Self-employment as a Career Goal

17.11.2020 | Business Know-How

After successfully completing their studies, students are faced with the question of how they want to start their professional life. Employment with large companies is very popular, as they offer a broad field of work and promise good career prospects. In fact, however, the opportunities for influence are often very limited at the beginning and the career turns out to be a long, rocky road. Graduates who want to implement their ideas quickly and selfishly should therefore consider starting their own company.

Starting Position for University Graduates

The starting position for university graduates is often very good:

  • The willingness to take risks is high!

Most of the graduates are not yet bound to families. They can therefore dare to realize their own goals without consideration for others. Since they have not yet acquired any significant assets, they have nothing to lose – except a little time. Even failure does not harm their professional future prospects – on the contrary: the experience they gained from their own start-up actually benefits them later and is appreciated by employers.

  • The own necessities of life are low!

The capital requirement for graduate’s personal lifestyle is low. They often still live in their student apartment, drive a small car and eat in the refectory. Since the graduates have not yet become accustomed to a high standard of living, the financial restrictions in the start-up phase do not pose a personal problem either.

  • The technical know-how is up to date!

During their studies, graduates were regularly confronted with the most modern technologies and theories. They were often even able to put these into practice within projects. They also normally still keep in contact with professors and their fellow students . An exchange of ideas and techniques is therefore possible without problem.

However, the path from an idea to a successful company is paved with many obstacles and imponderables. Thus many start-ups fail despite the excellent starting conditions in the foundation phase. Typical reasons are for example:

  • What is missing is the necessary know-how that goes beyond specialist knowledge!

The graduates often only have the necessary knowledge for product development, but they are not trained in commercial, legal and fiscal aspects.

  • The psychological resilience is overrated!

Over time, the initial enthusiasm turns into disillusionment. In particular, increasingly occurring problems in product development and market launch are tugging at the nerves. Internal tensions arise in teams of entrepreneurs due to differing objectives and commitments.

  • The competition is underestimated!

The fact that a product is not yet available on the market sometimes leads to the conclusion that the competition is not interested in it. However, the competitor often reacts very quickly to changes in the product range and then tries to exploit its already existing awareness and customer relationships.

  • The necessary experience and reputation for customer acquisition are missing!

Once a product has reached the necessary marketability, it must also be brought to the customer. In this respect, however, many graduates find it difficult to do so, since they, as newcomers, often find themselves standing in front of closed doors and do not have the communicative skills to draw attention to themselves.

  • There is a lack of money!

Many potential founders of a new business discard their business idea in advance simply because of a lack of financial means. In particular, they overlook the possibilities of public funding (especially through EXIST start-up grants or incubators established at universities) or the novel crowd investing.

The path to independence is always difficult and risky. Whoever makes this far-reaching decision in his or her life should therefore think carefully about the consequences for himself or herself and his or her family environment. Among the basic questions to be answered are the following:

  • Why do I want to start a company?
  • Do I have what it requires?
  • What is my opportunity-risk ratio?

Motive for Being a Start-up

There are different motivations why people push the foundation of a company.

  • Economic success

Financial aspects play the biggest role in the decision to become self-employed. In the foreground is the desire for an above-average income and the acquisition of considerable assets. Interestingly, the founders of a new business are not only thinking about their own livelihood, but also about building up a business that they want to bequeath to their children.

  • Innovation

Another important motive is the desire to create something new. This arises from the inner urge to conquer a challenge and/or to realize a personal idea. The successful treading of new paths not only leads to a broadening of one’s own horizon, but also regularly results in a strong external effect. Thus, innovators usually enjoy a high reputation and act as role models and leaders for others. In this respect, their influence within organizations is very high.

  • Independence

The feeling of independence that comes with self-reliance is also a strong driving force. Self-employed people are not bound by the instructions of superiors and do not have to compete internally with colleagues. This not only prevents frustration, but also ensures that every activity you perform and every decision you make promotes personal development.

