They Just Don't Understand Self-Employment; Comfortable vs Safe

[Smokystache]

I recently moved to a new state and the neighborhood is full of retired doctors. A neighbor has a summer party and we go to meet introduce ourselves to our neighbor. "Hey Smokystache, what do you do?"
Brief background: My path was to be a tenured college professor for about 15 years and then quit to continue building my own business. I now earn 3x+ my previous salary and I can work from home and work about half as many hours as I did. I'm in a much safer position now because I essentially have 300+ customers/employers who won't all fire me at the same time versus having 1 employer who has been on financially shaky ground (a college within our athletic division closed down completely last year). After careful planning, focusing on my goals, and taking some social risks, I'm living the dream.

It's hard to explain what I do, so I respond to the "What do you do?" question with something like, "Former college professor, trained as a psychologist, now self-employed and help X do Y." It seems to help them place me in the social pecking order and I admit to using this response for vain reasons.

Retired dermatologist response: "Well, there are 3 colleges nearby. Maybe you could get hired at one of them. You never know."
So let me get this straight. They want me to take a big pay cut and work more hours so I can fit into a nice little box that make sense to you by working for a business/organization. They have some sense of our finances because I'm sure everyone looked at how much the only house to sell on the street in the last 3 years went for. I was tempted to say, "They cannot afford me and none of their professors could afford this house" - but I let it go.

But it was a reminder of the mindset of most people who can only think in terms of working for someone else. There is psychological safety in going with the herd, I get it. And I've come to realize that not everyone has the mindset to be self-employed, but it still seems like some people think it is a fantasy. In reality, 150 years ago a huge portion of the North American population was self-employed. They had a local shop, service, or farm.

Comfortable vs Safe
I've been reading a lot of Seth Godin lately. In The Icarus Deception, he outlines his thoughts on the difference between being comfortable vs safe. For a long time, being comfortable was the same thing as being safe. A good example is the mid 1900s practice of: get to college to get a good job to do better than your parents. OR for small businesses, start a business in a place that doesn't have one (e.g., dry cleaner) + do what other dry cleaners do = success. But as conditions change more quickly, doing what is comfortable (the same old thing) isn't safe any more. It would have been comfortable for me to continue being a professor, but given that I was getting 1% raises and my family was growing and expenses were increasing, that would not have been a safe route. What was safer was to start a side-business and try to grow it. It certainly wasn't comfortable -- I had to learn new skills and put myself out into the world in a whole new way. But it was financially much safer.

I see lots of families and businesses doing what they have always done (the comfortable option) expecting it to provide the same safety that it did before. But in many cases it doesn't. They safest thing may now require us to do something uncomfortable.

[Metalcat]

Seems strange since so many MDs have always been self-employed independent contractors...

[JupiterGreen]

Thanks, this is a timely post for me. I recently pulled the plug on my safe career. With my partner gainfully employed, I am in the position to take my time in deciding what I want to do next. I may just continue on in my safe career. But I do love the idea of working for myself. How did you decide what to focus on in your business? Thanks for the book recommendation.   

[Log]

I was listening to an episode of Cal Newport's podcast a couple months ago where he was interviewing some kind of business/entrepreneurship guy (I forget who), and at one point they openly laughed at something about middle class norms and "the health insurance track" or something along those lines.

In the classical music, being "just a freelancer" is lower status than having a tenure-track orchestra job. Being one of the top freelancers in a major classical music city like NYC, SF, or Chicago is a better career than being tenured in a mid-tier orchestra by many objective measures and quite a few subjective measures... but the norms around status just aren't aligned with those measures. (Flying under the radar of the status monster may be one of those subjective benefits though...)

[FINate]

The comfortable option when I was growing up was the entrepreneurial path. I grew up working in the family business, and most of the successful people around us also had their own businesses. So my parents were horrified when I decided to head to college and pursue a career in software. They didn't have the means to pay for my college, and the thought of paying lots of money and forgoing an income for 4 years seemed very unsafe. I was the first person in my family, including extended family, to do a 4 year degree.

My main motivation was having zero interest in the day-to-day grind of running a business. I simply find it uninteresting and terribly tedious. I've always been wired like an engineer, fascinated by complex systems and solving difficult problems. I used to get in trouble in high school for not paying attention because I was programming my TI-85 calculator. So I did what seemed unsafe in my social context and went to college to pursue a degree that I was both good at and had the potential to be a good career.

So I think it's not as simple as career bad entrepreneur good. Knowing yourself, what motivates you and what you're good at, matters. Both paths take an lot of hard work -- I was never comfortable in my career for long, preferring to be stretched.  And let's be honest, there's also a lot of luck involved: getting in at the right company at the right time, having a good boss/mentor, starting a business in the right industry at the right time, and so on.

You know what's even more awkward then being self-employed at parties? Being retired in your 30s. The social pecking order folks usually don't know what to do with it. Some are offended, others are envious... always entertaining.

[Smokystache]

I was listening to an episode of Cal Newport's podcast a couple months ago where he was interviewing some kind of business/entrepreneurship guy (I forget who), and at one point they openly laughed at something about middle class norms and "the health insurance track" or something along those lines.

I could be wrong, but that was another thing that really blew people's minds. (And we may have had some sort of weird insurance situation, so YMMV). One of the things people mention is giving up their insurance. Well, the college's finances had gotten so bad that I was paying for about half of my own insurance and all of my spouse and children's insurance ... so when I went to an average ACA plan, I ended up paying .... drumroll ... about $100 more per month. That $1200 bucks/year had been such a mental hurdle until I did the math.

The comfortable option when I was growing up was the entrepreneurial path. I grew up working in the family business, and most of the successful people around us also had their own businesses. So my parents were horrified when I decided to head to college and pursue a career in software. They didn't have the means to pay for my college, and the thought of paying lots of money and forgoing an income for 4 years seemed very unsafe. I was the first person in my family, including extended family, to do a 4 year degree.

My main motivation was having zero interest in the day-to-day grind of running a business. I simply find it uninteresting and terribly tedious. ...
So I think it's not as simple as career bad entrepreneur good. Knowing yourself, what motivates you and what you're good at, matters.

This is an excellent point. I used to think that everyone could and should be self-employed, but I now realize that is foolish and untrue. It can be infinitely better for some to be able to focus on using a specialized set of skills and not worrying about marketing/sales, cash flow, product development, etc. etc.

[MaybeBabyMustache]

[/quote]
This is an excellent point. I used to think that everyone could and should be self-employed, but I now realize that is foolish and untrue. It can be infinitely better for some to be able to focus on using a specialized set of skills and not worrying about marketing/sales, cash flow, product development, etc. etc.
[/quote]

DH is always telling me to become self employed. I have a highly, highly specialized skill set, and absolutely zero desire to think about hustling, customer management, payroll, taxes, or any other part of running a small business. I cannot imagine anything less appealing to me. I'd rather make 50% less & work for a company that gives me the flexibility to excel at the things I (mostly) enjoy & leave the rest to everyone else. That said, I'm paid a lot, so there's some comfort in the ability to not have to worry about that type of income upside or downside.

