Friday, July 18, 2008

Opportunity Cost

Usually when I spout off about opportunity costs it's regarding purchasing. If I buy $1,000 in comic books it means I can't spend $1,000 on Warhammer 40K. What's the opportunity cost? Over a year, if comics "turn," or sell through once and 40K turns 4 times, I've lost $3,000 (a current problem). That's the opportunity cost. However, as a small business owner there are personal opportunity costs as well.

Anyone who can run a successful small business, meaning one that didn't fail yesterday, is capable of doing a lot more. It doesn't mean your skills are transferable (I wish!), but it means you've got a brain that could be applied towards making much more money for someone else. I recently set up an account on Linked In and quickly found a lot of my friends and IT buddies. If you're around 40, which I am, you're starting to hit the peak of your "earning potential," so most of my friends now have "director" or "VP" in their titles, and big salaries to go along with it. Part of the personal opportunity cost of starting a small business is forgoing the money in your previous career in exchange for personal satisfaction. Even if you weren't making big money in your field before, staying in that field probably would have resulted in more money down the road. This was something my father warned me about when I started the store, but it seemed so abstract back then, and I was miserable in IT, so I didn't pay much attention. The best reason to start your own business is you couldn't possibly work another day for someone else. Your work needs to provide some personal satisfaction.

That personal satisfaction is not something that has come easy for the majority of those directors and VP's. If their bosses knew about their plans to leave (the company, industry or even the country), go back to school to train in something else, or their obsessive gaming habits, they might be shocked. Then again these bosses probably have similar issues. My friends stay in their jobs for the same reason I have career envy: 401k plans, college funds, adequate insurance, travel and nice toys. Some of these things are distractions, while others are essentials. Luckily for me I burned out on nice toys and travel when I was a bit younger, but the call of the college fund can be heard from afar.

When I began the business I didn't have a child, we had two incomes and my home was my college fund and retirement rolled into one. Up until a year ago, it made financial sense to work minimum wage if you could make payments on your house, which earned more equity in a month than I cleared with a six figure salary. Now that the equity is gone, you'll probably see more sensible economic behavior from people. As for me, I'm still in my go big or go home phase of the business. Time will tell if it works out; I don't want to go home and sit around dreaming about what I do now. It's one of those strategies involving possessing the baked goods while simultaneously consuming them. Wish me luck!

1 comment:

  1. Good Luck!

    You know I'm still rooting for you... and I would be even if I didn't have a stake ;-)