Inner Turmoil - Salaried Employee vs Self Employment

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cal91
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Inner Turmoil - Salaried Employee vs Self Employment

Post by cal91 » Mon Jul 08, 2019 12:10 pm

I'm starting to get a little itchy to leave my current job and set out on my own.


Current Side Work

I do smaller non-competitive engineering on the side (wood, cold-formed steel, concrete, etc.). Currently I only have one client, an architect. I average around one $2000, 20hr, job a month through him. I think I can charge a lot more, but have no way of knowing. I do the work before or after work, and my employers know and approve of it because it gives me the required experience for my CA SE.

Current Employment

I work for a structural steel sub-contractor, have an $88k salary, great health insurance, 4% 401k matching (I put in 10%), and an ESOP. (My share of the company was valued at $13,000 last year, but after a bad year the ESOP is worth ZERO). Should I wait a year to see if the ESOP will get back before cashing out and leaving the company? My feeling is I shouldn't base my decision off the ESOP - in the end it won't make a big difference.

My employers say they want to have me in a leadership position in the future, and have had me listen in on calls with CEO and COO to train me to basically do what they do in the future. Our lead, senior engineer (~$150K), CEO and COO (~$250k+), and many others are going to retire in 5-10 years, so there's big potential for me. But work has been so slow this last year and still is currently. The ESOP is at zero because last year we had a couple horrible jobs and the company went from having $5M in cash to being $2M in debt.

Lately I feel I've just been wasting my time at work, as there's been nothing to do, so I end up making super awesome complex spreadsheets that I'll probably never use. It drives me crazy. It used to not be so bad because I could study for the PE/SE exams when there was nothing to do. A couple of times I've down work on side jobs when there's been nothing to do but it racks me with guilt so I try to not do that anymore, but I'll justify it in my head that my employer's paying me for my time to be in the office, and if the company has nothing for me to do then that's the risk their taking. I know that must be a bad attitude, and I should always be finding something to do. I just don't like wasting time and feel that if I was on my own I wouldn't have that dilemma. What do other employees do when there's nothing to do? I feel like it's gotta be a pretty common issue but either it bugs me more than most and I'm making a bigger deal of it, or no one else wants to talk about it.

What to do next?

I'm 4 years out of college (master's degree). First couple years were not so slow, I was learning more, and working towards my PE, then my SE (just passed, but still need another year of experience to be licensed in CA). Now that I passed the SE exam, and work is slow I'm just feeling so itchy for the next thing. Maybe I need to talk to my boss about wanting a challenge to work towards, maybe I need to start my own business. I love the idea of being my own guy, fully responsible and in charge of my own income and not at the mercy of higher ups. Some of this comes from my Dad being a self employed contractor and growing up having the impression that employees were too scared to take risk to make more money and content with making okay money for having the security of a salaried job, while the business owner is the risk taker and more profitable and thus "better". I know that's flawed thinking and offensive and not true but it's in my head and I'm just word-vomitting and putting all my thoughts out there.

I've been thinking I should try to get more clients (I have a structural engineer mentor who is self employed, he says contractors are better clients than architects? ) I could pick up more side jobs until I can go off on my own, but I also don't want to not have anytime to be with my wife and kids, and I don't want to be dishonest with my current employer. I also don't have any E&O insurance, but my co-worker said that the companies E&O insurance covers any work we do on the side. That doesn't seem right to me though, and am wondering if I should get E&O insurance if I plan to do more sidework, or not worry about it until I'm out on my own. If I were to be on my own I'm not sure if I'd want to be my only employee or hire others.

I'm afraid of making the wrong decision. I don't know what I want more or what has more potential upside (be it money, satisfaction, freedom, spending more time with wife and kids, etc). I don't know what I'm going to regret not doing in 10-20 years. I don't want to work 15 more years making little more than I am now doing the same thing and being torn like I am right now, but I also don't want to quit my job and fail my start up, or realize the grass is not as green as it seemed from the other side, and realize I gave up a great opportunity at the company.


Other pertinent info....

