Thursday, May 25, 2006

When it makes sense to quit your job and start your own business

Flexo at Consumerism Commentary has put together a very nice series of articles called Six Steps to Being Your Own Boss.

Having been my own boss for many years and having been the boss of very many people during the process, I thought about the discussion and realized something was missing. Something very important. Perhaps the single most important thing anyone thinking about starting their own company must think about.

The most important thing to do is ask a simple question:

why are you starting your own company?


1. Is it to build a company?
2. Improve lifestyle?
3. Keep your old job without the old manager?

Only one of these answers is the right one if you want to start your own company - to build a company.

I'll address the wrong answers first:

Lifestyle improvements rarely, if ever, come from running your own business. As a matter of fact the sweat equity component of starting a business can put on hold any lifestyle dreams -- also make sure your spouse supports your business building efforts.

If you want an improved lifestyle, consider becoming an independent consultant. You may earn more money when you do work, but you won't necessarily work all the time. You'll need to save up quite a bit of money to handle the gaps between work.

Another lifestyle improvement option is to change your job either by changing employers or becoming a part-time employee.

Keeping your old job without the old manager is the most frequent reason people start their own business. Skilled professionals, technically oriented, often resent their managers and feel there is sufficient demand for their skills that they can build a business around them. This scenario is a disaster waiting to happen. The highly skilled professional (technical can be anything from computer programming, automobile repair, to medical services) often resents the administrative accountability placed upon them by managers and bureaucrats. Starting a business is full of administrative work and accountability procedures. Often the technical expert gets two jobs when he starts his own business. The first is the job he loves (technical) and the second is the job he hates (administration). Guess which job grows in importance as his business grows? You guessed right - he becomes the boss he left behind at his old job.

Technically skilled professionals often never grow their businesses beyond and early stage of development, usually due to their avoidance of long term strategy and planning and reliance upon their technical rather than managerial skills. I recommend reading Michael Gerber's The E-Myth Revisited. Gerber has an excellent discussion of this very topic.

Technically skilled professionals might investigate the independent contractor route as well. Websites, such as www.dice.com, are often filled with independent contracting opportunities.

Finally, to the right answer. Starting a business to grow a business.

This means:

  1. Carefully plan the business, this includes creating a business plan and budgets
  2. Making yourself replaceable, you should not be essential for any function within the business
  3. Build the company so that one day it may run without you
  4. Design the company with an exit strategy from the start
  5. Evaluate the company from the perspective of an investor, not an employee
  6. Focus on managerial skills and accountability
  7. Make sure you have not only raised enough money to start the business, but also enough money to support yourself while the business grows
  8. Obtain firm and unyielding support from your wife, spouse or life partner. It's going to be a long and shaky ride
  9. Make sure your personal assets are sheltered and protected if the business does not succeed
  10. Be certain there is demand in the marketplace for your product or service

I hope the above is helpful for anyone thinking about going off on their own. I've been involved with many companies, the successful startups focus on the 10 items above.

Flexo, thanks for raising the stimulating ideas.

Regards,

makingourway

2 comments:

Apollo said...

Interesting topic and timing. The past couple of weeks I've seriously considered starting up a franchise buisness. It's one of the reasons I'm behind on my blogging.

I have evaluated and considered many business opportunities and franchises over the years. It seems that the more promising business ventures requires relatively large capital investments.

There are lots of franchise businesse which can be started with limited capital requirements. But the return on initial investment is dreadfully poor and the competition is extremely stiff.

So it begs the question, why am I so interested in starting my own business. I seem to have mixed feelings about this as I have reasonable comfort, earning, and little risk in my current job.

However I do have frustrations as I seem to hit a glass ceiling and at times seem uable to fullfill my full potential. Also I want to be in control of my life, my future, and my destiny.

Is this reason enough to start out on my own venture?

makingourway said...

apollo,

My gut says that any startup business with low capital requirements is usually a crowded service business. Although there maybe a heavier initial investment, I'd go for a more expensive franchise if I could afford it.

Check out the E-Myth Revisited by Michael Gerber. It's a great read and really does address the I want my own business question.

Fundamentally, job frustration really isn't a good enough answer. If you're frustrated, I recommend changing jobs.

If you want to start a company (and pay the necessary sacrifices) because you are confident it will be a good investment, then I recommend putting together an implementation plan.

Most people forget to budget money to cover their personal expenses while starting up a business. I think it's essential. Often saving that money will delay the start of the business, but is that such a bad thing? I think time for reflection can help.

Regards,
makingourway