The Pros & Cons Of Going Into Business For Yourself
This article is adapted from an instructional tape I produced for the Grandy & Associates "Service Sense" series of audiocassettes aimed at service technicians. For more information, contact Grandy & Associates at 800/432-7963.
At some point virtually all service technicians think about going into business for themselves. Usually it happens when you feel you're not being treated right by your employer. Or maybe you're motivated by a desire to make more money or to be your own boss.
This is an incredibly important decision in your life, and a very personal one. I wouldn't presume to advise you about whether to break out on your own - no more than I would try to tell you who to marry or what to name your kids.
What I DO hope we can accomplish here is to lay out the pros and cons involved in running your own business, so you can make an informed decision about it.
First, let's deal with the pro side of the ledger. What are the positive things that can happen if you decide to go into business for yourself?
Most obvious is the opportunity to make a lot more money. This is probably the number one reason why people decide to leave their jobs and start their own business.
No matter how good you are, and no matter how successful your company might be, there is a limit to how much any employer is willing to pay a service technician. For example, very few service technicians can expect to earn $100,000 a year working for someone else. Maybe with a lot of overtime or an attractive commission structure some service techs might approach the six-figure mark in a year, but it doesn't happen very often.
However, it's quite possible for the owner of a successful company to earn $100,000 a year. Some business owners make $200,000 or $300,000 a year. The sky's the limit when you operate a successful, growing business. If your company gets big enough, a million-dollar a year income is not out of the question.
In addition to paying yourself a handsome salary, if you build a successful business you may someday find that other people want to buy it. If the company is successful enough, they might be willing to pay you millions of dollars for your company, plus keep you on as a highly paid manager or consultant. Truly, this is a payoff worth striving for.
Furthermore, as a business owner, you get a chance to write off many expenses that also benefit you personally, such as a company car, entertainment, country club dues and so on - at least within limits imposed by the IRS.
When you get right down to it, there are only handfuls of ways to reach the rarefied atmosphere of affluence. One is to be born into it and inherit wealth. But that probably hasn't happened to any of you because I doubt you'd be working as a service technician if it did. Or, I suppose you could get extremely lucky hitting the lottery or investing in the stock market. But that rarely happens either. For most people, the surest path to getting rich is to own their own business. Put that as number one on the pro side of the ledger.
Being The BossNext to money, people get motivated to start their own business by a desire to be their own boss. Some people just don't like to answer to anyone else. This is especially the case when you believe you know more than your boss does about how to do your job. If you're the kind of person who doesn't react well to authority, you'd better look at breaking out on your own.
There's another extremely good reason to start your own company. It's what might be called the entrepreneurial drive. An entrepreneur is the business world's version of an artist. The true entrepreneur is a creative person who desperately needs an outlet in which to implement his or her ideas.
Being an entrepreneur differs from simply wanting to be your own boss. Many people want to be their own boss for negative reasons. It's because you don't like your boss, or you think the people you report to are stupid or they mistreat their customers.
With an entrepreneur, the desire to break away is present even if you like your job and the people you work for. It's like an artist craving paint and a canvas - or musicians who would hock just about all of their other possessions for an instrument. The entrepreneur has a creative vision about how to run a business, and that's what drives this person. If you fit the entrepreneurial mold, then the decision to start your own business is already made. Nothing can stop you.
Conversely, if you have doubts that this is the right thing to do, you probably are not a true entrepreneur. This doesn't mean you can't succeed in your own business. Just understand that deep down inside you are being motivated by something other than the entrepreneurial drive.
Being an entrepreneur doesn't mean you'll automatically succeed. Many entrepreneurs fail in their business ventures, often time and time again. In fact, there are some aspects of an entrepreneurial personality that go against the grain of what it takes to succeed in business. Too often the entrepreneur is a control freak who doesn't know how to delegate. Or s/he may be headstrong with a "my way or the highway" attitude. These are not good qualities for running a successful business, which usually requires negotiation and compromise. It's not unusual for an entrepreneur to start out strong because of the brilliance of his or her business ideas, but then the flame fizzles out because of an inability to work with others.
But even when s/he fails, a true entrepreneur will continue to find a way to open up a new business again - maybe in an entirely different field. If you are an entrepreneur, deep down you probably know it.
Other MotivesAnother positive aspect of running your own business is the opportunity to do it right - or at least what you perceive to be the right way. Some of you may disagree with some of the business practices of your employers. Owning your own business gives you a chance to implement your ideals.
Job security is another reason why some people go into business for themselves. Some service technicians get tired of being laid off or not knowing how many hours they'll get from week to week. They think the only way they can assure themselves of employment is to be the one generating the work. Money often is secondary to such people. I've met owners who earn less money than their service techs, but they're perfectly happy just knowing that nobody can fire them.
Finally, let's face it, there's a lot of prestige and ego gratification in owning your own company. If you wish, you can name the company after yourself and put your name on service trucks and advertisements that get seen all over town. Most people would deny this as a motive, but deep inside I think most business owners get a kick out of being a big shot.
This pretty much covers the pro side of the ledger. The big advantages of running your own business can be summarized as follows:
- The opportunity to earn big money.
