So you have a brand new business idea, and you’re considering venturing out on your own.
Before taking the leap, it’s important to consider entrepreneurship vs. employment and decide which path works best for you.
This piece dives into the pros and cons of entrepreneurship I uncovered from the 2024 State of Entrepreneurship Survey I ran, giving you all the information you need to decide between entrepreneurship and standard employment.
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Entrepreneurship vs. Employment
Entrepreneurship and employment involve two very different lifestyles. Before we discuss the differences, I’ll start with definitions.
- Entrepreneurship involves establishing and running your own business or service. Your earnings will be the business’s profits.
- Employment includes hourly-rate or salary jobs. Here, you complete specific tasks and services assigned by an employer.
Entrepreneurs run their businesses and take on financial responsibilities. Meanwhile, employees work for a company and get a set pay rate.
Entrepreneurs handle expenses and business decisions, while employees focus on doing their best and helping the company succeed. Unless they work in accounting, employees rarely have to deal with any of the financial aspects of the business.
Now, let’s review the pros and cons of entrepreneurship and employment.
Entrepreneurship: The Pros and Cons
Becoming an entrepreneur has plenty of benefits that make it an appealing choice. Still, you should understand the drawbacks before taking the plunge. Review the pros and cons below to make an informed choice.
Entrepreneurship Pros
1. Controlling your schedule.
I asked survey respondents their top reason for starting their businesses, and the number one response was that they wanted to be their own boss and escape the traditional 9-5.
This makes sense to me: when you’re your own boss, you have significantly more control over your schedule and the ideal work-life balance you want to develop.
For example, you can stack your hours at the start of the week and relax during the latter half. You can take breaks to pick up kids, choose to work from home, or work late in the evening if you’re a night owl.
Few positions offer as much flexibility as running your own business.
2. Managing your company’s profits.
If you run a business, you’ll receive the profits first. Once you’ve covered all your expenses — including employee wages — you can save, invest, or reinvest the money.
As you make more money, you can reinvest funds to grow your business.
3. The potential for wealth.
If your business takes off, your earning potential is pretty much unlimited.
You can start making six figures a year and take home even more as you grow. Your profits can increase if you spend more money to grow your business.
You can also build up your cash, create retirement accounts to prepare for the future, save money, and create a safety net.
4. You’re pursuing a passion.
As an entrepreneur, you can launch a business centered around anything you’re passionate about (within reason) and earn money from pursuing your passion.
I’m not saying employees can’t be passionate about their positions, but they don’t have the same control over pursuing their passions as entrepreneurs.
5. More flexible retirement.
As an entrepreneur, you might have the potential to retire earlier than others. If you make more money, you can invest heavily and prioritize a comfortable retirement.
You could even pass the torch to someone else, earn passive income, and sell the business once you want to retire.
Entrepreneurship Cons
1. Maintaining a work-life balance.
I mentioned before that setting your schedule is one of the top reasons people became entrepreneurs, but maintaining a work-life balance is also the number one pain point that survey respondents said they struggle with.
This makes sense because both can be true at once. People who have mastered balance that works for them likely feel significant freedom. But, if you’re making sacrifices in your work or personal life, it can feel stressful and disheartening, especially since pushing yourself and not taking time for yourself can lead to burnout.
Evan McCarthy, President and CEO of SportingSmiles told me he faced this challenge when he started. He said, “I launched my company 15 years ago, and as a business owner, there’s always a mountain of tasks to tackle. The main challenge I faced was finding a balance between my work and personal life…Looking back, I realize I should have paid more attention to my personal life. Taking better care of myself would have reduced stress and probably helped me focus more on growing the business.”
Pro Tip: A work-life balance looks different to everyone, but to me, the main idea is that you don’t have to sacrifice work or personal life to make room for the other. Setting boundaries, taking breaks, and setting realistic expectations are strategies I use to keep a healthy balance in my life.
2. Potential financial challenges.
Starting a business can be financially challenging.
In fact, 54% of our survey respondents struggle with earning and maintaining finances/money, primarily with accessing funding, budgeting challenges, and earning recurring revenue.
Entrepreneurship can also be risky. For example, if sales drop, you may have to pull from your savings to cover the difference, especially if you have employees to pay.
I know that any fluctuations can be anxiety-inducing, but there are things to do to stay on the right foot financially, like:
- Creating a budget (I strongly recommend our budgeting templates)
- Crowdfunding resources like Kickstarter to get financial backing
- Small business loans from local small business organizations and development centers
- Pitching to Angel investors
Pro Tip: Remember, entrepreneurship doesn’t have to be your only stream of income. If you’re weighing the financial sacrifices of starting a business, consider keeping your full-time role. You can always dabble in entrepreneurship on the side. If profits skyrocket, you can make your side project a full-time job.
3. Initial costs.
Starting a business requires capital, and the average small business owner spends $40,000 in their first year of business. You also have to pay employee salaries, pay for needed supplies, and, most importantly, find funding.
If you have the savings or the means, you can cover upfront costs yourself; otherwise, you might have to take out loans that may come with high interest rates.
You’re responsible for securing the capital you need to start your business, which can prove stressful.
4. Covering salaries, insurance, and other expenses.
If you don’t have an HR department, you’re entirely in charge of people operations.
