Starting your own business isn’t as big of a financial gamble as you might think, new research finds.
Entrepreneurs whose businesses don’t succeed – which statistics show is a good possibility – can return to the salaried workforce and recover their earnings quickly, according to a study from the University of California, Berkeley’s Haas School of Business.
The research discovered that becoming an entrepreneur ends up being a no-lose situation for many. Failed entrepreneurs end up with comparable lifetime earnings when they return to a salaried position, while those who remain entrepreneurs earn substantially more than their peers who never branched out on their own.
“Would-be entrepreneurs may think they have a huge chance of failure and will be sacrificing earnings for the rest of their lives, but it’s not true,” Gustavo Manso, the study’s author and an assistant professor at the Haas School of Business, said in a statement. “Even if the business fails, entrepreneurs don’t suffer as much since they are able to quickly transition to the salaried workforce.”
For the study, Manso followed the careers of both successful and unsuccessful entrepreneurs over three decades, including founders of innovative startups and small business owners, such as restaurant owners. He used the National Longitudinal Survey of Youth-1979 to model entrepreneurship’s return on investment.
He had access to data on 12,686 young men and women who ranged in age from 14 to 22 when they were first surveyed in 1979. For the survey, participants were interviewed annually through 1994 and every two years since then.
The data shows that individuals who launch their own business, but abandon entrepreneurship in less than two years, are not punished, achieving approximately the same earnings as similar individuals who never attempted to be entrepreneurs.
“Most entrepreneurs fail quickly and are able to limit their losses by moving back to the salaried workforce,” Manso wrote in the research.
Those who continue on their entrepreneurial path end up earning about 10 percent more over the course of their lifetime than salaried workers with similar characteristics, according to the study.
“The study suggests that becoming an entrepreneur is a rational decision and failing isn’t as bad as one would think,” Manso said. “It doesn’t hurt your lifetime prospects.”