singapore sme productivity

Busting the prosperity myth of entrepreneurship

1. Abstract

Even at one’s deathbed, the successful businessman worries about the business. The journey itself promises to be a far cry from the original appeal, of starting a business up, as one will be fraught with constant worries. As such, building one’s own business is not worth the while if the opportunity cost is high.

2. Working backwards (on succession planning)

If letting go is particularly difficult, it is important to enter business with both eyes open.

The promise of business is always about the riches, and the time freedom, ie about not getting bogged down by the business itself. However, getting tied to the business is exactly what happens to most people.

Imagine having spent a lifetime building a successful business. Then at an age when one is physically and mentally slower when compared to the younger days, and when one should be properly retired, you have to worry about succession.

Difficulty in letting go feels like these:

– throwing clothes away

– letting your children go

– spent huge effort on a project, only to have your boss pass it to another colleague, etc.

In the same emotional frame of mind, imagine letting go of a successful business that you have spent 30 years building up, or worry about having no one taking over the reigns because of trust issues.

The following sub-points were shared with me by associates and personal friends who entered business themselves. But these aren’t information unique to me, rather they are also observable by, and accessible to anyone who have entrepreneur friends. You probably suspected it, but never really had it framed plainly as an important point.

2.1. No children or uninterested children

A few examples on hand include my dad and myself, and many of my friends’ family businesses. My dad need no longer worry as I am his successor, but now I worry for this three generations business. On the other hand, my friends aren’t worried because they haven’t really thought about it. They are in short, far too busy.

2.2. Squabbling among children

I have friends who fell out with their siblings and cousins.

2.3. When the uncle or auntie is involved

Renewal of leadership, and hence ideas, is impeded when your siblings are still in charge and your children/successor can’t take over the reigns properly.

2.4. Old guard employees

The “within the family” thing is real.

2.5. Summary for point 2

Point 2 presupposes the reader as the one handing the reigns over to the next generation, not the one taking over. Imagine dealing with these problems when you are in your 60’s and 70’s.

Point 2 also presupposes the business to have been grown to a meaningful size, as imagined when first embarked on.

To comment further would be beyond my competency as my businesses have been evolved to revolve around myself, without the need to employ workers, and are supposed to die off with me without the need for succession.

3. When starting up is practical

One should only start a business when the reason is “practical”, not merely “rational”.

The difference between the two is that the former reduces business to dollars and cents, while the latter revolves reasons as these:

– desire to test one’s personal aptitude

– pursuing passion

– you only live once, etc.

when the opportunity cost is low. For example, when your education gets you no where in the jobs market, or when there are no jobs available outright.

Otherwise, in a fully developed economy, a family business can be likened to an antiquated grandfather clock, beautiful to look at but difficult and expensive to maintain; people around you romanticise the legacy that is now in your charge, but you constantly worry about rising costs, rising wages etc.

We will return to this later in the conversation.

4. The mom and pop business

Most friends I know who tried their hand have failed. Referring to the pareto principle, only 10% are still in business today, ie 90% have failed.

And of the 10% who made it, only 10% run big businesses, ie 90% are small mom and pop businesses. The creme De la creme really are there because they joined a family business.

This should speak to the average entrepreneur wannabe about the chance of his/her success. It is extremely low and I was being generous about the 10-90 rule. It is really more a 1-999 rule if you get what I mean.

3.1. Getting on track (in years)

As an employee, recall how long and how difficult it was to spend years on the job just to build a decent resume.

Imagine building a customer base based on that feeling.

The job one enters is based on a whole youth-time worth of preparation. But one is highly unlikely to be trained in commerce, trade negotiation etc.

I myself dabbled in all sorts of activities that

3.1. Measuring the mom and pop business to the promised financial freedom

Ie myth busting

Stories abound of the financial and time freedom that businesses offer their owners. But if we cut through the cotton candy, we would have heard that these goodies come with a price. Among them is succession planning.

Opportunity cost to the poor is low

Only your glitter matters to others. People boasting a lifestyle, choosing when to work etc is bullshit. Only the fast cars and condo matters.

If it is for recognition, you are better off working.

Break

The idea painted is to have passive income. Ie one need not work for an income.

But once one starts the business, one may start making income, and that is after paying off rent, one finds himself working endlessly. Contrary to making money passively.

The buy ins

Do what one loves

Break

People will compare you to big brands. My business and departmental store brands. Friends will compare you with the big boys when you tell them your business plans

Break

Family business is as antiquated as the grandfather clock

There is increasingly less relevance in function to the individual than the past.

The past has fewer jobs and work. Family business preserves dignity relative to not having work.

Until the family business reaches a money making machine, such that the opportunity cost is low relative to the average wage, then it becomes relevant again.

Break

Time freedom doing business

I don’t exactly have much free time because I rush projects all the time. My customers are my bosses. So that is really a myth.

But I did spend an uninterrupted week with my grandfather, with him lying in his coffin. All while company policies across the private and public sectors grant limited compassionate leave where non-immediate family members are concerned. As a result my family members are forced to take personal leave or work over the period of mourning.

It is a tragedy.

Break

You pay with your life. Consider two scenarios:

Break

Compare an employee who earns $4000.00 a month and a small businesseur who makes $4000.00 in revenue. Let us assume both generated $4000.00 because both put in equal amounts of work in their job and trade respectively. But do you as the business owner really bring home $4000.00? This is a question that needs to be answered when conceiving the business idea.

Most aspiring businesseurs, not confined merely to new startups intentionally embarking on a “traditional” business model, have immediate considerations of rent. A portion of the $4000.00 revenue generated on the businesseur’s merit is first shared with the landlord.

For easy understanding, we assume rent to be $4000.00. In order for the businesseur to take home $4000.00, $8000.00 must be made on his own merit, ie generate a value twice that of said employee above, by working twice as much, or by becoming twice as productive, on the same 24 hours daily as the employee.

Business is more complex than in the scenario above where simple assumptions were made, but the point must not be missed. A business owner takes home less than the revenue generated on his own merit because of rent.

Now with the same information about rent, consider the following scenarios, likewise against a salaried employee with a wage of $4000.00:

– business owner makes $5000.00 and rent is only $2000.00

– business owner makes $3000.00 and rent is only $500.00

Till this point, we refer to sole proprietors starting off without employees.

Eventually, perhaps, employees employed by the businesseur generate values that pays their employment, with remaining value to pay rent and finally to pay for the “no work” lifestyle of the businesseur. Often, rent offset and businesseur’s take home for being the “risk taker”, is paid for by lowering employees’ wages. We shall leave this discussion for next time.

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