© 2016 Shmoop University, Inc. All rights reserved.


Home Finance Investing Challenges Facing Entrepreneurs

Challenges Facing Entrepreneurs

Entrepreneurs—the people who found and own businesses—enjoy some pretty big perks: the corner office, first dibs on morning office coffee, and personal assistants they can order around. But that doesn't mean it's all apple pie and golf course tee times.

Entrepreneurs also face a number of challenges.

Less Stability

If you have a 9-to-5 job—even a crappy one—your employer is required by law to pay you. If you're an entrepreneur working for yourself, you don't have that kind of guarantee.

Have a client who doesn't pay? Tough break, champ. You're going to have to go after them yourself. Not earning anything because no one's buying your widgets, chocolate covered pretzels, or web design services? Then you don't get paid.

We hope you stocked up on Ramen noodles.

High Rates of Risk

If you have a traditional job, you're going to get paid until you get fired or until the company goes under. As an entrepreneur, you have higher rates of risk.

A lot of new businesses don't make it past the first year. If that's you, you're out on your butt. It's even worse if you've borrowed money to open your company because now you owe cash, and you don't have any money coming in to pay for that debt.

Not great.

Putting Others First

You wouldn't think that business person in the BMW is all about putting other people first, but as an entrepreneur you're probably going to be pouring most of the money you make back into your business or spending it on services—such as web design and accountants—rather than on yourself. Everything else comes first when you're building up a business, and that might mean there's very little left over for you at the beginning.

The payoff? Once you start succeeding, you get the big bucks.

Taxes and Overhead

Running your own business comes with a loss of expenses. The government is going to be really interested as soon as you open your doors, and the IRS will want their cut of the pie. On top of that, you're going to have to pay for really boring things like utilities, web hosting services, and everything else you need to keep your doors open (and lights on). All of that cuts into the money you could be spending on yourself.


To start any business, you're going to need some capital. Some of that will be intellectual capital—like the brilliant idea and patent you have for a new cell phone that levitates—and some of that will be cold, hard cash.

Paying wages for engineers and buying a cell phone manufacturing plant aren't free, you know. Coming up with $100 million or more to launch a tech business is pretty tough. In fact, if you had $100 million lying around, you might not feel the need to launch your own company.

You're probably going to have to take out loans, rely on angel investors, try venture capital, or sell shares of the company to pay for it all. And all of this is before you even have anything to show for it.


If you decide to get capital by selling stocks or shares of your company, you're going to be dealing with dilution. That means that the more shares you sell, the more money you will raise—but the less of your company you'll own.

At the start, you'll own 100% of your business. It'll be your baby. But after raising $100 million through ten rounds of financing, you might wind up owning only about 2% of the company: the rest belongs to your shareholders. And all those shareholders are going to want to have their say into how the company is run.

Yes, entrepreneurs get some major perks. If you launch a brilliant business and manage it well, you could end up with the next Snapchat or Instagram on your hands. You'll be rolling in millions and have tons of employees you can boss around while you put in more time on the serious business of vacation.

But along the way, there are lots of speed bumps you need to look out for. Better buckle your seat belt.

People who Shmooped this also Shmooped...