The remarkable benefits and drawbacks of entrepreneurship need some talking about.
I’m sitting in my underwear right now, typing in my home office at 5 in the morning.
I’m not going to commute anywhere today, I’m going to work my tail off periodically throughout the day, drink lots of Dunkin Donuts home-brewed coffee, make a bunch of sales calls, and then spend some time with my spouse and three kids, all because I’m an entrepreneur.
But entrepreneurship has its drawbacks – major ones at that. I believe that small business and the beautiful creations of entrepreneurs, will eventually provide a new wave revolution in America.
Entrepreneurship is True Creation – Making Something out of Nothing.
This last week I’ve spent lots of time working with one of our clients who’s in the construction business. He had worked for an experienced contractor for about 15 years before making the decision to branch out with a business partner and hang his own shingle, about 5 years ago. Things have been more sparse and difficult than he would have liked.
Just last week, we had a long discussion about all the things that they have to wrestle with, trying to not only execute their job, but find great team members, price competitively, deliver value, execute, manage projects, improve competency, cast vision to new clients, pay massive taxes, and memorize 25 passwords for the different emails and software they have to use.
When you step back and look at the big picture, you see that when he decided to be an entrepreneur, he created economic growth for our country and the community in the south metro region of Minneapolis.
When he branched out, that meant that there would be a net increase of economic activity and work output, producing more jobs and wealth. To analogize with the forestry business, he went out and planted a whole new set of trees instead of simply tending to the existing growth that his old employer provided.
America’s economy benefits from so many things, but entrepreneurship high growth firms, stand as possibly the most significant growth factor in an economy.
The reason is because it is true creation, stimulating economic activity, jobs, and tax revenue, where there was once nothing.
While our friends that work in w-2 jobs do some tremendous things, and large businesses can move the GDP needle in great magnitude, that activity is simply the growth of existing “trees in a forest.”
Entrepreneurship is like planting new trees where there was once nothing, some growing into the new foundational forest cover, while many new sprouts die out in the beauty of the free market enterprise.
I’m Totally Biased and Infatuated with Entrepreneurs
As you can tell, entrepreneurship is something that we’re passionate about here at Nuance Financial Tax and Accounting, and that’s because we get to come alongside them and solve their tax and money conundrums.
We get the pleasure of meeting with so many entrepreneurs throughout our work week, which provides us with amazing insight and understanding of the things that they face. Not only do I sit down with at least half a dozen entrepreneurs each week, but we ourselves are entrepreneurs and business owners.
We Have First-Hand Experience of the Drawbacks of being an Entrepreneur.
Nuance Financial Was A BootStrapped Entrepreneurial Endeavor
We’ve bootstrapped our Minnesota accounting firm, starting it as a part-time hustle, alongside our full time gigs, in the basement of Nick Meester’s parents house. We saved up money so that our CFO, Ed Ries, could quit his old firm and dedicate himself to the Nuance Financial Tax and Accounting endeavor. We’ve wrestled through so much in our startup, and we have a long bill of tuition we’ve paid.
America’s is in a “No-Vision Conundrum”
I’m going to dive into the four drawbacks of entrepreneurship in a minute here, but first I want to talk about why I feel the need to document the drawbacks.
Why have Millennials lost the ability to dream of starting a small business?
A couple of weeks ago, our friends had a birthday party for their son who’s the same age as my daughter. The birthday party was at Lifetime Fitness in Lakeville, and we had a ball. Our friends had invited their group of friends, which included about 10-20 different kids and their parents, which meant I got the opportunity to meet people I didn’t know before, which is right up my alley.
I started talking to a great young set of parents, one of whom was working in a daycare. She described the frustration that she has around working in the daycare facility. She likes what she does, but the pay is very limited and it seemed very silly for her to be spending portions of her paycheck to provide daycare for her own son, while she herself is providing daycare for other people’s children.
I jumped right in and started trying to cast vision for a better way – the entrepreneurship route. I asked her “have you ever thought of starting your own daycare?” She rolled her eyes “I wish! But it’s too hard, too expensive, and you have to get licensed.” I paused and thought “that’s it? you’re going to stay stuck and financially plateaued because of those little barriers?” I inquired a bit more and started to encourage her that she could do it, and that the payoffs could be huge.
America isn’t achieving it’s full potential because we’ve lost our entrepreneurship vision.
Starting your own small business is hard, but there’s no reason why this gal should be sitting there thinking that there’s no way to start her own in-home-daycare. She’d been there for a number of years, was one of the best employees, and had already started acting like an owner.
I hope she dreams – and I hope she pursues that dream.
But she’s right – entrepreneurship has drawbacks. Lets take some time to talk about what the major drawbacks would be in entrepreneurship from my perspective.
Four Major Drawbacks of Entrepreneurship
1 – Entrepreneurship is Risky
No kidding right….
In the case of my friend who works at a daycare facility, she knows for certain that she would be able to put in the time at her job, and it would equate to the financial benefits detailed in her employment agreement. It’s a pretty simple equation when it comes to working in a salary or hourly job in America – you get paid for the time you put in.
When you’re an entrepreneur, putting time into “working” means absolutely nothing, only results matter.
Entrepreneurship is like working a commission job, with no base salary, but with the added benefit that you’ll incur tremendous expenses as you do the work.
It’s Like a Commission Only job – but you need to deliver the product or service as well.
A commission job would be easier than entrepreneurship, because at least in a commission job you don’t have to pay for all the basic operating costs of the business. In entrepreneurship, you’ll be faced with the necessity of capital investments and the need to acquire the necessary tools for your business. While it might not require huge initial investments, it almost always requires something – which means that you’ll be investing in your business and spending money.
