It often seems that people who work for someone else, who hold traditional jobs, dream of the day when they?ll break out of their cubicle and jump into self-employment. But talk to many of the already self-employed and you?re likely to hear of a deep desire to pitch it all for the predictability of a steady paycheck. Is anyone actually happy where they are? And how do you know if you?re best suited for one or the other?
Many of the discussions of traditional employment versus self-employment center on the financial side of the debate. For example, questions might center around the amount of capital you have to enter and maintain an upstart business, or on your track record of success as an employee at other businesses. These certainly matter in the decision to transition into self-employment. But I?d like to center this discussion on some of the more personal characteristics that could mean the difference between success or failure.
Lifestyle preferences
The person who self actualizes through work is probably an entrepreneur at heart. He feels the need to go beyond the limits of traditional employment and to have absolute control over the final product. This is the sort of person who usually can’t be contained in a traditional job situation anyway. Some form of self-employment will be the only way.
If you aren’t particularly passionate about your work, but find true happiness in doing sculpture, playing golf, working out, maintaining an active social life, etc, you might be better off working for someone else. The predictability of a job tends to better support outside activities.
With self-employment, you’re mind is never very far from work no matter where you are or what you’re doing. As a salaried employee, it?s possible to do your job?and to do it well?but to cut it off at 5 pm or on Friday afternoon, to pursue your true passions. If you?re self-employed, your business is your passion. Though many salaried people dream of the prospect of self-employment, the source of your passions can?t be ignored as a determining factor.
Nothing hard and fast here, I suspect most of us have a little of both in our personalities, so it’s really a matter of how deep we are in one direction or the other. Some honest soul searching might help sort this out.
Could the job you hold now be transformed into self-employment?
A lot too depends on the work that you do. If you can take what you do in your job and translate it into self-employment, there’s a lot less risk in making the move. If the job you have can’t easily be converted into a business the stakes are a good bit higher.
If you’re an IT consultant or an architect working for a company, and you want to make the jump to self-employment, there’s a ready market for your skills.
But for a banker or a research scientist, it would be a lot harder, if it’s even doable. It might require either approaching your career/industry from an entirely different angle (thinking out of the box and coming up with something completely new) or taking a plunge into an unrelated business. Both would be high risk ventures. No statistics here, but I’d be willing to bet that most business failures are concentrated among those starting businesses unrelated to their previous career tracks.
If you’re in the second group, where you’re job doesn’t translate easily into self-employment, you’re probably better off trying what ever business you intend to pursue as a sideline, at least until there’s a reasonable indication of long term success.
Money management skills
When you work for someone else, a crucial element of money management?insuring a steady cash flow?is handled for you by your employer. In fact, some of the spending side is also handled by the employer via payroll deductions for insurance and retirement. But once self-employed, this burden will fall squarely on your shoulders, and you?re ability to manage it intelligently will be as important as any other factor in your success as a business person.
The fact is, a self-employed person has more financial concerns than a salaried one because there is far more that must be done. Businesses are as likely to fail for poor money management as for lack of sales.
If you have an aversion to managing your money, you probably will be happier being on a paycheck. Though there are very real stresses involved in working for someone else, money management is most definitely easier with a steady paycheck.
If you think that building a side business may be the right path for you, but you don?t know what kind of business to go into, check out my post, The Freelance Blog Writer Side Hustle. Blog writing is one of the most promising side ventures you can enter because it?s growing rapidly and has excellent potential to lead to still more opportunities. Even if you?ve never written professionally in the past, this post can help get you started.
There are many, many factors involved in reaching a decision to either stay on a paycheck or start your own business. What are some others that might help someone trying to make the decision?
Hey Kevin,
Great article? most people are great at their trade, but would be horrible business owners. For example, I know a lady who opened a salon just because she could cut hair well. Needless to say, she was out of business in 4 months. She had no financial skills or management experience. Her employees hated her and she ended up broke.
Being self-employed is great, but people must know that they?re probably going to be jack-of-all-trades until they can hire a support staff.
My best,
Chris Dunn
Chris–You mentioned that “Her employees hated her”; that’s an important point, and also of a non-financial nature, but but maybe more significant. The self-employed need to have a good measure of people skills.
You have to deal with customers, vendors and maybe employees, and if interacting with others isn’t something you particularly like you’ll be at a major disadvantage.
