Get rich quick? Everyone knows that some company owners hit it big and make tons of money. The dot-com entrepreneurs were the most visible successes (and failures) during the past year, but building a successful growth company has always been a road to serious wealth. Nearly a decade ago -- before anyone outside the tech community even knew what the Internet was -- surveys showed that most millionaires ran their own businesses. (See " How to Get Rich in America," by Edward O. Welles, January 1993.)
At the same time, everybody knows that you don't necessarily get rich by being your own boss. In fact, here's another stereotype: running your own company is a sure route to the poorhouse. For every saga of the successful company builder, there's another of the couple who mortgaged their house, maxed out their credit cards, and nearly had to declare personal bankruptcy before giving up their dream of running their own business.
The reality: the statistics of business owners' earnings are so much more mundane than either the millionaire or the lose-your-shirt image would suggest. "The median earnings of small-business owners are virtually identical to those of wage and salary workers," dryly declares the National Federation of Independent Business NFIBSmall Business Policy Guide. (For both, the median is $30,000.) The differences are exactly what you might expect:
More self-employed people are at the lowest and highest ends of the income-distribution spectrum than wage and salary earners, according to the guide.
Self-employment earnings fluctuate more with economic conditions. In 1998 and 1999 the economy was good, so earnings by small-business owners were most likely relatively high. In a downturn, says the NFIB, owner incomes may be lower than those of wage and salary earners.
A study by the National Bureau of Economic Research found that during a five-year period, entrepreneurs were more likely than wage and salary earners to change their position on the income ladder: business owners who started at the top-20% level were more likely to earn less, while those who began at the lowest 20% level were more likely to increase their income than wage and salary earners at corresponding levels. "The result echoes a theme found in earlier research," say the study's authors, that "entrepreneurship is a risky business."