Starting your own business can be very rewarding. There are also a number of risks involved in becoming an entrepreneur.
In this blog post I’ll take you through both the rewards and the risks of starting your own business.
By the time we’re finished with this topic you’ll have a better idea of the many ways that starting a business can affect your life, and hopefully be in a good place to judge how best to start your journey as an entrepreneur.
What are the rewards of starting your own business?
Most factors that lead people to start businesses are ‘push’ or ‘pull’ factors.
‘Push’ factors like unsatisfactory working conditions, low income, or feeling your ideas and talent are being wasted where you are can be powerful motivators.
‘Pull’ factors are the other side of the coin, the attraction of being your own boss, creating your own brand and delivering something really valuable to your community, industry or even further afield.
What both push and pull factors have in common is change – moving to a better state in your working life (and sometimes your home life) than you are now. This is the reward for starting a business, and they vary from person to person. Identifying what you want from starting a business is a good first step to deciding on the kind of business you want to start, as well as the kind of work-life balance you are aiming for.
Here are some of the most common rewards of starting a business for you to consider:
There are, unfortunately, quite a lot of people who don’t enjoy their job and the only motivation for them is that they get a paycheck at the end of the month.
Being in this position can be stressful and exhausting both physically and mentally.
While starting your own business is hardly stress-free, getting out of a toxic or soul-destroying work environment can push many people to start their own businesses.
Starting your own business allows you to determine the work that you do and when you do it. Personal responsibility, lack of red tape and choosing who you work with all play a part in making the entrepreneurial life attractive.
As a result, most entrepreneurs experience more job satisfaction than your average employee. If you start your own business, you can ensure that you’re working towards something you’re passionate about.
This leads me nicely onto my next point….
Doing something you’re passionate about
When starting a business you are most likely going to be working on a project that you care about and are excited about. For many, this is one of the greatest rewards of entrepreneurship.
Turning your passion into a business is the classic entrepreneur dream. Quitting the day-job to fulfil your life’s purpose! For some lucky people, their passions are easy to turn into profitable businesses.
Even if the business you end up running isn’t the thing you are most passionate about, starting your own business lets you choose exactly what to work on, the angle you approach it with, and the amount of your time you want to invest into it.
You get to be your own boss
The flexibility that comes with being your own boss is one of the main reasons people choose to become an entrepreneur. The opportunity to work from home, choose the hours you work, and run a business in the way you see fit are all major benefits of entrepreneurship.
Starting a business also presents you with an opportunity to explore all aspects of a business, where an employee may be restricted to just one role.
All this seems great. Just don’t forget what Stan Lee famously penned. “With great power comes great responsibility.”
Just because you determine your work schedule as an entrepreneur, this does not mean that you’ll have an easy ride. As a business owner you’ll be ultimately responsible for every aspect of your business. The buck ultimately stops with you. This makes it doubly important to manage your time well, so that things run smoothly.
You can give back to your community
Identifying a local need that isn’t being fulfilled, or problem that needs solving is the foundation of many small businesses. Either giving back to your community directly through your business’ products or services, or by helping to fund local charitable organisations is a great way to make a meaningful difference to the world.
You can choose and build your team
As a new business owner, you may be running things on your own at first, but once your business starts expanding, you’ll need to hire more people.
This presents you with a great opportunity – the chance to build a team. You’ll be the one to make those all important hiring decisions, and also the person who sets the tone for the business’ culture.
The hiring process can be tricky, but ultimately you will be able to create a team of people that is right for you and your business in order for it to grow. We’ll explore this in more depth in Week 7.
The opportunity to pass your business down to friends and family
If you work 9-5 every day as an employee, you aren’t left with anything at the end of your career beyond your savings and any personal pension benefits associated with your workplace. In contrast, being able to pass your business down to family members or colleagues is a great reward of entrepreneurship.
If your business has been successful you’ll be able to provide them with the financial freedom that you experienced as a result of you setting up and growing the business.
What are the risks of entrepreneurship?
The rewards of entrepreneurship may seem enough to set sail right away and launch your business! But, it’s worth taking a minute to look at the risks inherent on striking out on your own as well.
I don’t want to scare you off – I want to inform you. Aside from anything else, starting a business is a massive lifestyle change, and it can be very draining, especially if you don’t plan ahead.
Here are the three top risks you need to consider when starting a business.
Market Research will help you to assess the risk of starting a business within your chosen market. It’s important, especially if your business is operating in an overly saturated market, to monitor changes in customer behaviour.
However, until you start selling and getting real customers, the exact things your market is looking for from your business are untested assumptions. The market may either turn against what you are offering, or you may find you have misjudged the market’s need or readiness for your products or services.
The key thing here is to get yourself in the mindset of being open to change.
Making your business better at delivering what your customers need will require some work on your part. The business you open on day one may be very different to the business in the years to come. Plan for the likelihood that you will have to build new products and features, or make changes to the way you promote the business.
Mental and Physical Health Risks
As I mentioned above for many people, one of the most attractive qualities of starting a business is that they get to become their own boss. Well, this can also quickly become one of the biggest risks of becoming an entrepreneur!
Starting a business is a BIG commitment and running it will take up a lot of time. You’ll likely be working late nights and evenings, especially when there’s just a small group of people running the show.
It can be difficult to maintain a work/life balance and as a consequence, your mental and physical health can be at risk.
Entrepreneurs often feel pressure, but the strain of working constantly on the business can lead to ill health. You need to remember when starting a business to take care of yourself.
One way to ensure that you look after yourself is to manage your time well. Check out our blog post on time management and productivity tips to be a better entrepreneur.
Financial Risk and Cash Flow Problems
As an entrepreneur, you won’t have a guaranteed paycheck. You’ll need to carefully consider whether you have enough ready cash to fund the business, and fund your own lifestyle.
If you’re new to the concept of cash flow, check out this beginner’s guide.
Many new businesses do not become self-supporting enterprises in their first year. So it’s important to ask two questions:
- Do you have enough saved up to support yourself as the business grows?
- How much does the business need to earn to support you?
If you are self-funding the business this is especially important – but even if the majority of the business’ costs will be paid for by external investment or borrowing there are still your personal financial commitments (like paying the bills and buying food!) to consider.
The easy place to start is to figure out what your living expenses are. If you don’t track your spending, now is the time to start.
Start by looking through last year’s bank statements and determine what you pay for each month. Some months might be higher than others – you might have insurance payments – or need extra money to buy seasonal gifts. Additionally, you’ll need to keep some cash ready for emergencies – like unexpected repair bills or to replace broken items. If you’re starting a business the last thing you want is to start racking up debt because of unexpected cost.
This will give you an idea of your current spending. By taking a monthly average of this spending, and assuming you don’t make any changes in your lifestyle when you start your business, you’ll get a good guideline for the minimum salary or dividend you’ll eventually need to draw from your business each month once it’s fully operational.
It pays to plan for the best case and worst case scenarios – you don’t want to be worrying about your own bills when you are trying to grow your business.
Balancing the risks and rewards of starting your own business
There are always risks and rewards to any potential change – and it’s up to you to judge what you can take on, and the kind of rewards you want from starting a business.
You may have a great idea for the business you want to start, or maybe searching for the right one. But you owe it to your future self to start a business that achieves your desired rewards, and has acceptable risks that won’t damage your livelihood.
In our second topic this week, we’re talking about ideation – the process of forming business ideas. But not just any business ideas… profitable ones!
If you haven’t taken a look yet, you can read our Ideation article here, or sign up to the ‘How to start your own business in 90 days’ challenge to get the whole book these articles are based on delivered chapter-by-chapter to your inbox each week.