Employment or Entrepreneurship? Which is safer?

The following is an excerpt from my upcoming book, “The Ladder or The Grind — Employee or Entrepreneur? A personal exploration of career choices. You can pre-order it now. Both Kindle and paperback options will be live on March 1st, 2020.

What is the biggest asset that most people have? Lots of people would tell you that it is your personal residence. That people believe that makes sense with median house price running about $200,000. But your home isn’t your biggest asset. It isn’t an investment either. Because you can likely earn a higher rate of return through other investment vehicles. But, more on that some other time.

Your biggest asset is your income potential. Plain and simple, whether you are an employee or an entrepreneur, the asset that you need to protect the most is your paycheck. Take that away and most people will almost immediately be in financial distress. Especially since the average household can’t afford a $400 emergency.

That is why job security, or we could call it income security to include entrepreneurs, is such a key factor in many people’s choice of a career path. That is also why job security continues to rank very high in importance to people who work for someone else.

Income security is one of the reasons that I have never completely shifted from being an employee to being an entrepreneur. It is also one of reasons that I continue to have “Plan B” income streams at all times. Meaning something that is generating income in case I lose the ability to make a living through my primary source of income. That way if something happens to my day job I can try to quickly ramp up income from other areas such as investing, etc.

At least when you work for someone else, particularly a large company, there is a very high chance that you can count on your paycheck not bouncing. Now, I will say that I have worked for companies before where the employees wondered if their paychecks would clear the bank or not. One of those companies was my first “real job” in Marketing. I worked for a water purification startup that was being funded by a wealthy individual. At one point he got so tired of a lack of progress that he threatened to let the company fold and to stop funding the payroll account.

Whereas, when you are an entrepreneur your income security is only as good as your ability to sale your products and services or “eat what you kill”. Which is really scary for some people. For others, they love that idea because they recognize that it means they don’t have a limit on their income potential. That also means that their income can be zero some times.

If what I just said is true, then working for someone else is the much safer choice when it comes to income security, right? Not so fast. As an entrepreneur you might lose clients and the revenue associated with that client. You burn through cash trying to attract new clients through your advertising or marketing efforts. But you can’t lose your job. If a company fires you or lays you off from your job there is nothing you can do about getting that income back immediately. But if you are an entrepreneur and your last client leaves you there is still the option of landing a new client. That might be tougher than it sounds. But at least that is an option.

While as an employee you can be reasonably assured that your paycheck will be good you can’t count on having that paycheck because you can be laid off or fired at anytime. I’ve personally been laid off three times. The last time it happened I was a top-performer at my company. So, if you are thinking that your income is secure because you kick ass at your job you had better think again.

The reality is that, regardless of whether you choose the ladder (employment) or the grind (entrepreneurship), there is no such thing as income security. Ever.

I know that can be hard to admit to yourself. I know that is really, really scary. But it is very freeing once you realize that the idea of income security is a myth. The good news is that in most instances when you lose a job or your business runs out of cash the results aren’t fatal. No one in my household died when I got laid off.

It got a little scary for sure. Especially seeing our bank account balance drop. But, we made it work until I found another job. I’ll admit that it felt pretty catastrophic the time I was laid off and our daughter was nine months old. I can distinctly remember wondering how I was going to put food on the table. We had some savings set aside, but not enough to survive on for more than a few months.

I can tell you without a moment’s hesitation that those memories are why I continue to work so hard. Because I was determined to never be in that position again. While we are in an infinitely better financial position now I can still look in the mirror and admit that job security doesn’t exist.

But there are things that you can do to reduce your chances of losing your income security.

For example, as an employee there are some industries that are much more prone to layoffs than others. According to statistics from the Bureau of Labor Statistics layoffs across the United States have been running at about 1.2% from June 2018 until June 2019. Industries that saw higher layoff averages than the national average included construction (2.6%), professional services (2%), and entertainment (as high as 4.8%!). The industries that appear to provide some level of safety from layoffs included manufacturing, wholesale trade, financial, real estate, health care, and government. Each of those industries averaged less than a 1% layoff rate. In fact, the government sector had the lowest layoff rate.

There are even regions of the United States that statistically see higher levels of layoffs. For example, the same report from the Bureau of Labor Statistics showed that the South (where I live, yippy!) had higher levels of layoffs than any other region. The rest of the US Say relatively comparable levels of layoffs.

Security in your professional doesn’t just come down to whether or not your industry is susceptible to layoffs. At least not in my opinion. Some part of security could also be attributed to how long people tend to stay in a given industry or profession. That is otherwise known as tenure.

I include tenure in the security discussion because the longer a person stays in their profession signals to me a few possible things. They could be content with what they do for a living and/or they could feel secure in their industry and job.

