Owning a business may seem like the ultimate dream come true if you spend your days laboring for someone else. You constantly stress about micromanaging supervisors hanging over your shoulder. However, it isn’t an easy path to riches — if it were, everyone would be doing it. Understanding the disadvantages of entrepreneurship sets you up for success even through the challenges.
Many people who try to start a new business fail and end up returning to work for somebody else. Success takes a combination of having the right resources available, working hard and getting a lucky break or two. Mix in a heavy dose of determination to succeed no matter what and you have the makings of a hard-working entrepreneur who sees the big picture.
Why is it so hard to achieve your dreams in the business world? Find out and explore these major disadvantages of entrepreneurship you should know before striking out independently. We’ll talk about how to overcome these issues and push through.
1. There’s No Safety Net
Although another CNBC title declares “Jeff Bezos Builds Amazon Empire From Nothing,” the reality is quite different. Forget the illusion that this billionaire was an average Joe who just happened with a wildly successful business idea.
In reality, he was a hedge fund manager who wasn’t doing too shabby money-wise before starting his business. He no doubt had enough in the bank to make pesky things like car payments and insurance a non-worry. He also hit his parents up for a “small” loan of $250,000 — presumably interest-free. Oh, and he could work in their garage while living in their comfortable home.
Hidden in the fairy tale is the cold, hard truth of entrepreneurship: there’s no safety net other than the one you create. Most successful business owners who achieve “overnight” success already had a sizable bankroll when opening their enterprise. They could afford to take risks — after all, had Amazon failed, Bezos wouldn’t have lost his house and home. Plus, he could return to a job at another firm earning well over six figures.
It’s no secret among those earning less than six figures why so few successfully start a business. Building an enterprise takes both money and time, and you need enough of the former to provide the latter. As more Americans live paycheck to paycheck thanks to inflation and stagnant wages, there’s simply nothing left to save to provide a safety net.
Your best bet to find safety is through family and friends. Move back home if your parents don’t mind. Squirrel away a little of your profits each month so you have an emergency fund. Find an angel investor who believes in your vision.
2. Getting Started is Tough
For many smaller entrepreneurs, their business efforts represent their livelihood, and an economic downturn or pandemic can wipe them off the map before they have a chance to thrive. One of the primary reasons businesses fail is a lack of capital — a fancy way of saying they run out of money to finance everyday operations. For mom and pops, that means keeping their lights on and kids fed, too.
What does this reality mean in practical terms for people who have had enough of the nine to five but lack the resources many of the billionaires garnering idol worship on magazine pages? It means you have to be billions of times smarter with your approach.
You also have to be time-savvy. Say goodbye to your evenings and weekends for now — remember, one element to building a successful enterprise is time. You also must prepare yourself to shoulder the entire workload at first.
Be aware you’ll probably have to play the long game. Remember, overnight success goes to those with the resources to produce mass volumes of quality products from the word “go.” Folks starting with one or two goods that they can build themselves may require several years to gain enough fans for news of their offerings to spread through word-of-mouth, gradually increasing capital until they can invest more in marketing and production.
However, if you produce quality, your lucky break should come eventually. Just keep your day job until you regularly earn enough revenue to pay yourself and put a little extra into savings.
3. The Buck Stops With You
Here’s one plus about working for someone else: if the ship sinks, it isn’t your fault. While a layoff can certainly shake up your life, you get the benefit of unemployment to help you transition to a new role. A decided disadvantage of entrepreneurship is shouldering the entire responsibility if you fail — and becoming ineligible for said benefits.
It’s one of the reasons the rules changed during the pandemic. The gig economy has transformed countless workers into unwitting entrepreneurs by categorizing them as independent contractors. These people may never have had any intention of owning a business. They simply needed a job.
And yet freelancers must haggle with clients unwilling to pay full price and develop working terms for each project — the same as any large-scale company.
The difference, of course, is that they’re entrepreneurs in the law’s eyes, rendering them typically ineligible for unemployment compensation. Losing activation as a Dasher can cause as much economic devastation as getting a pink slip from corporate. However, the former is left with nothing, not even a few hundred bucks a week in unemployment compensation to help keep on the lights.
