
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Do you own your own business? Thinking about starting one? Let me know in the comments below! Do you agree with the above advice? What tips do you have for new entrepreneurs?