[Metalcat]

This is an excellent point. I used to think that everyone could and should be self-employed, but I now realize that is foolish and untrue. It can be infinitely better for some to be able to focus on using a specialized set of skills and not worrying about marketing/sales, cash flow, product development, etc. etc.
[/quote]

DH is always telling me to become self employed. I have a highly, highly specialized skill set, and absolutely zero desire to think about hustling, customer management, payroll, taxes, or any other part of running a small business. I cannot imagine anything less appealing to me. I'd rather make 50% less & work for a company that gives me the flexibility to excel at the things I (mostly) enjoy & leave the rest to everyone else. That said, I'm paid a lot, so there's some comfort in the ability to not have to worry about that type of income upside or downside.
[/quote]

Ugh, same.

I am actually self-employed and just launched a new business and I despise the entrepreneurial side of things.

I too have a highly specialized skill set and currently also work for someone else's business, although I'm an independent contractor, so I'm still self-employed, but she does all of the admin, marketing, hustling, and it's awesome. I kick back a percentage of what I bill and I just get to do my job.

While I love that, there are also very compelling reasons to have my own business and circumstances came up to make it the common sense choice.

But yeah, for folks who enjoy being entrepreneurs, not doing so seems almost irrational. Meanwhile there are tons of people out there would can barely function without tons of external structure.

I'm finishing up a largely self-directed graduate degree, and I can't tell you how many classmates suffer, immensely because of how unstructured it is. I find it easy and fun and sometimes have a hard time grasping why anyone wouldn't want the freedom of self-direction. But that's not the norm.

And entrepreneurship really is just freedom to be self-directed. Which is great, I love that part, I just hate having to do so many tasks that aren't my main skill set.

I remember I was working as a contractor in a clinic and the owner came in hauling a giant thing of Costco toilet paper and K-cups. In that moment I was like "I don't ever want it to be my job to buy the toilet paper and coffee."

Too much of entrepreneurship means doing jobs I have zero interest in doing, even if it's going to get me more money.

I spent much of my Sunday figuring out how to change the colours on my logo to make it more printable on receipts. This is finicky bitch work that I have no training on doing, and paying someone else to do it is not a sound business choice, so I got to do it.

Yay.

I do find it interesting that OP is talking about self-employment being seen as somehow less desirable though, and I think this must be a particularly American thing. The responses about insurance suggest where this notion comes from. But it's interesting that we don't have a similar cultural thing here in Canada.

If someone here says they're a small business owner and they seem happy with it, absolutely no one would proffer that they should abandon their business in favour of working for a large organization.

People here are usually more impressed by someone starting their own business rather than concerned for them. But we don't have healthcare or retirement accounts tethered to our jobs.

I'm also kind of shocked that working for a large company is seen as "more secure" since mass layoffs happen all the time, and many states seem to have at-will employment, so where is the security??

We have very, very strong labour laws in Canada, so it's expensive to fire anyone unless they are caught red-handed stealing or assaulting someone. But even then, people have a pretty strong sense that your job is only as secure as your value in the industry, and that's the same with being an entrepreneur.

As a small business owner, I'm actually far more nimble to market changes than a large business. I can unilaterally alter the entire focus of my business overnight if that makes sense. A large company can't.

But again, that comes down to being self-directed. Which is more of a personality trait.

[SeattleCPA]

So on topic with this discussion, I just finished reading Benjamin Waterhouse's "One Day I'll Work for Myself."

I had thought the book was an ode to small business entrepreneurship. It turns out to be long whining ramble about why people shouldn't be self-employed. (My recommendation: Don't read the book. Please. Author recounts his father's small business failure and concludes you'll probably fail too. So why try.)

But a handful of things jump out from the book for me. First, Waterhouse like lots of naysayers doesn't really understand the crummy jobs or boring careers some people trade away by choosing the path of entrepreneurship and small business ownership. Not everybody gets a chance to go to medical school. Not everybody gets a tenured position at a big university.

Second, self-employment at least in the US results in higher incomes and more wealth building. The Millionaire Next Door was right.

Third, like anything you'd want to do for decades, you can't with entrepreneurship or small business just "decide" to do this and succeed. There's not a secret sauce or a cookie-cutter recipe you can learn or use and then it's all smooth sailing. Like anything else that potentially delivers enormous rewards, you need to work hard, be smart, ride out the storms, etc.

[Smokystache]

I do find it interesting that OP is talking about self-employment being seen as somehow less desirable though, and I think this must be a particularly American thing. The responses about insurance suggest where this notion comes from. But it's interesting that we don't have a similar cultural thing here in Canada.

This is a really good point. I think the idea of being an entrepreneur is celebrated and desired, but then is also seen as something risky and for other people to do. We celebrate the success of Bill Gates, but we do not celebrate college sophomores who drop out of Harvard.

I was listening to an episode of The Pathless Path Podcast (which is great for hearing about non-traditional vocational paths) and the host or the guest said something like:

"I grew up and my parents and teachers said that I could do or be anything I wanted. But what I discovered what that really meant was that I could do any clearly defined job that most people know about (i.e., teacher, lawyer, nurse, doctor, astronaut) that involved working for a company, organization, or government. But nontraditional vocational paths (and especially self-employed ones) that didn't have a clear name were still out of bounds." (e.g., teaching juggling on the internet, making custom doggie bandannas, etc.)

Edited for typo

[oldtoyota]

Your story — and the illogical way people view things — seems aligned with how attending Yale with a D average is “better” than a 4.0 at “only” a state college in some people’s minds.

According to Malcolm Gladwell and research he shared, the best students are the top third at any school. Gladwell counsels employers to hire from the top third.

The point is to expand one’s thinking beyond the brand names and beyond thinking in a narrow way.

The doctors you spoke to traveled a narrow path. They are obviously smart and definitely book smart yet they’ve not had the time or inclination to stray beyond a path that can be expensive to stray from.

PS: When you tell them you used to be a professor, I suspect they are thinking that’s what you really wanted to do and then failed. If you change the wording of your intro, you’ll get a different response and one you might like better. If you say you are an entrepreneur, they can fill in the blanks by looking at your house, etc.

OTOH, it can be powerful not to GAF. Most people think I don’t have the money I do, and  I don’t usually mind.

[Metalcat]

So on topic with this discussion, I just finished reading Benjamin Waterhouse's "One Day I'll Work for Myself."

