Everyone’s always talking about how they want to quit the rat race and how great it would be to own their own business – Be Your Own Boss. It sounds great, right? Rolling out of bed whenever you want, working in your pajamas, making tons of money from home? Well, unless you’re an A-List Blogger, which is near impossible due to the Economics of Blogging, you, as a small business owner are likely to be in for an unpleasant surprise.
If you can even make enough money to support yourself with a small business and replace the old salary and benefits your had from “the man” that you’re trying to distance yourself from in your old corporate life, here are some true-life examples from my friends and family that put small business ownership into perspective:
Story #1 – The Car Rental Agency
We just vacationed with some relatives who, after decades of building up their business as a franchise owner for a major car rental outfit, finally had a buyer for their business. They’d been wanting to get out and retire for years, but due to the wretched economy, they just couldn’t find a buyer for the business at any price. In fact, last year, they almost considered just throwing in the towel and walking away with nothing but their savings. Well, they were persistent and continued to run the business until they finally found a buyer this year – another franchise owner. As luck would have it, the closing was scheduled for the same week we were scheduled to vacation together and since we couldn’t change our plans, they figured they’d just run back to town for the closing for a day and then back to vacation. Well, that’s not how it went.
At the last minute, even though all the terms and conditions had been agreed to in advance, the slimeball who was supposed to buy the business tried to pull a fast one and change the price of the deal. He changed around all kinds of other things, threatened them, treated their current employees like crap, never told them where they stood with regards to employment with him as the new owner, etc. This ordeal was so stressful and problematic that they basically had to skip the vacation entirely and only get one day out of it while the dealt with this nonsense the whole week until the deal was finally closed. Now, you might be thinking, “Ah, that’s a one time event, they were selling the business”. Well, no, this is normal over the decades they’d been running the business.
As owners of the franchise, the buck stops with them. They had to deal with unruly customers, claims of discrimination when car rentals were declined, employees not showing up for work, cars being stolen/destroyed, lying customers, lying employees, and too many headaches to list here. Since it’s a business, they were basically either on the premises or on the phone all day, all night, weekends included dealing with problems for years.
And They Weren’t Getting Rich! Due to the advent of the internet, competitive bidding, algorithms, and a new type of consumer with no loyalty whatsoever that will go to the rental agency down the street for a dime in savings, the margins on the business have dropped substantially. They had to constantly deal with some guy saying, “Yeah, I was going to use you but I can get a car for 7 dollars cheaper at the other place”, etc. to the point that it was really becoming a race to the bottom. Even with volume, the margins were shrinking, and so was their income.
Upon selling, at one point, their sons asked if they could buy the business from them. After all, the kids had worked in the place for years as teens and in their early 20s and they knew the business pretty well. The answer was No – They wouldn’t wish this life on anyone, especially their own children.
Story #2 – The Tree Service
Growing up, my brother wasn’t the college/white collar type. He had bounced from job to job out of highschool until he landed at a tree service. Over the span of a few years, he had learned enough about climbing, equipment, pricing and how the business worked that he started his own tree service company and eventually hired up a decent sized staff and acquired a fair amount of heavy equipment. For the uninitiated, this entails everything from trimming and cutting down some small trees to emergency jobs when massive trees fall on houses after a storm and giant lot clearing jobs for developers. There’s a lot involved, as I learned when I worked for my brother one summer during my college years.
While he was his own boss and his business was growing, he didn’t exactly seem to be living the dream. Here was his typical week: 6 days a week of 8-10 hour days on jobs, 2-3 hours several days a week doing estimates, several hours a week dealing with customers and trying to collect on prior jobs, hours per week having his equipment serviced, hours per week disposing of logs, working out deals with other subcontractors and mills, and all kinds of other things. He tried to take Sundays off but that rarely worked out. All told, he was probably putting in 80-100 hour weeks with about half of that being hard labor on 100+ degree days. Then, during the winter, the money dried up, so he’d use his trucks to plow, and that work was sporadic – totally dependent on the snow, and usually starting at 4AM since people expect their driveways to be clear when they wake up.
Now, along the way, he’d often have to deal with customers that were condescending pricks, employees that were cutting corners, wanted more money, breaking his equipment, and in one case, one of his guys was even caught taking his equipment from the yard on Sundays to do his own jobs on the side! Because many of these jobs were paying a thousand dollars or more for a day’s work, I’d hear his employees grumbling about how they should get more money and how he was getting rich off them, etc. What they failed to take into account of course were the 6-figure payments on the equipment, expensive liability insurance, and everything else that goes along with running such a business.
And He wasn’t Getting Rich! When he seemed to be getting ahead, he’d break an axle on a truck or the chipper would need a major repair or the yard housing his equipment would get flooded or a major customer would decide not to pay him. It was always something and he’s definitely not rich. He’s getting by, but if all that leadership, effort and time were poured into a typical corporate career over 15 years, I wonder where he’d be now.
Small Biz Reality
In closing, you’ve got to be realistic about things like how many hours you want to dedicate to working, dealing with lousy and thieving employees, lousy and thieving customers, what health care is going to cost in the future and whether you’ll be forced by the government to pay for your employees’ healthcare, saving for retirement yourself with no company match other than out of your own revenues, the risk of lawsuits, extortion, threats, paying for your own long term care insurance, the impact on your family and basically never being able to take a vacation without constantly dealing with disasters and inept employees on the cell phone the whole week.
You’re always reading about these great startups and how some guy thought of making goofy shapes out of rubber bands and now he’s rich, or the mom who thought up sticking things in Crocs or how Facebook was founded. You read about these stories because they are so exceptional and spectacular. They are rare. And they are not representative of the typical small business owner in America. Typically, this venture entails significant risk, time, frustration, disappointment and is often not all it’s cracked up to be.
Often times, you hear stories of successful landlords. They’ve done well over the past few decades given the runup in housing. But you also hear a lot about the tenant from hell. There’s no free ride as a biz owner.
If this is living the dream for you, go for it!