I'm only 27 years old but I also have a wife and soon to be four children plus a $220,000 mortgage (but no other debt) for a 1000 sf house we're quickly outgrowing (value of house is ~$310,000 and we've got $40,000 in savings, saving an additional $1000 a month). We're debating moving into a larger $450,000 2000sf house next year, but I'm unsure if we should do that if I'm thinking of starting my own business. My wife and I even think of leaving California to go somewhere less expensive, and probably would've by now if we didn't have all of our family in California (I've heard being a CA SE but living elsewhere can be a good deal). Just another decision tormenting me, but we'll probably stay in California - just tired of scrimping and saving with 10% retirement savings (+4% company match = 14% + ESOP), 10% tithing, and saving $500 every other week for starting business/buying bigger house.

Lastly, I hate sounding braggadocious but feel that I am an exceptional engineer and could be an exceptional business owner. I was top of my classes without having to put forth nearly the same effort as my classmates. Classmates always complained about how hard classes were and how much time they spent on assignments, and I never really struggled and was always able to complete assignments much quicker than they, and often got the highest score on exams. I passed the FE, PE, CA state exams, and SE all first try without feeling crammed on time. I did both parts of the SE simultaneously while having a wife, 3 kids, and doing side jobs and still didn't feel like I was over straining myself. I already feel more capable than the other engineer thats been working here for 15 years, and know my employers agree with that. I can get stuff done in a third of the time it takes other engineers, and I am thorough. I feel that my time would be so much more efficiently used having my own business and could potentially be very lucrative. On the other hand I know being an exceptional engineer doesn't mean an exceptional business owner, and my current job could also be potentially lucrative. But both also have potential vastly under performing expectations. I know after proof reading this paragraph how arrogant I sound and I hate it and don't talk that way in actual conversations.

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Artful Dodger
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Re: Inner Turmoil - Salaried Employee vs Self Employment

Post by Artful Dodger » Mon Jul 08, 2019 1:28 pm

There is, at least from my experience, a big difference between being a talented technician and a successful entrepreneur / business owner.

At the same time, I'd be as concerned with your present employment. Going from +$5M to -$2M in the last two years with our current positive business climate would raise some red flags for me.

I would take the time to do a deep dive into why your company has failed, and what you would have done differently to turn it around. Use that research to inform you whether being on your own going forward makes sense. Your current company has certain support systems that allow you as an engineer to be productive - (marketing - current place looks like it needs major improvement; finance, office support, etc.). These would have to be replicated in some fashion, if you go out on your own. If you really think you can get those systems in place, while still maximizing your technical talents, that's the way to go. You're potentially saying goodbye to wife and kids for the foreseeable future, but who knows.

Alternatively, you may find a lot of underlying strength at your current place, but it's being poorly managed. If that was the case, you could present your solution to right the ship, ask them to double your salary, and include some bonus incentive for actual performance. Since, they've indicated they're considering you for a leadership role, I don't think this is as crazy as it may appear. You definitely need to pay attention to the three seniors. Are one or more part of the problem - probably. What new behaviors have to happen for the business to succeed.

jbdiver
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Re: Inner Turmoil - Salaried Employee vs Self Employment

Post by jbdiver » Mon Jul 08, 2019 1:38 pm

I understand the itch. I worked at a couple tech startups in my early 20's before starting my own company at age 28. It grew over a decade, becoming very successful and changing my life.

Here are my thoughts. You sound confident and smart, and like you said that's no guarantee that you would be a good business owner. However, these traits are helpful when leaping into the unknown. Another thing that's helpful is learning how to say "no". That's really hard to do when you start a company and feel the pressure to put dinner on the table.

You are young so time is on your side. Founding a company and failing won't be fatal to your career. In the tech industry this sort of experience is valued. If the consulting work doesn't pan out after a year you can always go back to a traditional job -- maybe even at your current employer with a nice pay increase!

I'm also an engineer. Like you, I was very knowledgeable in my 20s and stood out from many of my peers. What I've learned over time is that there is a difference between knowledge and experience. You can gain knowledge from books whereas experience is learned from making mistakes. My question for you is: at the age of 27 do you have the experience necessary to compete in the marketplace? Ultimately the market will decide the answer to this question for you.

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Tamarind
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Re: Inner Turmoil - Salaried Employee vs Self Employment

Post by Tamarind » Mon Jul 08, 2019 2:02 pm

It sounds like your employer really wants to retain you and advance your career, but they don't have enough work right now to use all your time.