- Satisfying the entrepreneurial urge.
- The opportunity to operate the way you think a business should.
- Job security.
- Prestige and ego gratification.
Another Look At MoneyNow let's take a hard look at some of the negatives.
If you're a sports fan, you've probably noticed that great athletes don't necessarily make the best coaches. A person blessed with great athletic ability sometimes has difficulty understanding and motivating people with lesser skills. Most great ballplayers don't have the people skills, and maybe the strategic vision, to succeed in a coaching position.
The same holds true for service technicians. A top-notch service technician must be a first-rate mechanic and diagnostician. But being a great service technician does not automatically translate into business success. Businesses almost never fail because the owner lacks sufficient technical ability to do the work. It's usually because of a shortage of good business sense.
As for the specific down sides of going into business for yourself, first and foremost let's go back and take a closer look at the first item on the plus side: money. I've stated that owning a business is the way to get rich and many business owners make six-figure incomes. However, they are not the majority. A harsh fact of life is that the vast majority of new businesses fail within the first few years of existence. Many more businessmen go broke than get rich.
As an employee, if you lose your job, the worst thing that's likely to happen is that you'll be unemployed for a period of time and lose income during that period. As a company owner, if your business fails, not only do you not have an income, you will be out all the money you invested in opening that business, plus all that you owe to creditors. It might be your own savings that go down the drain, or it may be money that you borrowed from a bank or from friends or relatives.
Even if the business doesn't go bankrupt, the home service industry is a tough business with much competition. A few companies become very successful and generate the six-figure incomes for their owners that I spoke of. But many more are only marginally profitable. Their owners make nowhere near six figures. Often they end up making less than they could working for someone else.
Overhead HeadachesThe main reason for this is that most service technicians who go into business for themselves don't have a clue about business economics. Typically what happens is that a service tech's eyes get big when s/he sees the difference between what s/he is making and what the company charges for labor. S/he might be getting paid, say, $15 an hour, and notices that the company bills for labor at $60 or $70 an hour. S/he starts to think, "I could make two or three times as much working for myself."
People who think like that fail to understand overhead. A service and repair contractor needs some pretty expensive equipment in order to operate: trucks; tools; electronic devices; radios and cell phones; insurance; and so on. A lot of people entering the business think they can cut costs to the bone by working out of their homes. But even doing that, there are certain large expenses that just can't be cut very much.
For instance, let's take the most essential large expense, a service truck. A lot of people start out with a single old beat-up service truck. But the more beat up, the more money you have to sink into maintenance and repairs. And what happens when that truck breaks down and you can't make it to calls? You lose not only money but also credibility with customers. Once you tell them you can't make it and to call someone else, you not only lose that job, you probably lose that potential customer for life. That's no way to run a business.
Insurance, tools, advertising and so on cost more than most new business owners imagine going in. The suppliers of those things must be paid if you are going to continue to rely on them, which you must to stay in business. So when money gets tight, the most convenient expense to cut is the owner's income. For every owner making a hundred grand a year, there are dozens struggling to make ends meet.
The Office SlaveHere's another fallacy that many new business owners fall victim to. They involve the spouse in the business at little or no salary. Typically the husband works in the field, while the wife answers the phone, dispatches service calls, sends out invoices, pays bills, keeps the books, et cetera. They think of themselves as a team, and they figure this is a great way to keep costs down instead of hiring someone to do the office work.
If this is part of your game plan, think hard about it for a moment. Are you really coming out ahead?
If your wife is smart enough to run your business, she's smart enough to earn a salary working in someone else's office. So even if you're not paying her anything, you must factor into your overhead what's known as an opportunity cost. The time she spends keeping your books for free is time she could be out earning money working for someone else. Suppose she could go out and get a job paying $30,000 a year, while you could hire someone to do your office work for $20,000. You may think you're getting your wife's services for free, but in this case it's an invisible cost to you of $10,000.
So, yes, six-figure salaries are possible, but they almost never take place from the start. Successful business owners typically work their fannies off for many years taking in modest incomes before they build a business that supports an elevated lifestyle.
Grueling HoursMoney aside, let's take another look at the down side of running your own business. Don't think for one second that it's a 40-hour a week job. Expect to put in 60 hours a week minimum, and don't be surprised if it escalates to 70- and even 80-hour weeks when problems develop. Don't expect to take many days off, and forget about vacations for many years.
If you have young children, resign yourself to the fact that you are going to miss out on school plays, ball games and other events that are part of growing up. You can try your best to make time to attend some of them, but when you're starting out in business, it's very difficult to find the time.
Many of the hours you work are going to be unpaid time. You'll be working 12-hour days and more, but out of that you will be lucky to come up with five or six billable hours. That is, time spent with a customer actually doing work for which you can charge.
The rest of the time you'll be spending on tasks like visiting potential customers to give free estimates, working up job quotes, putting together advertising, paying bills, dealing with suppliers and so on.
Let's be optimistic and say that during your first year in business for yourself, you earn $50,000 in income before taxes and deductions. This is a realistic number. It's not exactly getting rich, but it's probably more than many of you are earning at present. And it's not out of the question for a reasonably successful new service business owner.