As your own boss, you can also determine your own working hours and vacation time to a large extent. If the working hours go beyond the scope of what is usual for a permanent position, this at least benefits the entrepreneur himself.

  • Recognition

The desire for social recognition is also of fundamental importance. A high income and wealth regularly generate considerable prestige, which people find very difficult to escape. Those who succeed are respected by others – whether friends, family members or strangers – and enjoy a higher social status than others.

  • Self-realization

Not only the external effect associated with a successful independence, but also the own feeling of having achieved something in one’s life provides inner satisfaction to the entrepreneurs. Realizing one’s own dreams, facing challenges and surviving difficult situations are essential components of a fulfilled life.

  • Role behavior

A role that should not be underestimated for some founders is the aspect of assuming a certain role that they believe is expected of them. Thus many entrepreneurs take over their parents’ business and want to continue a family tradition. In this respect, the intention to emulate an idol or to adapt to one’s personal environment, for example, one’s circle of friends, can also be important.

Business Personality

If there is clarity about the true motives that lead you to take the step into self-employment, you should continue to make sure that you have the necessary character traits to run a business. It is obvious that the mere completion of a study course does not yet make you a successful entrepreneur. Rather, the founder should ideally have other characteristics that are attributed to a successful entrepreneur. The latter differs from a dependent employee by a number of characteristics. For example, self-employed people are more dynamic, assertive, determined, independent, responsible and willing to take risks than dependent employees. They are practitioners, are full of plans and at the same time have a keen sense of what is to come. The following characteristics in particular can be mentioned in detail.

  • Motive for achievement

Entrepreneurs have a particularly strong will to perform and to deal with professional tasks that are both challenging and feasible. They have a strong desire to accomplish something, but also a pronounced striving for power and prestige.

  • Feasibility belief

Furthermore, the entrepreneur is often convinced that the process of founding a company and its success are less determined by external circumstances, but rather depend on himself. He believes in being responsible for his own fate and the results of his actions and to be able to actively influence this.

  • Striving for independence

The desire to be one’s own master is another characteristic that makes an entrepreneur. He urges to become independent from authority and to realize himself.

  • Risk appetite

Entrepreneurs are also prepared to accept increased risks, particularly those arising from the fact that they make investments without knowing exactly how much profit they will make. Unlike risk-averse people, they tolerate the uncertainty of the outcome when the risk of loss is less likely than the possibility of receiving a larger profit.

  • Persistence

Entrepreneurs must have strong psychological resilience and high stress resistance. Frustrating experiences are often unavoidable, especially in the start-up phase. In order not to be discouraged by this and to continue despite the adverse circumstances, a strong staying power is necessary.

  • Social competence

A company is not an island, but maintains intensive relationships with numerous people, for example with customers, suppliers, employees, consultants, banks, investors or authorities. An entrepreneur must be able to establish and keep good contacts with all these people. In order to be successful, an entrepreneur must therefore possess distinctive social skills (soft skills) and a high degree of empathy, which influence all possible areas of professional life.

  • Growth orientation

Furthermore, the inclination to growth characterizes an entrepreneur. The will to grow is reflected above all in the entrepreneur’s decision-making behavior and strategic orientation, for example, in the selection of investments or the selection of his employees.

  • Decisiveness

Determination is also a typical personality trait of the entrepreneur. This refers to the ability to recognize the right opportunity at the right time – and to actually seize it.

  • Flexibility

After all, the ability to adapt flexibly to constantly changing conditions is a characteristic of entrepreneurs. Flexibility also includes the ability to modify a product without an originally precisely defined concept until it is accepted by the customer.

  • Problem orientation

     

In addition, the clear focus of the entrepreneur on the primary influencing factors of a project is a necessary trait to be able to deal with non-routine tasks both analytically and intuitively.

To find out whether you have the necessary qualities of an entrepreneur, it is helpful to subject yourself to a small test. In this respect, the Federal Ministry of Economics and Technology (BMWi) offers very well structured start-up tests free of charge (available at www.existenzgruender.de):

Test: Do you have entrepreneurial spirit?

