Entreperneur’s Diary#95 – Entrepreneurship, Start-Ups, Enterprises – Somehow Overrated?

Last Thursday, I went to the Forum UnternehmerTUM at BMW-World. It was a nice gala with a beautiful information and discussion element. Said element was 90 minutes and was presented by Stefan Weigel with plenty of appetizing humour.

The catchphrase for the gala was “Cooperation” – topics were for instance “cooperation with added value”, “cooperation models and initiatives”, “stories of foundations” and “mistakes made by founders”.
The focal point was the cooperation of “start-ups” with established business. It was an exciting event with a great “get together” at the end. Consequently, I met many old friends again and we had many good discussions, along with nice background music. And I also made friends with some new and very likeable persons. All these factors contributed to me staying a lot longer than I had initially planned.

I am lucky enough to receive invitations to these kinds of events fairly often. Also, I am occasionally invited to be a jury member at “business-plan competitions”. It is always quite exciting and an inspiration to see the potential future entrepreneurs present their plans. However, all those wisecracks and “Jet-Set” situations I witness also make me thoughtful.

Incidentally, I get the feeling that the definition of “entrepreneur” as transported on all these events is strongly inflated. I often hear big words and get the impression that start-ups in Germany are supposed to save the entire world. Entrepreneurship as a goal in your life is glorified, you get the impression that it should be the highest goal for as many people as possible to become entrepreneurs. And this is when I start getting my doubts: is all this hype about “entrepreneurs” and start-ups really what will improve the future?

Consequently, I am writing this to give you a very objective view of “entrepreneurship”. As is the habit in philosophy, I will initially try and analyse the higher-ranking term. In my book, that is “work in order to earn money”. Today, this is what everybody must do, except those who inherited a fortune (which is true for more and more people) or if you win the lottery (which is extremely rare). If you do not wish to become a criminal, you have to think about the way you wish to earn your living.
An “unconditional basic income (BGE)”, which is something surprisingly many persons I know seem to be in favour of trying, would not make a difference, either. Because, as I see it, most people would not be willing to accept the then extremely low lifestyle.

Consequently, we in Germany only have three options if we want to make sure our families can live.

