The entrepreneur starts with a “fire in the belly” and more often than not ends up earning fame, fortune and future for himself and his associates. Ever wondered why an entrepreneur manages to earn many times more than his much educated and often more experienced salaried counterpart? There seems to be a mathematical logic behind it.

Lets say a person’s income is “I”, rate of earning per unit (say, per day) is “R” and time devoted to earn (say 8 hours per day) is “T”. The simple equation that can be formed out of these three parameters is:

I = R X T i.e. income is the product of rate of earning and the time devoted to earn.

The rate of earning of a person increases with his experience rapidly and hits the ceiling when it equals the market rate for his experience. The rate also cannot be increased beyond a point regardless of the exprience, since competition will render that rate unrealizable from the market. And so is the time, the biggest constraint in increasing income, since a normal human being can sustain an average workday consisting of 8-14 hours only. Unless he is able to increase the time, the earning cannot increase. Which also means that days on which a person cannot go out to earn (since sick and other leaves for an employee is limited), there is no income. The income of an employee or a lone independent worker is thus limited to the time he can put in for the work, assuming rate is more or less constant at that point of time.

In comparison, an entrepreneur “employs” others by buying their time at the market rates. He earns profits from the time others put into his business. Thus, his income is not dependent on the time he alone puts in and will keep earning even if he sits at home (although this is a rare occurance!) and watches TV!

Food for thought 1: All of us who are employed can now think for how many years we have allowed others to get rich by buying our “time”!

A big reason for which most people shun entrepreneurship (or “business” in common parlance) is because it is “risky”. Two points for our consideration here -

  1. Risk is not uncertainty. Uncertainty is a situation where the probability of the outcome is not known. Risk is defined as the probability of a certain outcome not happening as envisaged. If the probability of success is substantial, which it is in many cases beacause of industrial cycles, enabling business climate, international issues, geo-political location etc., plunging into entrepreneurship is a sane decision. As an entrepreneur who started business late said, “I realize now that the risk of failing in your own business is in most cases much less than the risk of ensuring that your employer’s business will never fail.”
  2. The employee has a single source of income - his/her salary. But the entrepreneur has multiple clients and hence has multiple sources of income. The day the salary stops for an employee, his income instantly becomes zero. But even if half of the clients of an entrepreneur vanishes overnight (a remote contingency in normal conditions), he is still left with half of his income.

Food for thought- 2: So, whose risk do you think is more - the employer’s or the employees?

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