I had thought the book was an ode to small business entrepreneurship. It turns out to be long whining ramble about why people shouldn't be self-employed. (My recommendation: Don't read the book. Please. Author recounts his father's small business failure and concludes you'll probably fail too. So why try.)

But a handful of things jump out from the book for me. First, Waterhouse like lots of naysayers doesn't really understand the crummy jobs or boring careers some people trade away by choosing the path of entrepreneurship and small business ownership. Not everybody gets a chance to go to medical school. Not everybody gets a tenured position at a big university.

Second, self-employment at least in the US results in higher incomes and more wealth building. The Millionaire Next Door was right.

Third, like anything you'd want to do for decades, you can't with entrepreneurship or small business just "decide" to do this and succeed. There's not a secret sauce or a cookie-cutter recipe you can learn or use and then it's all smooth sailing. Like anything else that potentially delivers enormous rewards, you need to work hard, be smart, ride out the storms, etc.

The bolded data has a massive survival bias in it though.

For example, you can't look at the average profit of restaurants and say that you're likely to make more money as a restaurant owner than a chef because the vast majority of restaurants fail and quickly take themselves out of the data pool.

But that also correlates with a hell of a lot of restaurant owners having little to no business acumen and doing the job in a way that would get them fired as a manager anyway.

Being self-employed is constitutes such an enormous range of realities, it's almost impossible to generalize.

[Metalcat]

I do find it interesting that OP is talking about self-employment being seen as somehow less desirable though, and I think this must be a particularly American thing. The responses about insurance suggest where this notion comes from. But it's interesting that we don't have a similar cultural thing here in Canada.

This is a really good point. I think the idea of being an entrepreneur is celebrated and desired, but when is also seen as something risky and for other people to do. We celebrate the success of Bill Gates, but we do not celebrate college sophomores who drop out of Harvard.

I was listening to an episode of The Pathless Path Podcast (which is great for hearing about non-traditional vocational paths) and the host or the guest said something like:

"I grew up and my parents and teachers said that I could do or be anything I wanted. But what I discovered what that really meant was that I could do any clearly defined job that most people know about (i.e., teacher, lawyer, nurse, doctor, astronaut) that involved working for a company, organization, or government. But nontraditional vocational paths (and especially self-employed ones) that didn't have a clear name were still out of bounds." (e.g., teaching juggling on the internet, making custom doggie bandannas, etc.)

Again, I think this is a highly American thing, which is so weird to me since the US is famous for its veneration of business owners.

Up here in Canadaland, it's not considered so radical fo start your own business, but again I think there's SOOOO much more sense of security in the US attached to traditional employment because of insurance and 401K plans.

Because we don't have those distinct differences, people just aren't as aware of there even being a difference.

In fact, I spend an enormous amount of my time currently explaining to collegues that employment and self-employment are meaningfully different and that they should probably invest a bit of time in understanding that.

I'm not kidding. At least once a day I have to clarify how those two things are meaningfully different, often to people who have been self-employed for years. It's really quite hilarious.

[roomtempmayo]

Good distinction, @Smokystache .  I hadn't quite thought of the comfortable thing being un-safe, but it clearly is at times.  The Rust Belt and much of small town America are good examples of the perils of choosing comfort and confusing it for safety.

What I'm seeing at my university right now is faculty quietly maintaining all sorts of side gigs, and occasionally going full time with them.  For lots of people, it's just a way of topping up their salary. 

When I've talked to people about how they got their start on a side gig that turned into a job, it's usually some version of someone asked me to do this, and then another person did, and I realized there was a market need.  How did you get your initial start?  Did you try to market yourself, or did the work come to you?

[SeattleCPA]

So on topic with this discussion, I just finished reading Benjamin Waterhouse's "One Day I'll Work for Myself."

I had thought the book was an ode to small business entrepreneurship. It turns out to be long whining ramble about why people shouldn't be self-employed. (My recommendation: Don't read the book. Please. Author recounts his father's small business failure and concludes you'll probably fail too. So why try.)

But a handful of things jump out from the book for me. First, Waterhouse like lots of naysayers doesn't really understand the crummy jobs or boring careers some people trade away by choosing the path of entrepreneurship and small business ownership. Not everybody gets a chance to go to medical school. Not everybody gets a tenured position at a big university.

Second, self-employment at least in the US results in higher incomes and more wealth building. The Millionaire Next Door was right.

Third, like anything you'd want to do for decades, you can't with entrepreneurship or small business just "decide" to do this and succeed. There's not a secret sauce or a cookie-cutter recipe you can learn or use and then it's all smooth sailing. Like anything else that potentially delivers enormous rewards, you need to work hard, be smart, ride out the storms, etc.

The bolded data has a massive survival bias in it though.

For example, you can't look at the average profit of restaurants and say that you're likely to make more money as a restaurant owner than a chef because the vast majority of restaurants fail and quickly take themselves out of the data pool.

But that also correlates with a hell of a lot of restaurant owners having little to no business acumen and doing the job in a way that would get them fired as a manager anyway.

Being self-employed is constitutes such an enormous range of realities, it's almost impossible to generalize.

So the survivor bias was the criticism twenty years ago. And then people starting doing longitudinal surveys. And I think those studies show Stanley was right.

In this blog post of mind, I tried to link to those surveys: https://evergreensmallbusiness.com/defending-millionaire-next-door-theory-what-stanleys-critics-got-wrong/

[SeattleCPA]

Good distinction, @Smokystache .  I hadn't quite thought of the comfortable thing being un-safe, but it clearly is at times.  The Rust Belt and much of small town America are good examples of the perils of choosing comfort and confusing it for safety.

Can I go just totally off tangent here? I think the comfortable vs safe contrast is the wrong one at least operationally. Or practically.

I think it's more of an "active vs. passive" approach.

This elaboration... Lots of jobs, professions and occupations are basically canned recipes. Analogous to just using passive investing principles. Sort of "set and forget".

Entrepreneurship is not like that. A few years ago, I encountered the concept of OODA loops. And that to me is the best model for entrepreneurship or small business ownership. I.e., there's not a formula or recipe. No secret sauce. Rather, the entrepreneur or small business owner continually makes decisions... and if her or his decisions are better than competitors, they gain an advantage.

[Metalcat]

So on topic with this discussion, I just finished reading Benjamin Waterhouse's "One Day I'll Work for Myself."

I had thought the book was an ode to small business entrepreneurship. It turns out to be long whining ramble about why people shouldn't be self-employed. (My recommendation: Don't read the book. Please. Author recounts his father's small business failure and concludes you'll probably fail too. So why try.)

But a handful of things jump out from the book for me. First, Waterhouse like lots of naysayers doesn't really understand the crummy jobs or boring careers some people trade away by choosing the path of entrepreneurship and small business ownership. Not everybody gets a chance to go to medical school. Not everybody gets a tenured position at a big university.

