Run Your Own Business

Before You Start

Starting a business is not an impulse decision. Obviously you must consider the
predictable issues regarding the business itself. But you must also consider a variety of personal, family, and legal issues before making your decision.

Many employees envy selfemployed people, believing that when you run your own business, you can earn more money. Although earning a livelihood is certainly the primary reason for starting and running a business, most small business owners also have personal reasons for choosing the self-employment option.
Attracted by the benefits that they see arising from eventually being on their own,
many people start a business as a hobby; others make a part-time commitment to their own business. In both cases, they continue to rely on the regular income of their full-time employment. Realistically, not everyone can succeed in running a business. Before starting your own business, it is important to identify what results you hope to achieve. It is also important to assess your entrepreneurial orientation and decide if running your own business is really the best thing for you.


You Need to Earn a Living

Businesses, large or small, exist to generate a profit for their owners. Business owners whether shareholders in the case of large incorporated ventures or owner-operators in the case of small businesses—use these profits as a means of supporting themselves and others for whom they are responsible. Thus, the primary raison d’être for all businesses is to earn a livelihood for their respective owners. If you already do, or think you would like to, run your own small business, you may have various reasons for choosing self-employment as a strategy for earning a iving. Maybe you lost your job as a result of downsizing, reorganization, or merger, and chose running your own business as the best choice for generating an income. Perhaps you find it too confining being an employee in an organization whose way of doing things is inconsistent and even irreconcilable with yours. More independence? Higher earning capability? Whatever. Regardless of an individual’s stated reason for choosing to run a small business, the bottom line is always the same: Small businesses exist primarily to allow their owners to earn a living.

Personal Reasons

Even though all businesses, large and small, exist for the same reason, all businesses are not alike. Small businesses are not miniature versions of their big business cousins. There are many differences, the main one being who actually owns the company.
As noted above, virtually all large businesses are incorporated, which means they are actually owned by their shareholders. In companies with a large number of shareholders, the ownership and management functions are separated. Most shareholders are more than willing to delegate responsibility for actually running or operating the business to paid managers, who may or may not be shareholders. It is the managers who set the direction for the business and look after its day-to-day operations. In discharging these responsibilities, the managers try to do what’s best for the shareholders. For shareholders as owners, their primary interest in the business is their only interest: generating income. Thus, what’s best for the shareholders is, purely and simply, higher profits.
There is no comparable separation of ownership and management in small businesses.
In most cases, the owners do it all, from long-term planning to day-to-day management. In discharging these responsibilities, instead of being guided by what is best for thirdparty shareholders, the owners are influenced by what is best for them. And what is best for owners of small businesses is not always higher profits.
Small businesses can be—and usually are—vehicles by which their owners can experience satisfaction, recognition, and joy, things that we all need if we are to live healthy lives. In practice, this means that as well as existing to allow their owners to earn a living, small businesses also help their owners achieve personal, nonfinancial goals. Essentially these goals represent results or desired outcomes
that the individual owners would like to achieve.

Examples of goals that can be achieved through
running one’s own business include the following:
➤ Earning specific awards or peer recognition;
➤ Showcasing your abilities;
➤ Doing what you love doing;
➤ Making a difference in the community;
➤ Maintaining an enriching relationship with
spouse and family;
➤ Meeting new people;
➤ Improving the quality of service to clients;
➤ Developing new ways of doing things.

If you currently run your own business, thinkabout why you started it. If you are thinking about starting your own business, what goals do you hope to achieve?

The Problem with Business-Hobbyists

Much like a hobby generates pleasure and satisfaction for the person doing it, so does playing business. In most cases, playing business is a harmless activity. There are, however, two areas of difficulty that might arise for businesshobbyists.

At least superficially, the business hobbyist has an unfair advantage over the competition. Unencumbered by the normal economic constraints of running a business, the businesshobbyist is free to do work for no or low cost to customers. For these people, simply doing the work is more important than getting paid for doing it. If they don’t have to support themselves and their families from business activities, there is no urgency in getting paid the market rate for the services.

Providing services at a cost significantly lower than the competition has two problematic side effects. First, it brings into question the cost and value of comparable services provided by other businesses that must build overhead and livelihood expectations into their pricing. Clients are generally more concerned with what something costs them, than with what it costs the supplier to produce it. Thus, when they see one supplier providing a specific service at a price significantly lower than the competition, they assume that the competitors must be overcharging. Based on a totally erroneous interpretation of the data, they develop unwarranted negative perceptions of the business.

Further, in order to stay competitive and protect their market share, the competition might be forced to lower its prices to match those of the business-hobbyist. Although this may be a good thing for customers, price competition by hobbyists seldom benefits suppliers. When prices are cut, profits and customer service also decline. More than one business has been forced to close its doors as a victim of price-cutting wars. Obviously, the presence of a few business-hobbyists in a market segment is unlikely to affect the price of the services of established competitors. However, the appearance of many business-hobbyists will probably reduce the prices, profitability, and service of full-time businesses providing comparable services.

The second area of difficulty involves the liability of the business-hobbyist. Once you start a business, especially providing services, you hold yourself out to the public as having specific skills. In delivering these skills, you are expected to meet the standards of other businesses offering the same skills. If a failure to meet these standards results in a customer suffering loss or damage, you are responsible for the loss or damage. You cannot escape this liability by saying that what you called a business was not really a business but was more like a hobby.

A Part-Time Business and a Full-Time Job
If you are interested in running your own business, but are not yet ready to make a full-time commitment, starting a part-time business is a better approach than starting a business as a hobby. The difference between a part-time business and a full-time business is the extent of the commitment. Starting a part-time business is
different from running a hobby business because you commit to a part-time business whatever resources—time, energy, money, etc.—that you have available and that are necessary to get the business up and running.

Even though you are running a business on a parttime basis, make sure that the rates you charge for your goods and services are comparable to those of your competitors. There are several reasons for this. The quality of these goods and services are at least as good as or even better than your competitors’. If they weren’t, you wouldn’t even consider offering them for sale, would you? Since they are
comparable, why should they be offered at a lower cost? To offer them at a lower cost might suggest that you and your business are not quite as good as
the competition.

The Least You Need to Know
➤ The primary purpose of running your own business is to earn a living.
➤ Personal goals can be as important as earning a living. These reasons have more
to do with personal satisfaction than achieving financial goals.
➤ Playing business is not a good way to get into business. It can pose some risks
for you as well as for full-time competitors in the marketplace.
➤ Running a business is a full-time commitment.
➤ Not everyone has an entrepreneurial orientation. Some people function better
as employees.