2019-10-23 12:54:30

When Eric Lubert started his residential home building firm, Dacoda Homes, in Seattle in 2016, his dream was to make a living outside of the world of corporate cubicles.

Although he hit the ground running by tapping his past experience as a project manager for a large homebuilder, he envisioned Dacoda Homes as more of a boutique small business than a startup.

“I wanted to be a local builder – a smaller builder who did big things,” says Lubert. “I was looking to scale but not to the point where I wanted to be a national builder.”

Although Lubert’s business took off, he’s taken a measured pace to hiring, bringing on his first-full-time employee, a project manager, very recently.

One of the most important decisions many entrepreneurs make when they first get started is about how big they want to grow the business and how quickly they want to do that.

Read the business headlines and it’s easy to get the impression that every new business is an IPO-bound startup with the potential to “scale up” in to the next big brand, thanks to the eye-popping amounts of venture capital it’s raised.

In reality, most businesses aren’t going to become the next SpaceX – and don’t want to be. Many founders, like Lubert, prefer to create a small business that allows them to have a great life outside of work while still offering the potential to grow in the future.

The numbers tell the story: Among small businesses in the U.S., more than three-quarters have no paid employees, according to the U.S. Census Bureau. They’re solo operations, partnerships or family businesses, where the owners are the only staff.

So which type of business should you chose? It all depends on what you want from it. The beauty of being your own boss is you get to decide. Here are some questions to consider.

See related: Should you fund your startup business with a credit card?

1. Do you need to make money from it soon?

Small businesses offer more potential for immediate and ongoing income, because the initial investment tends to be lower than for scalable startups and they tend to address an existing gap in the marketplace the owner can solve quickly – whether it’s a scarcity of legal service for local small businesses or a sandwich shop in an office park where the lunchtime pickings are slim.

Often, the owners begin taking in money with each sale or within a short payment cycle, such as 30 days from when an invoice is sent. As long as the owner is not saddled with debt, it’s often possible to start taking pay from the business within a few months.

“In a small business, it’s all about profit, rather than growth,” says Alejandro Cremades, author of “The Art of Startup Fundraising” and co-founder of Panthera Advisors, a fundraising advisory firm in New York City. “It’s about building a long-term business that’s sustainable.”

Startups have a lot more risk than small businesses, and it may take a lot longer to reach the point where you can take a paycheck from them.

“With a startup, everything about the business is untested – the team, the customers, the pricing,” says attorney Andrew Sherman, a partner in Seyfarth Shaw LLP in Washington, D.C.

2. How much control of the business do you want?

Many small business owners want to set the vision for their business – including how fast it grows and how long they will run it. They would rather finance it themselves to maintain this control than bring in outside investors who may want to dictate how they run it.

There’s a cost to staying in control. You’ll have to find the money you need to grow the business, perhaps by tapping your savings, taking out a business loan, using your own credit cards or reinvesting the money you make from sales into the business.

Self-financing can put pressure on an owner’s personal finances. Small business owners typically have to provide a personal guarantee for any bank loans and credit cards they take out for the business, meaning that even if the business fails, they’ll be on the hook to pay the loans back. Alternative financing, which may not require a personal guarantee, generally costs a lot more.

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