  • Wage-related work
    This category covers labourers, clerical workers and civil servants. Today, we hardly have any labourers left, they are probably equal to skilled workers. For those, a highly regulated system has been created in our society. More often than not, the income is determined by negotiation. We have a Law of Working Hours. There is a job protection which is asymmetrically regulated between employees and employers. We have social security systems for cases of unemployment, retirement and sickness. The Works Council Constitution Act regulates a very complicated representative participation, yet some important and reasonable elements are missing…
    Reduced hours, long-range working accounts and much more has been regulated through additional rules. If you are a skilled worker, you are part of a “disciplinary” system. You have one or several “superiors”. If you want to go on a vacation, you have to apply for time out of the office. For extra time out of the office, for instance parental leave, there are complicated regulations. Your income and career opportunities are limited. A career which might give you considerably more income is only possible as an exception to the rule.
    The same is true for those who are civil officers – which, to me, is a somewhat perverse variant. For the employees (the civil officers), it is possible to terminate at any time, regardless of the massive dismissal protection they enjoy – which is something no ordinary skilled worker has. “To make up for it”, the civil officers get a considerably higher pension than those skilled workers who just get their retirement money as accumulated by social insurance.
    This difference will be really significant if the number of years of receiving pension (from the moment they quit the job until their death) is anywhere near the number of years of active service. If you consider a high life span, a late start into the work force and a pension age that is before the officially recommended time, you often get really huge sums. And if you do the arithmetic, you will end up with very much money, indeed.
    However, in the sector of wage-related work, we have more and more persons who earn little. Their income has to be supplemented by the state, for example through support for the rent they pay. These persons have no realistic chance of providing for their old age based on capital. Now politicians want to introduce the legal minimum wages – an experiment I already look forward to with much excitement.
  • Service and labour contracts
    Persons earning their living in this way are commonly referred to as “freelancers”. If someone cannot accept the conditions of being employed as a skilled worker – or if he cannot get such employment – he will have to live on unemployment benefit (which is only available to a limited extent) or apply for social security. If this is something he does not want either, then all that is left to him is become a freelancer (or else an entrepreneur – see next item).
    Basically, he has to find customers who ask him to render services as specified in a service contract. These contracts will always have a time limit. Since a freelancer is not obliged to have social insurance, he has to make his own arrangements for old age security. Due to the ever longer times of low or slow business until his death and the high costs of nursing and rest homes, this will be almost impossible for him, even if he earns good money. Consequently, he will eventually again have to live on social security.
    This is also regulated by the law. There is a clear definition what a freelance system has to look like and, more often than not, reality cannot be made to match these regulations. In order to meet these requirements, some freelancers wrap their activities up and formally establish a limited liability company (and sometimes they do it in order to be able to employ their family as labour). Statistically, these freelancers will be seen as entrepreneurs, and that is what they might, de-facto, well be, but they are definitely not entrepreneurs in the sense of the today so strongly propagated entrepreneurship.
    Also, surprisingly many freelancers (allegedly one third of them) earn less than the planned minimum wages. Introducing the minimum wage law will not change anything about this, will it? For instance, if the zoo pays 10 Euros for 50 kilograms of chestnuts they will feed to their animals, then this is a totally legal business transaction. And the person who pays could and will not care less about how long the person selling them has taken to collect those chestnuts.
    Many freelancers seem to earn far above average during their active time. More often than not, however, this is an illusion, especially if you consider a longer time interval. Times of little or no income put a damper on the entire scenario, extra hours and the lack of vacations seem to improve the situation. For a freelancer, it is difficult to scale his income. After all, it can only be done through higher prices and more billable hours.
  • Entrepreneurial activities
    An entrepreneur is someone who is competent or thinks he is competent in one field and wants to be responsible for himself. More often than not, they plan something they cannot achieve alone. In order to realize their goal, they need more than their own capacity. They will need the help of third parties. Consequently, they will look for support. Such support can be partners, employees of the enterprise to be founded or freelancers as suppliers of a service. As a general rule, the founders believe to have discovered special chances on the market, seen new business ideas or, for instance, found special technologies or products.
    The business idea might be based on a service and a product, as well as a mixture of the two. Usually, this idea cannot be realized alone. You need employees or a team. Especially in the product sector, you will often have to invest heavily, which might also be necessary around a service, for instance in order to make the public aware of the service, to sell the service and to make sure the conditions for delivery are met
    In order to solve this problem, we have, among other things, VC’s (Venture Capital), public subsidies and supportive banks, but also private “business angels”. I am not going to comment on how well these things work.
    Entrepreneurship is probably the best way to improve your income far above average. After all, the enterprise – and consequently the entrepreneur – will benefit to some extent from the achievement of every single employee or of the entire team. In other words: a relevant improvement of income is most likely if you become an entrepreneur.
    Very few enterprises will actually get extremely rich. Those are the huge exceptions many people dream of.  But just like, for instance, in sports, only very few will reach the top. I get the impression that the “young entrepreneurs” always dream of become a Steve Jobs or Larry Elliso, or even a new Albrecht. Well, it might be fine to have very high expectations, but personally, I appeal to being realistic. And a small but good business is also a great thing.
    I am sure there are more entrepreneurs who fail than succeed. The risk of failure is high. Many enterprises I remember being founded in our field during the thirty years InterFace has now existed accompanied us for a bit of the way and then disappeared. Consequently, I would say it is fine to dream, but you should always keep in mind that a deep fall may be looming ahead at any time.
    Naturally, a successful entrepreneur usually will have a good or special competence and he has to be capable of (or be lucky enough to) calculate the market potential correctly. Many virtues, such as courage, circumspection and the willingness to take risks, along with leadership characteristics such as prudence and self-assurance are useful. A certain degree of autonomy and extraversion are probably also necessary. Paired with inner serenity and self-containedness, this might be the ideal combination. And, of course, an entrepreneur will have to be very willing to learn through his entire life.
    Yet, entrepreneurs need not necessarily do something new and particularly innovative in order to be a success. Often, very small things, along with industriousness, are the reason for their success. My personal respect goes to all those craftsmen who build up their own teams in the same way as to a “high-end start up”. This is especially true if the entrepreneur remains an “upright and honest merchant”, his enterprise offers products and services that make sense and he knows that his enterprise is a very important social system for the people, even if clearly with an economic goal. In other words: an entrepreneur should also be the person who guarantees a certain set of attitudes of mind, culture and values.
    And here is another note on the income of entrepreneurs. To be sure, there are some who really made it big time, becoming millionaires or billionaires. I even know a few of them personally. But they are precisely the ones who know how lucky they have been.
    Yet I know a lot more entrepreneurs who do their job well and still have an income that is lower than the minimum wages. According to the statistics, this is probably also true for one third. Regardless of the fact that those persons took excellent responsibility for a number of people.

These are the kinds of messages I sadly miss on the glitzy galas in the world of the entrepreneurs.

Incidentally, I also believe that there is a lot of great “entrepreneurship” in the private and honorary sector. In my opinion, starting a partnership or even a family is a true enterprise – one which takes a lot of courage and considerably more. And if a woman, for instance, decides that she wants to become a mother, I often have more respect for her than for a young entrepreneur.

Actually, I found it a bit of a pity that, during the huge UnternehmerTUM gala, all the 14 (in words: fourteen) persons sitting on the podium were men.

(Translated by EG)

For more articles on my entrepreneurial diary, click here: Drehscheibe!

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