Here is something I have noticed, something I myself usually think about. When someone has some money saved up they tend to muse on how to multiply it. There are a sizeable number of people who solely think that they should start a business. There are also those who think of investing in other people’s businesses. For most people, just like myself, there is this thought process of whether or not to start a business or to make investments. This is what I shall be discussing in this article – let us explore those two domains.
Are They Really Different?
At first glance starting your own business and making investments seem similar. In fact, to some extent they sort of are because both have to be run like a business. The ethos of running a business can actually be applied to how you handle your investments. The significant difference is in the fact that your level of active involvement varies for the two.
In other words, starting (and subsequently running a business) is an active undertaking. Yet making investments can usually be a passive undertaking. If you invest say, in one business then the difference from a business tends to be abundantly clear. The moment you have multiple investments it somehow morphs into a business. I thought it was important to mention these dynamics.
All this can inform on what one really wants to focus on. If you do not have the time and energy to be actively involved then making investments is for you. If you have time and can put in the energy then starting your own business would be the perfect fit.
Exclusive Decision-Making Power
This is one of the most significant things that separate starting a business from making investments. For the most part, starting your own business means you can make decisions, having the final say virtually all the time. Of course things take a turn if your business grows and you have a board of directors, shareholders, and the like. On making investments you tend to not have the final say. Remember that investing in a business or company typically makes you a shareholder.
If you are the majority shareholder you might have more traction in making decisions. However there will still be an element of not making exclusive decisions as other people will be in the fold. Thus, overall, starting a business usually gives you exclusive decision-making power whereas it is not usually the case with making investments.
Returns – Which Is More Profitable?
Which of the two has more returns i.e. which one is more profitable? This is not a black and white answer since many variables are involved. Let me cite two possible scenarios so that you get what I am driving at. Let us suppose you start a business that makes a net profit of U$15000 annually. Then we have someone who invested in a particular business and gets dividends worth US$5000 annually. In comparison you conclude that starting a business is more profitable.
Suppose you reverse that scenario i.e. the entrepreneur makes a net profit of US$5000 annually and the investor gets dividends worth US$15000 annually. That would mean that making investments is more profitable. However, think of this logic – a business or company that is making dividend pay-outs to its investors could actually be your own business, imagine that. My point is this: weigh the merits of scenarios and look at the contexts before deciding. At times it could be more profitable to start a business whereas sometimes it could be making investments that is more profitable.
Diversifying – Can You Juggle Several At Once?
Starting and running a business is not a walk in the park. Running more than one business would definitely be more demanding since only one is steep as it is. Investments are different however since there is actually not limit as to the number of investments you can manage at once. It would really the capital you have that would limit you otherwise you can comfortably juggle several investments at once.
Which Is Riskier?
This is yet another question that cannot be easily answered with an A or B. Both starting a business and making investments are characterised by risk. One of the differences is that in running a business you will be expected to manage the risk. As for making investments you will find that in most cases the risk is managed for you. Even for both you will also notice that the level risk (i.e. how much you stand to lose) can be determined by how much you put into the venture. The bottom line is that you must thoroughly do due diligence and research to ascertain the associated risk levels. If I were to say starting a business is less risky or making investments is less risky I would be misleading you.
What is the conclusion then? Starting a business or making investments? Well, as for me I would think that making investments is less hectic. If you have the money then making investments could be the way to go. Especially when you consider that there are so many aspiring entrepreneurs that have great business ideas but lack funding. You could invest in such business and actually make lots of money. I am not saying that to disqualify starting a business. I even showed you how at times starting a business can be more lucrative than making investments. Anyways, what do you think, which would you prefer and why?