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Chapter 3
Men Are Cheaper Than Guns


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Intellectual Capital And Bootstrapping


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Small Business Versus Entrepreneurship

I stumbled upon some very good writing by Nick Usborne about small business, entrepreneurship, and online businesses. One article discussed why he loved small business. That got me thinking.

I hate small business. When I think of "small business," I imagine a couple working away to earn $50,000 a year running their own shop. Maybe a coffee shop. They have no company-sponsored health insurance, so they buy their own, paying through the nose. They have no company-sponsored disability insurance, so they buy their own. Retirement 401(k) plan with company-matching contributions and pension plans? No way. Paid vacation and sick leave? Nope, again.

And, for all this, what does the small business owner do? A lot. Running a small business is a lot of work. Many people put more time into their small business than they would put into a conventional job.

Worst of all, what happens if the owner gets sick? Each owner's effort is central to success. The company cannot continue to function as it once did. The owners will need to sell the business (and no knowledgeable buyer will pay much for it) or abandon it. Or, if the owner remains well, maybe, for whatever reason, sales will fall and the couple will lose money or make far less.

The above is enough reason to avoid starting a small business. Starting a small business offers a poor risk-reward combination. The risks are high, but the reward is minimal. You can pat yourself on the back for being your own boss, but in reality, you will not be doing nearly as well as many employees of larger companies.

Most small businesses employ a few people, but huge job growth has never come from small business. Nor has it come from the larger public companies (Fear of getting laid off in the 1980's was one reason some people started their own small businesses). Employment comes from fast-growth companies. Those that are medium size growing their way to larger.

There is one and only one offsetting factor to compensate the small business owner for the loss of all the above benefits and perks. That is growth. More income. More retained earnings within the company. More wealth.

But to achieve wealth demands growth of the business. It cannot remain "small" in the mom-and-pop sense. It must offer substantial sales growth potential. That is not to say that operationally the business must occupy a huge plant or office. But, the potential for growth must be intact.

This is entrepreneurship. Entrepreneurs often know a bit about small business, because when they started their companies, the companies started as small businesses. Most small business owners do not know entrepreneurship. They do not evaluate risk-reward. They do not seek to grow their business.

The lesson is never to start a small business which lacks growth potential. Always ask yourself, "What is the potential of this business?" Learn small business, yes. Learn about taxes and record keeping and all the other small business topics. But, allow for financial upswing. Seek to become an entrepreneur, not a small business owner. Entrepreneurs are well rewarded for their efforts. Small business owners are usually not.



Growing Your Company from our online guide to starting a small business.

Are You the Entrepreneurial Type?