Do you think you could talk with them frankly about the situation? Perhaps they could find you more tasks that would help the company. Or perhaps they would be willing to let you go to part time, with some negotiating as to comp, so that you could expand your side work so long as you weren't competing with them. Most employers I would not think it a good idea to do this, but they are already letting you work on the side. What does your gut say about how they would react?

JBTX
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Re: Inner Turmoil - Salaried Employee vs Self Employment

Post by JBTX » Mon Jul 08, 2019 2:48 pm

If you go out on your own, where will you get your clients?

Will you be in a position down the road to hire and manage employees?

Are you the only income in your family? What happens if you are on your own and business gets slow, or things are going well but cash flow gets tight - cash flow timing is what kills most small businesses.

Only you can answer whether it is worth the risk. I suspect the issue is more about timing (when) vs whether you go out on your own.

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Sandtrap
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Re: Inner Turmoil - Salaried Employee vs Self Employment

Post by Sandtrap » Mon Jul 08, 2019 3:25 pm

Couple of big issues to think about here:
I'm a little familiar with structural and other construction industry related engineers and the industry, and the business, so that is my perspective. Also, family, etc.

1. You're in a construction industry related field that is somewhat volatile. And, this is whether you are employed in your current company, as you can see, and also if on your own.

2. If you are on your own, you need to "court" both architects and general contractors (ones that are savvy and full service, design build, etc), and also draftsman (growing field) without licenses that need your review and certification. When times are good, great, you will have work out your ears and make good money. When times are tough in R/E and construction downturns, then it can get tough and lean. If you have built up a good rep and reasonable costs, then you will keep repeat business.

3. Whatever company you work for, if construction related, will also have these cyclical weaknesses. It would be good to find a company, or "gov't engineering work" that is large enough to survive and thrive.

My o2.
1. Business from 1 architect is not enough. See if you can nurture your contacts and get a handful that's enough to make for consistent business and income. Grow from there.

2. Seek better employment. The company you describe is making promises they can't keep given their track record.

3. Seek better pay/compensation for your skills.

4. Your age is a great time in life to build a successful and lucrative business. If you have the acumen and drive. You don't have to be the best engineer in the world, but you do need to be a very sharp and savvy (and gritty if needed) businessman with lots of ambition and also willing to sacrifice a 40 hour workweek with vacation time and dependable paychecks. If you can't or aren't willing to make those sacrifices, then #2 might be a better option.

j
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Topic Author
cal91
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Re: Inner Turmoil - Salaried Employee vs Self Employment

Post by cal91 » Wed Jul 10, 2019 3:32 pm

All, I really appreciate all of the replies. They were very helpful. I hope my lack of response did not come across as ungrateful. I put a lot of thought and effort into my post and needed a break before posting again.

I did talk with my COO, and we went on a trip to a preconstruction meeting yesterday and we ended up getting the job. We'll be doing more training type things such as this in the future. So my plan is to see the company out this next year, and learn a lot from the CEO and COO to try to help the companies success. At the same time, I'm going to pick up another client or two on the side... If things don't look like they're turning around then I'll put more effort into the side until I can go off on my own.
JBTX wrote:
Mon Jul 08, 2019 2:48 pm
If you go out on your own, where will you get your clients?

Will you be in a position down the road to hire and manage employees?

Are you the only income in your family? What happens if you are on your own and business gets slow, or things are going well but cash flow gets tight - cash flow timing is what kills most small businesses.

Only you can answer whether it is worth the risk. I suspect the issue is more about timing (when) vs whether you go out on your own.
I'll get my clients through networking and advertising. As far as hiring and managing employees, not at first, but possibly down the road as a next step after being stable on my own. My mentor's opinion is that it is more headache than it's worth. I suspect that it's a personality thing, however.

And yes, I should've included from the beginning that I'm the only income for my family. I have 3 months of living expenses in our checking account, and about a year's worth in higher interest, but less liquid account. We have been planning to use that for a bigger house, but will probably post pone until I'm sure I'll be staying or leaving.

KlangFool
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Re: Inner Turmoil - Salaried Employee vs Self Employment

Post by KlangFool » Wed Jul 10, 2019 3:50 pm

Deleted.

KlangFool
Last edited by KlangFool on Wed Jul 10, 2019 9:13 pm, edited 1 time in total.

