The Headwinds of Early Self-Employment

Here in the United States, we are shifting from a W-2 economy to a 1099 economy. What does that mean? It means that traditional employment options are lower paying and far less secure than they were 20 or 30 years ago. Meanwhile, an increasing percentage of jobs fall into the contract category rather than the employee category.

If you’re curious, W-2 refers to the tax form you receive at the end of each year from an employer. In order to get one, you need to be an employee of that employer. By contract, a 1099 is the tax form you receive when you have done contract work for a company. So W-2 refers to an employee and 1099 refers to a contract worker.

With outsourcing in high gear, companies are increasingly leveraging lower wage rates in other parts of the world, replacing expensive American workers with far less expensive Asian workers or South American workers. Although this process has admittedly magnified corporate profits for American companies, it has also gutted our domestic middle class.

What’s the alternative? Becoming self-employed in one of the many service professions. The income potential is much higher and you can be your own boss. It all sounds so exciting! So over the past few years, the number of people in self-employed professions has exploded. Unfortunately, the vast majority of them are still struggling to pay their expenses.

So where’s the problem? There are a few. First and most obviously, there’s only so much business out there to be had and all these self-employed professionals have to compete with each other to secure the opportunities that exist. And even though the number of opportunities is growing, it isn’t growing nearly as fast as the number of people competing for them.

But there is another problem too. When you first start out as a self-employed professional, you have no credibility and minimal confidence. Why would anyone hire you if you’re not a success yourself? A friend of mine who is worth about $15 million once told me he would never hire a Financial Advisor who wasn’t a millionaire him/herself. It makes good sense. Why risk your money with a newbie? The result is an incredible headwind newly self-employed professionals must fight through to move their business along.

Everything I have ever accomplished in my life was a function of brute force. Overwhelm your opponent. That’s the essential recipe to progress in early self-employment. But eventually, when you’ve fought a thousand battles and built a massive infrastructure below your feet, eventually, something amazing happens. It’s almost impossible to predict and in can happen within a month or two. All of a sudden, you reach some magical milestone and the tide changes. And from that point on, the wind is at your back.

When you’re unproven, nobody wants to have anything to do with you. You’re nobody. You’re a loser. But when you have reached that magical milestone, all of a sudden, you become a legitimate success. And at that point, everybody wants to jump on board and be part of your newly proven business model. The same people who shunned you earlier now seem most eager to promote you further. They offer willing and enthusiastic endorsements that end up accelerating your success.

Reaching that milestone is bitter sweet. On the one hand, you’re thrilled to finally receive the success you have fought so hard for. You finally get to bask in the glory. But on the other hand, the support you now receive seems so disingenuous and superficial. Everybody tries to squeeze their hands into the cookie jar and you’re left trying to decipher between the blatant self-interest that can actually help you and the blatant self-interest that cannot.

Even with these new challenges, the point is that post-milestone self-employment is much easier than pre-milestone self-employment. When you first learn to rollerblade, it’s harder than running. When you become good at it, it’s easier then walking. The success of post-milestone self-employment perpetuates itself. The failure of pre-milestone self-employment does the same thing; perpetuate more failure. The moral? You gotta fight like crazy to get past that milestone. After that, the whole thing gets much easier.



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