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There's been a lot of cheerleading for entrepreneurship the past couple of years. Many people laid off from corporate America have plunged into starting their own businesses -- driving the start-up rate to its 15-year high.
But is that necessarily a good thing? No-nonsense business advisor Carol Roth says not really. The downturn is prompting many people to start businesses, she asserts, who probably could save a lot of money and aggravation if they just skipped it.
In her new book, The Entrepreneur Equation -- Evaluating the Realities, Risks, and Rewards of Having Your Own Business, Roth asks the question that is the 500-pound elephant in the room of most entrepreneurship discussions since the downturn: Should you start a business?
Historically, the vast majority of startups end in failure. Unemployed people starting businesses now out of desperation because they can't find a job will likely fare even worse, as many just aren't cut out for entrepreneurial life, Roth says. She's hoping her book can help guide would-be entrepreneurs into better business decisions -- because if we can improve the success rate of entrepreneurs, it would really ignite the economy.
"We can't have entrepreneurship be the engine that drives our country if nine out of ten people don't succeed at it," she notes.
One common flub is deciding to turn a personal passion or hobby into a business, without considering how that will change your relationship to the activity. Not every hobby should be your full-time activity, Roth says. Try to work in the type of business that interests you before you take the leap to see if you'd really like it.
"I had a woman in financial services working for a major Wall Street firm tell me, 'I'm passionate about healthy fast food, so I want to open a Subway franchise,'" Roth relates. "I said, 'That's nice. Go work nights and weekends in a Subway franchise and see if you like it.' A few weeks later she came back to me and said, 'If I never see another $5 foot-long in my life, that'd be fine. You just saved me from wasting a six-figure investment.'"
Too many people are plunging into entrepreneurship without assessing their skills, Roth says. Do you have management experience? Work well with others? Are you really ready for the 24/7 responsibility of launching a new enterprise?
Besides taking a hard look at your abilities, personality type is another factor to consider, Roth says. The perpetually broke will have a tough time getting a business off the ground, as will those with poor money-management skills and those who are too risk-averse.