But what will it take to generate that income? You almost certainly will put in at least 3,000 hours of work that year. This, too, is a realistic number, even a bit on the conservative side. It averages out to 50 weeks at 60 hours a week.
Now divide that $50,000 income by 3,000 hours, and you'll find that it amounts to an hourly wage of about $16.67 an hour. How does this compare with what you earn as an employee? In many cases, it's not much more. It might even be less.
And if you have your wife working in the business for free, you need to add her hours into the equation. Let's say she's only needed part-time to keep the books, say 1,000 hours a year. Now divide that $50,000 by 4,000 hours. As a couple, you and your wife would be working for an average of $12.50 an hour - even less if she puts in more than 1,000 hours. Are you sure you wouldn't be better off working for someone else?
I'm just discussing wages. Also keep in mind the need to provide benefits for yourself. You'll need, at a minimum, health insurance in case you get sick. Factor in several thousand dollars more in expenses.
And what happens if you are self-employed and you come down with the flu or worse? Who is going to handle the work when calls come in? I've seen self-employed service technicians force themselves to work when they're so sick they can hardly walk.
Of course, once your business becomes established and successful, you don't have to work so hard. Some of you may see your bosses taking afternoons off to play golf and maybe disappear for several weeks a year traveling around the world. That's the reward for operating a successful business. But you can be sure that most of those bosses spent many years working 3,000 hours and more to build their businesses to the point where they could take it easy.
Starting Out SmallMost people who go into business for themselves start out as a one-person operation, maybe with the spouse pitching in as we discussed. At most, you may have a partner and perhaps an employee or two. Few service technicians have the funds and wherewithal to open up shop with multiple trucks and an office staff. That's one reason why you can expect to put in so many hours.
Some service company owners choose to remain one-man shops. They believe there are fewer headaches. This is a personal decision and not an unrealistic one depending on your goals. There are indeed fewer headaches when you have only yourself to manage. But keep in mind that staying small also limits your income potential, and it virtually guarantees you a lifetime of 60- and 70-hour workweeks.
At some point, most business owners feel the need to grow, and growth means hiring other people to work for you. Finding good people at the salary or wages you are able to pay, is perhaps the most difficult part of running a business.
Managing PeopleEven if you find good employees, keeping them happy is not easy. Managing people is an art. Big corporations devote many hours of training before they put someone in charge of others. People in a small service company seldom get any management training at all. They simply get promoted to positions of responsibility where they suddenly find themselves supervising other people.
Service contractors wouldn't think of sending a technician out into the field without any technical training or experience. Well, people are vastly more complicated than any mechanical system, and it's amazing how many companies put someone in charge of other people without a single minute of management training. I'm sure some of you work for people you don't respect. They may have been great service technicians themselves, but that doesn't necessarily mean they know how to manage people.
As a business owner, the shoe will be on the other foot. If you want to grow, the success of your company will depend not on you alone, but on the people you hire and on your ability to motivate them to peak performance. Some of you may have that ability. I suspect that most of you do not. Being a first-rate service technician does not automatically make you a competent supervisor of service technicians.
Legal IssuesLegal issues are another big downside of running your own business. One of the biggest complaints of most businessmen today is the amount of time they must spend dealing with legal and regulatory issues. Many spend more time filling out government paperwork than they do managing their businesses. Every government agency from OSHA to EPA to EEOC to DOE to DOT has its hands in the work you do. And if you don't know what all those initials stand for, you'll find out soon enough after opening your own business.
Also, every business owner lives under the constant threat of lawsuits for things over which s/he has limited control. Something can go wrong at the jobsite that injures someone or causes damage to the customer's premises. Lawsuits can get filed by workers who get hurt on the job, by employees who feel they've been mistreated, by customers who think they got a raw deal. Sooner or later most businesses get caught up in litigation of some kind, and if you want to see how fast money can get sucked into a black hole, just wait until you start dealing with lawyers.
So, just as we did with the plus side, let's summarize the downsides of owning your own business:
- You may not make as much money as you think you will.
- You risk the money you've invested and maybe borrowed to open up shop.
- You are guaranteed to work long hours.
- As a one-person operator, you need to provide some sort of backup plan in case you get sick or if you want to take some time off.
- If you are not a one-person operator, you have the headaches of hiring and managing other people - and maybe firing some along the way.
- You will spend a disproportionate amount of time dealing with legal matters and government regulations.
In summary, the odds are against people who start their own business. I don't want to paint an overly bleak picture of business ownership, but I do think you need to go into such an important venture with your eyes fully open.
Obviously, the obstacles that I've just discussed can be overcome. Despite the odds, a fair number of service technicians do start up their own companies and succeed. Many live happy lives because they enjoy what they are doing. A few become wealthy beyond their wildest dreams.
What it boils down to is risk and hard work on one side of the equation, balanced by rewards on the other. Risk and rewards go hand in hand with business ownership. You can't have one without the other.
Ultimately, only you can decide whether the risks of going on your own are balanced by the potential rewards. I just hope that the issues discussed here help you make that decision with your eyes open.
Whatever your decision might be, I wish you success and prosperity.