03 Jul The Truth About Being an Entrepreneur: It isn’t as sexy as you may think to start…
There are far too many misconceptions about being an entrepreneur. For whatever reason, people think that the term is less of a risk than it’s real definition. What causes people to believe that there is more freedom, monetary gain and endless free time as an entrepreneur when compared to the typical “9 to 5” schedule that the majority of Americans partake in daily? As an entrepreneur myself I don’t know, but it seems to me that a lot of people miss the part where you have to literally build that lifestyle and become successful through a service or business you started, sold, or funded. Thriving businesses and millionaires are not created overnight for the most part. The latter requires a ton of highly demanding work, as well as an advanced understanding of business-this is what creates an entrepreneurial scenario that is ideal.
Entrepreneurship is mastering your craft and business at the same time. Anything less will simply create a stressful environment that is called “hustling”. Hustling is not entrepreneurship. Hustling is not knowing if you will make it. No business owner wants to simply become a “hustler”. I believe there are a few things you must learn about being an entrepreneur that I have discovered over the last few years that I would consider the “real truths”. I will examine in detail some items that you have to consider in your initial year or even prior to making that decision to phase into entrepreneurship. Many people ask me what I do, and I can now answer questions regarding what not to do even more accurately.
Here are some of the facts I can give when it comes to becoming an entrepreneur:
You are leaving security:
The safe and sound location known as “being an employee” is the most common destination for a reason. There is safety in the role. There is no safety in leaving that role and trying to start your own enterprise. The saying “with much risk comes great reward” is true, however, risk usually comes with losses. In this case, you are losing security (kiss that “safety blanket” goodbye). Your livelihood will now solely be based on your productivity and there is no such thing as mediocrity anymore when you are an entrepreneur. Great results are the only thing that will pay the bills for the lifestyle you are looking to live.
The major items that you lose when you become an entrepreneur are health insurance, 401k and other retirement based assets that a company would contribute to, as well as PTO or vacation time offerings. These are usually items that companies initially use to draw in employees . The offering of these items further serves to allow companies to appear as a secure and a long term location for the individual seeking work. When transitioning out of higher ranking jobs, you might even lose stock options, company vehicles and more, so be prepared to be stripped of the perks you found yourself growing comfortable with. No worries though, with the right business plan and profit model, you will earn all of this back and then some on your entrepreneurial journey.
Remember that these items become expenses when you begin generating revenue. So you now have to look at personal medical healthcare insurance, as well as dental and vision plans as a way to invest in your future when you generate revenue. Healthcare expenses could be upwards of $1,000 a month if you do not do it right, so make sure you do your homework on what is fiscally best for you to still have an acceptable monthly income. As an entrepreneur, you are your business, so these type of items become the main items you want to have in place. Your past company you left used to take care of these items, though now with the risk of taking them on yourself, you gain the reward of having no financial ceiling.
You will likely be your highest expense starting off, and maybe even deep into the company’s infancy. I will talk about that a little later in the “keep costs low” portion, but for now, you have to be willing to look at the short term goal of trying to get to a point where you can create your own security. As an entrepreneur, you have to run your life like a business and still invest in your future with a personal retirement savings account (i.e. IRA), health insurance plans, spending time as well as money on fitness and vacations away from the office. You will learn that with a great product and knowing your business well (which will also be knowing yourself and your life situation), you will earn all of that security back. There is security in numbers and you will create them monetarily on your own soon enough, be patient.
You will encounter some of the deepest lows when you become an entrepreneur. You must know how far you will really go to become the person you want to be. You will learn everything about yourself when you begin a task that has guaranteed trials and tribulations involved. Many people think that money and/or freedom will solve a lot of their problems. Numerous business owners and aspiring entrepreneurs that I have run into say “If I have more time to focus on what I want to do, I would do far better.” That may not be the case. That is a hard pill to swallow, but everyone is not good at things, like at all. Some people were not even good at their job, yet just because they do not like having a boss, they now want to be one. Being a “boss” is not being an entrepreneur, or vice versa. If you are a bad employee, being your own “boss” means you will have a bad team to start with.
Do not become an entrepreneur just because you do not want to work for someone. I CAN NOT SAY THAT ENOUGH! If you were a bad employee, you will be a bad business owner or entrepreneur. If you are not excelling at what you do now, having not taken the risk, why would you excel outside of that? You have to ask yourself that question. Are you ready for the next step? If so, there are endless great outcomes as a successful entrepreneur. Successful entrepreneurs work long days, late nights, hard hours and solve a lot of problems. You have to be able to do this in any and every predicament in order to correctly assess that you will be a great business owner.
There are a few things you absolutely have to know in order to own a business: finances, your product, and time. These three things will combine to make or break you. If you do poorly with finances you will not understand costs and then you will run out of money. If you do not know your product, you will not know your buyer or client and will likely not be successful in selling your product. If you do not know that time is money and that every moment is valuable in order to continually adjust the first two items, you will not do well in business. You have to know yourself, know what you do and be aware of what you do not know (I will talk on that also).
The lows will be hard and the learning curve is sharp, but you will get through it with the right mindset and tools.
Keep costs low:
This is probably the most important thing in business, especially small businesses in my opinion. Know the difference between profit and revenue immediately! You can be doing $1M in revenue a month, but if your expenses to do so are creating a burn rate of $2M, you will feel it. Remember that you are now an expense as well, and you must think of it that way. When I became an entrepreneur, I immediately left my apartment in the sky where I would be “cool” and took my expenses into consideration to live in a place half the cost.