Second, self-employment at least in the US results in higher incomes and more wealth building. The Millionaire Next Door was right.

Third, like anything you'd want to do for decades, you can't with entrepreneurship or small business just "decide" to do this and succeed. There's not a secret sauce or a cookie-cutter recipe you can learn or use and then it's all smooth sailing. Like anything else that potentially delivers enormous rewards, you need to work hard, be smart, ride out the storms, etc.

The bolded data has a massive survival bias in it though.

For example, you can't look at the average profit of restaurants and say that you're likely to make more money as a restaurant owner than a chef because the vast majority of restaurants fail and quickly take themselves out of the data pool.

But that also correlates with a hell of a lot of restaurant owners having little to no business acumen and doing the job in a way that would get them fired as a manager anyway.

Being self-employed is constitutes such an enormous range of realities, it's almost impossible to generalize.

So the survivor bias was the criticism twenty years ago. And then people starting doing longitudinal surveys. And I think those studies show Stanley was right.

In this blog post of mind, I tried to link to those surveys: https://evergreensmallbusiness.com/defending-millionaire-next-door-theory-what-stanleys-critics-got-wrong/

FTR, I wasn't citing surveys, I was citing years of knowing people who have launched businesses, especially restaurants that failed and then went back to employment.

Also, that's article doesn't say that survivorship bias isn't real, it says that you can't accurately quantify it based on business failure rates.

I firmly stand by the fact that there is still survivorship bias in that folks who don't have what it takes to run a successful business do tend to get scared off of entrepreneurship and go back to traditional employment. Meaning that the averages of incomes for self-employed folks represent those who have succeeded and stayed self-employed.

It's also impacted by the fact that a lot of people who go into business do so because demand found them and they saw an opportunity.

My point is that the relationship between entrepreneurship and making more money is enormously dependent on the ability of the person starting the business.

If you randomly assorted people into two groups and had half start a business and half work in conventional employment, I doubt the average income would be higher for the entrepreneurial group.

My point is that it's not a characteristic of being self employed that makes average self-employment more lucrative, it's hugely impacted by the fact that successful entrepreneurship requires certain skills and traits and people with those skills and traits are drawn to starting businesses.

If entrepreneurship is well suited to someone, then yeah, they'll probably make more money doing it. But if it isn't, they probably won't.

Countless people who would be terrible entrepreneurs will never have their lack of skill/drive factored into the stats because they'll happily select themselves out of that population for their entire lives.

I agree with the article that high business failure rates does not mean an individual with a lot of skill and temperament for business ownership is doomed. And I never said that. But there is both selection and survivorship bias at play.

[SeattleCPA]

If you randomly assorted people into two groups and had half start a business and half work in conventional employment, I doubt the average income would be higher for the entrepreneurial group.

Okay the two studies I referenced in my blog post, obviously, they weren't describing a clinical experiment. But the longitudinal study is pretty robust. Two groups, employed vs. self-employed.  Dummies and geniuses in both groups. Hard workers and slackers in both groups. Educated and uneducated. Et. The differentiating feature though, employed vs. self-employed. And there's a noticeable bump for self-employed.

My point is that it's not a characteristic of being self employed that makes average self-employment more lucrative, it's hugely impacted by the fact that successful entrepreneurship requires certain skills and traits and people with those skills and traits are drawn to starting businesses.

Well first, note that longitudinal study includes people who tried and failed at self-employment (also those who tried and failed at law, medical school, software engineering, etc.) Also they are considering other traits like IQ, race, etc.

If entrepreneurship is well suited to someone, then yeah, they'll probably make more money doing it. But if it isn't, they probably won't.

Yes but isn't that true for every vocation?

I agree with the article that high business failure rates does not mean an individual with a lot of skill and temperament for business ownership is doomed. And I never said that. But there is both selection and survivorship bias at play.

Think about the survivorship bias this way. With mutual fund performance, the problem is the funds that die stop appearing in the statistics. Ten or twenty years later, it's like they never existed in a survey that looks only that this year.

But if your mutual fund performance data never dropped those funds from two or three decades ago? If the study was "longitudinal?' That lack of survivorship would keep showing up.

I'm sure the longitudinal studies I pointed to and summarized aren't perfect. But they really undermine the old, intuitive judgement and anecdotal conclusion that what the Millionaire Next Door pointed to what an artifact of survivorship bias.

[Metalcat]

If you randomly assorted people into two groups and had half start a business and half work in conventional employment, I doubt the average income would be higher for the entrepreneurial group.

Okay the two studies I referenced in my blog post, obviously, they weren't describing a clinical experiment. But the longitudinal study is pretty robust. Two groups, employed vs. self-employed.  Dummies and geniuses in both groups. Hard workers and slackers in both groups. Educated and uneducated. Et. The differentiating feature though, employed vs. self-employed. And there's a noticeable bump for self-employed.

My point is that it's not a characteristic of being self employed that makes average self-employment more lucrative, it's hugely impacted by the fact that successful entrepreneurship requires certain skills and traits and people with those skills and traits are drawn to starting businesses.

Well first, note that longitudinal study includes people who tried and failed at self-employment (also those who tried and failed at law, medical school, software engineering, etc.) Also they are considering other traits like IQ, race, etc.

If entrepreneurship is well suited to someone, then yeah, they'll probably make more money doing it. But if it isn't, they probably won't.

Yes but isn't that true for every vocation?

I agree with the article that high business failure rates does not mean an individual with a lot of skill and temperament for business ownership is doomed. And I never said that. But there is both selection and survivorship bias at play.

Think about the survivorship bias this way. With mutual fund performance, the problem is the funds that die stop appearing in the statistics. Ten or twenty years later, it's like they never existed in a survey that looks only that this year.

But if your mutual fund performance data never dropped those funds from two or three decades ago? If the study was "longitudinal?' That lack of survivorship would keep showing up.

I'm sure the longitudinal studies I pointed to and summarized aren't perfect. But they really undermine the old, intuitive judgement and anecdotal conclusion that what the Millionaire Next Door pointed to what an artifact of survivorship bias.

But I wasn't making the point that the article talks about. I wasn't saying that success as a self employed person is improbable, I was just saying that there is survivorship bias and then I added that there is selection bias as well.

My only point is that self-employment isn't universally financially beneficial. It's very easy to lose money trying it.

If you have what it takes, the right skills, the right temperament, etc, then yeah, it can be awesome. But that's like saying becoming a surgeon will make you a lot of money...well sure...if you have the ability to become a surgeon...

For people who are likely to do well as entrepreneurs, yeah, self-employment is almost a reliable way to make more money.