A self-employed CPA I worked for a number of years back liked to say ‘when you’re self-employed, you’re a salesman first, and a professional second’. That’s solid advice!
I am a Web Developer and I done this argument in my head every day my senior year of college. I chose the steady paycheck route, but I still do freelance on the side. I generate a lot of my freelance work, virtually all of it, from people I meet through my steady job. I do believe I could manage self-employment, but when the time is right. I don’t have the necessary funds to launch the start up or manage a dry spell. Thanks for the post.
Great debate Kevin and something I’ve thought about since my first two job offers out of college.
It depends on opportunity cost. My current job is too hard to leave, b/c the income earned is ironically too great. But, I’ve planted the seed with Financial Samurai now, and hope it will grow to be something quite marketable in 8-10 years when I retire. Hence, I like working full-time, and using the extra 2-5 hours after work, working on a side biz.
FS ? I suspect that the arrangement you have is the best one for most people. A full time job paying the bills and providing income stability, and a side business ? in your case the website (an outstanding one BTW!) ? as a passion and a future primary career. Sounds like you have all the bases covered!
Great article and interesting to think about. I’m an entrepreneur to the core. My wife, on the other hand, likes the stability of a regular paycheck. Which is happier?
Jim Collins coined the HedgeHog concept for business which has three components: (1) your passions (2) your talents and (3) that which is valuable to others. At the intersection of those three “circles” is where great businesses reside. In our work of financial planning for biz owners, we have found the same to be true at an individual level.
This leads to a philosophical question, “How can a human being spend 40 of their 168 hours each week on something that is missing one of these components? Not only that, but I would dispute that you can be truly effective and #2 and #3 as an employee if there isn’t at least some of #1. Every good manager / biz owner I know only hires people with all three components. The rest of the applicants go work for businesses that fail or the government.
John, I think your point having all three is critical for a business owner,high level manager or anyone in a sales capacity, but not everyone finds their passion in work. For some the real passion is in an unpaid advocations and the job merely supports that effort.
That?s why self-employment isn?t for everyone, and that?s OK. There are many jobs that can be done well by people who lack passion for the job, but do bring efficiency and professionalism to the table.
Kevin – One can never have too many basis covered! 🙂 But thanks for the mention. This is a perpetual great debate which I will highlight in the next Katana.
I’m deciding on this very topic as we speak. My gut tells me its the right time to build out my freelance business and other business ventures. I am definitely the type where I want every hour of my day to be worthwhile, and I don’t feel that happens very often in the corporate world with the politics.
Ariel – with the job market being as poor as it is freelancing may be an excellent defensive strategy! We all need to rely on outside income sources more than ever, and freelancing is an excellent way to go.
To minimize the risk consider starting as a side business. If you have time, check out the post on this site, Starting a Side Business ? Why Now is the Time.
As much as I advocate for self-employment, now isn’t the time for taking blind chances either! Good luck to you!
I truly believe that those working for a salary should always strive to find a job that ignites their passion. I am aware this is not always possible, but working just for the money is a disaster waiting to happen, because if you are not passionate about your job, you won’t give your best… And will cut out at 5 as you say… Well, guess what: sometimes, you may need to stay late, work extra hard, and if the passion isn’t there, neither will the job for too long.
Hi Rob–I agree, we should find and follow our passions where ever they are–in a job or in a business.. However not everyone is passionate about work. Many are passionate about what they do outside work, and the job is just an enabler for those activities.
It is possible to earn more and have steady income by hanging your own shingle rather than staying in a W-2 job. The tricks I’ve learned over the years include 1) prioritizing referral clients over walk-ins (to jump start the trust building), 2)focusing on the value of results (not the number of hours) when producing a proposal and 3)requiring an upfront retainer before beginning. Typically, a tactical piece of work is in support of a larger strategy. Taking the time to talk with clients about their strategy and honing your work to support it builds more value for both sides and separates the valued consultants from the cut-rate freelancers.
P.S. I spent so much time with my clients that my website is a disaster. I’ll welcome proposals from valued design consultants and/or WordPress pros.
Hi Lynda–Your strategy sounds solid to me. It’s the “help me to help you” approach–determining their needs and how best to meet them while building rapport in the process.
Hi Kevin – I know. It’s not terribly original. But sometimes those old chestnuts still hold truth!
But your approach to it is original. It helps others to see what “help me to help you” actually looks like in practice.