Entrepreneurship, The ‘What’ and ‘When’…

One thing I will forever be thankful to my parents for is taking me to boarding school at a very young age. I learnt some very important self reliance lessons and survival tactics for my day to day life. By the time I got to standard five (when most kids became boarders) I had learnt the tools of survival; from when to wake up to fetch water, how to appease the hostel bullies to avoid my box from being broken into and where to be at a given time to avoid getting into trouble with kids who became prefects and didn’t know what to do with the privilege to serve. The most important thing I have today is the ability to reconcile my survival tactics in school to real life ‘out here.’ I have found love in Entrepreneurship lately, could still be at intention stage but at least I know what I want. I will try exploring the subject. 

Entrepreneur, which is a French word meaning “one who undertakes innovations, finance and business acumen in an effort to transform innovations into economic goods“; this may result in new organizations or may be part of revitalizing mature organizations in response to a perceived opportunity. The most obvious form of entrepreneurship is that of starting new businesses (referred as Start-up Company. According to Paul Reynolds, entrepreneurship scholar and creator of the Global Entrepreneurship Monitor, “by the time they reach their retirement years, half of all working men in the United States probably have a period of self-employment of one or more years; one in four may have engaged in self-employment for six or more years. Participating in a new business creation is a common activity among U.S. workers over their course of their careers.”  And in recent years has been documented by scholars such as David Audretsch to be a major driver of economic growth in both the United States and Western Europe. (Sourced from Wikipedia

Stepping out... ahead...

Much as the case focuses on what The Americas and Europe do, I tend to think this trend is very much a live here in Kenya. In my experience as a Project Manager and as a Consultant for SME’s, I have gathered that most businesses are characterized by retirees or recently out of employment people seeking to establish foundations that hopefully will characterize regular income for their expenditure. The trend is quickly changing with younger people getting involved though. Most of these businesses also experience lots of problems in relation to ability to survive since they are usually established on grounds as survival vehicles that generate regular income. As such, when these businesses face unpredicted change in the course of their operations, they end up losing focus and close shop. 

Business Pundit asks a critical question; Entrepreneurship, Age, and Money – Is It Better To Start Young or Wait until You Are Older? It is exciting and educational and can be very rewarding, but it isn’t right all the time for everybody.  

Entrepreneurs and Money

The common wisdom is that entrepreneurship is where the money is as Business Pundit puts it. The wealthiest people are well balanced between entrepreneurs and corporate executives. If you ever become an entrepreneur, there is a good chance that you will end up hanging around other entrepreneurs, and the common joke you will share is the one about entrepreneurs having money. 

The truth is that you are likely to make less money over your career as an entrepreneur than you would in the corporate world. Research shows that only the top quartile of entrepreneurs makes more wages than their corporate employed counterparts. That means 75% of entrepreneurs would be better off financially with a regular job. You could counter by saying that wages may suffer but you can build wealth through your business, but you would be wrong again. The majority of entrepreneurs have $20,000 or less in business equity, and 30% of them have zero business equity. Surprising? Probably not given how many new businesses fail.” 

Entrepreneurs make peculiar financial choices. They hold poorly diversified portfolios, they bear excessive risk for the returns they earn and they accept lower median life-time earnings than similarly skilled wage-earners. Now, if you goal is an eight digit net worth then yes, entrepreneurship is just about the only way to get there. The trouble is that the odds are dramatically against your success. If you want to retire early with a couple of million socked away, stay in the corporate world, live cheaply, and be a good investor. 

Entrepreneurs and Age

The average age of entrepreneurs is 37.6 years. Not exactly right out of college, is it? Research actually shows that companies are more likely to survive if the entrepreneur is older, has previous business experience, and is well capitalized. That data aside, here are what is considered as the primary advantages of youth and age with respect to starting a business. 

