This is a response to a post on Inominandum’s blog today.
The concerns he lists are very real, and will strike you in a visceral way especially if you are the primary breadwinner in the family. But at the end of the day you confront the fact that half of all millionaires are self-employed or own a business. Depending on your skillset self-employment or starting a business may simply be the best road to financial independence and financial freedom.
Being your own boss is worth it
Another way to look at it is this: let’s say you’re a skilled hourly worker – auto mechanic, computer technician, plumber, electrician, HVAC repair dudette, whatever. When someone needs your expertise they are going to pay $100 per hour, give or take. Now, is that money you get to stick in your pocket, or are you going to work for someone who pays you $25 per hour, pays your associated costs, and sticks the excess in his pocket? Would you rather be the guy producing the value in your job, the guy profiting the most from it, or both?
Most of us would say “of course I want to keep the value that I create.” That’s not easy though, and lots of people try that approach and fail.
Being your own boss is risky
- If you get sick, you can’t work. If you can’t work, you have zero income.
- There are lots of things to trip you up. The IRS and other Government agencies can destroy your business even if you thought you were doing everything correctly.
- Lawsuits can bankrupt you even if you have done nothing wrong. This happens all the time and it’s part of competition in modern-day America
- You may be great at your job but fail due to lack of business acumen
- Cutting corners saves money in the short run but can kill you in the long run. Something as simple as running a laundry business for local restaurants and hospitals can come to a grinding halt if you lose the hard drive you keep your business records on and you don’t have a backup. There’s an art for risk management and figuring out what costs are necessary, and which are just absolute waste. Adequate backups goes in the former category. Starting with awesome stationary, in a great office, with a secretary goes in the latter.
- Lots of people are incapable of managing their time. If you don’t work, you can’t bill, and if you can’t bill, you can’t eat. If there is no work then your full-time job is finding new clients. If you’re not good at this, you fail.
Change your mindset
If you save up six month’s salary, form your own LLC, put up a web site or take out a yellow pages ad and wait for clients to call then you’re going to fail as an entrepreneur. My experience with yellow page advertising is that it works reasonably well about three years after starting. Marketing is an art, and the truth of the matter is that lots of fine craftsmen go broke, while those of mediocre talent who also possess a modicum of business skill succeed.
Need proof? Look at the success of Thomas Kinkade, “painter of light.” The work’s bland, derivative, boring, uninspired, it appeals to the lowest common denominator, and it’s also wildly successful.
When you go to work for yourself those high standards you’ve lived by and value deeply may no longer matter at all. You’ll need to turn an objective eye toward your proposed business and ask “is this viable? Is this something I would invest in as an outside investor.”
I’m serious about this. My first year of my MBA I completely closed one business I was running and changed the entire focus of the other. This is not simple, and it’s not obvious, but it is absolutely critical if you want to run a successful enterprise. If you’re going into business because you want to do what you enjoy, that you’re good at, on your own time, and as your own boss, then I’d give you a 5% chance of success. That success rate is only due to luck.
The typical entrepreneur’s thought process goes like this:
I’m pretty awesome at making these widgets. And I really like making widgets. The mark-up on them is huge. I should totally quit my job making widgets for Uber Successful Widgets International, Inc. and do it myself. If I can just make as much in sales as I do in salary I’ll be golden!
And the truth is that he probably won’t. His thought process should be:
- What are my start-up costs in the widget-manufacturing business? Rent, equipment, etc.
- Who buys my widgets?
- How are my widgets better than those others are selling?
- Do my customers care about the differences? Do they care enough to take a gamble on my widgets rather than sticking with those they’ve been buying for years? Are my extra features or enhanced quality something people will be willing to pay more for?
- How will my potential customers learn about my super-uber-awesome widgets? What is my average customer acquisition cost likely to be? How many customers will I need to just cover my expenses?
- How many years do I think it will take before my widget company can support itself?
- How much money will I need to save in order to maintain my family’s standard of living during that time, and how much of a buffer will I need?
- Will my bank finance me if I land a big contract and need to borrow $100,000 to buy the equipment to meet the needs of the client?
- What sorts of alternatives are out there for widgets? Is there a new technology that’s going to transform my industry?
- What do I do if my old employer sees my success and copies my widget design, then sells it cheaper through his existing distribution network and at a lower cost?
- Speaking of which, where will people buy my widgets anyway?
- If everything goes right and things look good on paper, will I go bankrupt anyway because I can’t pay my bills because I’ve racked up expenses and my buyers aren’t paying me in a timely manner?
And once he can answer these questions he still needs to deal with a potential lawsuit from his old employer accusing him of theft of trade secrets that comes with a $400,000 legal bill and an injunction on selling widgets until the lawsuit is settled in five years, all while paying for rent and leases.
That seems pretty harsh
Well, you shouldn’t walk into this as an optimist. Pray (enchant!) for the best, but prepare for the worst.
How about something a bit more uplifting?
OK. Most readers of this blog are most likely to be selling services rather than “stuff,” and lots of those folks can do this single-handedly. So let’s look at some basic stuff:
Let’s say you’re the “chop wood, carry water” type. You enjoy physical labor, you don’t need much money to live happily, and you dream of a job where you can exercise your body all day. You decide to sell firewood. You’ll never get rich, but this might totally fit your financial needs and your views on sustainability:
- Whose trees are you going to cut up? Are you going to start a tree removal business and sell that wood? How will people find you, and how will they trust you not to drop a dead tree on their house? How much insurance do you need to carry, and what will that cost?
