Which is Better: A Business or a Job?
For certain people, running a business is clearly better than working in a job. These people may not like to be managed or feel financially restricted, they might want more control of their destiny or strongly value flexibility in their schedule. They feel strongly that the “stable job” is too limiting, or is a notion of the past in today’s bottom-line first business environment.
Successful business acquirers may be serial buyers or entrepreneurs or financial entities backed by investors. Unfortunately, most first-time business shoppers simply go through a tire-kicking exercise that leads them back to employment. Without conviction and a strong desire to own a business, a first time buyer will not cross the finish line.
The viability of business ownership over a job depends on many factors related to the job, the business, and the person. Some of the reasons many shoppers never buy a business is because of fear, uncertainty and doubt. Beyond desire, they must have confidence in their skills and ability to master the unknown. They need a simple framework to determine their likelihood of becoming a business owner.
Six Steps to Determine if Owning a Business is Better Than a Job?
To make the right decision, you have to know yourself, know the risks, and realize the grass isn’t always greener on the other side. Here’s a list of steps that helps shoppers reflect, project, and become more honest with themselves..
- List the things you hate about your current job
- Determine if a different job can fix most of these things
- Assess how “stable” your job or career really is
- Know your risk tolerance
- Gauge your ability to protect and grow your investment in a business
- Understand how to not just buy a job
Why People Hate Jobs (Don’t Bring this Into Your Business)
How many of these things resonate with you? How common are these things across all of the jobs you have had?
Personal
- Boredom
- Commuting
- Dreading Monday mornings
- Limited growth and learning
- Soul-crushing work
- Pigeonholing
- Lack of autonomy
- Questionable values of company leaders
- Disingenuous Mission, Values and Culture
Operational
- Inability to pivot and lack of change
- Pivoting at an ankle-breaking pace
- Playing in the Minor Leagues
- Useless meetings
- Job descriptions
- Narrow jobs
- Bullshit jobs (not adding value)
Interpersonal
- Performance Reviews
- Lack of appreciation for your work
- Micro-management (or just being managed)
- Ageism, Favoritism, Educational Elitism
- Office politics
- People stealing credit / praise
- Brown-nosers and Climbers
- Whiners
- HR, Finance (pick a department)
Financial
- Pace of wage/salary increases
- Lack of bonus or incentives
- Building wealth for others
- Wage slavery
- Earnings Ceiling
Can a Different Job Fix the Things You Hate About Your Current Job?
Most employees, as much as they may hate their current job, are better employees than they are business owners and they know it. For these people, the answer is yes, a better job can fix the things they hate most about their current job. They are comforted by a regular paycheck with benefits, an office to commute to, and lunches with work friends.
If low job satisfaction can be resolved with a better job, then a job might be the best path. Others can fix low job satisfaction by going into business as a contractor or consultant doing the same or similar work. Still others have found that many of the negatives of employee life are pervasive among all their job experiences. The question they must answer is what can they bring to business ownership that will make them happier than working for someone else? It’s not enough to be motivated by the negative aspects of employment. They’ll have to have real drive and certain skills to be happier as a business owner than as an employee.
How Stable is Your Job or Career?
This question often doesn’t change anything. Employees may realize their job or career is unstable, but it’s not enough to pivot to business ownership which is even more uncertain.
Employees change jobs on average every three to five years, although the change may be self-initiated. There are little to no startup costs associated with a new job as there would be investing in a business. Job hoppers who change jobs more frequently than every three years are already dealing with risk, whether they tend to strike out in search of better opportunities, work for riskier startups, or not perform their best work as employees. Job hoppers may be good candidates for business ownership based on their disposition. And the longer they job hop, the greater their chances of being rejected for employment, making business ownership an attractive alternative.
Perspectives may change with time and experience. The more jobs one has had, the easier it is to see the instability and other limitations of employee life. That may be one reason that business buyers tend to be older. They know what the employee life has to offer. Other reasons acquirers tend to be older are 1) more time to accumulate savings and, unfortunately, 2) less career options as they age.
What is Your Risk Tolerance?
The small business success rate is low with one fifth of new business failing within a year, and half failing within five years. There is no solid evidence that franchises fare better. However, there are many ways to beat the odds. Buying an existing business is one of the best ways to increase the chances of success. Very few businesses are listed for sale within the first couple of years (smaller online businesses are more likely to be listed early in the life of the business than traditional businesses). Many businesses listed for sale have been operating for more than five years. One of the major reasons for business exits is retirement, and many of these businesses have been operating for over ten years or decades. Many of these long-standing businesses have a double benefit of consistent track records and low use of technology, making them attractive for new tech-forward owners with “fresh legs.”
As a business owner, you are more in control of managing risk than you ever were as an employee.
Another way to beat the odds is to plan your business acquisition with the exit in mind. Seventy percent of business owners never do any formal exit planning. That means the percentage of business owners who consider exit planning prior to acquiring a business is lower than a snake’s belly in a wagon rut (got that from a movie I can’t recall). With a little forethought and planning, you’re likely to beat the odds. Read more about exit planning and business timing. Business risks can be defined, understood and managed. Many would argue that business owners are more in control of managing risk than employees.
Gauge Your Ability to Protect Your Investment in a Business
A simple view of business ownership is that it offers the opportunity to make money for yourself and not someone else. The reality is that owning a business also means taking on responsibilities such as marketing, sales, hiring and management. These new responsibilities need to be taken into consideration before jumping in head first.
