News and social media have sold us the glamour of entrepreneurship. They paint a beautiful picture of what it looks like when one is successful. During social gathering, it’s common for people to share how much one is making when an individual’s business is taking off, the car he drives and the properties he owned. Even on LinkedIn, it’s common to come across founders making humble brag. (Seems annoying, isn’t it?)
In our today’s society, we have embraced the art of sharing the good things, while politely overlooking the negative parts. In this article, I will attempt to shed some lights on the hidden cost of entrepreneurship for aspiring entrepreneurs. You should take what I shared with a good pinch of salt.
There are many types of business one can launch, whether it’s via bootstrapping or fund raising. Out of practicality (Since majority of the entrepreneurs bootstrap their business), I will share the financial aspect for such journey. Till date, I have 1 minor success and 3 failed attempts. This is over a span of 5 years.
The number 1 thing any aspiring entrepreneur should consider is financial. While you should not let financial stop you from doing what you must, it makes sense to do a cost projection. In this example, I will be sharing what it’s like to start an e-commerce business.
Opportunity cost – If you are presently a 40-year-old employee in Singapore, earning $10,000 per month with no bonuses. Your employer CPF contribution will amount to $13,872 annually. This means the financial contribution from a full-time job would equates to $133,872 annually.
2 years away from full time employment would mean a loss of $267,744. This would be a significant amount of money for an average household in Singapore. According to Singapore department of Statistic, the medium household monthly income in 2023 is $10,869.
If you launch an e-commerce business, you will probably need a minimum of SGD $50,000. This will essentially cover the following cost: Cost of Goods ($20k, depending on the number of SKUs and MOQ), Shipping cost ($10k), Website & IT cost ($5k), various subscription or license cost ($5k) and miscellaneous expenses. ($10k)
This does not include marketing related cost, which can easily amount to $20k for the first year. If there is any form of traction from the initial launch, most individuals may invest additional $30k to $100k to further the business progress. I label this as the 2nd tranche. This does not include the entrepreneurs’ cost of living, which I shall put that as $4,000 per month.
The total cost of the initial endeavor may work out to be $168,000 for the first 12 ~ 18 months. While this amount may seem incredulous to some, running a simple business like an E-commerce cost a lot more than what one would imagine.
It’s common for many first-time entrepreneurs to underestimate their budget by 3X. (You can ask any experienced entrepreneurs to shed some light on this matter.) You have not factored in the 2 years income loss of $267k yet. This is an important consideration in the worst-case scenario.
Different type of business would obviously require a different level of funding. It makes sense to conduct preliminary research first. The following businesses tend to have low start-up cost e.g. marketing/ recruitment agencies, drop-shipping, digital freelancer, baker, influencer, self-published author, App developer, bookkeeper, vending machine owner, personal trainer and etc.
According to FreshBooks, most businesses take 2 – 3 years to hit profitability. This means you probably need to winter through the first 2 ~ 3 years before your business achieve profitability and pays you a salary.
According to ACE (Action Community for Entrepreneurship), 30% of Singapore startups fail within their first 3 years. (I think the actual number is likely to be higher) Given the statistic, for any would be entrepreneur, perhaps it makes more sense to buy business in Singapore. You will dramatically increase your odds of success and shave off 3 years of start-up time.
The next aspect would be the emotional and mental duress. Regardless how resilient you are, it’s likely to take a toll on you. I knew of 2 successful entrepreneurs who has some form of mental health issue due to prolonged exposure to extreme stress. Mental health crisis is common among entrepreneurs, and this can sometime lead to bizarre behavior or even suicidal thoughts.
When you are running your business, it’s a lonely uphill battle right from the start. Facing discouragement, frustration and setbacks on a regular basis, it can be extremely painful. Some of common causes are financial, product launch failure, lack of demand, dispute among founders, lawsuit and etc. There can literally be a thousand and one reason why your business can go kaput.
According to Dr. Michael Freeman, one of the only well-established physicians to conduct research in this area, a startling 72% of entrepreneurs report having mental health concerns.
Having a support structure is important, whether it is with your spouse, siblings, friends or a business associate. If you do not have one, perhaps it’s high time to establish one. No man is an island. Do this for your future self. Self-care is not an option, it’s a necessity if you wish to play the long game.
The last and most important is your health. Many entrepreneurs tend to focus monomaniacally on their business that they neglect to rest or work out. They priorities financial success at the expense of their health. It’s common to see entrepreneurs who are pale, overweight, volatile and in remarkably poor health. It's not unheard of for entrepreneurs to die of heart attack in their 40s or even earlier.
Remember you are a human, not a money-making machine. The idea of having more money is to improve the quality of life or to pursue the lifestyle you envisioned, and not for the sake of having more money.
If you find that you no longer have passion for your business anymore, you might want to consider exiting your business. We can help you sell business in Singapore.
In a nutshell, entrepreneurship is much more than just the facade you see. It encompasses your lifestyle, financial, time, personal well-being and even sense of purpose. Think twice before you embark on this exhilarating journey!
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