The Case for Entrepreneurship
Reasons to start your own business and principles for doing so.
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TL;DR
- Entrepreneurs own their businesses, but increased ownership can present greater risk.
- Side hustles are the least risky form of entrepreneurship because they begin as a means to supplement your primary source of income.
- Freelancers are knowledge-based workers who own their schedule by delivering services on a contract or project basis.
- Starting a business is the riskiest and potentially most rewarding path of entrepreneurship. Principles from the lean startup methodology can de-risk a new venture by prioritizing product market fit.
Defining Entrepreneurship
Entrepreneurship is an all-encompassing definition of work that ranges from working part-time on a side hustle to freelancing to starting your own business. The common thread is ownership. By owning most of their output, entrepreneurs own more of the value their businesses provide. However, with greater responsibility comes greater risk.
Today, barriers to entrepreneurship have never been lower. Thanks to technology, educational and financial hurdles have fallen. Anyone can design a new product, build a brand, and sell to customers – all from their phone. And yet, 66% of new businesses fail within the first ten years. The market is saturated with good ideas, but only those with lasting value survive.
Nevertheless, the risk of starting your own venture can be worth the reward if you’re willing to anticipate and learn from your mistakes. Being your own boss requires continual development of your sales, strategy, and management skills – all of which strengthen your character and professional value. If you’re a passionate self-starter with discipline and comfortability with failure, entrepreneurship can be an exciting and fulfilling career path.
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Side Hustle
The most accessible type of entrepreneurship is a side hustle. A side hustle is a job that brings in extra money beyond one's primary source of income. It is the least risky form of entrepreneurship because it begins as a supplementary means of earning money and generally isn’t relied upon to pay the bills. If a side hustle becomes successful, it can become a primary source of income, but if it doesn’t, you still have a job to fall back on.
Common side hustles include gig work, such as driving others through Uber or being a courier via DoorDash. Side hustles can also be a means by which you pursue your passions while not relying on them for your livelihood. If you’re passionate about arts and crafts, for example, you can create your own products and sell them through online marketplaces like Etsy. Side hustles offer the potential to earn more than your primary source of income; however, most earn an average of $810 per month.
Risks of a side hustle include the uncertainty of profitability and potential dependence on third-party platforms. For example, many drivers work for Uber part-time; however, Uber controls the take rate, or the percentage of the money they earn, for every ride. As contracted workers, drivers have little control over these management decisions. Similarly, many people create videos for YouTube as an additional source of income. Video creators can receive a percentage of the advertising revenue their videos generate; however, YouTube has full discretion to demonetize videos that don’t meet business guidelines. In both examples, workers are subject to policies outside of their control despite the independent nature of the job.
Additionally, side hustles as a contracted worker may not offer the same workplace benefits commonplace for salaried positions, and personal income tax could be higher because an employer isn’t required to pay the employer portion of Social Security, Medicare, or state unemployment taxes.
Freelancing
Working freelance, or freelancing, is another avenue of entrepreneurship. Freelancing is a type of self-employment in which individual workers deliver their services on a contract or project basis. There are many different types of freelancers, but they tend to be knowledge workers with expertise in a specific industry. For this reason, freelancers generally have extensive training and experience before pursuing this type of employment. Common examples include designers, writers, programmers, translators, and project managers.
Freelancers benefit from managing their own schedules and specializing in the services they provide. They choose to work on as many or as few projects as desired and can partner with multiple customers at once. Companies of all types and sizes can hire freelancers to complete a project or task, but like side hustlers, freelancers are typically responsible for paying their own taxes, health insurance, pension, and other personal contributions.
Freelancers benefit from setting their own working hours and making work arrangements that fit their lifestyle – either working remotely or from their client’s offices. Learn more about freelancing as a career path by listening to free testimonials on Khan Academy.
Starting a Business
Starting your own business is the riskiest – and potentially most rewarding – avenue of entrepreneurship.
Like side hustles and freelancing, creating a company allows entrepreneurs to define their work schedule and engage directly with customers. Additionally, because the creator of a new business determines the ownership structure, the theoretical upside of a successful enterprise is unlimited. Nevertheless, capturing value from a new business is exceedingly difficult and can require immense time, energy, and capital on behalf of the entrepreneur. This level of commitment poses a significant risk, as 45% of new businesses fail within five years of operation. Therefore, relying on entrepreneurship as a primary source of income can put you in financial danger if the new venture fails to turn a profit.
When deciding whether to become an entrepreneur, make an honest assessment of your financial situation, risk tolerance, and commitment level. How would you define success for your new company, and at what point financially and personally would you make the decision to quit? Pursuing this level of entrepreneurship requires a deep understanding of the road ahead and associated risks. For more information regarding the aptitudes commonly exemplified by entrepreneurs, refer to the CareerOneStop website.
How to start a business
