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Which is Riskier? Owning a Business or Being an Employee?

Many people have different ideas of which is riskier. For the majority of people, starting a business is much riskier than getting a job. For me the opposite is true.

With a job, you have one customer, your boss. If at any point you happen to displease your customer (ie. your boss) you can terminated. If the company runs out of money, have no doubt that they will terminate your position. Remember, it’s not personal it’s business. Just like if you use a maid service and you run out of money, that service will be one of the first financial cuts you make. You might love their service, but if you can’t pay for it you will terminate the service.

As an employee you’re income is limited. We’re not talking about the great tax breaks you get as a business owner, but you’re salary increases. Unless you’re on commission, which few people are, any increase in salary you receive is dictated by your boss, or your boss’s boss, and so on. You cannot control this, it’s completely up to the company you work for whether or not you get an increase. On top of that, it will never be beyond a certain cap.

But more than that, I often hear people talk about how amazing safe their job is. The most common comment, at least here in Ottawa, is that if you work for the government you’re good for life. Do you really think so? Just like any other institution, be it a business or a government entity, you’re job is only guaranteed as long as money is allocated to your department, project, etc. Governments sometimes have to slash spending. Although it may often appear as though they have unlimited resources, they don’t.

No job is 100% sure. Just look at the recent headlines from Ottawa here where they’re considering terminating 500 government jobs. These 500 people may have thought they had very secure jobs, but they no longer do.

With a business you have more than one customer, you have many. If you’re a consultant, you have many clients. If you sell products, each person you sell to is another client. For LandordMax, we have many customers (each person who buys the software is another customer).

Although we really hate to miss out on customers, it’s possible that someone doesn’t buy the software because they no longer have the budget for it. That they ran out of money. Maybe they hired an accountant, a property manager (who may have in turn purchased LandlordMax). The reality is that we can survive the loss of a customer, or several customers. Our risk is spread over our total customer base, not just with one big customer (a boss or company). The more customers you have, the lower your risk is as a business. As an employee, with very few rare exceptions, you’re risk is very high, it’s focused on the needs of only one or two people (your company and your boss).

Now I ask you, which is riskier?

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  •     Bob
    · August 27th, 2007  · 4:10 pm  · Permalink

    Unfortunately (or fortunately?), not everyone can start and run a successful business.

    If you don’t know and understand the risks associated with running a business, it is less risky to be… an employee!

  •     Steph
    · August 28th, 2007  · 9:21 pm  · Permalink

    Hi Bob,

    You’re absolutely right. From my personal experience, the main reason people can’t start businesses is not because they can’t assess risk, it’s mainly because they don’t have the drive to keep going. It’s very easy to start something and not finish. But that’s another discussion which I already wrote about before. 🙂

    In any case, you’re absolutely right. If you’re not good at assessing risks then you should focus more on employment instead of trying to start a business.

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