The Risks Of Going It Alone

"One Day I'll Work for Myself

By Benjamin C. Waterhouse

Norton, 304 pages, $29.99

Oh, the allure of self-employment. No more answering to the boss. No more credit-stealing colleagues or performance reviews. Deciding where you'll work and when. Autonomy over your schedule, a chance to do what you love, and maybe you'll make more money in the end.

It would seem that America, in the wake of the pandemic-inspired Great Resignation and the new tech boom, has become a nation of entrepreneurs. In 2022 the government handled applications for five million new businesses, about twice the annual rate of the 2010s. This is apparently for the best. Small business in America is celebrated for creating the majority of new jobs, driving economic dynamism and stability, and freeing vast numbers of workers from the vagaries of big corporations.

In "One Day I'll Work for Myself: The Dream and Delusion That Conquered America," Benjamin Waterhouse cautions against exaggerating the joys of small business for the entrepreneur and its benefits to the economy. The fact is, while Americans think of themselves as individualistic, most choose to work for giant companies. According to a European Commission study and Orbis data, an estimated 65% of business output in the U.S. comes from companies with 1,500 or more employees, compared with 21% in Germany and 9% in Italy. In Venezuela nearly half the population is self-employed; many, no doubt, dream that one day they'll work for a company.

Despite a recent uptick in new business formation, the tendency in America has been away from self-employment and the solitary life of the family farm and toward business opportunities in cities and towns. In the early 1900s, 40% of Americans lived on farms, where 75% worked for themselves. By the late 1970s, only 5% of Americans lived on farms. Counting all workers, agricultural and nonagricultural, the self-employed share fell from 18.5% in the late 1940s to around 10% in the late 1960s, and it hasn't really budged since then.

Mr. Waterhouse, a professor of history at the University of North Carolina at Chapel Hill, observes that in the early 1950s only Harvard and New York University taught courses in entrepreneurship; students went to business school basically to learn about the modern corporation. But the number of American business schools teaching entrepreneurship was up to 104 in 1975 and 1,600 by the early 21st century. The faculty of these schools now publish in 44 refereed specialty journals with dueling names, such as the International Journal of Entrepreneurship, the Journal of Entrepreneurship, and the Journal of International Entrepreneurship.

The origin of the author's interest in self-employment may have been personal. His father, at age 45, quit his job selling industrial machinery to "answer only to himself." He made the decision without consulting his wife. Mr. Waterhouse doesn't share the details, only the sad suggestion that his father's experience as his own boss in his basement office never lived up to the dream and that "he never regained the income from the job he'd left behind."

When it comes to working for yourself, the first cause for concern is that there's a really good chance your business will fail. According to the Bureau of Labor Statistics, only half of startups survive for five years. This finding has been remarkably steady since record keeping began in 1994. It surely varies across industries -- skilled plumbers who go it alone stand a better chance than first-time restaurateurs. But no matter how much grit you've got, bad luck might catch up with you. Then what?

As the experience of Mr. Waterhouse's father shows, another downside of self-employment for many is the isolation. The author briefly tells the story of Dinesh, an Indian immigrant who leaves engineering to buy a motel. He hopes to tap into the camaraderie of the Indian-American hotelier community, but it's not the same as working alongside colleagues.

The book's most dire warnings are for franchises. The International Franchise Association's slogan is: "With a franchise, you're in business for yourself, not by yourself." But it's often the other way around. The company offering a franchise ends up being less a partner than a cunning enemy that siphons off your profits. When it comes to shouldering financial risk -- the outlay to acquire the franchise, set up the business and forgo income -- franchisees are truly on their own.

A franchisee's hopes for independence, too, may be delusional. The franchisor controls products, methods and territories. Some franchisees say they have no more autonomy than a midlevel salaried worker and are as vulnerable to the whims of the franchisor as they were to their employer before they quit. When the founder of the Papa John's pizza chain weighed in publicly on the NFL national-anthem protests, business plummeted and the powerless franchisees suffered.

Mr. Waterhouse doesn't explore the most overhyped new businesses of all: startups backed by venture capital. The National Venture Capital Association reports that in the first nine months of 2023, VCs invested $436 million in pre-seed companies yet to launch their businesses and $11 billion in seed companies still in the startup phase. That's puny, just six weeks of Apple's profits.

Working together to overcome challenges is uniquely human. Even highly social animals are merely following instincts, and they don't innovate collectively. As Abraham Lincoln observed in his "Lecture on Discoveries and Inventions": "Beavers build houses; but they build them in nowise differently, or better now, than they did, five thousand years ago." Working for yourself is doubtless a noble endeavor, and many of today's most lucrative companies began with visionaries who struck out on their own. But as Mr. Waterhouse's book shows, it can also come with unexpected costs, both financial and spiritual.

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Mr. Robb is a professor at Columbia's School of International and Public Affairs and the chief executive of the investment manager Christofferson, Robb & Co." [1]

1. The Risks Of Going It Alone. Robb, Richard.  Wall Street Journal, Eastern edition; New York, N.Y.. 21 Feb 2024: A.15.