Before we move on to anything else, lets clarify some important questions. The first is why are you starting a business? I bring this up because some people romanticize the idea of owning a business and being their own boss. Yes, having a business of your own has benefits, but there is also some drawbacks to consider. I’ve heard a few people say they want to be an entrepreneur, I don’t know if that’s because they actually want that or they’ve just heard that word thrown around a lot lately. On my previous post I covered the difference between entrepreneurship and self employment, if you haven’t read that I recommend you start there.
Reasons not to start a business
I think these are common reasons some people use when deciding to start a business. I’ll go into some detail as to why these aren’t good reasons, and my thoughts on alternatives. In efforts to keep this reading light, I’ll break this into 2 parts following with a post covering some of the reasons you might want to consider starting a business.
I don’t like my job / boss
At some point or another we might all land here. You might have been in a situation where you were willing to take any job just for the sake of having a steady stream of income, or maybe you thought you would like the job and found later it wasn’t for you. Whether it was one of these situations, or something completely different, if you don’t like your job the easiest solution is to review and rewrite your resume, and find another job. If you already have a job, while searching for a new career opportunity you won’t be pressured to take the first thing that becomes available or is offered to you. This means you can wait until you find the perfect job, one that speaks to you and you’ll be happy with.
I don’t want a boss
This one is a bit tricky. You may be in a position where you have a bad boss, whether that’s a supervisor, manager, or the business owner directly, and you don’t like the way they run things. Maybe this has been the case for not just your current job, but the last one as well, or the last few. Then I understand not wanting to put yourself in that position, and wanting to be your own boss. Here’s the thing, when you open a business you need to take on customers and in a way, they are now your boss as well. OK, so not really, but follow along for a second. You need your customers, you rely on their business to make money, so you’ll need to keep them happy with your services or products to ensure they keep returning and refer you new business. So, you still have someone that you are answering too, this in many ways can be worse though since now you don’t answer to one person but to many, and each is unique and comes with their own set of problems, quirks, and requirements. Eventually you may grow your business enough that you have plenty of customers and you can pick and choose who you work with, but it will take a while to build up to that point. If not wanting a boss is your only reason or at least the strongest reason, you can instead apply for a management position where you can both impact those around you making sure they have a more pleasant experience, and get practice managing a team. If you plan become an entrepreneur, then you’ll need this skill anyway, and this is a good way to get practice.
I can do it cheaper
There are many reasons why you may be able to do what your boss or the company you work for does at a lower cost. One of the main ones is overhead. A company with multiple employees, an office space or warehouse lease, along with all the utilities related to that lease, maintenance expenses, etc. has to cover that overhead and so they add that to the cost of their products or services. So if you eliminate those costs, you can indeed provide the client services at a lower cost to the client, and still manage to make a decent profit. But, there are multiple reasons why you shouldn’t do that.
Consider that if you start by undercutting your competition by charging less, you will have a hard time saving additional funds that you’ll later need to grow your business. If you ever decide to grow and want to hire your first employee, you’ll have to either raise your prices, or you’ll need to get more clients. If you get more clients at a low cost, you’ll have a hard time making enough to cover the cost of your new employee and still make a profit. If you decide to raise your prices to make up part of the cost of a new employee, you’ll very likely loose customers who chose you only for your lower prices.
You might be thinking that doesn’t matter because you don’t plan to expand beyond yourself. You still need to consider long term effects to your business, and your financial situation. You need to make enough to save for your eventual retirement, and save enough to get you by if you fall on hard times or have unexpected expenses. The lower your profit margin is the harder it will be and longer it will take to save funds for these situations.