It must be a great time to be an entrepreneur. From college grads launching digital startups to older workers opening new ventures, you’d think there were dozens of reasons to start a business.
In reality, there are only three.
Being your own boss sounds great, but by itself it’s not a good enough reason to start a business. Entrepreneurship is hard, it’s time-consuming, and it’s risky. You can’t do it half-heartedly, and you can’t be indecisive. If you’re thinking about going the entrepreneur route, you’d better know why before you even start, or you’re likely to fail.
Here are the only three reasons to start a business—and the questions you must answer before you move forward:
You want more income than you can get from your current job.
Who doesn’t want more income? More to the point, who doesn’t think they could earn more income if they weren’t generating revenue for someone else?
There’s no doubt your potential income is higher as a business owner than as an employee. So is your workload, your responsibility, your personal financial risk and, most likely, your blood pressure. It’s good to be the boss, but it’s also a hell of a lot harder.
But let’s say you’ve got what it takes. The next challenge in starting your own business is income uncertainty. No matter how good you are, you aren’t likely to make much money right away, and revenue flow can be inconsistent for a long time. So, if income is your goal, the main question to ask yourself is:
Can I go a year or more with zero income?
You want to build a dynasty.
For every Sam Walton or Bill Gates, there are a million entrepreneurs who don’t become billionaires. The odds are against a new business even surviving five years, let alone growing into a multi-million dollar enterprise.
Still, wanting to build something that will eventually be bought out—or taken public—is a valid reason for starting a business.
To be attractive to a buyer, however, a business can’t just be profitable. It can’t just be better than its competition. It has to be, in the terminology of the startup world, scalable.
The simple definition of scalable is “capable of being easily expanded or upgraded on demand.” In manufacturing, it means a product that can be produced and/or distributed worldwide without diminished margins. In retail, it means 500 stores will be at least as profitable as the original location. In a service business, it means revenues will grow faster than the mounting costs of infrastructure, personnel and administration.
Without that growth potential, no one will want to buy your business. If a dynasty is your goal, the main question to ask yourself is:
Is my business model scalable?
You want to pass your business to your children.
Creating a livelihood for your children is a valid reason to start a business—but it’s a dicey proposition. You’re adding the volatility of family relationships to all the variables that factor into any business’s success. It’s easy to fire a manager who underperforms, but it’s a lot harder if he happens to be your son.
Another factor to consider: Is your business model based on an enduring market demand? For instance, you wouldn’t found a family business developing smartphone apps, no matter how lucrative the short-term profit potential. Five years from now, smart phone apps might be as obsolete as floppy disks.
But the real X factor in starting a family business is, well, family. You know your kids better than you’re ever likely to know a random job applicant. If leaving your business to your children is your goal, the key question to ask yourself is—and be honest now:
Would I hire them if they weren’t my kids?
Don’t start your own business unless you’re doing it for one of these reasons—and can answer the key question that comes with each.
Image credits: glassdoor.com, boxfamilyadvisors.com