I really want to try my hand at running my own company. Perhaps a dozen times in the last 20 years I have realized an idea that could drive a successful business. In the past few months of this sabbatical almost half as many ideas presented themselves in discussions with friends or alone on my patio with a beer in my hand. But I have not (yet) brought these ideas to fruition. I am stranded on the wrong side of a chasm between people that work for someone else and people that are self-employed. I am a worker bee.
Thinking about starting a business I have had time to reflect on the relative merits of business ownership versus corporate employment. On this subject my friend Stuart recommended to me Robert Kiyosaki’s Rich Dad’s CASHFLOW Quandrant at my sabbatical’s start. Kiyosaki’s book separates income earners into four quadrants: those that work for someone else, those that own and run a business, those that own a business someone else runs for them, and those that invest. These last two he recommends for high return with minimum effort. But success in them requires some experience business fundamentals. That experience usually comes from running the business.
People want to run a business because of the perceived freedom. And most people would agree that being your own boss could provide a type of freedom that working for a large company never will. However, Kiyosaki points out that the specific goal should be financial freedom. Indeed, people that own and run a business are just as likely as employees to be a slave to long hours an short deadlines. So, before charging into a business to develop myself personally and professionally, it is worth considering the relative merits of being a large company’s employee versus a small business owner.
Let’s consider one small example. Imagine you live in the US, have no college degree, but do have an aptitude for skilled labor. Perhaps you would make a good mechanic. The end goal in this situation is likely a job as a journeyman mechanic, possibly with benefits, with an income of about $25/hour. And that may very well require decades of experience. In short, this path will not likely earn more than $50,000 per year before taxes. And it will likely earn a great deal less than that for the years it took to become experienced.
On the other hand, let us say that your skill is in running a business. Perhaps you are a recent immigrant to the US from a southeast Asian country where everyone knows the mechanics of shopkeeping. So, whether your business is a nail salon or a restaurant, the mechanics of the machine are as familiar to you as the engine to our previous example. By way of example let me estimate the business of the Korean laundry service near my home in Mountain View. I believe the income is very similar to our hypothetical mechanic.
Rent in Mountain View in a good retail location is $50-70k/year, capital expenses $10-30k/year, the couple full-time staff probably take home $20-25k/person, and sundry expenses for utilities and insurance and loan interest cost tens of thousands. For this business to be tenable–for it not be teetering on the edge of disaster for owner and bank alike–it most be returning at least 10-20% on investment. In other words, about $50,000 per year: exactly what the mechanic earns.
So, the worker bee mechanic has fixed hours and can plan vacations. My Korean laundry lady worked six days a week and very long hours at that. The mechanic, although a cog in the machine and with no control over his destiny, could live a more comfortable life. But the business owner could do anything. She could just as easily buy another business selling flowers. She understands to to sell an idea to creditors, she can manage money, and she can recruit, retain, and dismiss staff effectively. She really has more portable skills.
But most people, including myself, have gravitated a white collar version of the mechanic’s life. We choose it because the big company offers stability. And we dream of proprietorship imagining its freedom. But these are illusions. Ask anyone that has beed laid off about the stability in big companies. Add to this that the skills learned in middle management of a large company are not highly valued or readily desired and the risk of working in a large company becomes obvious. And as previously described, business owners shackled to their frail idea usually have much less freedom to take vacations than a big company employee. The business owners do, however, develop a highly valued and very portable skill set that would allow them to try again and again to run a business.
So, I am back to looking at my first 15 years in the workforce. As a worker bee for large IT companies I developed skills at politics, although never was particularly good at it. I learned to lead big teams and was taught to be patient of delay and tolerant of others’ mistakes because, after all, middle managers never get fired for being patient. (But they certainly do get fired or alienated from pushing ideas too hard! See “Strategize in Advance of Conflict” for more on success through caution in big organizations.) And for the time I spent in big companies the money was good and the travel was great. Perhaps I am crazy to want to choose any path any different from this.
But this dream of putting my own idea into action has captivated me. I would enjoy learning those portable skills of business management, as I know they could help me become a better investor, which is a good long-term strategy to managing wealth. But no part of my education, no part of my upbringing, has cultivated in me the skills of business management. I am stepping into a new job blind. I think doing this is like a shoe salesman starting at EMC to sell enterprise storage.
As is the case in life, we are stronger in groups than by ourselves. My business idea requires a partner that can guide me in the skills of business operation. And hopefully I can reciprocate with guidance and wisdom of my own.
It seems this discovery holds true for all of life’s adventures. When we see something we want to learn we need to find someone that can teach us. And trade for their experience using our own assets. This is how I am crossing the chasm to the legions of people that speak Chinese. As I continue to lean on others for their skills I must remember to give back to those that need my help. I have some ideas for mentoring a new generation of technical professionals. But that will be a topic for another day.