Jeff P
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Re: Inner Turmoil - Salaried Employee vs Self Employment

Post by Jeff P » Wed Jul 10, 2019 3:54 pm

Sounds like the steel tariffs really affected your group. Just saw an article that they cost the steel industry $5.5 billion so far.

If you can ride out the down time and gain valuable experience I would assume steel will bounce back soon enough and that there will probably be loads of work and profits when it does.

Topic Author
cal91
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Re: Inner Turmoil - Salaried Employee vs Self Employment

Post by cal91 » Wed Jul 10, 2019 5:29 pm

KlangFool wrote:
Wed Jul 10, 2019 3:50 pm
cal91,

In order to be self-employed, the person has to be a self-starter. Doing whatever necessary without anyone pushing the person to do so. Reading through your post, there is nothing here that shows you are that kind of person. So, it will be a big mistake for you to be self-employed.

KlangFool
Ouch. You almost make me wanna start on my own just to prove you wrong :)

I think that constructive criticism is the best kind.

What specifically would you have found or not found in my post if it was instead written by a self-starter?

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Re: Inner Turmoil - Salaried Employee vs Self Employment

Post by KlangFool » Wed Jul 10, 2019 5:55 pm

Deleted.

KlangFool
Last edited by KlangFool on Wed Jul 10, 2019 9:14 pm, edited 1 time in total.

Topic Author
cal91
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Re: Inner Turmoil - Salaried Employee vs Self Employment

Post by cal91 » Wed Jul 10, 2019 6:30 pm

KlangFool wrote:
Wed Jul 10, 2019 5:55 pm
cal91,

<< What do other employees do when there's nothing to do? I feel like it's gotta be a pretty common issue but either it bugs me more than most and I'm making a bigger deal of it, or no one else wants to talk about it.>>

A self-starter has a plan of what they want to learn and do all the time. "Nothing to do" is a phrase that they do not use.

<< First couple years were not so slow, I was learning more, and working towards my PE, then my SE (just passed, but still need another year of experience to be licensed in CA). Now that I passed the SE exam, and work is slow I'm just feeling so itchy for the next thing.>>

The above shows that you are not good at unstructured self-study. To be self-employed, you essentially have to do almost everything: accounting, sales, marketing and so on. What had you learned outside of a formal course work/study?

<< I've been thinking I should try to get more clients (I have a structural engineer mentor who is self employed, he says contractors are better clients than architects? ) I could pick up more side jobs until I can go off on my own, but I also don't want to not have anytime to be with my wife and kids, >>

There are doers and talkers. Doers do. Talkers talk. What impression do you get when you read this from someone? Doer or talker?

<<Lastly, I hate sounding braggadocious but feel that I am an exceptional engineer and could be an exceptional business owner. I was top of my classes without having to put forth nearly the same effort as my classmates. >>

The world is full of talented failures.
I understand that there's no point in convincing you that I'm a self starter... But for my own pride and because I'll admit you've pricked my feathers I'll say the following. I graduated with my Masters with no debt, with a stay at home wife and two kids, by working my way through school. Received a whopping one time $1500 scholarship, and no other financial help from any others. One winter semester I was taking 18 credits, knocking doors in the snow, worked as a teacher's assistant, was a student body Officer, had a leadership role in my church calling, and had a pregnant wife give birth in the middle of all of it. Got straight A's that semester. You commented about needing structured coursework, and not being good at unstructured self-study. Most of my classes that didn't take attendance I just completely skipped. I thrive on self studying, and my time was much better spent on my own rather in a class. I never took a class for any of the engineering exams and passed all first try. All self study. I bug my wife because I'm always doing new DIY projects around the house. Accusing me of being a "talker" because I have plans... please... Lastly, a huge reason I want to be on my own is because not having something to do drives me crazy!

Klang I'd say i appreciate your advice but you haven't given me any. You're not helpful you're just insulting. You're arrogant, unpleasant, and condescending. Short snide comments is something I find in many of your posts on here...

mchampse
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Re: Inner Turmoil - Salaried Employee vs Self Employment

Post by mchampse » Wed Jul 10, 2019 10:24 pm

I’m pretty good at my profession and went out on my own. It was a lot of learning about sales, marketing, dealing with clients, etc. You are a good engineer, but that doesn’t mean you are a good business person. You also end up taking jobs that are much smaller than what you are used to which brings its own set of issues. There may be things that more junior engineers usually did that you now have to do. You may get bored of the less challenging work, etc.

