4 Disadvantages of Entrepreneurship

Owning a business may seem like the ultimate dream come true if you spend your days laboring for someone else. You see your annual raises become cuts thanks to inflation and 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. 

Being an entrepreneur means taking considerable risks. Many people who try 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. 

Why is it so hard to achieve your dreams in the business world? Find out and explore these four disadvantages of entrepreneurship you should know before striking out independently. 

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 comfortably appointed home. 

Hidden in the capitalistic 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. 

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 had? 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. 

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 don’t quit your day job until you regularly earn enough revenue to pay yourself and put a little extra into savings. 

2. 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. 

3. 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. 

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. 

While it’s true you won’t have to request PTO to take that 2-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. 

4. 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 a bear 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. Then, you need to wade through what you can and can’t 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. 

Consider the Disadvantages of Entrepreneurship 

Owning a business is a dream that many people have. Yet relatively few succeed? Why? 

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.