You will be your primary expense initially. Putting food on the table and paying the rent become essential in the beginning fazes of starting something special, so why would you want to create an even harder route by trying to keep up the look of success with high expense items? Know your business, and know yourself enough to keep expenses as low as you can until you are out of the uncomfortable phase of entrepreneurship. I know too many entrepreneurs who try to maintain a similar lifestyle as when they worked as an “employee”, not knowing that the risk they are taking is the uncertainty of a “paycheck”. That paycheck is security and without it, you must know where each and every dollar is going. If you want to take a risk, know that you are risking wants for needs until you can once again afford your wants.
Let’s talk about business costs. Know your business better than anyone. Do not enter a business because it may be lucrative, as there are far more things behind the scenes than revenue. For instance, there are licenses, taxes, as well as hard costs that are associated with each and every business. Business is a numbers game. If you do not know the number that allows you to attain a financial break even point immediately, you will quickly find yourself in a very low place financially.
Let’s look at a basic hypothetical example: Example A
|Revenue (monthly)||Expenses (monthly)||Cost|
|$10,000||Employee / Licensed Worker||$4,000|
|Brick and Mortar Location||$1,200|
|Monthly Tax (8%)||$800|
|Location Upkeep / Maintenance||$500|
|Current Debt (Business Loan, Location Purchase and/or Equipment)||$2,000|
|Self Payment||$500 Remaining|
The person/business above does $10,000 a month for their business. Many people jumping into entrepreneurship would salivate at that type of revenue, but there is far more to it than that. They are in a business where they pay quarterly taxes, have to pay for a brick and mortar, have to have licensed staff as well as have to maintain facilities and/or equipment. On top of that, let’s not forget about paying business *liability insurance, utilities for the business and of course paying themselves.
* Random note, someone asked me about liability insurance. I have a $1M policy and I pay about $600/year for it. It is definitely something you must have. This will allow you, depending on the industry, to secure larger bids and/or enter facility contracts that others may not be able to access. Check into the best one for your industry. My policy is with a company named Hiscox and it has been awesome.
The summary is to know your business and keep your costs low. This person or business owner will need to make far more to sustain any high level of livelihood or to support their ideal lifestyle. Know everything about the profit and loss of your business and make sure that it aligns with the ability to generate profit, not just revenue. The example above is just paying 1 person $48,000/year before taxes, imagine needing more. Know the hard costs of your business and continually work to get them lower and lower. Do these types of revenue exercises far before you jump into a business.
I sat down for about 6 months and analyzed how I spend money to see what I needed to live adequately before jumping into my business. I then looked at all of the expenses I would be taking on in my industry and put together the number that I had to make hypothetically in revenue bi-weekly and monthly to not only live, but to make a yearly profit. This was the most important exercise I did before starting my business.
Let’s look at a basic hypothetical example of someone who makes the same, yet is in a better business model or has less of a need for items: Example B
|Revenue (monthly)||Expenses (monthly)||Cost|
|$10,000||Subcontractor / As Needed Worker||$1000|
|Shared Office Space (No utilities)||$500|
|Monthly Tax (8%)||$800|
|Location Upkeep / Maintenance||$0|
|Current Debt (Business Loan, Location Purchase and/or Equipment)||$0|
|Self Payment / Additional Funds||$6,700 Remaining|
This person only has a 33% ratio of expenses to revenue. This is an amazing profit model and will allow for tremendous growth. I would highly suggest putting one of these basic charts together with your needed revenue number, including your self-pay as what you need to pay rent or cover your own expenses, then do the math. Let’s say you are a photographer, you may need to get 4 clients at $2,000+ a month to cover all of your own expenses, insurances, subcontractors, etc. This will be a very good way to know what type of numbers game you are entering.
Product is power:
What you are selling is the key to you becoming successful. I speak about it a lot in other posts, but I cannot reiterate it enough, PRODUCT IS KEY. If you are selling something that is not a good product, you cannot expect a good outcome for your business. Continually make steps to becoming the best in your business or industry. This means always looking at industry trends, how your competitors are winning or losing and more.
You will be your product. You have to continually stay focused and sharp with what you create and sell. It will be hard to maintain motivation if profits are not there immediately, but you have to put out a top tier product to become the best of the best.
Never stop learning:
I still only know a piece of the industry I work in. I do know enough to make a good living, though I will never stop learning business. I just got my MBA, becoming a literal “master in business”, and I still know that there is far more to learn from those who have been in my shoes and beyond. I speak with young business owners all the time and they state “I worked in this industry, I know that”, this is usually not true. You worked in the industry, but you did not own a business that competed in the industry – BIG difference.
CEOs are always learning, always reading and always fine-tuning their business(es). They also don’t know everything, that I can promise you. Do not stop learning from others or lived experiences.. Sometimes things aren’t advice, they are just a different point of view that you can either take in or disregard. The thought that you know everything about a business the initial year or even 3 years in and can consider yourself a master is a set up for a proverbial ceiling. You may know your craft but business is another beast, one that learns and adapts. You will always learn new do’s and don’ts if you are a business owner. If you are not learning, you will be unable to endure this marathon. .
Fin: At the end of the day, there is a lot to take into consideration when starting a business and becoming an entrepreneur. I just wanted to share some of the truths and misconceptions, as I hate to see people jumping into a pit of fire simply because they are ill-prepared. I know very well that is more like a diving board where you are flailing your arms on the way down until you smoothly understand you can swim. It is a journey for sure with ups and some crazy downs, but it can be done. There is no need to do it without knowledge or a great and honest understanding of self expectation. I certainly hope that this was a good read for aspiring business owners. I also hope that it provides you with some applicable insight into the entrepreneurial mind and experience.