I’m about 20 years older than you and I went out on my own about 10 years ago. It was a struggle for me. I’m doing ok, but make less than if I had a regular job, but the freedom is nice. I regularly have breakfast with other consultants all of whom are late 50s or older in various professions. Those guys love it. They waltz in, charge high rates, work on some meaty problem and then they are off to the next project which usually comes to them because they have big Rolodexes.

My advice is to continue at your current company or another company until you are much more senior before venturing out on your own.

seppatown
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Re: Inner Turmoil - Salaried Employee vs Self Employment

Post by seppatown » Thu Jul 11, 2019 1:49 am

You've received excellent feedback so far.

a. The wife and kids present a significant barrier and risk to self-employment. Before you do anything else, checked coveredca to assess how much it would cost to self-insure. Premiums are expected to go up another 10-15% in 2020.

b. No more financial risks. Repeat to yourself, "we are not upgrading our house". The worst thing to do when starting out on your own is launching the biz with an insecure financial position. It affects both runway (which you need as much as you can buy) and business decisions. You'll have to pick one or the other.

c. KlangFool and Artful Dodger bring up important points. I also considered myself an excellent technician when salaried, but it has little bearing on the success of a small business. For starters, the ego will hurt you. Unless your niche involves a significant amount of posturing (some do), a small biz owner needs to be more humble and grounded than your typical employee. You can sell your customers as hard as you want, but you can't afford to oversell to yourself. You are not founding a start-up. You need to have a crystal clear sense of identity and position at all times. In your initial post, you mentioned that you weren't sure how much you should be charging your architect customer. You then went on to say that you think you can charge "a lot" more but have no way of knowing. As a small-biz owner, you need to be well past these statements.

d. Unless you intend for your new gig to be a one-man job, you'll need help in the future. Managing employees and contractors is harder than it looks, and more importantly, takes up a lot more time than you'd expect - time that you may have preferred doing 'actual' work. Management, especially in the context of a small business where your employees have less at stake, and probably care less (unless they see a bright future with you), takes a huge mentality shift. There's a ton of compromise and co-dependence. Your job and your bosses are offering you a huge opportunity to get your bearings in this regards. You shouldn't ignore it.

I went into small business after a short start-up career because I felt that I had exhausted myself for others, with too little to show outside of work, and wanted to claim a stake somewhere on the danged planet for myself. The amount of autonomy and chaos I had been exposed to - and the sheer breadth of responsibilities - trained me well. That said, I was still grossly deficient, and it ended up being combination of dumb luck, my nagging need for perfection, and my wife's talents that allowed us to be successful.

Tread carefully. Self-employment is a major fork in the road. For some of us, you can't place a dollar value on the independence that comes with it. Just don't forget that most people are far better off under salaried employment - whether it be due to circumstance, lifestyle requirements, experience, personality, or some combination of all four.

LFS1234
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Re: Inner Turmoil - Salaried Employee vs Self Employment

Post by LFS1234 » Thu Jul 11, 2019 3:42 am

cal91 wrote:
Mon Jul 08, 2019 12:10 pm

Maybe I need to talk to my boss about wanting a challenge to work towards, maybe I need to start my own business.
A third possibility, as others have pointed out, is to look into other employment opportunities.

According to A. David Silver in his 1985 book "Venture Capital, The Complete Guide for Investors", entrepreneurs that have a high probability of succeeding are generally between 27 and 33 years of age. You're at the bottom of this age group, and since you spent so much time in school, you have fewer years of work experience than most other 27-year olds. One path would be to start planning for going out on your own in few years, figure out which additional skill sets you will need, and spend the next few years of your career working on others' payroll in positions which will allow you to build those skill sets while making your beginners' mistakes on someone else's dime.

