I once had a friend tell me that entrepreneurship was the only way get ahead in this world. Sounds awesome and there is no question, many of the people we see as successful in today's business environment are entrepreneurs. So - why isn't everyone running their own business? On this section of the website, I provide some insight as to what you may wish to consider before you take the plunge.
I have seen many forms and personality tests designed to help you determine if being an entrepreneur is right for you. I think some of these tests are useful, but I also believe that deep down inside, you actually already know if being an entrepreneur is right for you or not.
Think about your values. Do you love independence and autonomy? Are you determined, creative and committed? Do you like a lot of variety, uncertainty and unpredictability in your work? If you really feel restricted or constrained at work because you have great ideas or you love to get things done without a lot of process or bureaucracy then perhaps being an employee just isn't the answer you are looking for - you want to be a business owner.
Three of the key things that a lot of these forms don't tell you about though are the things that can bring you down or at least stand in the way of your being successful. Click here for more insight on the three things. These are not skills so this is not about learning anything. It has much more to do with mindset, perspective and character.
From my work with entrepreneurs, I have learned that most people who step into owning their own business fail to realize the full scope of running that business. They think it is all about the product or service that they are selling into the market. Wrong!
So how much time do you think you will be spending actually providing your service or producing your goods? Many entrepreneurs think that it is 75-80% of their time! The truth is that they will in all likelihood be spending only 40% of their time actually doing the work that they are passionate about - be it coaching, bookkeeping, massage therapy etc. That's right, only 40% of their time!
Where is the other 60% spent? Well another 40% will be spent on marketing and sales. Seriously. If you do not like selling your service and speaking to your unique competitive advantage then you may find yourself running out of friends, family and referrals to sell to. No sales = no business.
I can not tell you how many times I have spoken with entrepreneurs who are extremely passionate about their "work" and find the sales and marketing stuff unpleasant or "no fun". If this is you - you may wish to reconsider your employment prospects because no entrepreneur can succeed in the marketplace without selling. I have even heard some experts say that successful entrepreneurs are first about sales and secondly about what ever it is they are selling. Unfortunately, many people don't understand this and their businesses quickly fail.
Now as for the last 20% of your time, money and effort - well that will be spent of administration. If you are thinking your situation is different than this - think again. You will have to feed the government on a regular basis with taxes etc. You will have to pay yourself and any employees you may have which means figuring out withholding taxes, pension, benefits and any number of other items as well as printing a cheque etc. Sure this doesn't sound like a lot of time - but it adds up.
Of course you will also likely need some business insurance and then there are those contracts for suppliers, customers, partners etc. You will also likely have the occasional email to read - maybe a few hundred a day and of course you have to do your bookkeeping, expense reporting and a myriad of other little items. I personally believe that allocating 20% of your working time to administration is actually on the light side of the truth but when I talk to entrepreneurs about this - they either blanch at the thought or disbelieve me outright. Okay - but this is my experience both as an entrepreneur and as a coach that works with entrepreneurs. It is easily 20% of your time.
I bring this time situation up for a reason and that is the impact this time has on your profitability. Again, there will be some differences depending on what kind of business you are in but to demonstrate the concept, I will use a entrepreneurial situation of a single individual who is providing a service - let's say as a massage therapist.
Using my numbers above, let's say that this individual wants to take home a salary of $75K per year so their gross revenues would have to be in the order of $187.5K per year. Remember 40% of your revenues will go back into growing your business through sales, marketing etc. and another 20% will be spent on taxes, insurance etc. (Yes, these numbers and ratios may be different for different businesses so by all means, use your own numbers - just be realistic about it)
So - our massage therapist now needs to bring in $187.5K a year in business but again - because of the overhead costs associated with this work (40% in business development, marketing and sales) and (20% in administration), she only has 40% of her available time to actually earn the revenue. So, if we use a 40 hour work week as a starting point, she will have a total of 2080 of working time (no vacation or statutory holidays are included in this). Forty percent of 2080 is 832 hours. Therefore to earn this salary, our massage therapist will have to charge her clients $225 per hour! Ouch!
If the market thinks that this is too high a price to be paid for a massage then our budding entrepreneur needs to re-think some things. She could take home less salary, or she could work more than 40 hours per week (many entrepreneurs work 60-80 hours per week). So - if she decides to work 60 hours a week, then she only has to charge $150/hr. This is a bit better but still quite expensive and if the market will only pay $75/hr, then this business is still doomed to failure.
Of course this is just an example and some entrepreneurs will have sales costs less that 40% - why? Simply because they can not afford the costs of branding, marketing and sales. Unfortunately, cutting time and costs in this area is a real challenge as well because to earn the revenue, you need sales and to get sales, well - branding, advertising and marketing is important.
Based on my numerical example and time/cost allocation - clearly no entrepreneurs would succeed and clearly that is not the case, so what may be different?
Here are some things to consider:
Being an entrepreneur can be very freeing. You are your own boss, you do get to focus on work that you love to do and you do have the thrill and freedom of creating something meaningful from scratch using only your guts, brains and determination. Just don't forget the other work required to be successful. It is about building your business "first" and then doing the work or producing the product you want, "second". And, if you don't like sales - then you may wish to be an employee after all!
If you are not sure if being an entrepreneur is for you, you may want to try a simple test.
This web site was building using SBI - a pretty powerful way of connecting people using real information on the web. It is also a lot of work and that is why it makes for a pretty good test. If you really want to figure out if you have the commitment necessary to be in business for yourself, I invite you to try to build an SBI site as one way of either generating income or marketing your business. I have to admit, that I have been very impressed with this service.
This video talks a bit more about it.