The dream of being an entrepreneur appeals to many people, but starting your own business from the bottom up can be a daunting prospect. In this article, we'll look at some alternatives to being a startup entrepreneur that deliver many of the benefits while avoiding some of the drawbacks.
TUTORIAL: Starting A Small Business
Invest in Other People's Startups
Although it doesn't carry quite the same attraction, investing in startups and established businesses can be as profitable as running them. Publicly traded venture capital funds scout and invest in startups, creating a portfolio of businesses that might make it big. With a single investment, you can get access to a wide portfolio of businesses that have passed the venture capital tests. (To read more on venture capital, see How Venture Capitalists Make Investment Choices.)
On a local level, there are often opportunities to make direct investments in a business you have some personal knowledge of, either in your area or in your personal network, that could exchange an equity stake for your funding.
Both types of investments carry a level of risk that matches the outsized rewards if a business is successful, so it is important to put the research into these opportunities. Investing through venture capital is the most hands-off of these alternatives. You don't have to quit your job, open an office or anything like that; you just buy shares. (For related reading, see Cashing In On The Venture Capital Cycle.)
Instead of investing in a business in exchange for an equity stake, you can look into becoming a partner in an existing business. This can mean doing day-to-day work in the business, focusing on something the founder doesn't have time for, like marketing or finance, or it can be a largely hands-off role. This can give you the entrepreneur experience, minus the start-up phase, plus allow you to choose the type of work you want to do. Even if you are absolutely set on starting your own, the right partner can make the start-up phase go much more smoothly, depending on the experience and skills they bring to the table.
Another option is to become an entrepreneur within a larger organization. Some companies have structures that encourage employees to pioneer new business lines in return for equity or bonuses. If you can find a company that has a strong culture of innovation, you can build your own business within it, with the advantage of having start-up capital from the beginning and less personal risk. (To learn more, read Are You An Entrepreneur?)
You may even be able to kick start an intraprenuership program at your work by asking for a percentage of your time to work on pet projects with bonus structures. To bolster your argument, you can point to companies like 3M, Intel and Lockheed Martin. These three saw some of their biggest growth during periods when intraprenuership defined the corporate culture. Intrapreneurship can offer some of the same benefits as entrepreneurship without forcing you to give up the security of a day job.
Buy a Franchise
A business in a box is one way to avoid many of the hassles involved with starting from scratch. Essentially, a franchise owner is following a script that has been proven successful in other areas. The benefits of a franchise are:
- A recognized brand
- Resources to draw on
- Economies of scale created by the franchise network
The drawback is primarily the cost of buying a franchise and the royalties, which can be very steep. People wanting a true entrepreneur experience will also have issues with the limitations imposed by the franchise office as far as creative control. That said, franchises have a stronger support network and are generally believed to have a better success rate, when compared to the vast majority of start-up businesses. (For related reading, see Is Buying A Franchise Wise?)
Buy an Existing Business
Buying a business that is already in operation and (hopefully) profitable is another shortcut. There are some obvious benefits, such as:
- Less time spent in the planning and creation stage
- Infrastructure already in place as far as supplies and sales
- Existing customers who recognize the brand
The downside is that the cost of acquiring a profitable business is usually much higher than the start-up costs of that same business. This cost reflects the efforts of the person who started it, plus an additional premium charged for the business having a proven viability. If you choose this route, it is important to carry out due diligence, such as confirming all the revenue figures and finding out why someone is selling a seemingly successful business. (For more, read 10 Tax Benefits For The Self-Employed.)
The Bottom Line
These alternatives offer a different aspect of being a start-up entrepreneur. By exploring these alternatives, you may be able to find the one that will give you the potential upside or experience you are looking for while minimizing the difficulties of entrepreneurship. If none of them scratch that itch, then maybe it is time to roll up your sleeves and build a business from the ground up. (To read about the most successful entrepreneurs, see The 10 Greatest Entrepreneurs.)