I love the idea of being my own guy, fully responsible and in charge of my own income and not at the mercy of higher ups. Some of this comes from my Dad being a self employed contractor and growing up having the impression that employees were too scared to take risk to make more money and content with making okay money for having the security of a salaried job, while the business owner is the risk taker and more profitable and thus "better". I know that's flawed thinking....
The business owner gets whatever is left over when everyone else has been paid. Sometimes, this is a negative number. Often, it is less than many of the employees are paid. When all goes very well, it is a large number; but it usually takes a while to get to that point. There are a lot of people stuck owning businesses that are just successful enough to provide them with a living, but not successful enough for anyone else to be willing to buy the business or its assets. In these cases, they are stuck in a business that isn't all that great and that they cannot afford to leave. This is one of many potential scenarios that needs to be kept in mind and avoided.

I've been thinking I should try to get more clients (I have a structural engineer mentor who is self employed, he says contractors are better clients than architects? )
Did you ask the mentor why he thinks this is the case? Have you thought about why this may be the case? Your mentor may or may not be completely correct, but as a business owner you will need to understand how the world you are in works, and part of that is understanding the incentives and other circumstances that cause all of the people around you to act the way they do.

Also, you need to be able to understand the circumstances that led your company to lose the $7M on the two bad jobs. Were the contract prices too low? Were the reasons that led this to be the case foreseeable? Were competitors similarly underbidding, meaning that profitable work simply was not available and that your company only had the choice between entering into loss-making deals and keeping its employees busy, or having no work and having to fire people immediately? When you have your own company, how will you handle these problems? If the business is inherently a bad one, do you really want to be in it? Or can you find a niche with better risk/reward characteristics?

Often, the first business(es) you get into pays off in experience but not in cash. You then build on lessons learned and get into better businesses. Most entrepreneurs have failed before succeeding, although ideally they had their first business failures in their teens (Google "Traf-O-Data") rather than in mid-life or beyond.

I'm afraid of making the wrong decision. I don't know what I want more or what has more potential upside (be it money, satisfaction, freedom, spending more time with wife and kids, etc). I don't know what I'm going to regret not doing in 10-20 years. I don't want to work 15 more years making little more than I am now doing the same thing and being torn like I am right now, but I also don't want to quit my job and fail my start up, or realize the grass is not as green as it seemed from the other side, and realize I gave up a great opportunity at the company.
I think you may be slightly too inexperienced to start your own show, but if you want to build a company that can scale it may be a good idea to start doing it within 3-5 years. As mchampse points out, consulting can also be a very satisfactory career, and if you want to pursue that path you'd probably keep working for larger companies for at least another decade or two before hanging out your shingle. Consultants have specialized skills and experience in niche areas, while company owners need to be very good in a few different areas and at least somewhat good in many others.

I have an acquaintance with a science background who built and still runs what turned into quite a large business. I once asked him what additional skills he wishes he would have developed if he knew then what he knows now, and he said that he wishes he would have taken a class in accounting, a class in finance, and a class in marketing. If you have not already done so and the opportunity exists, you might consider taking at least the accounting and finance classes.

There also tend to be opportunities which arise randomly every 5 or 10 years or so to join in with others in building a business - a spinoff; an opportunity to buy an existing business, etc. These can be attractive at many different stages of life.

cherijoh
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Re: Inner Turmoil - Salaried Employee vs Self Employment

Post by cherijoh » Thu Jul 11, 2019 8:26 am

seppatown wrote:
Thu Jul 11, 2019 1:49 am
...
I went into small business after a short start-up career because I felt that I had exhausted myself for others, with too little to show outside of work, and wanted to claim a stake somewhere on the danged planet for myself. The amount of autonomy and chaos I had been exposed to - and the sheer breadth of responsibilities - trained me well. That said, I was still grossly deficient, and it ended up being combination of dumb luck, my nagging need for perfection, and my wife's talents that allowed us to be successful.

Tread carefully. Self-employment is a major fork in the road. For some of us, you can't place a dollar value on the independence that comes with it. Just don't forget that most people are far better off under salaried employment - whether it be due to circumstance, lifestyle requirements, experience, personality, or some combination of all four.
Excellent post! Just like technical skills don't always translate into good management skills, they are not a good predictor of entreprenurial success.

I did some consulting part-time while I was working on my MS degree. (My former employer had relocated our site and I had taken a separation package). I had the technical skills to do the work, but found building up the book of business a challenge once I finished my degree and had more time to work. Then the Great Recession hit and I decided that I was better suited as an employee. I retired last spring and so far haven't had the urge to relaunch my consulting business.

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