Advantages of Youth

  • Energy – Starting a business takes a lot of energy, and younger people are more likely to have it.
  • Free Time – Starting a business takes a lot of time too, and younger people without kids and other such commitments can devote their evenings and weekends to making the business work more easily than a mid-career entrepreneur with two kids to put through college.
  • Recovery – If you crash and burn before 30, you still have time to do recover and not have blown your whole retirement or kids college fund.
  • Open Minded – In general, young people aren’t as corrupted by bloated corporate habits, are quicker to change, and more eager to learn from their mistakes.
  • Learning Curve – If you start a business at 25, you will have vastly more experience by age 30 than most other 30 years olds. Of course, it may be the experience of failure, but you still learned something.

Advantages of Age

  • Money – If you know you want to start a business some day, you can put away cash for ten years and fund your business yourself until you reach cash flow positive. It helps to have assets.
  • Connections – When you are 25, you don’t know a lot of executives at other companies. By the time you are 40, your friends and co-workers will have switched companies, changed jobs, and moved up the corporate ladder. This gives you easier access to decision makers and the people you need to help you get your business off the ground. Many of your old friends and co-workers will be your first customers and open doors for you in all kinds of places.
  • Wisdom – You have much more business experience to pull on. You don’t have to learn or invent many of the standard processes that exist at most companies.
  • Patience – The longer you wait the more pitches you will see. If you aren’t compelled to swing at anything and everything just to try to get a hit, you can wait for that pitch that is in your sweet spot. 

For many people, probably most, entrepreneurship isn’t something they actively pursue. It just comes to them. They do not sit around wanting to start their own business, they realize an opportunity when it is presented to them, and decide to take the plunge. You have to pick the right opportunity. You have to find the opportunity that fits your skill set, your timing, and the readiness of the market. The best predictor of entrepreneurship is not age, not income, not wealth, it is ability. Oddly enough, it is a U shaped curve. People very low and very high in ability tend to start companies. The middle usually stays put. 

Here is what Business Pundit Details: 

We hypothesize that individuals with very low ability are more likely to take up self employment. These individuals may simply lack the discipline to work under someone else’s authority, or in teams. They may also compare their low positions in their organizations and their low remunerations with those of higher ability individuals with similar human capital, and feel frustrated at the difference. They would thus be tempted to strike it out on their own. It is an empirical question whether their self-employment income would be higher than their paid employment income. 

On the other hand, individuals with very high ability are those with high energy levels, who get things done, who have strong interpersonal skills, and who are creative problem solvers. These individuals may feel that, in spite of their above average remuneration, they can do better on their own. This is because they have to share with their principals a substantial percentage of the value they contribute to their organizations. Finally, individuals of average ability are likely to be compensated in line with their human capital – they are therefore less likely to search for self-employment opportunities.” 

Every individual knows themselves best better than anyone. The candidate for entrepreneurship understands why they want to be an entrepreneur. Most new fresh candidates for entrepreneurship come from an angle where they can’t stand working for someone else or they can’t deal with the 8-5 life. This is advised against; with this school of thought one may not be cut out for startup success. However, if one believes they posses untapped potential, think they could do more than they do at their current job, love the thrill of the game, and if they realize the financial risk they’re are taking, then they can make the jump. 

Entrepreneurship is personal though; there is no best age to start a business. As we grow older, we simply trade one set of advantages for another. Focusing more on the ‘What’ rather than ‘When’ will dramatically improve our chances of success, and that will make the whole entrepreneurial experience a lot better. 

For one to fully understand the opportunities that are possibly available for them, I believe they need to experience and learn while on the job preferably in their area of specialty. This way they will acquire knowledge, establish contact and find a base for their business foundations. Question though, wouldn’t it be wise for someone to put their base in place as they hold on their employment? Will this cripple their ability to do what they desire or will it guarantee them security in event that their business intentions fail to materialize? 

I personally believe Children through school, should be encouraged to seek self employment, entrepreneurship other than teachers glorifying courses and giving false promise of what tomorrow will be if their ventured in a given field.

Sources:

Business Pundit

Wikipedia

3 thoughts on “Entrepreneurship, The ‘What’ and ‘When’…

    • Thank you for visiting my blog and taking time to read. We all endeavor to chart the path to our own destiny… Finding the knack for entrepreneurship is something rewarding if it can be done successfully.

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