To find out whether you have the necessary qualities of an entrepreneur, it is often helpful to subject yourself to a small test. In this respect, the checklist below, which was developed by the Federal Ministry of Economics and Technology (BMWi) in cooperation with Prof. Dr. Günter F. Müller from the University of Koblenz-Landau, is a useful tool. Please indicate below what applies to you more and what does not. Be honest with yourself! It makes no sense to deceive yourself.

For a “Rather yes” there is one point, for a “Rather no” zero points. Add up your score at the end and then read the evaluation.

Rather yesRather no

Drive power

Are you enthusiastic?
Are you decisive?
Do you enjoying taking on challenges?
Are you persistent when it comes to your thing?

Independence

Are you someone who likes to take the initiative?
Is it more against the grain if someone tells you what to do?
Do you enjoy being able to decide for yourself?
Do you have your own goals that you want to achieve?

Risk appetite

Are you an optimistic person?
Are you willing to take risks if you want to achieve something?
Do you get over frustrations well?
As an entrepreneur, would you be afraid of failing?
Would you, as a self-employed person, be willing to give up a secure fixed income?

Creativity

Do you find it easy to develop new ideas?
Do you think: There is a solution for every problem?
Do you find routine boring in the long run?

Contact

Do you find it easy to get into conversation with strangers?
Can you assert yourself well against others?
Do you like taking responsibility?
Can you adapt well to other people?
Can you inspire others?

Performance

Are you ambitious?
Are you a disciplined worker?
Do you cope well with stressful situations?
Would you be willing to work 60 hours or more per week as a self-employed person?

Total

  

Evaluation

Zero to ten points: You are probably not the born entrepreneur. You would probably be happier as an employee.

Eleven to 20 points: The result is not clear for you. You are probably not a born entrepreneur. But you already show a number of qualities that are useful to an entrepreneur.

21 to 25 points: You seem to have a lot of an entrepreneurial spirit. If you are thinking of actually becoming self-employed, you should still be well informed about how to get there.

Weighing Opportunities and Risks

Advantages and Disadvantages of Self-employment

Finally, you should weigh up all the opportunities and risks of your planned company foundation, taking into account your personal circumstances.

First of all, the advantages and disadvantages of self-employment compared to an employment relationship must be considered. The typical advantages of an employment relationship are obvious:

  • regular income,
  • regular working hours and paid vacation,
  • social security, especially through the statutory health, nursing, pension, unemployment and accident insurance,
  • dismissal protection,
  • Parental leave/maternity leave,
  • career opportunities,
  • collegial environment,
  • clear work specifications with an appropriate training period.

In contrast, the foundation of an own company seems to have mostly only disadvantages at first:

  • no guarantee of success; in the worst case not only the loss of the invested equity capital threatens, but also a debt that cannot be reduced in the near future,
  • no claims to statutory social benefits such as health, unemployment and pension insurance, accident insurance, parental leave / maternity protection,
  • no contact persons to exchange information or who can help you with their experience.

If you look a little closer, you will see the other side of the coin on both models. This can result in the following disadvantages for a permanent position:

  • The income is just enough to live on; in any case, riches cannot be earned.
  • The working hours are only on paper. According to the unwritten laws of the company – or due to a self-imposed pressure to perform – the actual working hours go far beyond what was agreed.
  • Colleagues can turn out to be tough competitors for in-house positions, which not only leads to more competition, but also to a poor working atmosphere.
  • Under German labor law, effective protection against dismissals for operational reasons often only takes effect after a longer period of employment.
  • Taking advantage of social benefits such as parental leave can reduce career opportunities.
  • The supervisors are not willing or able to properly familiarize the newcomer with his or her field of activity, so that the newcomer has to go through a long and difficult start-up phase in which mistakes and frustration can occur.

