Some facts: The average new business will fail within 5 years. Even successful entrepreneurs will make 35% less over 10 years than if they were employed by an existing company. Only the top 10% of entrepreneurs make more money in their own business than they would have made working for others. The average business is capitalized with about $25,000, and almost all of that comes from the founder's savings.
On the one hand, I get his point. Many entrepreneurs see Larry Page and Sergey Brin (founders of Google) and get stars in their eyes. Sure, they admit that success like that is hard to come by, but they can still do it. It's part American dream, part easy money, and part ego. I don't mean to put them down - we all chase after these things to some degree.
Shane does admit that most entrepreneurs don't think they'll be the next Silicon Valley billionaires. In fact, most are starting modest service businesses and are sole proprieters. Half are starting home-based businesses. And the reality is that the self-employed do have greater job satisfaction.
So what do business lawyers and the business owners they represent learn from this? First of all, I certainly do not want to discourage people from "following their dreams." The reality is, most of the entrepreneurs I work with are starting their businesses in addition to working their "day jobs." Most are making good financial decisions and being conservative in their gambles. Many are young and do not have families that depend on them, and thus can be a little more daring in chasing their goals. Many also know their walking-away point - the point at which they have to admit defeat and stop investing resources in the business.
I think that these ideas are key. Shane believes that it's just fine for people to choose entrepreneurship because of its job satisfaction, as long as they don't delude themselves about their financial realities. His concern is many will convince themselves that they are succeeding financially in order to justify their own happiness.
When I help my clients get their businesses started, I talk to them about their goals and expectations. I try to encourage responsible financial decision making, and I've even begged a few to keep their day jobs, at least until they make their first million. I also encourage them to write a business plan and spend a lot of time planning - both for good times and bad times. Finally, they always need to know who depends on them, how much money they need to bring in to take care of their families, and what their back-up plan is if that amount does not come.
If you'd like to read more about Shane's book, here are some links:
- Interview with Business Week
- Shane's 10 tips to improve your odds of success
- Entrepreneurship Quiz from Yale Press