When a bank considers a loan for a business acquisition, they evaluate the business and the buyer. They will only back a buyer with the skills to run the business. For simple businesses, lenders only need to see the buyer’s general education or experience. For complex businesses, the lender will want specific industry or management experience or education background. Whether or not a buyer is utilizing a third-party lender, they should scrutinize themselves, their experience and skills in the same way a lender would.
Buyer should also consider intangibles that a bank may overlook. I once had an owner of a 40-person trade business tell me he was very conservative fiscally and politically, as were his opinionated and sometimes loud blue collar employees. He felt this was important for a new owner to know and I appreciated his candor. Culture is real and a savvy buyer should have the interpersonal skills to conduct “qualitative due diligence” to determine if the business is going to be a good fit.
Is Buying a Business Buying a Job?
When you buy a business, you’re buying assets, equity, control, and many things that inherently do not come with a job. Once you have purchased a business, your day-to-day activities may or may not resemble a job, but the biggest difference is you are not working for someone else. You have complete decision-making freedom to shape your business and your role to be significantly different from any job you ever had. You can even transition from an owner-operator to a semi-absentee owner, which can look and feel much different than a ball-and-chain job. Read more about absentee business ownership.
Before getting swept away with some romantic notion of business ownership, let’s first acknowledge that some people are meant for jobs while others are meant to create jobs. Furthermore, a job can mean a lot of things and one job can mean different things to different people. Let’s stratify some outcomes of business ownership relative to a job.
How a Business Compares to a Job
With the framework below, you can think about your decision to trade your job for business ownership. If Jenny’s job paid $110,00 and she switches to a business that earns her $40,000 in wages, profits and financial perks such as a company car, and she has additional perks such as equity (proceeds of the business upon sale), management control, and a flexible schedule, she might describe her business as poor relative to her previous job. Someone like Mike who earns $60,000 at his job might consider this business acceptable or parallel. Someone like Pat who earns $200,000, has an even higher bar. What are your numbers?
The 4P Stack: Comparing Business Ownership to the Employee Life
| 4Ps | Description | Jenny’s job $110,000 | Pat’s Job $150,000 | You |
|---|---|---|---|---|
| Poor | My business earns me less than my previous jobs. Business perks do not make up the difference. | Business Profit <$50,000 | Business Profit <$100,000 | Under $__________ |
| Parallel | My business earnings and perks are worth it and the business has achieved moderate consistency. | Biz Profit $50,000- $150,000 | Biz Profit $100,000- $200,000 | $__________- $__________ |
| Prosperous | My business is stable, earns me more than I ever earned as an employee, and the additional perks just sweeten the deal. | Biz Profit $150,000- $300,000 | Biz Profit $200,000- $500,000 | $__________- $__________ |
| Preposterous | I’m Killing it! My business has taken me way past my employee existence. | Biz Profit Over $300,000 | Biz Profit Over $500,000 | Over $__________ |
After plugging in your own numbers, perhaps you have more clarity to assess your business ownership skills and potential, as well as your appetite for risk.
Is Buying a Franchise Buying a Job?
Some would argue that buying a franchise is just like buying a job where you trade your time for money. The reality is there are some major differences. While you own a franchise, you will be paying fees to the franchisor. In exchange, you will have access to supplies, systems and processes that should be an advantage over owning an independent business. These advantages of owning a franchise over a job apply whether you buy a new franchise opportunity or an existing franchise operation that is being sold.
- you own a business
- you work for yourself
- you leverage a brand with systems and procedures
- you can increase the value of the business and later sell the business.
While a franchise can be better than a job, it is closer to a job than it is to an independent business. Relative to an independent business, you
- will work under someone’s (franchisor) assistance and restrictions
- have less creative freedom
- have less operational risk
- have less financial upside due to franchise fees and royalties
Now we’ve all heard stories of wealthy franchisees, but the story usually goes “Bob is the owner of 10 Burger Queens…” With restaurant, retail and main street franchises, it seems most of the wealthy franchise owners are multi-unit owners. Owning a single-unit retail franchise is not a route to riches, but increasing the number of units leverages operations and knowledge toward greater profits. The question is did Franchise Bob become wealthy starting with one franchise and turning it into an empire or was Bob already a wealthy man who fancied franchising as an investment?
While multi-unit franchise investing can provide synergies and operational leverage, it concentrates risk into a single concept.
While multi-unit franchise investing can provide great synergies and operational leverage, it also tends to concentrate risk into a single concept. I heard of an investor who purchased most of the fitness franchises in a medium-sized state just before the COVID pandemic.
Other types of franchises behave differently. Asset-light service-based franchises such as real estate or insurance brokerages offer systems, industry, and sales training and support. Many owner-operators thrive as entrepreneurs under a brand and systems umbrella. These types of franchises can remain modest or scale considerably without investment in additional franchise “units” or territories. Learn more about franchises and misleading statistics.
Owning a Business is Better than a Job if You Have These Traits
People who actually cross the finish line and acquire a business are very determined. They are few and far between. Most business brokers will tell you that most buyers who contact them will actually never buy a business. If you are a first time business buyer, it is important for you to know that your chances of completing an acquisition are low.
If you are considering starting or acquiring a business, perhaps your disdain for being a wage slave is a good motivator, but you’ll need to have a few more things going for you.
- Tolerance for risk
- Resourcefulness
- Financial runway
- Passion for something that pulls you in
- Ability to create an environment void of the things you hate about being an employee
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