The impact of having to “eat what you kill” and the gap between having enough money to survive and not having anything at all is never far from an entrepreneur’s mind. Millions of Americans live paycheck to paycheck, but with small businesses, that paycheck is never guaranteed. According to a study conducted by the J.P. Morgan Institute, after looking at data from 600,000 customers they discovered that the average small-business maintains just 27-days operating cash at any given time.[i] When that’s exhausted, mortgages don’t get paid, car payments run late, and things go bad very quickly.
Puff pieces in the media about Mark Zuckerberg, Elon Musk, and Jeff Bezos have created false expectations about what starting a business is like in Middle America. Winston Churchill once described Russia as a riddle, wrapped in a mystery, inside an enigma. For the average person, owning and running a small business is insanity, wrapped with joy, inside the ever-present risk of financial doom. It’s incredibly complex and challenging. But some people thrive on it. They enjoy the process of creating something from nothing and have a hard time imagining what life is like in a normal nine-to-five job. Once you get a taste of it, the thrill of pursuing an entrepreneurial dream can become something like a gambler’s addiction.
Adam Alter is an associate professor of marketing at New York University’s Sterns School of Business, and has written extensively about technology, addiction, and how the two are linked. In his book, Irresistible: The Rise of Addictive Technology and the Business of Keeping us Hooked, he discusses the concepts of motivated perception and variable reinforcement. Common with problem gamblers, motivated perception shapes how we respond to negative feedback. Anticipating a win with every bet, that millisecond before the result comes produces a surge of anticipation and a biochemical response that is both thrilling and highly addictive. The designers of the slot machines, video poker machines, and even seemingly innocent video games know this and program their algorithms to balance losses and payouts so that the gambler receives the highest dose of addictive emotions possible. Over time, the existence of the “almost win” gets people hooked.[ii]
Almost winning drives many new entrepreneurs forward in the same way, especially if the business has some early success but never takes off. If a little money comes during the first few months, and a few customers respond positively, they assume their idea has mass market appeal and rush forward thinking that they can scale their success. But when a large customer base never materializes, the same pattern of variable rewards that causes gambling addiction, where losses are partially offset by small successes, becomes part of daily life for struggling small business owners. Due to motivated perception, they see what they want to see and fail to recognize that a string of losses usually foretells more losses rather than an approaching jackpot. At that point, they’re addicted to the possibility of building a successful business and dedicate their entire careers to realizing that goal. This singular focus on their idea has significant financial and career drawbacks.
In the startup world investors often ask about a competitor’s barrier to entry. Being your own boss in a small business comes with a hidden barrier to exit. If a person spends most of their productive life as an entrepreneur, they are often considered damaged goods in the eyes of corporate hiring managers, and this eliminates the possibility of simply closing a failing business and finding a job later in life.
According to the Small Business Administration, 73% of all businesses in the United States are sole proprietorships where the owner makes all the decisions no matter how big or small.[iii] Over time, this produces awesome management skills that are often out of place in a corporate setting. It’s hard to be a cog in a wheel when a person is used to being the entire bike, but that’s often required in corporate positions. Hiring managers know this and screen entrepreneur applicants very carefully to make sure they can become team players. Most companies are looking for contributors, not leaders, and unless entrepreneurs can set aside leadership skills developed over years of hard work and independence, being a contributor with a fixed set of responsibilities just isn’t part of their DNA. This creates potential flashpoints between former entrepreneurs and their new teams.
Then of course, there’s the issue of age bias. The older the entrepreneur, the more difficult the transition. Even though the Bureau of Labor Statistics reports that the average salaried employee works just 4.6 years for the same company, corporate interviewers often use a different metric for older workers. They expect longevity. When considering a slate of candidates, middle-aged workers are thought to be greater risks simply because they are closer to retirement age. This creates the possibility that the company may not get the best return on its investment, especially if those applicants have spent most of their careers as independent-minded entrepreneurs.[iv] Things are complicated further if the recruiter has spent their entire career in the corporate world. Corporate culture is dramatically different than small-business culture and it’s difficult for people to connect, to find common bonds, if they’ve never had any shared experiences. This creates a culture clash that can be almost impossible to overcome. Thirty-years ago, Manfred F.R. Kets de Vries wrote about this in Harvard Business Review:
“Entrepreneurs seem to be achievement oriented, like to take responsibility for decisions, and dislike repetitive, routine work. Creative entrepreneurs possess high levels of energy and great degrees of perseverance and imagination, which, combined with willingness to take moderate, calculated risks enable them to transform what often began as a very simple, ill-defined idea into something concrete. Entrepreneurs also can instill highly contagious enthusiasm in an organization. They convey a sense of purpose and, by doing so, convince others that they are where the action is. Whatever it is—seductiveness, gamesmanship, or charisma—entrepreneurs somehow know how to lead an organization and give it momentum. Along with their mystique, however, entrepreneurs can have personality quirks that make them hard people to work with. For example, their bias toward action, which makes them act rather thoughtlessly, sometimes can have dire consequences for the organization. Moreover, some entrepreneurs I have known have had great difficulty taking direction.”[v]
So, does this mean that once entrepreneurs operate a small business for ten or twenty years, they should probably just forget about working for someone else and keep plowing ahead until they drop dead? Is there a period after which being an entrepreneur basically makes you unemployable? The short answer is yes.
