Investing vis-à-vis Starting Own Business

Introduction

Whether to start your own business or to invest your money somewhere is a question many of us face in life at some stage. While starting your own business puts you in the driving seat, it also exposes you to a wide range of risks. Investing, on the other hand, has its own challenges.

In this blog post, I will briefly cover the pros and cons of investing vis-à-vis starting your own business.

Starting Own Business

• A very deliberate prior planning and deep understading of the market would be required.
• Team building skills are essential for starting and running a business successfully. Anyone who likes working alone cannot run a business successfully.
• The business brings in its wake a host of HR (human resource) challenges. One has to manage relationships with co-founder(s), shareholders, suppliers, clients, competitors and the concerned Government departments.
• Any new business takes time to become efficient and profitable. May take 5-10 years.
• The probability of failure in a new business is quite high.
• Your support system matters a lot in running your business successfully. If you are starting from scratch and nobody, in your family, has ever done it before, it will be more challenging.
• Since you have put in major chunk of your capital in one business, your portfolio is highly concentrated and the overall success or failure will heavily depend on just one business.
• While doing your own business, you will have better control over your money. You will make most of the decisions yourself and the feedback will also be direct and quick.
• After starting a business if you realize that you are in a wrong business, correcting your mistake will be quite expensive.

Investing

• In investing, prior thorough research and basic understanding of the business where you are investing is essential.
• Investing is like participating in a business that is already running well. However, you aren’t required to participate in the daily hassle of the business, therefore, you don’t have any direct responsibility.
• Actually, in investing, the real challenge is of choosing well. It requires many attributes that can be learnt.
• Investing can be defined as a business of sorts. As Warren Buffett said, “The investment is most intelligent when it is most businesslike.” This implies that, instead of thinking of investment as an end in itself, the investor should think of the economics of ownership of the business he has invested in.
• In many ways, investing is very powerful. Even if you are running your own business successfully, you must consider investing some money in other businesses. Stock market is the best place to do that. Private equity may also be considered if, in your part of the world, it is being regulated properly.
• Investing is free of HR challenges. You can develop your investing skills through reading books and consuming other types of content available, in abundance, on internet .
• In any business, accounts is a sensitive matter. While doing your own business, you are managing the accounts either yourself or through someone under your close supervision. However, when you invest, you have no control over the accounts of the company you have invested in. This is one of the most important issues to address in investing. There are ways you can learn to confirm before shortlisting a company for investing that the accounts are clean and the numbers are not being fudged.
• Investing offers tremendous diversification opportunities.

Conclusion

As you might have observed, investing needs a different temperament and a different set of qualities than what is required for actively running a business of your own. Investing offers you a diversification opportunity, frees you from the daily grind, and saves you from the HR challenges of the business. Whereas, if you start your own business, you will have a better sense of control, your hard work and correct decision making will be rewarded and the feedback will also be readily available. You should take a decision based on your priorities and financial goals.