This includes paying employees, offering benefits, and ensuring contracts abide by state and local laws. If these are new responsibilities, you’ll have to learn how to get them done as you’re getting them done.
But you can also hire experts to take over specific duties; you’d just have to pay.
5. Added responsibilities can cause stress.
Employees have many people to reach out to with questions or to get support. As an entrepreneur, the future of your business is in your hands.
Wearing many hats can be stressful, especially if you’re balancing growing your business and, say, learning about compliance rules and payroll for your employees.
The good thing is that, with practice and dedication, some of the new tasks you have to account for as you start your journey can become second nature. And, as you scale, you can always hire specialists.
6. Dealing with taxes.
Taxes become more complicated when you run a business. Instead of receiving a form from your employer, you are responsible for calculating your expenses and sending them to your employees.
7. Business success isn’t guaranteed.
Even though you have hands-on control over anything that contributes to your business’s success, it doesn’t mean it will succeed. The market might not be ready for or interested in your product, and economic changes that you have no control over can impact the success of your venture.
Employment: The Pros and Cons
Standard employment may check all your boxes if you’re looking for greater stability and consistency.
However, every role has its challenges. To paint a better picture, I’ve created a list of pros and cons.
Pros of Employment
1. Consistent paychecks.
Whether hourly or salaried, you get consistent paychecks as an employee.
You’ll always get your bi-weekly or bi-monthly check to keep up with your bills. You also know exactly when your next paycheck will be and how much money to expect.
2. Set working hours.
Entrepreneurs often struggle with work-life balance. Long hours and late nights are common, especially when a business has just started.
Most standard jobs offer set shifts and work hours if you appreciate more structure and consistency. You’ll always know your schedule, and you can build a reliable routine.
Today, many companies also offer more flexibility with employment. For example, if you work from home, you can still run out for a quick errand. If you’re hybrid, you can pick which days to work from home to avoid traffic.
If you’re looking for the benefits of standard employment with increased flexibility, you can narrow your job search to meet that need.
3. Full-time benefits.
Health insurance is expensive in the U.S., and entrepreneurs are responsible for finding plans for their employees and themselves.
Meanwhile, those with full-time roles typically get benefits from their employers for standard medical needs (dental, vision, even life insurance), 401k matching or retirement offerings, and other benefits like continuing education, travel, swag, etc.
At larger companies, employees can often pay less out-of-pocket for their insurance plans.
4. Potential for promotions.
Over time, you can seek opportunities for promotions that give you added responsibility and higher paychecks. You can also try your hand at people management, running projects, or working more closely with senior stakeholders.
You need experience to get promoted, but it’s worth the chance to boost your income, professional development, and prepare for the future.
5. Professional development opportunities.
On top of promotions, many companies offer professional development opportunities like upskilling courses, mentorship programs, or employee resource groups to help you meet other professionals.
Working at an established company can also give you a resume boost. Experience at an impressive company can help you secure future roles. Further, the connections can lead to job opportunities as your colleagues change roles.
Cons of Employment
1. Job security isn’t guaranteed.
Whether your performance is lower or the company eliminates positions, you can find yourself without a job when you least expect it.
And, since hiring and layoff decisions are entirely out of your hands, there’s not much you can do if it happens.
2. Working under management.
Employees always have to report to someone, usually to a manager. Even if you climb the corporate ladder, you’ll need to report to senior leaders or your executive board.
Some people may dislike the ever-present authority and find it challenging to work in a structured environment. In these cases, entrepreneurship would allow you to work however you want.
3. Having less control.
Employees have little control over businesses. A company may make a decision you don’t like, which could lead to new procedures, and you must follow them even if you dislike them.
While you can express frustrations and try to encourage change, you’ll need the support of more senior leaders to execute your ideas.
4. Less work flexibility.
Even as companies switch to more flexible work options, you’ll still need to stay true to your schedule and tackle your responsibilities. You might have a rigid schedule to stick to and be required to show up in person and clock in and out on time.
If you’re planning a vacation, you’ll need to have your time off approved. You’ll need to take sick days if you can’t complete your work. You may even need to find someone to cover your shift.
5. Passionate about your position.
People need money to live, which can mean they end up in positions they’re not entirely passionate about to make ends meet.
This doesn’t mean every employee is dispassionate and bored—you can still be a full-time employee who is passionate about your work and contributions to the world. You’ll just have less control over how business is done.
It also doesn’t mean you can’t pursue your passions outside of full-time employment. Many entrepreneurs launch side hustles from something they’re passionate about and, if it’s a solid venture, quit their day jobs to pursue it full-time.
6. Workplace politics.
Unfortunately, there is such a thing as a toxic work environment. If you rely on your job for income but your workplace is toxic, it can be a challenging thing to deal with.
The unwritten rules you have to follow can also make it hard to feel connected to your workplace.
It’s even more challenging for minority employees, who might experience racism and microaggressions in the workplace and receive fewer opportunities for advancement.
Which Path is Right for You?
Reviewing the pros and cons of entrepreneurship and employment can help you find your ideal career path. Be sure to consider your personality, financial situation, and business savvy before making a decision.
Remember, you can switch between entrepreneurship and typical employment. You may start your career in an office and launch your business years later. Or you may work at a startup and decide a more traditional environment is a better fit.
No matter what you choose, be sure to check in with yourself and regularly review your chosen career path.