For years now I’ve had clients tell me “I want to start my own small business.”  “Great,” I say while thinking “Do you even know what that means?” Not simply the definition of “entrepreneur,”—that’s pretty well understood and easily Googled. But rather, what does it really mean to be an entrepreneur? To start and run your own small business?

“Being an entrepreneur is like eating glass and staring into the abyss of death.”
Elon Musk, Founder of  Tesla, SpaceX

Being an Entrepreneur is Really, Really Hard.

The failure rate of a technology business in the first year is ~63%, and within five years this percentage increases to 95%. Looking beyond just tech companies, the failure rate for new businesses is around 50%… not encouraging.*

Given this data, why would any rational person want to be an entrepreneur?

 I’ve found it’s always helpful to begin with fundamental questions. In this case why, why do you want to start your own small business? Through the years the answers I’ve heard fall basically into the four buckets below. I suggest that only one of these is acceptable and will sustain a small business and its founders. Let’s look at these one by one:

1. Freedom & Independence

That entrepreneurship provides either is a fallacy. The truth is you’ll never be your own boss. In addition to customers constantly demanding your attention, suppliers and partners suck up any free time you might have. That is not even considering pressure from any investors or debtors you might have. In short, your time is never your own.

2. Recognition and Riches

Let me refer you to a quote from a 2023 Acquired podcast interview (BTW, if you haven’t discovered the Acquired podcast yet check it out. Ben Gilbert and David Rosenthal do an amazing job dissecting the world’s best companies).

“I wouldn’t do it… The reason for that is really quite simple. Ignoring the company that we would start, first of all…The reason why I wouldn’t do it, and it goes back to why it’s so hard, is building a company and building Nvidia turned out to have been a million times harder than I expected it to be, any of us expected it to be. At that time, if we realized the pain and suffering, just how vulnerable you’re going to feel, and the challenges that you’re going to endure, the embarrassment and the shame, and the list of all the things that go wrong, I don’t think anybody would start a company. Nobody in their right mind would do it.”
Jensen Huang, CEO Nvidia

Nvidia is one of the world’s most successful companies and Jensen, its CEO and founder, one of the world’s wealthiest and most successful entrepreneurs, is telling you it’s not worth it. In addition to the toll a startup takes on you and your family, many would-be founders ignore the element of risk (we’ll discuss this at length in subsequent posts). If you discount your take-home by the associated risk, the returns don’t seem as attractive.

3. Learning and Growth

No doubt you will be drinking from the business education firehose with a startup. But I would argue that it is more prudent to do such learning on someone else’s dime before launching your own venture.

4. Passion and impact

As you’ve figured out by now, the passion for a particular project and/or desire to make a greater impact I believe is the only rationale that will get you and your team through the difficult times. Without a deep desire to create something beyond yourself, founders and their teams begin rationalizing— quitting when times get tough. Patagonia, known for its deep commitment to environmentalism and sustainability (all profits ~$100M go directly to fight climate change) is a great example. Doubling down on its core values kept turnover low (4% vs. US average of 57%), strengthened its brand identity and customer loyalty and helped it survive the financial crisis of the 1990s.

 To sum things up, starting a small business is really hard, and the risk of failure is quite high. You will be overwhelmed day after day and to succeed you will need to sacrifice more than you can imagine (sounds enticing right?). So be absolutely certain that you are doing it for the right reasons… something that you are truly passionate about and that will keep you going when things get bleak.

Thoughts? Tell us about the darkest days of your startup or small business. Why did/didn’t you stay with it? How did you survive? Email me at marketing@michigansbdc.org.

Arcadio (Kayo) Ramirez
Tech Team Business Consultant

A seasoned professional, Arcadio Ramirez brings over three decades of experience in working with early-stage technology business to the Michigan SBDC. An attorney by training, he provides invaluable guidance to startup enterprises on a range of crucial matters including financing, commercial operations, corporate governance and intellectual property strategies. His involvement in financial projects has overseen ventures surpassing $30M in magnitude.

Prior to joining the Michigan SBDC Arcadio was engaged in a number of entrepreneurial pursuits, successfully orchestrating the formation, funding, operation and eventual sale of two distinct companies. Notably, one of these ventures, Do It Sports, was among the pioneering transaction-based Internet platforms.

 

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*Sources: US Bureau of Labor Statistics, Small Business Statistics 2024.