In contrast, founding your own business can offer the following advantages:

  • The economic success can lead to a multiple income that would be possible in a permanent position.
  • There is no obligation to follow the instructions of superiors, nor does one have to fight out internal competition with colleagues. This not only prevents frustration, but every activity the self-employed person performs and every decision he or she makes promotes personal development.
  • Those who are their own boss can largely determine their own working and vacation times. Those who work more than is usual in a permanent position at least benefit themselves.

Personal Risk Assessment

If you now faced with the decision to go into business for yourself or to look for employment, the so-called SWOT analysis is a helpful tool to consider the pros and cons. With the SWOT analysis, you can examine your personal strengths and weaknesses as well as the opportunities and threats that arise. The goal is to identify possible sources of competitive advantage and internal action based on the internal strengths and weaknesses analysis and an external opportunities and threats analysis. The SWOT matrix also shows opportunities that can be developed, specifies the threats against which you should protect yourself and points out weaknesses that you should catch up on. Finally, it also reveals those risks that need to be avoided twice over, since it is precisely in these areas that the internal weaknesses of the company come together with the external risks of the environment to form a doubly dangerous cover [1].

In the context of such an analysis, you as a prospective entrepreneur should at least be able to honestly answer the following questions for yourself.

Strengths

What is my motivation?

Only those who are completely clear about the goal they want to pursue by starting a business can take the difficult path to achieve it. As shown in chapter 1.1, economic success is the most important reason for the decision to become self-employed, but inevitably not the only one. In addition to the pursuit of wealth, social aspects such as self-realization, social recognition and independence often play an important role.

Attention

If you only chase after money, you quickly run the risk of being driven solely by financial factors. Although greed is a strong driving force, it quickly makes you forget all your scruples. However, anyone who disregards fundamental legal or ethical rules must expect that his behavior will result in corresponding consequences, for example penalties or social ostracism, which will again endanger the success achieved up to that point!

What special know-how do I have?

Typically, you should have special know-how that will enable you to stand out from your competitors. Only in this way will you ultimately persuade potential customers to change their previous behavior and switch to your new company. This may be the case, for example, if you have made an invention and perhaps even obtained a patent for it, or if you are moving into a new market where not all segments are yet occupied, for example, currently in the development of applications for smartphones.

The situation is less clear if the new company is founded in an already existing market. As a newcomer in an industry, you often have limited knowledge of the market and lack the experience of established companies. However, you are also not yet determined by entrenched processes, investments in now obsolete technologies or a sluggish workforce. The resulting flexibility can provide you with the special know-how you need to conquer the market, be it by using new technologies, creating new services or introducing cost-saving processes.

Do I have the necessary assertiveness?

The foundation of a company and its establishment on the market is always a difficult undertaking, which demands an extraordinary amount of energy and performance from the founder. Only those who are able to accept defeats and overcome adversity over a period of several years have the chance to achieve the desired success in the end.

Do I have sufficient social competence?

In addition to personal strength, a high level of social competence is required. Ideally, you should, therefore, have an extroverted nature, be able to approach people easily and have a certain amount of empathy.

Are my financial resources sufficient?

Even if the necessary characteristics of the entrepreneur are present, it must be ensured that you also have the necessary financial means to survive the start-up phase. For example, it regularly takes several months (sometimes even one to two years) from the time of founding the company to generating the first turnover and finally reaching the profit zone. This period usually has to be financed with your own resources, not only the initial investment but also your personal needs. Otherwise you are threatened with insolvency.

Do I have enough family support?

The importance of family background should not be underestimated. The heavy financial and psychological burden in the start-up phase does not only affect you as a founder of a new business, but regularly also your partner and other relatives, for example children or parents. These people should also be resilient to a certain degree. In addition, even the strongest founder may at some point become doubtful and make him or her think of giving up. In this situation it is important that he can draw new strength from his family and find support in it.

Weaknesses

Which necessary knowledge or qualities do I lack?

For a successful business start-up, it is not enough to simply have a good business idea. You also need to have the necessary know-how, assertiveness and social skills. However, most people are only strong in some disciplines, while in others they have only rudimentary knowledge. If you move in stereotypes, for example, a “nerd” is an introverted person with excellent technical skills, but who tends to live in social isolation. In contrast, a “jock” is an extroverted person who is socially active, but is easily intellectually overwhelmed.

