Clarifications on co-entrepreneurship

Clarifications on co-entrepreneurship

Certain things about co- entrepreneurship need to be clarified. Some of them may apply to entrepreneurship as well. Could a zero or even negative return on investment be acceptable? From an investors point of view definitely not. This is where opportunity cost comes in. An entrepreneur has two roles, investor and worker. She is not only investing in a company but also working in it.

In both roles there are opportunity costs which are the alternatives available to her. An investor would require an expected return equal to what an investment with the same risk would bring. Because entrepreneurship is risky, expected returns are much above zero, often double digit and sometimes in twenties.

If she does not start the company, she will probably invest her money somewhere else and get another job as an employee. Many people start small companies, so that they can have a job for them and perhaps family members as well. If someone is unemployed, overall it is worth it to accept small, zero or even negative return on investment because otherwise she won’t have a job.

From an economic point of view, income from both sources, investment and labor, should be added and compared. This is strictly economic view. Other factors come into play as well. Some people leave very rewarding positions in order to be their own bosses. Others may value common ownership. These should be taken into account as well.

Two things were mentioned, salaries and being their own bosses. Of course, some kind of structure similar to other entrepreneurial companies should exist, where each person has a role. Otherwise there will be a mess and the company will fail. Someone should have the role of manager or coordinator. The structure will be decided among all owners. So being her own boss in this case means that she will co-decide with others.

How will salaries be determined? One way is according to market prices. In other words, based on how much similar positions are paid in other companies. Another way, a leftist's approach, would be that all receive equal pay. And there is plenty of room between these two. Profit is what is left after all costs are paid. Salaries are included in costs. So, profit is above salaries.

The profit each shareholder gets is determined by the number of shares which in turn depend on the initial capital he contributed. The initial capital (principal) required for a labor intensive company is not very big, so each owner may be able to contribute the same amount for initial capital. May be that is not possible or acceptable. May be the person that has the business idea, will require a bigger share.

A leftist's approach is that even if owners do not contribute the same amount, they get the same shares. During the “in the red” period, workers are not paid full salaries. In this way their capital in the company increases. If salaries are not equal, those who have bigger salaries may get a bigger increase in their capital. Nothing is perfect. Co-entrepreneurship has pros and cons compared to the usual form of entrepreneurship.

Workers care more for something that is their own and work harder. At the same time there may be some difficulties in dealing with an unproductive owner or making co-decisions. How does an entrepreneur deal with employees that are unproductive? First, he talks to them and if the situation does not improve, he fires them. In the case of a co-entrepreneurial company, how to fire someone who is not only worker but owner as well? There are ways to deal with these issues and are beyond the scope of the book.

The leftist's approach resembles cooperatives. Usually cooperatives have many members. Co-entrepreneurship includes cooperatives but it is a much broader notion. It can have only a few co-owners. Cooperative rules about equality may or may not apply. It can include hybrid forms as well, where not all workers are owners. As the company grows, it will need more workers. It may not be able to attract co-owners or they may not want to do it. So, they may hire employees and give them some stock options.

Fifth way’s characteristics are smaller state and smaller income differences. Co-entrepreneurship may be one of the ways to achieve this, in two ways. Workers get profits on top of salaries because they are owners as well. Even the rest of the employees benefit because as it was explained, employees' supply decrease brings up salaries.

Small state does not mean no state or a night watchman state. State can help co-entrepreneurship by bringing potential partners together and giving them some advice. Advice could be as simple as an e-book or a web-book. Not all business endeavors are successful and the same is true for co-entrepreneurship. On the other hand, owners could end up making lots of money.

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