Should You Become an Entrepreneur?
October 29, 2010
John Seely Brown, the former chief scientist at Xerox Corp. and former director of the Xerox Palo Alto Research Center (PARC), wrote a short article about people who found themselves unemployed taking advantage of the “opportunity” to restart their lives as entrepreneurs [“Use Pink Slips to Pursue Your Real Passions,” Bloomberg BusinessWeek, 5 August 2010] He wrote:
“With the unemployment rate apparently stuck near double digits, more people seem to be choosing a passion over a steady paycheck. Rather than waiting for companies to open up their payrolls, these people are taking matters into their own hands and defining their own jobs, going online to find each other, leverage each other’s capabilities and services, and learn faster by working together. That is a big risk, but these people realize that they’ll be far happier if they can find something they love doing and figure out creative ways to make a living from it. Focusing on work that offers greater meaning makes it easier to withstand the perils and roadblocks they will face as they leave the corporate fold.”
Although the focus of Brown’s article is using social networks to foster start-ups, he is undoubtedly touching emotional buttons for would-be entrepreneurs. His article begs the question: “Should you become an entrepreneur?” Successful entrepreneurs tout the satisfaction they gain from being their own boss and seeing their ideas blossom. Not all entrepreneurs, however, are successful. Many of those who are successful fail to mention the financial and emotional tolls that are often paid along the way. I’d wager that the biggest concern most entrepreneurs face is financial security. Entrepreneurial enterprises often carry a heavy financial burden [“Becoming the Boss Can Cost Plenty,” by Sarah Needleman, Wall Street Journal, 1 August 2010]. Needleman reports:
“When starting a business on a tight budget, a single spending gaffe can spell disaster. For this reason, experts in entrepreneurship recommend taking precautions, such as doing research to identify potential hidden fees, focusing only on necessities and setting aside emergency funds.”
Needleman provides accounts of entrepreneurs who made investments in web sites, trade groups, marketing materials, and elaborate kick-off parties and who all came to regret spending too lavishly. She continues:
“In other cases, rookie business owners say they made spending snafus because they underestimated how much critical items would cost. For example, before opening Calisto’s Sweet Treats Bakery in Southington, Conn., … business partners Michael Cirrito and Giancarlo Garcia-Zimmitti figured they’d need to set aside at most $1,800 a month for food expenses. … Their approximation was off by a whopping 100%. We’re struggling,’ says Mr. Cirrito, a former chef for a casino who turned to entrepreneurship after his work hours were cut in half last year. Had he and his partner examined what they truly needed to spend to get their business started, Mr. Cirrito says they would’ve held off opening their doors until they’d gathered more start-up capital. Tom Kruczek, executive director of the Falcone Center for Entrepreneurship at Syracuse University, says a common reason why first-time entrepreneurs mismanage their start-up budget is that they let their emotions get in the way of rational thinking. ‘They want to be successful so badly that in their haste they end up spending money in the wrong places,’ he says. … In late 2007, Taylor Senatore and Jennifer Frank withdrew most of their personal savings—a combined $250,000—to launch California Wine Merchants in New York. … But Mr. Senatore and Ms. Frank didn’t realize that the property they rented came with special restrictions for turning the raw space into a retail store. As a result, they ended up spending 80% of their budget on construction costs alone. … Failing to read the fine print of their storefront’s lease meant they needed to take out second mortgages on each of their homes to be able to keep their dream alive. ‘As a new business owner, you’re excited,’ says Mr. Senatore. ‘But the mistake we made threw off everything for us.'”
I’m certainly not trying to dampen anyone’s desire to become an entrepreneur. As a realist, I simply want people to enter the fray with their eyes wide open to the challenges ahead. If you take John Seely Brown’s advice and see a pink slip as an opportunity, you need to make sure that your plans are well-grounded and that you are not simply moving forward out of desperation. “Being an entrepreneur isn’t easy,” writes Rajiv Dingra, the young founder and CEO of WATConsult, a social media agency in India. “Many become one briefly and then revert to the fixed monthly pay package of a secured job. Reports show that most entrepreneurs are over the age of 30.” [“Are You an Early Bird Entrepreneur?” Wall Street Journal, 3 August 2010]. Although he is correct that most entrepreneurs are over 30, with employment prospects coming out of college looking pretty grim, I suspect that the number of under 30 entrepreneurs is going to increase. Dingra explores what it takes to be an “early bird entrepreneur.” He writes:
“Entrepreneurship is tough. It’s like a puzzle with too many unanswered questions. It’s also a huge risk as people who work for you depend on you for their livelihood. It involves a lot of stress. Competition, market conditions and other non-controllable factors will affect what you do. As an ‘early bird’ entrepreneur, you have some advantages over others on all these potential hurdles.
- Age on your side. having age and energy on your side is great. It will help to save time and do more in the same time as your competitor. Yes, due to lack of experience your quality of work may not be as high but experience is built by experiencing more, isn’t it?