Furthermore, you’re responsible for daily decision-making as an entrepreneur. Suddenly, every choice becomes fraught with terror. Will refusing a no-tip order mean deactivation? Will canceling a client meeting due to illness mean giving up a contract that could be your bread and butter for an entire year? Whatever you decide, the consequences of your choice rest squarely with you.
At the same time, you are in full control. You have the advantage of stopping poor decisions before they’re made. You no longer have to carry out orders you know make zero sense.
4. Your Work Hours Are Unpredictable
Many dream of entrepreneurship after seeing their bosses leave the office every sunny afternoon for a round or two of golf. They want the same luxury. After all, who doesn’t want to spend more of their time on their favorite hobbies?
In reality, entrepreneurs work crazy hours — who can blame them for taking a break when they can? They might follow their afternoon golf outing with a full night of burning the midnight oil as they hammer out proposals and balance budgets. Most have 60-hour work weeks on average. You can expect to routinely pull all-nighters before you build a large staff.
While it’s true you won’t have to request PTO to take that two-week vacation to France you’ve always dreamed of, the reality might be that you can’t take that long away from your enterprise. You might love what you do, making it feel less like work — but you’ll still put in plenty of long hours.
If you have true passion for your business idea, it will seem less like work and more like fun. However, make sure you maintain a healthy work/life balance as you build your brand.
5. Taxes Become More Complicated
Tax time is a breeze for most W2 employees. You copy the info from the form into your tax software and voila — your refund is on the way. You can tackle this citizenship requirement in less than 15 minutes, all for free, if you don’t have other factors like investments and property complicating your return.
However, taxes are more complex for entrepreneurs. First, you must maintain accurate records of your income and expenses all year, requiring you to don a bookkeeper’s hat in addition to your standard apron. Tax laws vary by business structure and location, so the process isn’t as clear-cut as you might think.
You need to wade through what you can deduct or risk overpaying Uncle Sam — and he doesn’t need the extra cash. It’s no wonder many choose to outsource their returns to an accountant.
The good news? You can deduct a lot more as a business owner than you ever could as an employee. Consider this tidbit a word to the wise if you’re an independent contractor still entering your 1099 without claiming expenses. The bad? Even if you hire someone to do your taxes, the IRS will come after you if you make a mistake. Keep excellent records, be honest, consult a tax professional if needed and you should be fine.
6. Health Insurance Is Expensive
How do entrepreneurs get health insurance if they’re self-employed? They can use a government program, but there are lots of exemption factors and plans only grow more expensive with time. The cost of premiums will be higher than the average person’s salary as soon as 2055.
If you have employees, providing coverage for them can be another hurdle. Filling out all of the right paperwork can feel like jumping through hoops. The administrative upkeep alone is a lot for one person to deal with.
Even though you’ll attract more people if you offer benefits, plans are expensive to maintain. Nearly 99% of small business owners that offer health insurance think it’s going to become too much to afford in the next decade. Most people already start with little capital, so it can be a challenge to pay for everyone. You don’t want to put off investing in your business because you’re paying for insurance.
Some brands have gone to medical savings plans, offering a stipend. Once you pass the 50-employee mark, however, federal regulations may require you offer health insurance. The benefit of seeking out the best plan possible for your staff? You’ll be more likely to keep them instead of them churning away to another company.
7. You’ll Feel Stressed
Nobody said managing your own business is easy, but they don’t prepare you for what you end up dealing with. Most entrepreneurs feel constantly stressed because they have to juggle administrative tasks, finances and employee schedules. You can only rely on yourself when you run your own workplace, so the work falls on your shoulders.
Employees can simply walk away from their workplace when it starts struggling, but you won’t have that luxury as an entrepreneur. It’s no wonder most people choose to work for someone else — doing it yourself can get expensive.
Since half of all small businesses fail within their first five years, the pressure to keep pushing forward is significant. You may have to put your free time on pause because you’ll be pulling all-nighters to keep things running. Also, you’ll probably have to sacrifice vacations or pour your savings into equipment to keep revenue consistent.