I have an entrepreneurial background and skills, I don't enjoy a lot of it, but I'm currently looking at my career options and starting my own business is stupidly obvious because I can easily make much, much more money doing that, to the point that it would be stupid not to.

But I'm also part of professional FB groups filled with colleagues who don't have these skills who are making almost no money and helplessly flailing around trying to figure out what to do to remedy the myriad problems with their business models.

These are people who wouldn't choose self-employment except that it's the most common model in our industry and it takes a lot of networking skills to find good employment opportunities.

So I have exposure to tons and tons of reluctant entrepreneurs who barely even understand that they are entrepreneurs sometimes, and they have less business skill than the average kid with a lemonade stand.

The same skills that make someone successful at entrepreneurship tend to make them successful at employment as well, they just see ways to make more on their own.

Also, the world of entrepreneurship is enormous and varied. There are industries like mine where the majority are self-employed (despite the industry also having a selection bias for people who lack business skills...). Then there are industries where megacorps rule and small businesses get crushed. Then there are industries where there's a blend.

There are also employment roles that help equip people to have business skills. Any employment role that involves a lot of management tasks will better prepare someone for entrepreneurship. But industries like healthcare and law where people get little to no management experience leave them unprepared.

The entrepreneurial experience is so incredibly varied that my point is not to diminish that self-employed folks make more. I'm not pointing to the stats and saying "oh look, there's so much failure, those higher numbers are misleading."

I'm saying that those higher numbers point to a much more nuanced reality. And whether entrepreneurship is a good idea for an individual is way more complicated than just "hey go for it, self-employed people make more!"

But I am very, very biased by being a member of not one but two professions where self-employment is the norm and the self-employed people have no fucking clue what they're doing and end up in absolutely dumbfuck financial situations.

So I'm much more aware of just how ill-suited some folks are to owning businesses.

[Smokystache]

Good distinction, @Smokystache .  I hadn't quite thought of the comfortable thing being un-safe, but it clearly is at times.  The Rust Belt and much of small town America are good examples of the perils of choosing comfort and confusing it for safety.

Yes, rust-belt small towns is a great example of this. While the decision to move away from a hometown is complicated, when your town loses all of the major employers you are faced with a choice. The comfortable choice is to stay put in a familiar location where you may have some social support - but it is not a safe choice. The safe choice is to go where you know there are high-paying jobs available, but you'll have to go through the discomfort of moving, etc.

Good distinction, @Smokystache
When I've talked to people about how they got their start on a side gig that turned into a job, it's usually some version of someone asked me to do this, and then another person did, and I realized there was a market need.  How did you get your initial start?  Did you try to market yourself, or did the work come to you?

Yes, this is exactly my story. I was looking at teaching the same 5 classes for the next 25-30 years of my life and that wasn't appealing. I had tried college administration (one of the few ways to increase income within the system) and found that I hated it. And along came a business that said, "If you use your expertise and create something that we find useful, we will pay you for it."

As my side-hustle, I did a deep dive into that industry, got to know lots of people and watched closely, asked lots of questions, and listened carefully. And then starting developing other products and services within that industry. Start fast and lean, market wisely, fail quickly, learn why it didn't work, and move on to the next thing, all while paying attention to ways that I could leverage time, audience, and effort.

I got to the point where I was reasonably confident that I could earn more than my professor job, saved up some "bridge" money to tide me over and then jumped. But to be clear, I was 95% sure that I would could earn more because I was already earning about 80% of my professor income as a part-time side hustle. For me, it was about 5 years from starting the side gig to quitting my tenured position.

[roomtempmayo]

Thanks @Smokystache .  It's good to hear your story, and it shares themes with others I've heard.  The major commonality is that an academic position can serve as a really long onramp and safety net as you're getting going.

Since 2020, I think the degree to which faculty feel stuck has increased significantly.  Stuck in exactly the ways you describe: the rewards of classroom teaching are limited while the demands are increasing, and the only obvious way out is administration, which might be worse.

It sounds like you made a good choice.

[Smokystache]

Since 2020, I think the degree to which faculty feel stuck has increased significantly.  Stuck in exactly the ways you describe: the rewards of classroom teaching are limited while the demands are increasing, and the only obvious way out is administration, which might be worse.

It sounds like you made a good choice.

Earlier this year, I wrote about 30,000 words on an possible ebook/self-published book on how to move from academia to self-employed. I ran out of gas on it, but your comment makes me want to dust it off and see if I can finish it up.

[roomtempmayo]

Since 2020, I think the degree to which faculty feel stuck has increased significantly.  Stuck in exactly the ways you describe: the rewards of classroom teaching are limited while the demands are increasing, and the only obvious way out is administration, which might be worse.

It sounds like you made a good choice.

Earlier this year, I wrote about 30,000 words on an possible ebook/self-published book on how to move from academia to self-employed. I ran out of gas on it, but your comment makes me want to dust it off and see if I can finish it up.

I'd be interested in reading a book like that.

It seems that there are two somewhat distinct audiences:

1) People in fields with a fair amount of private sector overlap that mostly need help figuring out how to make their existing work into a private business.  Most of these people probably know people from grad school who went to the private sector, and they have something of a model.  They're not stuck in academia, because they could pretty readily jump to the private sector.

2) People in fields with little private sector overlap who need to figure out how to either reframe their work/skills so they're marketable, or retool entirely.  They often aren't going to have great models from their grad cohort.  These are the people who I called stuck.

Right now, I think #2 is both the more complex case and the main audience.  To make a leap they have to get over the sunk cost fallacy, the deeply internalized valorization of academia, and become willing to do something that's going to be pretty new in middle age before the practical nuts and bolts of business really apply.  If you could write a book addressing that audience, there would be a very significant readership.

[J.P. MoreGains]

A guy I knew was 25 years old and started a gutter cleaning business and related services. He would work a ton and often would make $1,000 day. 20k months were common. He would be hired by doctors and lawyers who were much higher status but he made a ton of money with no school and no debt. They would probably think "look at this poor kid cleaning gutters on houses"

He had a client who was an ex-wife who divorced a lawyer tell him "charge whatever you want my ex is paying for it". He charged the normal price because he felt bad for the poor guy.

His job isn't safe... he had to earn everything himself, plus it's really risky with ladders and being on roofs. But no one wants to climb on a two story roof so it's an easy way to make $300. He would try to book 3 jobs a day and work as many days as he could.

I've thought about just copying that and doing it in my city... it's just ladders are so dangerous and one mistake is so costly that I'm really hesitant. Great way to make money though if you can take that risk.

[Smokystache]

Since 2020, I think the degree to which faculty feel stuck has increased significantly.  Stuck in exactly the ways you describe: the rewards of classroom teaching are limited while the demands are increasing, and the only obvious way out is administration, which might be worse.

It sounds like you made a good choice.