- These things need to season before you sell them. How many acres will you need and how will you pay for it?
- When are people likely to buy your wood? What’s your profit per cord of wood, and how many will you need to sell to keep your family fed all year, and keep you in tools, vehicles, fuel, marketing costs, taxes, and so on?
- How are people going to find you? How did you find your firewood guy? What if you chop wood for eight months and now you can’t find anyone to sell to?
- Here’s the big one: add up all those potential dollars from sales, cut them at least in half to be safely pessimistic, divide by the number of hours you’re working, and see if you’re beating minimum wage while taking on more risk. You’re probably not.
Basic questions that you need to answer before going forward with your plan.
Maybe you’ve got better skills though:
Air Conditioner Repair
This is mostly a summer job, as air conditioners don’t fail as often in the winter. The skillset can pay well though. But why are people going to choose you instead of someone else?
When I get my AC repaired I’m looking for someone to identify the cause of the problem (generally a leak), solve it (weld the leak), put new coolant in the system, and have the thing purr for the next five years until something breaks again. (Ah, the joys of home ownership.) I’m willing to pay more to know it’s done right – I don’t want to have no AC in August all of the 3-day weekend because nobody’s available to come out and fix a problem that wasn’t fixed correctly the first time. Been there, done that, huge air conditioner repair trust issues now.
So where do you fit in? Do you know a realtor who can recommend your services to people with empty homes? Do you believe in advertising in the Penny-Saver or on local cable channels? How about a billboard – do they work, and can you afford it?
Fine. What’s your point?
The point is that when it comes down to it, it’s not your ability to do a job at a competent level that makes or breaks your business. It’s finding people capable of paying you that are actually willing to give you a shot.
That’s business. And it’s hard. They offer degrees in this stuff, but it’s still an art that needs to be practiced before you’re any good at it even after you get the piece of paper. And if you’re depending on business revenue to make survive, and you’re worried that your baby has a 104° fever and while you did manage to get health coverage, you haven’t met your deductible this year and you don’t have much money in the bank…
Shit happens. Making well-considered business decisions when you’re new to business and you feel like your world is coming down around you isn’t the best situation for decisions that will appear adequate in hind-sight.
You need a plan.
More than that: you can’t build a reasonable plan if you don’t know anything about all this boring business crap.
So you need to educate yourself. You can go buy books on business, but that’s no substitute for taking classes on:
Those are things you can take at any podunk college for not much cash. And doing that now while the itch to work for yourself is starting to demand a scratch is a whole lot smarter than digging yourself a huge hole and trying to dig your way out again.
Consider Starting Small
If you think you can create real value, then start taking those classes and try working on your own on the side. This gives you more time to learn the art of business, gives you context for all that boring stuff you’ll be learning in class, and gives you time to make important decisions with no real pressure.
Want to do Hoodoo work for folks on the Internet? Easy – open up a web site, try marketing yourself, and see if you can develop the skills to make it grow while you keep your day job as the night manager at the local gas station. If it fails, then you’re out a couple of hundred dollars and you’ll be paying a lot more attention to things like managerial accounting and cost controls.
Playing with statistical functions in Excel is boring, until you can go back home and plug in your revenue numbers and make some projections into the future. Look at seasonality and see if Winters’ method applies in your business. Suddenly that stuff that makes you want to tear your hair out in class has a function. Want to know how busy you’re likely to be in the 3 weeks before next Valentine’s day? The Poissan distribution is your friend.
Yep – you caught me. I’m trying to get you to stop seeing yourself as a free spirit and more of a business person, because the latter are way more in charge of their lives than the former.
Here’s another way to look at it. What if you could learn an entire new magical skillset. This would fill books with arcane formulas, would require rigorous calculations, would involve more worldviews and maps of the world, and when you were done you would have learned the magical technology responsible for most of the world wealth creation through history. You’d never get bored either, because there is always more research being published by other practitioners, and your experiments have a real impact on your wealth. An impact those without this skillset can’t imagine.
Would you learn it?
What if it took way longer than the Abremelin rite – this took years. Would you still do it?
Well, you can. It’s called going to school and getting a business education.
Dude, this is a fucking MAGIC BLOG!
Yeah, well, deal with it. A lawyer can make more money with a given wealth magic ritual than someone working at McDonald’s. A 30% increase in income means more when you’re starting at $80,000 per year than when you’re starting at $15,000 per year. The former feels like a powerful mage when nearly $25,000 rolls in, while the latter will be disappointed that $4,500 just barely covers his car repairs.
If you want to work magic on a business venture then you can do way more if you’re building an app for iPhones than if you’re making cute piggy thingies on etsy. And a game that appeals to ages 5-80 like Candy Crush has the potential to greatly outperform an app that does an amazing job of calculating horary astrological charts. The latter is more useful and might have an audience of a few hundred people, while the former makes it’s creators something like $929,000 per day.
Deciding what business to be in is a huge deal – it sets up limits on the maximum you can make. You can be the best cake maker in the world, but at the end of the day you only have 24 hours to spend on everything. Start a cake-making store in a good city and you’ll do better. Specialize in cinnamon buns, simplify it, franchise it, and have a shop in most malls in the country and you’ll do better yet.
Those first steps are huge. And most people make them without even looking around first. Business education helps you not only look around, but read a map. If you’re good you’ll be able to look at maps for the last 20 years and pick out the current trends, and compare that with maps from other places in the country.
Way better than starting off blind.