Develop coping techniques when the stress seems high. Take an online yoga class, practice deep breathing, take a break from the situation or talk to a mentor. Millions of small business owners deal with the complications of running a company every day and manage to keep their sanity and health.
8. Everything Becomes a Cost-Analysis
Most people feel passionate about protecting their free time — they’re off the clock as soon as their nine-to-five ends. They get the satisfaction of feeling like they earned their weekends and days off. You, of course, get to view everything like a business opportunity.
The success of your business lies squarely on your shoulders, so how do you relax in the evening when you know you’re about to miss a deadline? It’s harder to walk away from work when you’ve poured your entire livelihood into it.
Instead of relaxing on a sunny beach over the weekend, you’ll be calculating how much money you could be making instead. Every business opportunity feels much more important than a relaxing evening, which is why entrepreneurs often choose work over hobbies.
Over 70% of American entrepreneurs say they don’t think they have a healthy work-life balance. While it’s true that you’re running the show, have you realized how much extra work the stage manager puts in behind the scenes? In reality, it’s going to be challenging to put work down and focus on yourself.
The best solution is to learn how to delegate. Can someone else complete the task satisfactorily? Hire help for the repetitive, time-consuming tasks that are your least favorite and free your time up for other endeavors.
9. Your Reputation Is Everything
Have you ever left a business a bad review before? Most people look at online reviews. It can feel great to get a glowing recommendation, but the opposite has just as big of an impact. Remember, overnight success rarely happens — almost everyone has to slowly collect customers over time.
The fragility of your reputation is one of the biggest disadvantages of entrepreneurship. A few bad reviews could seriously slow business and affect sales. Customers will be reluctant to put their credit card information on your website or buy products from you if they think you’re untrustworthy.
Big brands have the luxury of not having to care. They can use their size to shrug off most bad experiences as one-off events, so people will keep shopping. Entrepreneurs, on the other hand, are seen as directly responsible for every shortcoming.
What happens when a product is defective or a delivery gets delayed? The person will likely take their business somewhere else because they blame you personally. The issues may not be your fault, but you’ll still have to deal with it. You’ll need to put more effort into pleasing customers than the average company does.
However, if you do your best to create an amazing customer experience, people are likely to tell others about how great your brand is. They’ll forgive some missteps from a new company, particularly if you’re forthright about the issues and immediately offer a solution.
10. You’ll Refuse to Work for Someone Else Ever Again
Although there are clear drawbacks to starting a new company, you’ll also reap various rewards. You’ll be the one calling the shots. You can make a difference in your local community by giving back and creating jobs.
If you start something you feel truly passionate about, you’ll be making a difference in the world. You have a legacy to pass down to your children and grandchildren and many generations to come.
You answer only to yourself, set your own schedule and can try any creative idea you have. Once you’ve gotten a taste of working for yourself, it’s almost impossible to be happy working for someone else. It may take you a long time to find the right fit and company culture you can tolerate.
Whether loving the entrepreneur life is a disadvantage or not is for you to decide.
Consider the Disadvantages of Entrepreneurship
Owning a business is a dream that many people have. Yet relatively few succeed.
Unfortunately, the disadvantages of entrepreneurship dissuade many from pursuing their dreams. Now that you are aware, you can make better decisions on how to proceed.
Get inspired by the successes of other entrepreneurs. Take notes on the things they completed to achieve success that appeal to you. Although we’ve focused on the disadvantages today, the rewards of running your own business far outweigh the negatives. Being aware is the first step in overcoming any problems that might arise. Check back here at Designerly for the tips and advice needed to truly embrace the entrepreneur life and succeed.
About The Author
Eleanor Hecks is the Editor-in-Chief of Designerly Magazine, an online publication dedicated to providing in-depth content from the design and marketing industries. When she's not designing or writing code, you can find her re-reading the Harry Potter series, burning calories at a local Zumba class, or hanging out with her dogs, Bear and Lucy.