Ultimately, you have to judge for yourself which skills or characteristics are underdeveloped in your own company. You should admit it to yourself if, for example, you do not have the necessary know-how in the technical, commercial or legal field or if you cannot approach strangers and convince them of your product.

Do I lack financial means?

As explained, you must have sufficient financial resources to at least survive the start-up phase. If this is not the case, the lack of financial strength is definitely a weakness.

Is my family situation difficult?

Likewise, a tense family situation can be a weakness. This is especially true if there are maintenance obligations towards relatives, for example towards life partners and/or children, because in this case the compulsion to succeed becomes overpowering. The situation can prove to be similarly difficult if the life partner does not share your vision or prefers a lower-risk life planning. If difficulties arise later in life, you may find yourself exposed to accusations, which in turn weakens your self-confidence and resilience.

Do I have language difficulties?

Language difficulties are an often underestimated weakness. This refers not only to a lack of or poor knowledge of a foreign language, but also to orthographic weaknesses in particular. While in general business transactions people are usually sympathetic to a lack of foreign language knowledge, incorrect spelling often leads to a loss of trust, which is not necessarily communicated openly. For example, if a potential customer receives a written offer that is full of spelling mistakes, he will not seriously consider it for this reason alone. This is based on the idea that if the offer is faulty, the subsequent service will not be convincing.

Chance

Do I have an innovative business idea and can it be implemented?

The basis for the successful establishment of a start-up can be an innovative business idea, especially if certain additional requirements are met. From a technical point of view, machines and materials as well as space or rooms must be available. In addition, the necessary infrastructure such as communication facilities, transport facilities and energy must be available. In terms of personnel, suitable personnel must be available in sufficient numbers and with the required skills. Furthermore, the feasibility of the idea must not fail due to legal obstacles, for example conflicting industrial property rights of third parties such as patents or utility models or trade restrictions such as official permits or export restrictions.

A business idea, however novel it may be, is only viable if it is accepted by the market. Decisive for market acceptance is the existence of a real customer benefit that satisfies a demand. It must therefore be possible to find buyers for the product or service; the mere implementation of a technical gimmick without a concrete application is not enough. And even if the business idea itself is feasible and sustainable, this does not automatically mean that your project is worthwhile. This is only the case if a sustainable profit (revenues minus costs) can be achieved that allows you to have a sufficient standard of living.

Do I already have potential customers?

It is especially advantageous for you if you already have potential customers to whom you only need to offer a suitable product. This applies, for example, if you are currently employed on a permanent basis and maintain good customer contacts for your employer. This is where you can sometimes sound out whether customers would be willing to follow you when you take the step to self-employment. Such a constellation often occurs with freelancers such as lawyers or tax consultants, as their business relationship is usually based on particularly close personal trust.

Will I be offered a partnership?

The step into independence can be stimulated not only by inner impulses, but also from the outside. In particular, the opportunity is given to often deserving permanent employees in freelance professions to join a company as shareholders. This is usually not a gift, but the new partner is expected to either pay a deposit or bring in his customer base. In some cases, the partnership is also offered only to prevent the poaching of existing customers in case an employee resigns.

Can I take over an existing company?

Self-employment can also be a consideration when the opportunity arises to take over an existing company. In most cases it is a matter of taking over a family business within the framework of legal or voluntary succession. In addition, company acquisitions can be made among strangers, for example in the context of a management buyout (MBO). In this case, the management of a company acquires the majority of the company shares from the previous owners.

Risks

Are there technical risks?

From a technical point of view, there may be risks regarding the feasibility of the product. This is particularly true if the product is in the research and development stage and it is still uncertain whether it can be brought to market.

Are there sales risks?

Even if a market-ready product has been developed, it may not be accepted or not sufficiently accepted in the market and therefore not find a market. There are many reasons for this, for example, the product may not be of use to potential customers or market access may be blocked by competitors.

