Editor’s note: This article was first published in April 2014; its remarks about the current situation and the claim that business and job risks have become equal for the first time reflect the Spanish job market in April 2014.
Lots of people say something like: “I’d rather have something safe, without the headaches, so I can’t see myself starting a business, because it could go wrong.” And that’s true, but… since we talk about investing around here, let’s analyse this investment the way Jeff Haden has done on Inc.com:
It’s a simple investment. We put all our money, with no diversification, into a single stock. The upside: every year we gain roughly 3%. The downside: any day we could lose everything, for reasons beyond our control that we might not see coming. Does that sound like a good investment? With this analogy, Jeff Haden shows that this investment is far too risky, even though it’s the one chosen by millions of people all over the world. Every day they head off to work to build up someone else’s company, with no guarantee that their job (their investment) will always be there.
If you think about it, for the first time (at least in my lifetime), the risk of running a business and the risk of holding a job have become equal. A business can go badly and you can lose everything, but you’re the one running it and the growth is unlimited (you can get rich). A job can go well, but the growth is limited, and if it goes badly, you’re out on the street and you lose everything (the dedication, effort, sacrifice and time you put into it).
That said, I’m not going to make the mistake so many business enthusiasts make: for an entrepreneur to succeed, they need workers. So for there to be entrepreneurs there have to be workers, and for there to be jobs there have to be entrepreneurs. The question is which one you want to be. Both choices are understandable, because not everyone is cut out to be an entrepreneur. However, from a financial education standpoint, we always recommend that people who work for someone else have a second source of income. (See: Ideas for earning extra money)
Without that second source of income, you’ll always run the risk of serious problems in the future. The moment you start looking for a second source of income, you’re already a sort of part-time entrepreneur, and who knows, one day it may become your main income.
That second income would also let us save more and even invest, and on top of that generate the passive income everyone loves so much.
(See: The secret of millionaires, told by millionaires)
As with any investment, it’s our responsibility to understand both the benefits and the risks. If we analyse working for someone else as if it were a stock, in terms of the risk/return equation a job would be much less advisable than starting your own business, given the high returns you can achieve while taking on a risk similar to an employee’s.
Still, take this article simply as entertaining reading and a thinking exercise: given the current situation, if you have a job, quitting on Monday to start your own company isn’t the plan. But you can start shaping, part-time, any idea you have in mind.
Further reading