Of course, a long tenure could come down to the fact that the person was trained specifically for that profession and they don’t feel like they can change jobs. But the reality is that they could change professions at any time. In fact, that happens all the time. Websites like Career Advice Online claim that 30% of employees change careers every 12 months. They even go so far as to say that employers now expect to see resumes with a lot of career changes.

If you take a look at which industries have a tenure ratio that is higher than the average, the average in 2018 being 3.8 years for private sector employees according to the Bureau of Labor, you start to see a trend. The industries with high tenure ratios do, in fact, also have lower than average layoff ratios. For example, according to Business Insider, almost every manufacturing sector has tenure ratios over 5 years.

Those are all private sector tenure statistics. If you take into account the tenure ratios that public sector employees carry the correlation between layoffs, or a lack thereof, and tenure gets even stronger. I mentioned above that government workers saw the lowest layoff rate of all industries. They also appear to have one of the longest tenures, almost 10 years worth, of all industries. Clearly a lack of layoffs adds to that length of tenure. But, there has to be more to it, right?

I’m not suggesting that job security isn’t a huge perk for government employees. Even if you have never worked in a government role I think we could all agree that job security appears to be one of the top perks that those workers experience. Without even looking at the statistics we could all probably assume that those employees aren’t staying for the income potential that they experience. The fact that the private sector tends to pay more than the public sector is seems to be a widely known fact.

Of course, being in an industry that has a low layoff ratio or having a long tenure with your company doesn’t entirely shelter you either. Particularly in periods of an economic downturn like a recession. I personally found that out to be true.

In 2007 I left my job as a commercial lender for a super-regional bank. Ever since joining the banking industry my career track had quickly progressed. In a few short years I went from being a teller, to a head teller, to an assistant branch manager, to a small business lender, and finally landing a role as a commercial lender.

That kind of role was one I had wanted ever since joining the industry. I saw the commercial lender role as a very prestigious role. From my days as a teller I had watched as my institutions commercial lenders were treated as if they were the rockstars of the bank. They got to land big deals that came with big bonus checks all while playing golf and networking with prospects and clients. They weren’t trapped in an office and experienced the kind of flexibility I wanted.

So, when I was promoted to a commercial lending role I was so excited. I felt as is I had finally arrived in at my dream job. For the longest time it was just that. I had a great run and eventually ended up doing over $500,000,000 (that’s half a billion dollars) in business over my time as a commercial lender.

Eventually the role lost its luster. I grew tired of having to reset the clock on the amount of production I needed to do every year. Plus, at one bank I had a boss who liked to treat her employees like they were her five-year old. As the saying goes, people don’t quit jobs they quit managers. So, I decided to take a position in a slightly different position in the finance industry.

That experiment lasted about a year until I experienced my second layoff. The newspaper where I was serving as the credit manager went through a reorganization and decided to outsource a lot of their accounting functions to India. I discovered the details of that move when I found a packet on the public printer titled, “Outsourcing Your Accounting”.

Leaving the parking lot that day I was able to immediately land two interviews by leveraging my network. Both were back in the banking industry as a commercial lender. I wasn’t thrilled to be returning to the industry so quickly. But, it was the industry I knew the best and where most of my skills at the time could be most helpful.

That experience lasted just over two years until I experienced my third layoff. I learned about that when I noticed on my bosses calendar that he had back-to-back meetings book with me, one other teammate, and the assistant we shared.

The thing is that I was one of the top producers on the team. So, was my teammate that got let go. If that was true, why were we the ones to be laid off instead of the other three team members who weren’t producing as much? Because I know for a fact that the decision wasn’t production based. My boss said as much.

Instead we got beat out by tenured employees. My teammate and I were the two newest hires in commercial lending. Two of three other team members had both been at the company for over twenty years.

When a company decides to do layoffs they most often pay a severance package to the employees being let go. Those packages vary, but in my experience you can generally count on one-week of pay for every year you have been at the company. So, if you are the Chief Financial Officer looking at the impact of those severance packages would you rather pay someone twenty-plus weeks of severance or two weeks of severance?

Let me bring us full circle back to my earlier point. There are some industries that are safer than others. Banking was not a very industry to be in during the early days of the 2008–2009 financial crisis that is now called The Great Recession. So, I had that going against me.

But, I also didn’t have the kind of tenure that many of my co-workers had. I was outperforming many of them. But it was too easy for my company to take all of my accounts and hand them over to someone else who would have been ten times more expensive to let go of in terms of a severance expense.

So, what am I saying? Again, I’m saying that the idea of complete and utter income security is a myth. Regardless of whether you work for yourself or for someone else. But, there are things that can improve your chances of losing your income. Like the industry you are in and your tenure in your position. As an employee those two factors can create a nice protective shield that can create a nice layer of job security for you. As an entrepreneur you can protect your stream of income by having a diverse portfolio of clients, by not over-extending yourself, and having plenty of money saved up for those months that run a bit dry.