There are many reasons to enter the world of entrepreneurship, but the one that seems to draw the most newcomers is the prospect of “getting rich.”
Some studies illustrate how entrepreneurs, over the course of their careers, tend to live happier lives and make more money doing so. And occasional stories of breakout entrepreneurs selling their businesses for millions of dollars naturally pique everyone’s interest.
No wonder why so many people strive to own their own businesses for a shot at that big bank account. But it’s unlikely that merely owning a business is going to earn you the riches you seek. Here’s why:
1. Most businesses fail
It’s hard to come up with good business ideas, and as various sources have attested, 90 percent of startups fail. Not only do you need to come up with an idea that’s original, appealing and potentially profitable, you also have to get the timing right.
And coming up with an idea is only the first part of the formula: You also have to ensure that you execute your idea flawlessly, and are willing to change it as circumstances evolve over time. For these reasons, there’s little surprise from the fact that the majority of businesses fail.
Even if you have near-absolute confidence in your own ideas and abilities as an entrepreneur, you’re not likely to be exempt from the possibility that you’ll be one of the victims of that scary statistic.
2. Get-rich-quick stories are rare and often exaggerated
There’s something else at play here in those entrepreneurial “rock stars” who skyrocket to success: Media outlets like to play up those stories. That’s how these entrepreneurs become the poster children for business ownership, and lull many inexperienced entrepreneurs into thinking that overnight successes and instant riches are not just possible, but likely.
In most cases, though, these stories are either greatly exaggerated or rare. The truth is, it takes years of effort and the ability to work past multiple failures for most people to get to the “millionaire” point. If you aren’t willing to accept these common obstacles and move past them, you’ll never get to that point.
3. Running a business is expensive
Don’t forget that running a business is more than just collecting revenue: You also have to pay for everything that happens behind the scenes, including many unforeseen expenses.
You’ll be paying for raw materials, human labor, utility costs, rent, equipment costs and – don’t forget – often-overlooked expenses like taxes, insurance and legal fees. Even if you can produce something that itself is profitable, there’ll be hundreds of expenses you’ll need to work into your final equations.
Many novice entrepreneurs underestimate how expensive it really is to run a business, and end up selling themselves short.
4. There are always unseen variables
No matter how carefully you make your decisions or plan the course of your business, there are always unseen and unpredictable variables affecting how your business plays out. A new competitor might come out of nowhere to threaten you. A new technology might transform the way people think about your product.
Further: Your revenue might explode overnight or vanish without much of a trace. It’s hard to tell exactly how the market’s going to change, and if you’re not ready for that uncertainty, you’ll be hit hard when it occurs.
5. High profitability alone won’t – or keep – you rich
This is an important lesson you might forget in the excitement of becoming an entrepreneur: You still need personal finance skills if you’re going to become or stay rich. Your business might become profitable, earning you hundreds of thousands of dollars a year in recurring salary, but if you blow all that money on cheap trinkets or make lousy investment decisions, you’ll probably end up with nothing by the end of your journey.
Regardless of how profitable your business is, getting and staying rich demands careful attention, frugality, smart investments and responsibility.
6. Most wealth is accumulated from multiple sources
This is another important financial lesson to bear in mind. Even though many entrepreneurs have accumulated a chunk of their wealth through business endeavours, most personal riches are gathered from multiple sources of income.
After earning significant money, most entrepreneurs try to invest a portion of their cash into stocks and bonds, or real estate, or even other start-ups. They hedge their bets with multiple streams of income – meaning they’re not just getting rich from the success of one business. Aim to optimise your own income with multiple sources.
Entrepreneurship isn’t always pleasant. In fact, sometimes it’s downright miserable. Not only will your first business probably fail to make you rich, it might even leave you in financial ruin. Still, if you have an exceptional idea and the willingness to keep growing and adapting no matter what’s thrown at you, eventually you’ll find a route to higher revenue.
That great idea of yours may not make you a billionaire, but it should at least earn you a good living and provide you the satisfaction that comes with being a creator and leader. For help starting your first business, see The Modern Entrepreneur: How to Build a Successful Startup, from Beginning to End.
This article was originally posted here on Entrepreneur.com.
Put On Your Wellies: It’s Time To Wade Into Risk
Entrepreneurs aren’t all leaping into the unknown like lemmings off a cliff, but they do need to consider it…
You’ve had a great idea. You’ve looked into its development. You’ve recognised that it has potential beyond just what Auntie Mabel and Mike From The Grocer think. And you’ve clearly nailed a pain point that can make money. Now it is time to take the risk of running with it.
Every big idea comes with risk. You can’t step out into the world of entrepreneurial thinking and business development without it. Your idea may fail. It will also be time consuming, demanding, hungry for money, and hard work. It is unrealistic to expect that your project will leap out into the world and be an unmitigated success.
It is also unrealistic to assume that it isn’t worth taking this risk.
There are steps that you can follow to ensure that your risk is managed so you aren’t blindly leaping off that cliff…
Step 01: Do your research
No, canvassing your neighbours, friends and family is not doing research. You need to know that your idea will appeal to a broad market and that it will have significant legs. This may sound like daft advice, but you would be surprised how many people think an idea will take off just because Susan in Accounting said so.
Step 02: Understand the costs
Projects are hungry for money and investment. Realistically work out your budgets and how much it will cost to take your project off the ground and then stick to it.
A calculated risk is a far better bet than one that shoots from the hip and hopes for the best. You can also use this as an opportunity to draw a clear line under where you will stop investing and end the project. If it keeps eating money and isn’t getting anywhere with results you need to be able to walk away.
