This post is a comparison between being an entrepreneur and being an employee. The pros and cons are different and the psychological traits needed are very different. Below are some key areas of differentiation.
Most startups fail. WSJ reported that ¾ venture backed startups fail. The percent of non-venture backed startups that fail is probably even higher. It takes a certain personality to try to buck these odds.
Being an employee is not the easiest thing in the world either though. It’s not easy to get a job, the work is hard, and it’s not uncommon for companies to lay off or fire people.
It can take a long time to figure out what company you want to start, let alone actually do it. Customer development takes a while. It takes patience to build product and get customers. Determining if you have a viable business, let alone repeatable or sustainable takes even longer.
Once you have a job, you have immediate and stable earnings. It can take a while to get a job, but once you do, you’re in. It takes patience to climb the ladder. Climbing the ladder is do-able, but takes a long time and is statistically unlikely. However, even if you don’t become the CEO, you can become a very high paid employee in a senior role.
As an entrepreneur, there’s very little security. In the early days, you don’t know if your idea will be profitable, if you will be able to raise funding, or if it can scale. You don’t know if the path you’re going down will lead to reward. “Will this deal close?” “Will this marketing channel lead to profitable customer acquisition?” It takes strong will to be able to deal with the uncertainty and accept the risk that the journey could to nothing.
As an employee, you have a salary. You know what you will be making month to month. There is always a risk of being fired or laid off, but probably less so than failing.
Making decisions is stressful.
As an entrepreneur, you decide what to do at any given moment. And there’s often little accountability, especially if you are a solo founder. It requires a lot of motivation and willpower. Motivation comes from both thrill of upside (see below) and fear.
As an employee, you get told what to do. Motivation comes from having accountability. In the form of reviews, etc.
The skills you learn in entrepreneurship don’t directly translate to many jobs. As an entrepreneur you need to wear multiple hats, be self-directed, and be a leader. At a job, you need to take orders and be really good at a small number of things.
Many founders leave their companies at some point because their unfit to be a CEO. The skillset needed of a founder is very different from even a CEO. If you are a successful entrepreneur, you could probably become a VC or angel investor. But if you are a failed entrepreneur, your options would probably be slimmer.
Having “hirable” skills provides a safety net. Hirable skills are learned while working. If you’re an account manager at an ad agency you can easily go to another one of the many ad agencies in the world. If an entrepreneur is really good at a certain skill, for example, scaling a sales team, that could be “hirable.” Though an entrepreneur who works on a company for a year or two and fails would probably learn a little about a lot…most of which doesn’t translate directly into a job description.
Having upside is both a blessing and a curse.
As an entrepreneur, your work has a more direct impact on your earnings. The more work you put in, the more earnings you get out. If you want to take on another client, you can put in the time and reap the reward. If you want more users, you can spend more time on marketing.
On one hand you are motivated to work more to earn more and on the other you work more out of fear of failure or of competitors moving faster.
As an employee, your upside comes in the form of bonuses, raises, and promotion. Depending on the company and contract, there’s probably less incentive for an employee to go above and beyond than for an entrepreneur.
Upside is addicting. Dreaming about IPOs and profit margins. It can lead to work addiction.
The price of the upside is lack of stable salary. You might have to go months or years without making an significant cash.
In replacement of upside, employees get a stable salary.
The founder of a company takes a risk in hiring someone if they believe they can make more money than the cost of the salary as a result. The employee is taking less risk and has less upside.
In the early stages of starting a company, you don’t have a team. It’s just you and maybe another co-founder or two.
At a job, you might interact with hundreds of people in a given day. Your company provides a social outlet and community. A lot of people marry people they work with or become good friends with them.
In my opinion the psychological traits of someone who starts a company is quite different from someone who works for one. There are strengths and weaknesses to both entrepreneurship and working for someone. My experience as an entrepreneur has been incredible fun and incredibly hard. I feel I’ve grown as a person tremendously.
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