Earlier this year, I wrote about 30,000 words on an possible ebook/self-published book on how to move from academia to self-employed. I ran out of gas on it, but your comment makes me want to dust it off and see if I can finish it up.

I'd be interested in reading a book like that.

It seems that there are two somewhat distinct audiences:
...

2) People in fields with little private sector overlap who need to figure out how to either reframe their work/skills so they're marketable, or retool entirely.  They often aren't going to have great models from their grad cohort.  These are the people who I called stuck.

Right now, I think #2 is both the more complex case and the main audience.  To make a leap they have to get over the sunk cost fallacy, the deeply internalized valorization of academia, and become willing to do something that's going to be pretty new in middle age before the practical nuts and bolts of business really apply.  If you could write a book addressing that audience, there would be a very significant readership.

Yes, that is the audience that I had in mind. There are several books out there geared toward "how to re-write your vita/cv into a resume for industry" and some version of trading one w-2 job for another w-2 job. But I couldn't find anything on how to go from academia to self-employed. I'm definitely not writing it as a "this is easy and quick" -- but more as an adaptable process that one could follow if they wanted to create a side-hustle or two and then see if that grows enough to consider quitting.

[Freedomin5]

A guy I knew was 25 years old and started a gutter cleaning business and related services. He would work a ton and often would make $1,000 day. 20k months were common. He would be hired by doctors and lawyers who were much higher status but he made a ton of money with no school and no debt. They would probably think "look at this poor kid cleaning gutters on houses"

He had a client who was an ex-wife who divorced a lawyer tell him "charge whatever you want my ex is paying for it". He charged the normal price because he felt bad for the poor guy.

His job isn't safe... he had to earn everything himself, plus it's really risky with ladders and being on roofs. But no one wants to climb on a two story roof so it's an easy way to make $300. He would try to book 3 jobs a day and work as many days as he could.

I've thought about just copying that and doing it in my city... it's just ladders are so dangerous and one mistake is so costly that I'm really hesitant. Great way to make money though if you can take that risk.

Yup. Best way to make money is to do the stuff that no one else wants to do. One of my mom’s neighbors in her retirement community cleans windows. There are over 1000 houses in the community, most with elderly folks living in them. They’re all happy to pay $100 for him to clean their windows. Even if only half of them use his services, that’s $50k right there for one summer of work.

[Archipelago]

This is a great topic with some excellent points from both sides brought up.

Speaking from the self-employed side, I'm of the opinion that the risk associated with being self-employed is a double-edged sword. In one scenario, you can have a business that puts you in a position to consistently learn, improve, earn, grow in new directions, etc. I see that as safe. But if those things stagnate, if you simply lose passion for the business, or you become too comfortable and lose a sense of life purpose? Then what happens? All of a sudden, you're stuck while still carrying all the risk. If you have employees and customers, they're still relying on you. Not so safe anymore.

Thought provoking and relevant to my life situation atm.

[Smokystache]

This is a great topic with some excellent points from both sides brought up.

Speaking from the self-employed side, I'm of the opinion that the risk associated with being self-employed is a double-edged sword. In one scenario, you can have a business that puts you in a position to consistently learn, improve, earn, grow in new directions, etc. I see that as safe. But if those things stagnate, if you simply lose passion for the business, or you become too comfortable and lose a sense of life purpose? Then what happens? All of a sudden, you're stuck while still carrying all the risk. If you have employees and customers, they're still relying on you. Not so safe anymore.

Thought provoking and relevant to my life situation atm.

Yes, this quickly gets into the issue of whether or not you are creating a "self-employed job" vs "self-employed business owner" and the types of services/products you're providing. I will readily admit that I'm both ... I have subscription clients that require that I provide ongoing services (that means I've created a job for myself). For these services, I've worked hard to craft them and chosen a specific type of client so that I can provide them in a very efficient manner (i.e., less than 3 hours/week). But I've also created products & written materials (books & videos) that can generate income on their own without much more effort than sending an invoice -- I like to think of these products as my employees/minions that I send out to bring back income for me. (aka, I'm the owner, not the labor).

More fun topics are pricing (hourly vs value-based), marketing, etc. etc.

[roomtempmayo]

Speaking from the self-employed side, I'm of the opinion that the risk associated with being self-employed is a double-edged sword. In one scenario, you can have a business that puts you in a position to consistently learn, improve, earn, grow in new directions, etc. I see that as safe. But if those things stagnate, if you simply lose passion for the business, or you become too comfortable and lose a sense of life purpose? Then what happens? All of a sudden, you're stuck while still carrying all the risk. If you have employees and customers, they're still relying on you. Not so safe anymore.

Good point.  With W2 employment, you either have a full time job and you get paid, or you don't.  You mostly know when you're in trouble.

For various reasons, I've seen multiple small businesses start off really well before gradually declining.  Sometimes the owners are like frogs that don't jump out of the pot as the water comes to a boil since they don't really notice the change.  And sometimes they've been willfully ignorant since they don't know what else to do.  The risk of just soldiering on as the business gets worse seems pretty real.

Yes, this quickly gets into the issue of whether or not you are creating a "self-employed job" vs "self-employed business owner" and the types of services/products you're providing. I will readily admit that I'm both ...

Makes me think of several friends who went out on their own over the past several years in law and tech.  They've pretty much all done well, but they've worked really hard for it and some are ready to step back.  And they're struggling to find an offramp since their business is a service.

Two quotes stand out in my head from the last year or so.  One from a friend in tech talking about taxes: "There really isn't any honest business income.  It's all just paying me wages.  The business is just my work."  And another mulling the problem of having created a successful boutique law firm: "You can't really sell a law firm.  The firm is just us billing hours."

[Missy B]

A guy I knew was 25 years old and started a gutter cleaning business and related services. He would work a ton and often would make $1,000 day. 20k months were common. He would be hired by doctors and lawyers who were much higher status but he made a ton of money with no school and no debt. They would probably think "look at this poor kid cleaning gutters on houses"

He had a client who was an ex-wife who divorced a lawyer tell him "charge whatever you want my ex is paying for it". He charged the normal price because he felt bad for the poor guy.

His job isn't safe... he had to earn everything himself, plus it's really risky with ladders and being on roofs. But no one wants to climb on a two story roof so it's an easy way to make $300. He would try to book 3 jobs a day and work as many days as he could.

I've thought about just copying that and doing it in my city... it's just ladders are so dangerous and one mistake is so costly that I'm really hesitant. Great way to make money though if you can take that risk.

