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There are many reasons to enter the world of entrepreneurship, but the one that seems to draw the most newcomers is the prospect of “getting rich.”
Some studies illustrate how entrepreneurs, over the course of their careers, tend to live happier lives and make more money doing so. And occasional stories of breakout entrepreneurs selling their businesses for millions of dollars naturally pique everyone’s interest.
No wonder why so many people strive to own their own businesses for a shot at that big bank account. But it’s unlikely that merely owning a business is going to earn you the riches you seek. Here’s why:
1. Most businesses fail.
It’s hard to come up with good business ideas, and as various sources have attested, 90 percent of startups fail. Not only do you need to come up with an idea that’s original, appealing and potentially profitable, you also have to get the timing right.
And coming up with an idea is only the first part of the formula: You also have to ensure that you execute your idea flawlessly, and are willing to change it as circumstances evolve over time. For these reasons, there’s little surprise from the fact that the majority of businesses fail.
Even if you have near-absolute confidence in your own ideas and abilities as an entrepreneur, you’re not likely to be exempt from the possibility that you’ll be one of the victims of that scary statistic.
2. Get-rich-quick stories are rare and often exaggerated.
There’s something else at play here in those entrepreneurial “rock stars” who skyrocket to success: Media outlets like to play up those stories. That’s how these entrepreneurs become the poster children for business ownership, and lull many inexperienced entrepreneurs into thinking that overnight successes and instant riches are not just possible, but likely.
In most cases, though, these stories are either greatly exaggerated or rare. The truth is, it takes years of effort and the ability to work past multiple failures for most people to get to the “millionaire” point. If you aren’t willing to accept these common obstacles and move past them, you’ll never get to that point.
3. Running a business is expensive.
Don’t forget, too, that running a business is more than just collecting revenue: You also have to pay for everything that happens behind the scenes, including many unforeseen expenses.
You’ll be paying for raw materials, human labor, utility costs, rent, equipment costs and — don’t forget — often-overlooked expenses like taxes, insurance and legal fees. Even if you can produce something that itself is profitable, there’ll be hundreds of expenses you’ll need to work into your final equations.
Many novice entrepreneurs underestimate how expensive it really is to run a business, and end up selling themselves short.
4. There are always unseen variables.
No matter how carefully you make your decisions or plan the course of your business, there are always unseen and unpredictable variables affecting how your business plays out. A new competitor might come out of nowhere to threaten you. A new technology might transform the way people think about your product.
Further: Your revenue might explode overnight or vanish without much of a trace. It’s hard to tell exactly how the market’s going to change, and if you’re not ready for that uncertainty, you’ll be hit hard when it occurs.
5. High profitability alone won’t make — or keep — you rich.
This is an important lesson you might forget in the excitement of becoming an entrepreneur: You still need personal finance skills if you’re going to become or stay rich. Your business might become profitable, earning you hundreds of thousands of dollars a year in recurring salary, but if you blow all that money on cheap trinkets or make lousy investment decisions, you’ll probably end up with nothing by the end of your journey.
Regardless of how profitable your business is, getting and staying rich demands careful attention, frugality, smart investments and responsibility.
6. Most wealth is accumulated from multiple sources.
This is another important financial lesson to bear in mind. Even though many entrepreneurs have accumulated a chunk of their wealth through business endeavors, most personal riches are gathered from multiple sources of income.
After earning significant money, most entrepreneurs try to invest a portion of their cash into stocks and bonds, or real estate, or even other startups. They hedge their bets with multiple streams of income — meaning they’re not just getting rich from the success of one business. Aim to optimize your own income with multiple sources.
Entrepreneurship isn’t always pleasant. In fact, sometimes it’s downright miserable. Not only will your first business probably fail to make you rich, it might even leave you in financial ruin. Still, if you have an exceptional idea and the willingness to keep growing and adapting no matter what’s thrown at you, eventually you’ll find a route to higher revenue.
That great idea of yours may not make you a billionaire, but it should at least earn you a good living and provide you the satisfaction that comes with being a creator and leader. For help starting your first business, see The Modern Entrepreneur: How to Build a Successful Startup, from Beginning to End.