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  • John Stoj

Does the Personal Finance & FIRE Community Overhype Entrepreneurship?

Updated: Jul 6

I love the concept of becoming financially independent and retiring early. In fact, when I was introduced a few years ago to the online FIRE community, my first thought was that I started seeking FIRE before the acronym was even a keystroke on any blogger's keyboard. In fact, we often spent downtime on the trading desk talking about what our, "number," would be, just like FIRE folks are always talking about their FI number.


There's nothing wrong with dreaming, and there's a ton right about knowing what you need, or even just think you need at the time, so you can actually make a plan to achieve it. You will not be surprised to hear me say that the plan is the most important part.


The FIRE community's focus on improving financial literacy is also something I fully support. I can't tell you how many people I have suggested listen to FIRE podcasts, and I've sent countless blog links to any number of folks who I thought could benefit from the information. The support for budgeting, low cost investing in index funds, and general frugality is some of the best out there on the internet - certainly presented in a healthier manner than Dave Ramsey or Suze Ormond, for instance. But, and you knew there was a but coming...


I worry when I see entrepreneurship & side gigs/hustles presented as such a huge part of the path to FI. (We'll set aside the similar obsession with real estate investing for another time.)


Is it true that many, if not most, of the wealthiest people achieved that wealth by starting & running their own businesses? Yes. But, according to data from the Bureau of Labor & Statistics, 20% of small businesses fail in their first year, 30% of small business fail in their second year, and 50% of small businesses fail after five years in business. Finally, 70% of small business owners fail by their 10th year in business. Interestingly, these failure rates have been consistent over time, so there's something more to it than just the types of businesses involved, and/or the prevailing economic environment.


As we all tend to do, I come at this with the benefit of my own experience, this time as an entrepreneur. I have been part of a financial startup as an employee, started & sold my own food business, and am currently the owner of a Registered Investment Advisor. In addition, I have acted as a startup consultant for several companies.


Admittedly, sometimes businesses do fail because of bad timing, like opening a CDO manager in early 2007 (#BTDT):

Others simply require more capital than is available. In fact, one of the primary reasons small businesses fail is a lack of working capital. Lack of adequate planning (there's that planning again), poor management, and flawed marketing round out the top four reasons for small business failures.


I can tell you that three of my employees at the food company were former business owners themselves. They each started different types of businesses, for their own reasons & dreams, and sunk so much of their savings into them that they were forced to work hourly jobs at a sushi company points in their lives where they might otherwise have been contemplating retirement. Not that there's anything wrong with that, but I can tell you it wasn't what they thought was going to happen when they opened the doors or their businesses.


So, what if you consider yourself an excellent planner, have confidence in your business plan, and you've got money and a good mind for marketing, and none of those stats scare you? Off to the races? Maybe, but what does that even mean? Will your business allow you to reach FI sooner than working for someone else?


Fundera has some, perhaps, sobering statistics on small business revenue:

These aren't, "bad," numbers, but they're also numbers often more easily achievable through, "normal," corporate jobs - jobs that also usually come with benefits, such as 401(k) matching, health insurance, paid vacation, etc.


Speaking of vacations, that's a subject unto itself when it comes to small business ownership. One of the first things a business owner learns is that there's no longer any such thing as time off. By that I mean not only no true vacations, where you can pretend you don't have any responsibilities for a week, but also, no weekends, and even no ends of the work day. It's all the same. As a business owner, you are on call 25/7. Some people thrive in that environment, but many folks quickly become overwhelmed - or their partners do.


In our case, the decision to sell the food business, at almost any cost, came not long after our son was born. It was simply impossible for me to be the father & husband I wanted and needed to be while running the business.


"But what if I take the safe route and just start my business as side hustle?"


Side hustles are great right? What could be wrong? You keep your regular gig, and just make extra money on the side, adding to your savings, paying down debt, investing, etc. My friend and fellow entrepreneur, Brian Eufinger, calls it, "chicken entrepreneurship." It worked for him. He started his successful tutoring company, Edison Prep, with his wife, while still working at his last corporate job, so it can work. But (and why is there always a but?), in my opinion, it works less frequently or less well than people would have you believe. I've said for years that the toughest job to do well is a part time job, and I stand by that statement. In fact, I tried it a few times myself without success - the last time was when I was running my sushi business I thought I could also consult with a local financial firm. Nope. Neither party was ever happy - my financial coworkers couldn't understand why I wasn't able to fully concentrate on their needs, and my business suffered because I wasn't always thinking about it, nurturing it, helping it to grow, which is what a business owner must do to succeed.


When I think about times during my career when I wasn't moving forward, being put up for promotions, etc., they were times when I treated my job as secondary to something else - maybe it was being too social, going out more than I needed to, or devoting too much time to a hobby. Like it or not, if you have a job that you want to be your career, it takes effort to be successful there, just as it takes effort to make any business successful, because your, career is your, "business," and taking your eye off the ball in this competitive world exposes you to unnecessary risks. Side gigs and hustles necessarily require you to take your eye off the ball. My personal recommendation to folks is almost always to concentrate on increasing income by maximizing your primary job first. That is almost always going to be the most efficient way to earn the most money.


All of this doesn't mean I am anti-entrepreneurship. Heck, I remain an entrepreneur to this day. And yes, there are intangible benefits to, "being your own boss," that don't show up in your bank account directly. I will admit that having more control over my schedule so that I can be the primary parental caregiver and carpool driver is one of the main reasons I work for myself, but I also know that my decision to do so significantly impacted our family's path to FIRE in a negative way.


If you love the idea of achieving FIRE, or even just the FI portion, definitely take a look at entrepreneurship and/or side hustles, but be aware that they have downsides, and may not even be the quickest way to achieve your goals.

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