New ventures are often overhyped and venerated. We are told that entrepreneurship is the driving force behind almost every aspect of the economy, that entrepreneurs create the jobs that exist, that they advance society, and that they build a better world in their quest to create great businesses and achieve their personal goals. If you get carried away, starting a business sounds glorious and sexy.
In truth, there is nothing glorious or sexy about launching a new company. New ventures face substantial risk and provide few of the benefits assumed with regular employment. To provide a balanced view, we will try to present a complete picture of what launching a new venture is like and the negative outcomes of launching a business.
There are a lot of ways your ideas can fail, and the first one starts with you. Do you have a lot of tenacity? Are you a self-starter who does not wait for someone else to give you a project? Do you have a vision and the passion to make it real even if the entire world tells you repeatedly how crazy you are and that it will never possibly work? Are you interested in meeting lots of people and working in a team environment? Would you work for a year or more on getting a company running without drawing a paycheck from it? If you answered yes to those questions, you are probably not the problem.
Another reason companies fail is because their underlying idea simply isn’t feasible. Some ideas may be sound if certain criteria are met, but the world we live in may not be meeting them. The era where buggy whip manufacturers thrived is long gone, and the propeller planes of old are equally unlikely to make a massive comeback. So you have to base your idea either on how the world is or on how you can convince it to be. Not everyone has the charisma, the team and the determination to do this.
You may also be stymied by having a comfortable job in a large company that you are reluctant to leave. Your idea may fail if you do not leave the company and you allow its various agendas and bureaucracy to stifle your idea. The quest for comfort and the drive to be entrepreneurial do not need to be mutually exclusive, but it is rare that one can start a successful business while also putting in the time and effort that is required to work in an established successful business.
Little Organizational Support
When you work in a startup you will become a jack of all trades. Much of the support staff found in established organizations does not exist in new ventures. Tech support, human resources, reception and even janitors may be missing from a company. These miscellaneous tasks take up a lot of time and can distract from priority work.
Entrepreneurs face disorder. With less support staff than an established organization, startups are typically more disorganized. They have to hunt new business, they make sure products are meeting quality standards, and they may check that the business is functioning in other areas as well.
Most employees are only familiar with this lack of support when they are between jobs and looking for work. In a very real sense, they are entrepreneurs in selling themselves as a product. Many of the same challenges that face a job seeker such as uncertainty, the need for self-promotion and the difficulty in finding opportunities are borne by entrepreneurs all the time.
Risk of Failure
Most new ventures fail. Different statistics have been used to quantify failure rates in different countries and over different time periods. According to the United States Small Business Administration (SBA), about one half of new ventures fail within four years. Similar rates of failure are observed in other developed countries.
Think about what this means for entrepreneurs. Between launch and failure many firms do not make enough money to pay their founders, and many of them end up losing some or all investment funds. After including opportunity costs, the entrepreneur loses the invested capital, any gains that would have been earned by investing those funds in financial securities and wages that would have been earned in employment. Worse yet, launching a new venture may not make your resume attractive relative to those of other candidates who have had steady work over the same period.
The high probability of failure and no guarantee of payment are hard for employees to grasp. Many employees expect steady pay in exchange for their efforts and have no concept of business risk. If you have experience only as an employee, think long and hard about whether you are really prepared for the risks and potential consequences of launching a failed business venture.
A startup is not like a job. There is no guarantee that you will be paid for your efforts.