Are there legal risks?

Legal risks exist when it is not yet certain that a product will be approved for the market. For example, the production of numerous goods such as weapons and pharmaceuticals, as well as services such as the provision of temporary workers. care of the elderly and child care require official approvals.

There may also be a legal risk in your person, for example if you have to obtain a professional permit first. This applies to doctors, lawyers, brokers and leaders of debt collection agencies, among others.

The inability to protect the product can also entail legal risks, for example if an invention is not patentable. In this case there is an increased risk of imitation by competitors.

Are there financial risks?

Financial risks are based in particular on the difficulty in planning sales revenues and costs. Even if sufficient capital reserves are initially available, the financial cushion can be quickly exhausted by an unforeseen cost explosion, for example due to price increases for required materials, advertising or sales commissions, or by lower than expected sales, for example due to lack of demand or delayed market entry.

Are there personnel risks?

If the company’s success essentially depends on the cooperation of external persons, e.g. particularly capable development or sales staff, a partner or company seller, there is an increased risk if these persons leave the company early.

Are there personal risks?

Finally, you should also consider yourself as a risk factor. Since the success of the company always depends on you, it can be at considerable risk if your workforce is unavailable because you are ill or have to meet other obligations, such as part-time work or childcare.

Once you have gained clarity on these questions as a potential founder of a new business, the next step is to develop your personal start-up strategy. The SWOT matrix can also serve as a basis for this. It recommends certain strategies for the various combinations of the strengths-weaknesses profile of the internal company analysis and the external company environment analysis in the form of a catalog of opportunities and risks.

  • Strengths and opportunities: The SWOT matrix shows the opportunities that can be further developed. It is important to work out how strengths can be used to increase the realization of opportunities.

  • Strengths and risks: The combination of strengths and risks indicates the dangers against which you should protect yourself by using your strengths. The main question is how you can use your existing strengths to avert certain risks.

  • Weaknesses and opportunities: A joint examination of the weaknesses and opportunities reveals where you should take action. It is about finding out how, on the one hand, existing opportunities can be used despite your weaknesses and how, on the other hand, you can develop your weaknesses into strengths.

  • Weaknesses and risks: The combination of weaknesses and risks highlights the dangers that need to be avoided twice over. Because the internal weaknesses of the company combined with the critical factors in the environment increase the risks enormously. Here it is important to examine exactly how you can defy the dangers despite your weaknesses and which dangers you should not get involved in because the corresponding strengths are missing.


[1] Vgl. Gabler Wirtschaftslexikon, Stichwort „SWOT-Analyse“.

Start-up Scene in Germany

Each person weights the advantages and disadvantages of these two options differently. A look at the number of start-ups in Germany, which is calculated annually by the Kreditanstalt für Wiederaufbau (KfW), is revealing here (see KfW-Gründungsmonitor 2017, available at www.kfw.de).

The current KfW study shows that of 672,000 people who have started a new professional self-employment in 2016, a total of 29% can point to an academic education. For 46.1% of full-time founders, the exploitation of a business idea was the primary motive for founding a company.

It is striking that only 15% of the founders have introduced a market innovation. In the foreground are rather economic and personal services (altogether 63%), since the establishment happening is coined/shaped by existence founders in freelance fields of activity.

It is also interesting to note that one in five founders is a “digital founder”, i.e. customers can only take advantage of their offer by using digital technologies. The business models of digital founders are diverse:

  • Purely digital offers (e.g. with app vendors, operators of web portals or web hosting services),
  • Offers with an essential digital component, such as with online retailers or providers who only sell products or services via online marketplaces or
  • Services that are mainly based on digital technology (e.g. software developers, web designers or IT consultants).

Finally, if we look at the reasons that prevent people from starting their own business, financial risk is the biggest barrier (58% of mentions). In the second part of this article (in WiSt, No. X, / 2018, p. Y ff.), financing options (especially subsidies for students and graduates) will therefore be presented.