Yup. Had a new guy do my gutters this year and vinyl siding this year. We paid $650 for a duplex, which in my area is extremely competitive pricing, and he did a crackerjack job. Blew all the leaves off the driveway so they wouldn't get wet and sticky first, cleaned the whole house and texted me photos of some shingle that was losing a lot of granule. He might have been 3 hours including packing up - definitely enough time to do another job or two our size that day.
Responded to communications in a timely way, had a good website, and so many 5 star reviews on google that I thought some of them must be fake... until he came to my house.
Anyone with strength, stamina, customer service mindset and no issues with heights could do very well for themselves at this job without needing a lot of expensive education.

[Smokystache]

A guy I knew was 25 years old and started a gutter cleaning business and related services. He would work a ton and often would make $1,000 day. 20k months were common. He would be hired by doctors and lawyers who were much higher status but he made a ton of money with no school and no debt. They would probably think "look at this poor kid cleaning gutters on houses"

He had a client who was an ex-wife who divorced a lawyer tell him "charge whatever you want my ex is paying for it". He charged the normal price because he felt bad for the poor guy.

His job isn't safe... he had to earn everything himself, plus it's really risky with ladders and being on roofs. But no one wants to climb on a two story roof so it's an easy way to make $300. He would try to book 3 jobs a day and work as many days as he could.

I've thought about just copying that and doing it in my city... it's just ladders are so dangerous and one mistake is so costly that I'm really hesitant. Great way to make money though if you can take that risk.

Yup. Had a new guy do my gutters this year and vinyl siding this year. We paid $650 for a duplex, which in my area is extremely competitive pricing, and he did a crackerjack job. Blew all the leaves off the driveway so they wouldn't get wet and sticky first, cleaned the whole house and texted me photos of some shingle that was losing a lot of granule. He might have been 3 hours including packing up - definitely enough time to do another job or two our size that day.
Responded to communications in a timely way, had a good website, and so many 5 star reviews on google that I thought some of them must be fake... until he came to my house.
Anyone with strength, stamina, customer service mindset and no issues with heights could do very well for themselves at this job without needing a lot of expensive education.

Yes, we needed to prep our home to be listed/sold and I needed someone to fix some gutters. They came out within 2 days to review the home (friendly chat, no pressure at all), created an online quote where I could check a box to choose option A,B, or C with corresponding pricing. Add a CC to pay a deposit to book the job, and then a follow up email after the job was done to ask for a recommendation. Just a small amount invested in an online system that made it super easy for me was - dare I say - delightful. Then I understood why they had 4.9/5 stars and hundreds of reviews even though it seemed like a team of 2 or 3.

[SeattleCPA]

Two quotes stand out in my head from the last year or so.  One from a friend in tech talking about taxes: "There really isn't any honest business income.  It's all just paying me wages.  The business is just my work."

What your friend describes really isn't a business. It's possibly a misclassified job. Or it's a self-employed situation where he either can't figure out how to make the jump to a business that employs people or he picked an opportunity that won't lead itself to adding other team members.

  And another mulling the problem of having created a successful boutique law firm: "You can't really sell a law firm.  The firm is just us billing hours."

I'd say your lawyer didn't actually create a firm. He created a job. There really is a difference. Same thing applies to CPAs. You've got tax accountants who get 200 clients willing to pay $1K each for a return. Get an office and some good tech (costs $50K?) and maybe the person makes $150K. But that's not really a business.

The Fed's Survey of Consumer Finances highlights this issue pointing out that where small business owner really begins to impact finances of entrepreneurs? When the business owner adds employees. I talked about that here. But to highlight the key bits.

Mean net worth of families without a business: $570K (not counting the business)
Mean net worth of families with a nonemployer business: $1.1M (again not counting a business)
Mean net worth of families with business employing more than five people: $4.1M (again not counting a business)

[roomtempmayo]

What your friend describes really isn't a business. It's possibly a misclassified job. Or it's a self-employed situation where he either can't figure out how to make the jump to a business that employs people or he picked an opportunity that won't lead itself to adding other team members.

I think another way of putting it is that we have a tax code that incentivizes calling self employment a business, and discourages hiring employees to become a business.

I mention that because the context of the conversation with the first friend I mentioned was mulling advice from his accountant.  His accountant's advice was to claim only the absolute lowest plausible personal compensation, and claim the rest of the money he made as business revenue to get taxed at a lower rate.  We agreed that wasn't honest, but apparently it's common enough that his accountant told him to do it.

I wonder if in a work from home world, the distinctions between W2 income, contract income, and small business income aren't really coherent anymore.  A W2 employee who is full time WFH can't claim a home office deduction, but the contractor on his team can.  A W2 employee at a bring-your-own-device workplace can't claim a deduction for his technology, but a one man shop can.  Not to mention all of the overlapping of personal and work expenses standard at small businesses that are always categorized as business expenses, which seems to be a big part of why the F150 crew cab is the best selling vehicle in America.  It seems that there are lots of tax incentives to not be a W2 employee if you can go out on your own and claim to be a business.

On the other hand, hiring people is its own special mess, and of the several people I know who struck out on their own in the past five years or so, none have added W2 employees.

Self-employment that's categorized as a business seems to be a sweet spot of taxes and logistics where you can claim most of the tax benefits of being a business without actually managing people.  And that seems to be a bad dynamic for the economy, because these businesses don't ever become what Mitt Romney called "job creators" unless he meant creating a job for yourself.

But you're the CPA and maybe I'm thinking about this all wrong.

[Smokystache]

What your friend describes really isn't a business. It's possibly a misclassified job. Or it's a self-employed situation where he either can't figure out how to make the jump to a business that employs people or he picked an opportunity that won't lead itself to adding other team members.

I think another way of putting it is that we have a tax code that incentivizes calling self employment a business, and discourages hiring employees to become a business. ...

I don't know if this will be helpful, but it helps to think about pros/cons of different self-employed business models. Here's my off-the-cuff attempt at delineating a couple of career path possibilities (I'm sure there are more options/variations and there are many factors to consider at each level).

A) W-2 Employee
Sara gets her professional degree in counseling and gets hired by a state agency to provide counseling services for clients. She is paid as a W-2 employee. After a while, Sara gets really good at providing therapy services for people who are addicted to popsicles (ridiculous example, obv). She decides to start a private practice on Saturdays to work with popsicle addicts which turns into....

B) W-2, with Side Hustle
Assuming this isn't against her contract, she gains clients and experience and is able to earn extra income. Depending on how much she is earning and how she wants to pay herself and set up her tax situation/legal situation, she may create an LLC for the side-hustle. She may take the added step of adding S-Corp status (obviously dependent upon a lot of factors, especially how much income the side-hustle is creating). She charges her side-hustle clients on an hourly basis.

