Opportunity cost is defined in wikipedia as
the cost of any activity measured in terms of the value of the next best alternative forgone (that is not chosen).
Recently I came across a discussion on opportunity cost of entrepreneurship. To my friend it was sum total of the salary he would have received for those years in job in which he actually was an entrepreneur. By being an entrepreneur , he would have to earn equal amount to make sure that money that has been lost is recovered in almost similar time frame.
While the logic looks correct( and that I am not an economist), the wanna-be entrepreneurs would be dissuaded if they were to think only in the terms of the money that they had to forego to become entrepreneurs. In my job vs entrepreneurship article, I had argued that job is more like mathematics and entrepreneurship is more like arts. It is much harder to determine how much money would one make in entrepreneurship compared to being in a stable job where the cheque lands at your desk at the end of every month.
To me entrepreneurship needs to be looked as another career though a slightly more difficult one than being employed. While being employed has its own charms ( of perceived stability, career growth and fixed salary), entrepreneurship has its own set of great learning and rewards, if one is patient enough.
A job comes with its own peril of layoffs, redundancy while no one can practically fire an entrepreneur. On the other hand entrepreneur faces monetary losses , closure of business which may have severe impact on his lifestyle.
I am not even going into the comparison of which is better because both have their own pluses and minuses. However to a person who has left his job to start entrepreneurship , it should be clear that he cannot substitute one for the other ( most of the cases). It is “either/or” and not an “and”.
Of course there could be alternative opinions , but I think , opportunity costs of both these alternatives cannot be compared as they are based on assumptions/risks/divergence of path that are not comparable.
A fair basis for calculating opportunity cost in a job maybe for example taking a salary hike in current organization vs. getting promoted upon joining other and resigning from current job.
What do you think about the topic ? Let us discuss it in the comments below .