- Ignorance can be bliss. At an early stage it’s difficult to pick right from wrong and that actually is a great thing. If the founder of Facebook or Google went to investors or anyone in the know of digital media in U.S. and asked them if their new ideas for social networking or search engines would expand to global dominance, the answer would have been a big, ‘NO!’ or ‘Seems very difficult.’ Ignorance, or the ability to try things without planning and analyzing on whether they will work, actually helps you become a discoverer rather than a planner. As they say, if you don’t set sail you won’t get anywhere.
- Greatness NOT money is powerful. If you strive for greatness, to change the world or to make a difference, it’s very likely that you will end up making a lot of money. This is because doing something for a goal beyond money will inspire you to do it with utmost passion irrespective of the results or hindrances on the monetary front. And as an early bird you can afford to indulge in ventures that excite you regardless of their monetary benefit and thereby create things of value
- Early to rise is early to achieve. I’m a firm believer in being early to rise in life. Though it’s never too late to do anything, the earlier you are, the easier it is for you to work your way through a learning curve and figure out what you really want to do. There is more room for mistakes and thereby a greater learning opportunity as well. All of it will only make you a better entrepreneur.”
Those traits may be advantages, but they won’t overcome a bad business plan, poor judgment, or lack of sufficient funding. An article in the Wall Street Journal, adapted from the book The Wall Street Journal Complete Small Business Guidebook by Colleen DeBaise (Three Rivers Press, Dec. 29, 2009), provides some better advice on how to decide whether or not you should try and become your own boss. The article notes that “starting a business is a lot like becoming a parent. Not only do you have to prepare for your start-up emotionally and financially, but you have to be committed to its constant needs until it’s mature enough to hum along on its own. And even then (much like a child) it will always need you in some capacity, no matter how old it gets.” The article continues by providing “five questions to ask before you start your own business”:
“1. Am I passionate about my product or service? Let’s face it: the start-up phase is stressful. You will find yourself questioning whether you’ve made the right decision, especially when the hours are long and the initial profits (if any) are lean. As the business owner, you’re also chief salesperson for your company. Your enthusiasm for your product or service— whether it’s hand-knit sweaters or top-notch tax preparation— is often the difference that hooks customers, lands deals and attracts investors. It’s unwise to start down the path of entrepreneurship unless you’ve got a zeal that will get you through rough patches and keep you interested long after the initial enthusiasm has faded.
“2. What is my tolerance for risk? Whether it’s quitting your day job or signing a lease on a new space, nothing about starting a business is for the faint of heart. Just ask Ina Garten, who bought a specialty-foods store called The Barefoot Contessa in East Hampton, New York, in 1978 and has since branched out into cookbooks, television and a line of products. Garten tells aspiring entrepreneurs that you have to ‘be willing to jump off the cliff and figure out how to fly on the way down.’ Even with enough passion to launch a thousand ventures, you could find any number of circumstances hastening your failure: a location that turns out to be less than ideal, a problem with city or state zoning boards or a kink in the supply chain that can’t easily be ironed out. There’s no guarantee of success, or even a steady paycheck. If you’re risk-averse, entrepreneurship probably isn’t the right path for you.
“3. Am I good at making decisions? No one else is going to make them for you when you own your own business. Consider how you might handle these early decisions: Do I work from home or do I lease office space? Do I hire employees? Do I pursue high-end clients or sell to the masses? Do I incorporate? Do I advertise? Do I borrow money from friends or family? Do I use my entire savings? Keep in mind that the decision-making process only gets more complicated as time goes on, once you have employees or clients depending on you. The choices you make can lead to success or downfall, so you must feel confident in your ability to make the right call.
“4. Am I willing to take on numerous responsibilities? While a corporate employee focuses on a special skill or role within the larger corporation, a business owner must contribute everything to the business. Solo entrepreneurs in particular must be versatile and play a number of roles, from chief salesperson and bookkeeper to head marketer and bill collector. If juggling many roles doesn’t suit you, entrepreneurship probably won’t, either. The recent economic downturn has made it more important than ever for business owners to have a good working knowledge of their companies’ finances. While you will undoubtedly learn much on this topic from getting your hands dirty, the more knowledge you have in advance, the better prepared you’ll be.
“5. Will I be able to avoid burnout? Working seven days a week, losing touch with friends, abandoning old hobbies and interests and not making time for loved ones can quickly lead to burnout in the midst of starting up— and ultimately to business failure. That’s what happened to James Zimbardi, an entrepreneur in Orlando, Florida, who says he didn’t know any better when he started his first company in 1997 and worked as hard as possible, for as long as possible, until his creativity, enthusiasm and energy were sapped. By 2002, he was a broken man— the business took a downturn, and so did his personal life. Now Zimbardi is at work on his second company, Allgen Financial Services, and sticking to better habits to maintain work/life balance, such as not working on Sundays, making time for hobbies such as sailing and salsa dancing, and building close ties with other business owners through a faith-based support network.”
Those are good questions to start with, but there are dozens of other questions surrounding your ideas and your business plans that need to be answered as well. What DeBaise’s questions will do, if you are honest with yourself, is give you some insight into whether you have the right personality and emotional make-up to become an entrepreneur. If you do, then as the article concludes, “If you think you have what it takes, go for it.”