Being Entrepreneur is less risky or being employee is less risky

Being Entrepreneur is less risky? Lessons from Corona Pandemic

Most of us strongly believe that doing a business is riskier than doing a Job. When we are doing a Job, monthly paychecks are guaranteed and so are annual increments. While doing a business does not provide guarantee about monthly paycheck. Earnings are based on monthly cash flow and profit of the business.

This perception of high risk for entrepreneurs is mainly because of high financial risk involved if at all a business fails. What gets ignored while making this perception is, what happens to employees when business fails? The reason, I believe, why this gets ignored is due to the assumption that employees will get another job in a few months and also due to the understanding that employees are not accountable for financial liabilities of the business. And I believe, this is half truth. We do not think about individual liabilities of employees which are taken assuming continuity of monthly income. We do not think about running monthly home expenses during the period of unemployment.

At the time of writing this, more than 50 countries of the world are facing lockdown for a few weeks due to Corona, putting many businesses under high risk to sustain. Who do you think are more impacted, entrepreneurs or employees?

There is no doubt about temporary reduction in sales and so impact on cash flow and profitability of many businesses. Industries like travel and hospitality, retail, auto, transportation are directly impacted and a lot other industries also have indirect impact. Most of these businesses need to sustain their cash flows for a temporary period of the lockdown. Industries which are directly impacted will have extended periods of trouble till demand comes back. Indirectly impacted business might come back to normal quickly. So what are these businesses doing to sustain cash flow for this temporary period? Simple answer is cost-cutting. Cost-cutting also includes salary cuts and layoffs. To reduce the cost of business for temporary period, Employee’s income is being stopped permanently with layoff. Now think again, who is facing the higher risk?  Let’s look at few reports of May 2020 month in media as below:

  • Swiggy job cuts: 1,100 employees losses job.
  • Ola to lay off 1400 employees.
  • Rolls-Royce to cut some 9,000 aerospace jobs.
  • WeWork India to lay off around 100 employees.
  • Uber Lays off 6,700 employees in 2 rounds. 3700 first and then 3000 more in same month.
  • ShareChat Lays Off 1/4th workforce.
  • Indiabulls group asks nearly 2,000 employees to resign.
  • Livspace lays off 450 employees.

Above are just a few, which were on the top of my mind. As reported by ET on 13th May, 27 million (2.7 crore) youth in the age group of 20-30 lost jobs in April 2020. Did any of these companies lose permanent income? No. But their employees, who were given pink slips surely did. How easy do you think it is for these many people to find another job in the current scenario?

Minimise the risk with diversification: Diversifying business is a common practice many entrepreneurs follow.

“Let’s not put all the eggs in a single basket.”

Entrepreneurs reduce their risk from one product or one business model by diversifying to another and manage both simultaneously. Employees are not allowed to diversify. For most full time employees, their employment contract or appointment letter restricts them from doing any other economic activity till the time they are employed with the firm. This makes them completely dependent on a single source for the income and increases their risk.  

Which is more dangerous, a gun or a swimming pool? Considering business riskier based on our perception reminds me of the above question asked in the book “Freakonomics” by authors Stephen J. Dubner and Steven Levitt. If you are already thinking about the gun as your answer to the above question, the book answers the question with specific data. In any given year there is one drowning of a child for every 11,000 residential pools in the US. It is the country with nearly 6 million pools. Roughly 550 children under the age of 10, die of drowning each year. Each year, there is 1 child killed by a gun for every one million plus guns. A country with estimated 200 million guns (at the time of writing the book Freakonomics) 175 children under age of 10 die each year from guns.

Are you still thinking guns are more dangerous than swimming pools? Or thinking about which one is riskier, being an entrepreneur or doing a job? Feel free to leave your comments below.

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