For the most part, an entrepreneur gets to deduct those investments, but those investments could end up going belly up, if things crash and burn. Being a business owner is tough because it usually takes money to make money, all while you need to keep paying your own mortgage and bills.
You have to make the sale, and execute, in order to drive revenues (let alone a profit).
Make Sales and Deliver Results
Entrepreneurs have the risk of working like a “commission only” job, but also have the risks associated with fulfilling and executing. If they make a sale, and botch on the execution, they’ll be on the hook for a customer refund, lawsuit, or a reputation crippling event on Google Reviews.
If you’re thinking of becoming an entrepreneur, you probably already know it’s risky, but I’d want you to know that the risk is because you have to get results like a sales person, and deliver a product, and execute in order to fulfill your requirements. These are the two major risks you’ll face. All you really have to do, is make sales and deliver results.
All you really have to do, is make sales and deliver results.
2 – Entrepreneurship can be lonely
I really miss the team of people I worked alongside at Eagle Brook Church and Best Buy.
About week two is when you discover that entrepreneurship can be really lonely. Eventually, you might have a team of people that you can lead and develop in your business, but chances are that anything you’re working on will take some time before it has lots of employees. If you don’t have a business partner or an employee, it can quickly become a lonely endeavor.
When you’re working at a “regular job,” you forget how often you’re benefiting from the counsel of others. You forget how much you benefit from the actions and work of others, especially in the small things. When you get to your job, usually someone would have opened the doors, cleaned the floors, and made sure the lightbulbs work. You would use an email system that someone setup for you, and worked under the branding and systems established for you by other people. In a regular job, you have the benefit of working with other people, and working upon the foundation laid by the efforts of those who went before you.
It can be lonely – so I recommend finding a mentor.
Monthly Coffee with a Mentor
Entrepreneurs have the challenge of working alone on so many parts of their business, and it can be crippling if you’re not careful. That’s why it’s incredibly important to fill your week with intentional mentorship relationships. It will be so helpful if you can have coffee with another business owner once a month so you can have some camaraderie, wisdom, friendship, and perspective. Make this coffee time all about being together, and learning from each other. Don’t make it about finding more prospects, sales, or other utility functions. Just meet with this person and enjoy their company and common struggles.
Your “normal” friends wont be struggling or working on the types of things that you do, so it can be really enjoyable to find this person that you can build a friendship with.
Business Utility Syndrome – a dollar sign on everyone’s head.
One of the strangest things about entrepreneurship, is that the need for continuous marketing and prospecting, can cause you to start seeing each person with a dollar sign on their forehead. Business owners all struggle with some sort of balancing act around this, because if they don’t prospect or market their business, they will fail. This is really hard because nobody likes to get schmucked and pressured into some sort of sale by someone they care about. People love you, and are friends with you, because of who you are, and you don’t want to start thinking about the utility your business can receive from them – and yet it’s a reality.
It’s also hard because a business owner really needs their friends and family to support them and their reputation. So one major drawback with entrepreneurship is that you’ll have to no wrestle with the tensions of prospecting and relationships. You don’t want to see people with a dollar sign on their head, but it’s really hard when they actually DO present a potential financial reward from eating at your restaurant, coming to your gymnastics school, hiring you as their portrait photographer, buying life insurance from you, hiring you for a renovation, or getting your concrete apron built by you.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_column_text]
3 – Entrepreneurship is Perplexing
When you start your own business, you’ll suddenly realize that you’ll have to solve a myriad of problems. Every day you’ll be faced with situations and problems that you simply have no idea how to fix, or you might not be able to define the problem itself.
- How do I hire the best people?
- what email service should I use,
- Should I get into “this” or “that” line of service?
- how long should I wait before I switch software
- How do I get my website found on google?
- Where do I put my SDK facebook code?
- How should I balance my reasonable salary and my owners distribution in my S-Corp?
- Where did my laptop charger go?
- How should I bid this job?
- Should I fire this client?
- How do I reduce my legal liability?
- What CRM should I use?
- Should I use WordPress or Shopify?
- How can I track my sales tax?
- How do I efficiently handle a workmans comp audit?
- Should I shampoo the carpets of my office or hire a cleaning service?
- How should I dress in this meeting?
- Should I use salesforce vs. hubspot?
My google inquiries and results could provide someone a masters in entrepreneurship.
You don’t know what you don’t know, and most of the time, you don’t even know that something is a “thing” until it shows up right at your door.
I could go on and on with the list above, but the bottom line is that you’ll be constantly perplexed as an entrepreneur.
4 – Entrepreneurship is Impeded
Elected Officials have been Diminishing the Payoff’s of Entrepreneurial Success
Business owners can get rich. They can build more wealth than just about any other career. Anyone can become an entrepreneur, whether you’re a college graduate or someone that’s struggled with addiction and felonies. To an extent, there’s- entrepreneurship
Entrepreneurship is a ladder that anyone can climb to be part of the “1%”
There is a movement in our society that thinks the top 1% should be taken down a notch, and forced to pay “their fair share.”
Now to be fair, you’re not going to be part of the top 1% of billionaires in the world… well, probably not. And a business owner is not a multi-billionaire by any means that these folks are usually referring to.
But as an employer and business owner, you are a minority that the majority has started to take from in the form of increased taxes and bureaucracy. While there’s definitely a case to support the poor and have a strong government, those in power have been diminishing the payoffs of entrepreneurship
According the a Pew Study, those making under $50,000 a year pay nearly no taxes, except in the case of employment taxes (social security and medicare). As an employer, these employment taxes are an absolute bear, and you’re stuck with a whopping 15.3% due on your net profits, up to the social security limits which the Obama administration had increased multiple times. (usually a figure that fluctuates regardless of presidency)
But take a look at this graph to see what’s become of the entrepreneurship payoff – it’s stifled!