Do Employees Risk as Much as Entrepreneurs?

I just read an Inc magazine article on “the only way to become rich”.  It stated two things:

  1. The only way to become rich is by starting/owning a business
  2. Employees risk has much as entrepreneurs, their upside is very limited (2-3% wage increases per year) while their downside is unlimited (losing their job)

I’ve heard similar arguments from groups like Rich Dad education in the past mentioning how risky it is to be an employee.

Both statements are false.

It is certainly true that in theory owning a business has more upside than being an employee, though the importance of “what business?” vs “what job?” be considered.  For example, there’s more potential upside in some investment banking careers than there is in a lot of micro businesses or practices of solopreneurs so you can’t accurately generalize.  That being said the true path to billionaire status is definitely through owning a business and in the pursuit of wealth there’s a solid reason to own a business if only for the tax advantages.  But the basic statements themselves aren’t true.

First there are plenty of individuals who have become rich through a combination of a good career and investing, in fact the average income and net worth among more prominent careers are probably higher than the same among average entrepreneurs (most entrepreneurs aren’t particularly financially successful, which is part of the reason for Richucation, to help address that gap).  In fact some very rich people have gotten there that way, Tim Cook CEO of Apple being a great example, he pursued a career and it’s paid off for him massively, probably better than being an entrepreneur ever would have paid off.  Not all careers are equal to be sure but some definitely represent fairly solid financial prospects especially if the earnings are saved and invested well.  In fact I’d generally recommend this as a more consistent path to at least a modicum of wealth for the average person than entrepreneurship, which quite frankly isn’t for everyone.

But what of this question of risk?  Don’t employees risk as much while benefitting from less upside on average?  No!  It is nonsense that they risk as much!  Pundits of this viewpoint seem to suggest that if you lose our job your life and wealth are over but that’s utter rubbish!

If you lose your job what happens?  Well, you’ve still got your knowledge, your relationships, your experience, your reputation, etc.  What do you do?  Go get another job.  Most people won’t be out of work for more than a few months particularly if they are skilled in a valuable field.  If employees wish to increase their value and consequently their earning potential far be it from being limited to a 3% per year wage increase they can pursue education either deeper in their own field or into another field, they can pursue promotions, etc.  This is how someone goes from earning $60k per year out of college to $120k per year only a few short years later…certainly not explainable by a mere 3% inflationary raise.  Yes, being an employee involves trading some of the volatility of being an entrepreneur for slightly lower downside and upside and depending on your goals it might not get you there but it is far from a sure way to avoid becoming rich or a doomed miserable existence.

Let’s look at the risk entrepreneurs take on?  Say you start a new venture and put everything into it today and a year later give up in failure what have you got?  Yes, just like in a job you’ve still got what you learned, your relationships, your reputation, etc.  You can still pick up the pieces and go get a job.  The difference is you’ve also lost all your seed capital, which for some people might mean having mortgaged their home or racked up steep credit card bills.  That’s not equivalent to what happens when an employee loses their job.

Being an entrepreneur isn’t for everyone and it’s not the only path to being rich and it is irresponsible to say so.  The path to riches is the same for everyone yes and business is definitely the most powerful vehicle, but not the only one and pointing to it as the direction takes the focus off the real mechanics:

  1. Learn – nothing helps you build wealth like targeted learning in fields that are valuable
  2. Get good value for your time and your money
  3. Sell what you’ve got profitably whether it is your education or time or the time or resources of others
  4. Scale what you’re doing profitably to have greater impact with less resources
  5. Invest in assets that will preserve and grow your wealth for you
  6. It helps a lot to be part of a team, no one does it alone

That’s how you become rich, yes with a million nuances to understand but none of those require a business, none of them require giving up a job.  You need to determine what’s best for you based on the life you want to live and what you wish to achieve and then set about to make it happen by applying the principles that will make it so.

If you’re just getting started, maybe thinking about leaving your job etc. and have questions how to do it, or maybe don’t want to leave your job but still want to get ahead and have questions contact us we’re here to help you can do so anytime by clicking “Ask a Business Question” floating at the bottom right of your screen.