Do you really think the average business owner makes more as a business owner than they would as an employee? I don't have the statistics at my fingertips, but I'd find that surprising. I know I'd be making 3x-5x what I'm making now if I was working for other people.
Yeah, running a business means that you have a possibility of making a whole lot of money, and yeah, if you have the contacts to get investors to give you money in a situation where you get paid well if things go well and the company closes (with no fallthrough to you) if things go poorly, sure, you are doing pretty good; but that's not how most real businesses work.
I think you're doing it wrong. I quit working for a company about a year ago and am on course to make 2.5x what I made last year.
A small business should never be run in such a way that the employees are making more than the owner. How would any business work that way?
People typically pay a premium for a temporary service rather than employing someone full time. That is how you make money. It is why I pay a plumber a crap ton when my pipes break because it is still cheaper than employing one full time.
What business are you in that causes you to make a third of what you would make as an employee doing the same thing?
You need to take your total compensation into account when figuring how much you're making now vs. how much you were making as an employee. Consider the following things an employer pays to/for you in the US:
-OASDI contributions
-401k match
-Stock
-Generous portion of health insurance premiums
-Vacation, holiday, and sick time
In a tech business with an office and Valley-level benefits, the all-in cost for an employee is ~2.5x their base salary. Here [1] is an old article by Joe Hadzima talking about how this is figured.
>A small business should never be run in such a way that the employees are making more than the owner. How would any business work that way?
I don't see anything wrong with that; as the owner, the upside accrues to me, so it makes sense that I'd be willing to work for less compensation in the short term. (I've been in situations where my compensation was negative while employees were getting paid. If you can't get investors, it makes a lot of sense, I think. For me, even living in silicon valley, after $40K/year or so, the improvements to my life brought by every additional dollar diminish rapidly, and as I'm in silicon valley, 3x-4x that is not unreasonable compensation for my skillset, even sticking with year+ long gigs; this is how I funded my company until recently.)
>People typically pay a premium for a temporary service rather than employing someone full time. That is how you make money. It is why I pay a plumber a crap ton when my pipes break because it is still cheaper than employing one full time.
That is not how I make money. Selling hours... is difficult to scale. My goal is to get into a situation where my capital (plus a little bit of scalable labour, or labour I can easily hire out because I've worked in the field my entire life and I can recognise good people) multiplies every year. You know, own some means of production. Become, as the communists would say, bourgeois.
This is part of why my marketing message is so consistently "we don't provide a lot of support" - I'm happy to accept a slightly lower (but still ridiculous, by investment standards) return on my capital if the labour bit becomes more scalable.
So yeah, that's why I'm willing to take a loss on my labour (or even on total compensation) - for the chance to have a business that grows without being limited by my labour.
I'm renting, essentially, unix servers, so while my capital equipment depreciates at a terrifying rate, my capital is my primary tool for generating revenue. (and as far as investments in capital go, the margin on VPSs is pretty high. A server will pay for itself in under 4 months, on average.)
I mean, the whole revenue of the company is about a quarter million a year right now, which is about what me and my full timer would get paid, combined, if we both went and worked for a local big company. (the lion's share of that is eaten by power and new hardware.) I know why I'm here; revenue doubles every year, and this is the sort of business where capital cancan make money with minimal labour, I mean, potentially I'm sitting on something that can double my capital investment every year. I mean, if I don't screw it up.
But yeah; if you are looking at a business that scales? this long period of not getting paid a whole lot is pretty normal. You go out and buy a retail store? a restaurant? etc, etc, - it's going to be a long time before you earn back the initial investment.
It's really only contracting/consulting where you make more from day one; and that's a great way to get your hands on some capital, but from my point of view, long-term? it's not nearly as attractive as having my capital do the work.
Now, I think I'm stabbing in the right direction, but it has yet to be seen if I'm doing it wrong. Certainly, if I sold today for 1x revenue (not at all unusual for small businesses) I'd have made less money for more work than if I had just done consulting for that time period and put the money in T bills or whatever. But if current trends continue; it doesn't take very many years before we're talking about real money. (now, such doubling never continues forever. But I don't need forever. I'd be dang comfortable with another 3.)
Yeah, running a business means that you have a possibility of making a whole lot of money, and yeah, if you have the contacts to get investors to give you money in a situation where you get paid well if things go well and the company closes (with no fallthrough to you) if things go poorly, sure, you are doing pretty good; but that's not how most real businesses work.