Independence: Challenges and Opportunities

#career #liveyourlife #investing #bebold #freedom

Should you follow a career as an employee or start your own business?

Over the span of 30 years, I feel very privileged to have experienced both sides, and that twice: employee of two big corporations and two start-ups (plus a student start-up). For me the answer luckily is not black or white. Even as an employee you may be able to start up a new project, a new group, a new department or even a new division all without actually founding your own business.

To serve as a basic guideline answer the following few questions:

> Do I look forward to my work when I wake up in the morning?

> Do I control my day?

> Do I depend on management or a patriarch to thrive?

> Do I feel comfortable with responsibility?

In terms of economics, you would trade security for the potential of extraordinary gains. Statistics show that on average you actually make less money as an independent. However, you do have unlimited upside as an entrepreneur. When making the calculation, two additional dimensions need to be considered. The first is fairly easily determined - corporate perks, health care, pension, etc. – but the second dimension is much harder to gauge: declining job security due to transformational changes. The common business jargon now calls it “disruption”. Personally I prefer Schumpeter’s “creative destruction”. Either way there is little doubt that this trend has accelerated to a degree that a person is likely to work in more than just one profession in a lifetime. Therefore, the daily challenges of an entrepreneur such as adapting to market changes and learning anew will also hit employees.

In terms of timing - when in life is the right time to start my own business? - the answer is between anytime and never: it totally depends on your personal situation. The obvious time is when you are young just after you have acquired your first skillset and you are ready to offer something of value to people. If it fails, it is easy to start over or learn a new trade. Later in life, the more experience you gain, the better you get in your field and the more complex your network has evolved. This in turn gives you an advantage over all the young start-ups. Here, the challenge is moving out of the comfort zone by giving up security.

At the other extreme, German politics have once again picked up on a topic of the day: the unconditional basic income. The most recent suggestion is for a minimum state pension to be financed by some unspecified phantom tax, most likely a financial transaction tax. The message seems clear: rely on the state (i.e. all the taxpayers) to afford you security, while you are discouraged to save on your own (let alone start your own business).

Why not do the opposite? The German government could launch a EUR 1 trillion innovation fund financed by 30-year government bonds yielding 2,5%, a premium of 2,3% over actual yields giving the saver a 1% premium over inflation, and make the interest tax-free. The interest cost would be EUR25 billion p.a., a doubling of the annual interest burden, but only 6% of the budget. Our debt burden would rise from about €2 to 3 trillion or from 55% to 85% of GDP, still well below the 120% of the USA and the 240% for Japan. Now, the great thing is the investment side, IF (a very big “if”) it is managed well. Models would be the sovereign wealth funds of Singapore or Norway, which have a similar size and yield at least twice the 2,5% cost. Investing insights from my side will follow.

It pays to be bold. All greatness of humans whether in business, sports or art has come from the search of the extraordinary, seeking risk not security.

The German budget from startup (1949) to mature (1989) to excessive (2019).