C) Hourly Side-Hustle grows to FT Self-Employment
After a while, Sara finds that she would rather have control over her time, control over which clients/problems she works with, and control over how much she charges for her time & expertise. She quits her w-2 job and goes "full time" as an independent therapist who specializes in popsicle addictions. She finds that she needs to market her services on her own and find her own clients. Because she has specialized in one particular problem, this is easier than being a generalist, but still requires work. Because it is all she knows, she continues to charge per therapy hour, but did raise her rates as soon as her caseload fills up. She definitely creates an LLC for liability purposes and potentially considers S-corp election for various reasons.

Sara has freedom to take her own vacations, set her own hours, choose her own clients, choose her own counseling methods, etc. But she also has the responsibility to find her clients, collect payment, pay self-employment taxes, obtain her own liability insurance, etc.

D) Self-Employed Hourly + Products
After lots of encouragement from her clients and professional colleagues, Sara writes a short book teaching other therapists how to counseling individuals with popsicle addiction. She self-publishes the book as an e-book and lists it on Amazon and her own website. 2 Things happen: First, she begins earning some additional income without any additional work through book royalties. She is especially pleased to wake up the first morning after posting the book on Amazon to find that she earned money while she slept. Second, she begins to gain referrals from other therapists who read/see her book, but realize they don't really want to specialize in popsicle addictions -- but send their clients her way for online therapy. Sara's openings fill up and she now has a long wait-list.

E) At this point, Sara has three very different paths she can choose:
1) Keep going on the same path - she chooses to raise her rates a bit (because she knows she can fill her time) and continues to earn money on an hourly basis and some book income

2) Hire Employees: Sara discovers she has become an expert and an authority on this topic. To meet the demand, she decides to hire enough employees to provide counseling services to her wait list. Sara charges clients a higher rate, pay her therapists-employees portion of that rate and keeps the difference. She may or may not continue seeing her own clients. While she can serve more people and she can earn income while she is not, herself, seeing a client -- she also has the challenge of hiring, firing, paying, and managing employees and all the legal and financial responsibilities that come with it.

3) Value-Based Pricing & Assets : Sara could choose a 3rd path which does NOT involve hiring employees. She could begin to create value-based packages of her services that are dependent on what her clients value. For example, she may be approached by a big-wig CEO who is about to lose his job because of his popsicle addiction. Sara could choose to fly to his community and provide intensive services over the course of a week for a set price of $xx,xxx. Or Sara could provide a package that includes ongoing services for either 6 months or until the individual is "cured" for a set fee.

Regardless of the specifics, these packages are not based on hourly rates, but are based on the value provided to the client. Sara is rewarded when she is able to provide relief faster (as opposed to her income being punished/reduced when she works faster in an hourly rate scenario). This allows Sara to earn a higher income (if she chooses) that is less connected to her time spent with clients. Uses a value-based scenario, she frees up time to write a self-help book for those who are addicted to popsicles -- which creates more demand for clients and also additional income.

Obviously, Sara's career path could evolve differently and with many different variations. Personally, my goal is E3 - when I work it is compensated based on the value that I provide, not just based on the hours I work. Plus, I would want to create products/services that could be delivered without using my time at all. Eventually one may be able to build up enough of those products/services that you wouldn't need to provide direct services at all. Additionally, those products/services could continue to be sold even after you have "retired" whatever that looks like.

[SeattleCPA]

I mention that because the context of the conversation with the first friend I mentioned was mulling advice from his accountant.  His accountant's advice was to claim only the absolute lowest plausible personal compensation, and claim the rest of the money he made as business revenue to get taxed at a lower rate.  We agreed that wasn't honest, but apparently it's common enough that his accountant told him to do it.

FWIW, I would not describe that as dishonest. Some background to explain this alternative point of view. In 2010, House Ways and Means Committee Chair Charles Rangel decided that some groups of small business corporations shouldn't be able to do this any longer... though he concluded other small business corporations could and should be able to continue to do this. The statute appeared in Section 413(m) of "American Jobs and Closing Tax Loopholes Act of 2010". House passed this law agreeing some small business corporations could do what your friend and his accountant do and that others can't... Bill then went to Senate and they let it die. I would guess partly because it was so patently political. (Blue collar small businesses still got to play the game. White collar small businesses didn't.)

As a tax accountant who doesn't make the rules but helps clients follow rules and optimize, I think people do (and get to do) what they're allowed.

BTW my opinion and one I strongly argued for this morning in a private online CPA forum: CPAs owe it to their clients to optimize client taxes. I made this point because some of the CPAs coincidentally were arguing they should apply Section 413(m) to small business owners.  I think that's terrible.

FYI there's another thing to mention here. There is a rule for this: Treasury Regulation 1.162-7. And it says the amount needs to be reasonable. But if someone follows that rule, I don't think it's accurate to call them dishonest.

I wonder if in a work from home world, the distinctions between W2 income, contract income, and small business income aren't really coherent anymore.  A W2 employee who is full time WFH can't claim a home office deduction, but the contractor on his team can.  A W2 employee at a bring-your-own-device workplace can't claim a deduction for his technology, but a one man shop can.  Not to mention all of the overlapping of personal and work expenses standard at small businesses that are always categorized as business expenses, which seems to be a big part of why the F150 crew cab is the best selling vehicle in America.  It seems that there are lots of tax incentives to not be a W2 employee if you can go out on your own and claim to be a business.

So happy to stipulate there's a problem with people being misclassified as 1099 contractors when really they're W-2 employees. And I don't know whether that's dishonest, sloppy, incompetent or what. It is common though.

But I don't see employee business expenses as the same thing as true Schedule C business expenses. Employee business expenses used to be sort of deductible above certain thresholds. Then arguably to simplify, the Trump tax law jacked the standard deduction and (to my way of thinking) just gave everybody a bunch more tax-free income. I.e., part of the reason someone married gets a $30,000 standard deduction is to provide for some miscellaneous itemized deductions (which include employee business expenses).

On the other hand, hiring people is its own special mess, and of the several people I know who struck out on their own in the past five years or so, none have added W2 employees.

Self-employment that's categorized as a business seems to be a sweet spot of taxes and logistics where you can claim most of the tax benefits of being a business without actually managing people.  And that seems to be a bad dynamic for the economy, because these businesses don't ever become what Mitt Romney called "job creators" unless he meant creating a job for yourself.

But you're the CPA and maybe I'm thinking about this all wrong.

I don't think you're thinking about all this wrong. You raise important issues and bring up many good points.

But I'd see the big payoff for small business ownership as being when you can employ other people. That adds value. For one thing, it creates jobs. Also teams of people often result operational synergies. (This is the insight from the Fed's Survey of Consumer Finances.)

[SeattleCPA]

I don't know if this will be helpful, but it helps to think about pros/cons of different self-employed business models. Here's my off-the-cuff attempt at delineating a couple of career path possibilities (I'm sure there are more options/variations and there are many factors to consider at each level). <snip>

I like your taxonomy. It's good. :-)