Why You Should Try Being Self-Employed at Least Once

If you’ve ever dreamed of working for yourself, I think you should try it at least once, as long as your circumstances allow it. That caveat matters. I wouldn’t tell anyone to quit their job for a poorly planned business when there’s a mortgage, a family, or other financial obligations at stake. But if you have the capability and the capacity, plan it properly and go for it. Even for a season of your life, it teaches you things a salary never will.

It’s an MBA you earn by doing

Running a business is trial by fire. Some people would argue that the money you’d spend on an MBA is better invested in a business, and I have some sympathy for that view. Most of what you need to know about running a business is available for free. If the business becomes profitable, the investment paid off. If it fails, you still come away knowing what didn’t work and how to make better decisions next time.

When I started my business, I applied a version of the 80/20 rule: I only needed to know about 20% of how it worked, and I’d learn the other 80% along the way. The trick is finding the balance between “I know nothing, should I even try?” and “I don’t know 100% of it yet, so I’m not ready.”

That’s also why the domain matters. Starting a business selling beauty or car products would be a bad idea for me, because I know less than 20% about either. A business in a field you already know, built on your past work, has a much better chance. I’ve spent the last decade in technology consulting and have enough experience to deliver successful project outcomes, so building a business around that made sense. The 80% I’m still learning is everything around the delivery: sales, marketing, white-label products, managing remote workers, working with partners, and accounting.

My rule of thumb: pick a business where the hardest part, the thing clients actually pay for, is the part you already know. Everything else can be learned.

You learn to do the “necessary evils”

Every year you deal with expenses, taxes, and cash flow. The same applies to your personal finances, but you pay much closer attention when it’s your company. Even a simple coffee expense becomes visible. You also experience first-hand the paperwork and signatures behind every quarterly and yearly lodgement. In Australia, that means things like your business activity statement on top of the annual tax return.

If organising all of this is too much for you, or takes too much of your time, hire an accountant who is a registered tax agent. I have one, and she’s exceptional. She handles 80% to 90% of the work involved in our books. But even with a great accountant, the money that actually goes in and out of the company is still yours to manage, carefully. That sense of responsibility builds financial literacy in a way a payslip never will.

This experience is useful even if you go back to being an employee later. You’ll understand how a business balances expenses against sales, and questions like these suddenly have answers:

• “Why can’t I have the fastest laptop for work?”
• “Why is my salary delayed again?”

It’s a step closer to financial freedom

If you work for a technology firm (or any company, really), have you ever wondered whether you could keep all the money clients pay for your service? You can. That’s the whole point of being self-employed. You agree to take on the rest of your former employer’s functions in exchange for keeping more of the value you create, and you cut out a lot of overhead that does little for you.

Being an employee gives you a subjective sense of stability but not much control. Being self-employed gives you a lot of control, with higher risk and higher potential reward. Neither is objectively better; it depends on what you’re optimising for.

In the early days you don’t need a complicated HR structure, a carefully cultivated company culture, or layers of managers and middle managers. You focus on making the company profitable with as few expenses as possible. And you build it with an exit in mind: in a few years, either you’ve gathered enough resources to start something new, or the company has grown (or been acquired) to the point where you benefit from it without working hands-on every day.

If making money is your main motivation, starting a business is the more direct path. Very few people get rich from a salary. But plenty of people who start businesses don’t get rich either. There’s survivorship bias on both sides, so be careful whose stories you listen to. What self-employment does give you is far more control over where your career, and your earning potential, goes.

You find out what you’re really worth

Once you’re in the market, your worth comes down to two questions:

• How much do you think you should earn for your service or product?
• How much will clients and customers actually pay for it?

The second matters more. The first is a hypothesis built from your own experience and research. The second is settled by negotiation and market margins, and the market doesn’t care about your hypothesis.

If you’re building a product, you start doing the basic maths on the time you’re putting in. Does it make sense to hire more people? Do you need funding from investors? Should you outsource some of the non-core work? What should you charge for the product?

If you’re running a services business, the questions are about pricing. Will a client pay $20,000 a day? $2,000? $200? Should you do fixed-price contracts? How do you scale so that you’re paid in full and still deliver the outcome the client expects? These questions become very real once you start valuing your own time and effort, and the answers will change how you see your salary if you ever go back to one.

You get more opportunities to make a difference

I think this is one of the best reasons to start a company. You can help others by giving people jobs or gigs, doing not-for-profit work, or making donations through the company. Even something as simple as having more control over your money gives you the option to buy from the local butcher or fresh market instead of the big chains.

You’ll meet a lot of people along the way and share a lot of stories with them. You’ll probably end up writing about your struggles and lessons, like I’m doing here. Running a company also makes you responsible for more than yourself. What will the company look like in five years? How will it affect the people around you: your family, your friends, and your peers? And how will it affect you?

There’s a common misconception that if you go out on your own, you have to plan for a 1,000-person company or a multimillion-dollar business. That can be worth aiming for in the long run. But if money and influence are your only reasons, challenge the assumption that growth is the goal. Is that what you really want? Only you can answer that. It’s your business.

When to wait, and when to go

Self-employment isn’t for every moment of your life. If you have no savings buffer, heavy financial obligations, or no real knowledge of the domain you want to enter, wait and prepare. Waiting a year to build a buffer is a better plan than starting under pressure.

When I say “plan it properly”, I mean two things. My rule of thumb is to have enough savings to cover several months of personal expenses before you resign, because early invoices can take weeks to be paid and the first quiet month always arrives sooner than you expect. And line up your first client, or at least a signed piece of work, before you leave rather than after. Resigning and then looking for work puts you in the weakest negotiating position you’ll ever have, which is exactly the wrong moment to be setting your rates.

Go for it, and learn the rest along the way. You’ll get past the “What if I…?” either way. If it doesn’t work out, at least you tried, and maybe it just wasn’t the right time yet. Most of that learning is free or cheap, and books are a good place to start. I wrote about how I built a reading habit earlier this month.

I’d love to hear your story. Have you started your own business? Do you want to? What’s holding you back?