Step 03: Know when to walk away
As mentioned before, this can be defined by a line you’ve drawn in the proverbial sand (and budget) but no matter where you draw this line, you have to stick to it. Often, when time, money and energy have been poured into a project it can be incredibly hard to walk away.
You think ‘but I have put so much into this, just one more’ and then it gets to a point where the ‘just one more’ has taken you so far down the line that walking away feels impossible. Leave. Learn the lessons. Apply them to your next project.
Mind The Gap
The entrepreneur’s guide to finding the gaps and building the right solutions.
Innovation may very well be the key to business success but finding the gap into which your innovative thinking can fit is often a lot harder than people realise. Some may be struck by inspiration in the shower, others by that moment of blinding insight in a meeting, however, for most people finding that big idea isn’t that simple. They want to be an entrepreneur and start their own high-growth business, but they need some ideas on how to find that big idea.
Here are five…
It sounds trite but networking is actually an excellent way of picking up on patterns and trends in conversation and business problems. The trick is to note them down and pay attention. Soon, you will find patterns emerging and ideas forming.
2. Look for pain
Just as networking can reveal trends in the market, so can spending time reading. The latter will also help you find common business pain points. These are the touchpoints that frustrate people, annoy business owners, affect productivity, or impact employee engagement.
Be the Panado that fixes these pains.
This is probably the most annoying of the ideas, but it is unfortunately (or fortunately) very true. Luck does play a role in helping you capture that big idea. However, luck isn’t just standing around and random people offering you opportunities. Luck is found at networking events, it is found in research and it is found in conversations with other entrepreneurs.
4. Luck needs courage
You may have found the big idea through your network, a pain point or pure blind luck, but if you don’t have the courage to take it and run with it, you will lose it to someone else.
Being bold in business is highly underrated because most people assume that everyone is bold and prepared to take big leaps into the unknown. However, not all brilliant entrepreneurs were ready to throw their family funds to the wind and leap into an idea – they were courageous enough to figure out a way of harnessing their ideas realistically.
5. Pay attention
This is probably one of the most vital ways of finding a gap in the market. Often, people are so busy that they don’t really pay attention to that niggling issue that always bothers them on a commute, or in a mall, or at a meeting. This niggling issue could very well be the next big business opportunity. Pay attention to it and find out if that issue can be solved with your innovative thinking.
5 Things To Know About Your “Toddler” Business
As you navigate this new toddler phase of your business, here are five things to bear in mind.
Ah, toddlers. Those irresistible bundles of joy bring a huge amount of energy, curiosity and fun to any family – but there’s also frustration and worry that comes with their unpredictability, as they grow and start to become more independent. If you own a business and it’s successfully past its “infancy” of the first year or so, it’s likely it will also go through a toddler stage of its lifecycle.
Pete Hammond, founder of luxury safari company SafariScapes, agrees with this. “Our business is now three and a half years old, and we’ve found that we’re not yet big enough to justify employing a large team of people to handle the day-to-day admin tasks, yet we still need to grow the business as well,” he says. “As a result, our main challenge is finding the time to step back and see the bigger picture. Kind of like when you are raising a busy toddler and you spend most of your time running after them!”
As you navigate this new toddler phase of your business, here are five things to bear in mind:
1. This too shall pass
Everything in life is temporary – and that goes for both the good and the bad. It’s as helpful to remember this when you’re facing the might of a toddler temper tantrum, as it is when you’re facing throws of uncertainty in your business. If your new(ish) venture is going through a rough patch in its first few years, it can be easy to think about giving up – but don’t. As long as you have an overall big idea that you believe can add value to your customers, keep pushing through the rough parts until you come out the other side.
2. Appreciate what this phase brings
The toddler years mean that the initial newborn joy is officially behind you. But these small humans also bring their own kinds of joy, as you watch them learn new skills, say funny things, and give affection back to you. While your two-year-old business may not hold the same exhilaration for you as it did during those first few months, there are now different things to appreciate about it: Maybe you’re expanding your product range, or employing new people who can take the workload off you.
3. Establish boundaries
Toddlers thrive on boundary and routine – and your toddler business will too. As it grows into a new phase, try and establish limits in terms of the type of clients you want to work with and the type of work you’ll do. It’s also a good idea to make a decision about the hours you’ll work and when you’ll switch off, which will help you establish a good work-life balance.
4. Take a break
Every parent with a toddler needs a break every now and then, even if that means a walk around the block (on your own!), a dinner out with friends, or even a few days away. The same is true for a demanding small business: every so often, remember to take time out to rest properly, where you switch off your laptop and completely unplug. You’ll return much more inspired and resilient to deal with the everyday uncertainty that it brings.
5. Give it space to make mistakes
While the unpredictability of a young business can be stressful and tiring, it’s also a time for trying new things without the risk of huge consequences if they don’t quite work. After all, it’s much simpler to change your USP if you’re a small business employing a few people, rather than a big company where 50 people are relying on you for their salary, or where you’ve received a huge amount of investment capital. While you may fail in some of the things you try with your business (in fact, this is almost guaranteed), see it as a toddler that’s resilient enough to pick itself up, dust its knees and keep moving forward.
During this phase of business growth it’s also essential to have the right type of medical aid cover. There are medical schemes such as Fedhealth which has a number of medical aid options and value-added benefits to ensure that your health and wellness is taken care of too. After all, the healthier you and your staff are, the more productive your business will be – during the toddler (business) stage and beyond.
While this phase can be frustrating, it’s a sign that your business is growing and adapting, rather than remaining in its infancy, and that can only be a good thing! So embrace the difficulties, learn from them, and watch as your business strides forward confidently into the next exciting phase.