In last month’s blog post, I talked about both the positives and negatives of business partnerships. I recommended a lot of soul searching and “know thyself” kind of questions that can guide you in making the best decision for yourself.
This month, we’re going to take a step back and ask ourselves a broader question that can help inform any entrepreneurial decisions: is it even worth it to own your own business, partner or no partner?
If you have been thus far deterred because of the oft-repeated statistic that 90% of startups fail, I’ve got good news: it’s not actually true. Even during the worst of times (the dotcom bust), the failure rate only reached 79%, a full eleven points shy of this dismal projection.
If we look at the actual numbers, you might feel a bit more encouraged:
Startup Failure Rates by Year:
- Second year: 20%
- Third year: 30%
- Fourth year: 38%
- Fifth year: 44%
Essentially, you’ve got a better than 50-50 shot of your business making it past the five-year mark – a pretty level playing field, if you ask me!
So, now that we’ve cleared up that initial hurdle, let’s look at what is both good and bad about business ownership, and what successful business owners can learn from failed startups.
Pros: If you’re considering starting a business, you probably already feel that tug of wanting more autonomy, of having the final say over everything. You want to be your own boss and answer only to yourself.
And in many respects, you will have that: you’re choosing the product, the marketing, the income, the policies, the hours, the workers, etc. You will definitely find a freedom in business ownership that you didn’t have as an employee.
Cons: However, ironically, complete control comes with limitations you may not have expected. For example, you’re probably going to have to initially do tasks you don’t enjoy and/or are not prepared to handle (ahem, accounting, IT, legal issues, admin tasks, etc).
Your workweek will almost definitely log more than 40 hours, even if you get to dictate the when and where. If you have investors or board members, you’ll have to answer to them. And if you build a product and no one comes, you’re going to have to rely on customer input, not just your own vision, to retool your business.
Pros: The sky is the limit! You get to choose your salary, there’s no limit to how much you can earn, and your own effort and hustle can directly impact all of the above. For once, you are in a position to control your financial destiny.
Cons: Pure profit is a shortsighted view of business ownership, especially during the critical first years. Much of your income will probably need to be reinvested in the business to help it grow, and your income can be highly unpredictable while trying to establish your business.
Additionally, your personal finances are no longer your own due to liability issues. Personal liability as a business owner means co-mingling of business and personal assets and you can lose it all if sued. Protect yourself by exploring ways to limit liability.
Pros: Maybe you are pursuing your own business because you want to help people, contribute to society, or otherwise gain personal satisfaction. If that’s your motivation, you’ll be living the advice of “Find a job you love, and you’ll never work a day in your life.”
Many business owners have found this kind of happiness by building a product or company that allows them to feel personally fulfilled, and have reported living more quality lives because of it.
Cons: The flip side of working so hard to find your joy is that working so hard brings stress and possible health issues.
As I previously mentioned, business income is highly unpredictable and can depend largely on the entrepreneur’s ability to hustle and generate revenue. Staying on the grind generates stress; having employees that depend on you magnifies the stress by X.
Be aware of potential health risks associated with business ownership and make a proactive plan to mitigate unhealthy side effects.
How Can Your Business Succeed?
Finally, after weighing these pros and cons, if you have decided that starting a business is right for you, it’s helpful to take a look at failed startups to see what you can and should do differently to succeed.
Here are the top five reasons businesses fail, according to CB Insights:
- No market need – In a nutshell, make sure that you’re offering something that someone actually wants to buy. Following your passion is ideal, but will it bring customers?
- Ran out of cash – Simple as that. This can be a symptom of other issues listed here, or the previously mentioned issues of unpredictable revenue streams or unwillingness to reinvest profits.
- Not the right team – Make sure your team brings a diversity of skills, experience, and opinions to weather the critical first years. Having a team of yes people helps no one.
- You were outcompeted – Don’t turn a blind eye to what the competition is doing. If they’ve built a better mouse trap, you may need to shift your focus to stay relevant.
- Price or cost issues – Make sure you are choosing the prices and price structure that make the most sense for your customers and product industry.
As you can see, so much about business success is dependent on making wise financial choices, which can be difficult to do when you’re juggling all the responsibilities of getting your business off the ground.
You don’t have to go it alone! A certified financial planner can help you navigate these decisions and give your business the best chance at success by starting on a solid financial foundation and creating a financial roadmap for where you want your business to go.