What Is The The Opportunity Cost of Working For Someone Else?

Why do people choose to start businesses instead of working for someone else?

Economically, you can think of a startup as a way to compress your whole working life into a few years. Instead of working at a low intensity for forty years, you work as hard as you possibly can for four. This pays especially well in technology, where you earn a premium for working fast. – Paul Graham of Y Combinator.

Let me illustrate the point above with some simple calculations:

Assumptions

  1. Say you are working in a Fortune 500 company as an executive (you graduated two years ago from an Ivy League University or Oxbridge)
  2. You are getting paid RM 6,000 per month or RM 72,000 per year . (We will not include the social status and the other benefits that you get from working in the company. We also exclude taxes and other related stuff to simplify the maths).
  3. You are happy and contented with your work and job scope.
  4. We assume that you are the 95th percentile in the performance scale – So, you must be pretty good at job role.

Working for someone else

You are getting paid RM 6,000 monthly, making it RM 72,000 yearly. By the definition of hiring, you should deliver more value than RM 72,000 to the company to make your hiring a success (the break even point for the cost and benefit of hiring you).Question: how much are you delivering the company above the RM 72,000 value? (this should be equivalent to the value that you will be able to charge or make if you work for yourself)

Working for yourself

  • You are most probably working double your hours to make sure that you are outperforming your peers. (2x)
  • If you are focused and motivated to complete the task, you can probably get three times as much done in an hour compared to the others who are working with you. (3x)
  • By removing the middle manager and the communication cost involved with it, you should be able to deliver double the work you are doing now as you are able to understand the tasks and the requirements better. (2x)
  • You might be way more talented than what your job scope allows you to be. Assume this to be two times. (2x)

In total, you are worth 2x . 3x . 2x. 2x = 24x more than what your are getting paid for.

What does this mean?

It means that you should be able to make RM 1.73 Million a year if you choose to hustle and work for yourself.

The real question

Do you want to work for someone else and make RM 72k a year? Or work for yourself, live on your own terms, work really hard when you want to and how you want to, and make 24 times more than the money you are making now?

You decide.

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