Only supernormal profits can afford the entrepreneur’s dream of riches and its accompanying dreamt up travel and consumerist lifestyle.
For the aspiring entrepreneur who still holds a day job, the equivalent of supernormal remuneration in the office is a pay package higher than the average of your peers for a given jobscope.
It follows that if, as an entrepreneur, one but makes normal profits, which is really just the opportunity cost if one had sought employment, the difference is harder work but with the bragging rights of owning one’s own job.
Non-economic reasons for starting a business will be addressed elsewhere and we return to the point at hand.
As with the thought experiment above, generating supernormal profits is an extremely difficult position to occupy, let alone maintain.
Big companies do not engage in extensive RnD for the purpose making normal profits relative to comparable competitors. Instead, they seek supernormal profits through patent protection for example.
It is therefore important for the dreaming entrepreneur to come to terms with the fact that his/her business idea, regardless of self-deluded grandeur, is likely to be at best a normal profit generating one. A normal lifestyle then awaits him, not a lavish one. In fact, the chances of him failing with losses is higher than 90%.
Explaining your 90% chance of failing at business
The friends I have running medium to large businesses are those who had a family business to begin with. In Singapore, the age of a parents’ business would likely be anywhere between 10-20 years by the time the offspring enters it. The age of the grandparents’ business would likely be up to 30 years old […]
While any grounded entrepreneur cannot simply generate supernormal profits on the merits of working harder or employing more workers, they can decide to push off on the right footing.
Right footing refers to the choice of industry in which the remuneration is naturally higher compared to another industry. If one knew that being a doctor or a lawyer makes more money than being a plumber does, it would be foolish to think that becoming a plumber, albeit as a small business instead of an employee, would accord one the entrepreneur’s dream.
The right footing in business almost always mimics the conditions an employee faces.
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Thinking in terms of employment, one easily identifies the doctor and lawyer professions as the kind of employment that makes more per hour than laborious jobs such as plumbers and toilet janitors. Similarly in business, there is the “white collar” and “blue collar” differentiation, i.e. certain businesses reap rewards that are naturally higher than others […]