Are you considering going out in your own in business? What are your drivers and how will you drive those? Are you going in with your eyes open or your fingers crossed?
There are a great many people that would suggest “I could never go out on my own in business”, without really knowing whether they in fact could or couldn’t. Many people would sometimes dream about it or “wish they could”, perhaps mainly driven by the romantic notion of “not having a boss” or being frustrated with their current role or employer etc.
A much smaller group of people actually take that idea seriously and invest time and effort and thought into converting that dream into reality. Some feel they are “born” to own and run their own company or business (maybe through their background or upbringing). Others realize that “on their way” and then choose to “have a go”. Most don’t, and hide behind all the “horror stories”. It takes quite a special type of commitment in order to “take that plunge.” In my blog The 5% that know WHY I outline certain attributes common to most of those.
So irrespective of which camp you might belong to, if you are at a point in your life’s work where you might be considering this “plunge”, then I hope that this article will inject some useful thoughts into the processes you have initiated and still have ahead of you. They come from a decade of being in my own business, the significant amount of networking I have invested into before and during that journey and the number of clients I have coached and mentored through the process.
What is your trigger for considering your own business?
What have the triggers been for you wanting (or needing) to get into your own business? In my case it was an external trigger. My position was made redundant and, (supported by a pile of cash) after a sabbatical (of nearly 9 months) in which I worked through (with a coach) what I did and didn’t want, I chose to go out on my own as a Contractor. That was mainly because I knew I didn’t want to go back into a full time corporate role, but hadn’t really worked out what I did want. After a few enjoyable years of contracting, it became clear to me what my true talents were and how I could align those with my passion and chose to re-invent myself as a coach – a pastime it turns out that now I realized I was “born to do”.
So if redundancy is your trigger, that’s a pretty good trigger. More and more people are learning that if you have chosen to earn your keep as an employee, it doesn’t matter at what level you are engaged at – redundancy is a matter of when, not if. Someone very close to me was recently made redundant after their first year in a new career, and all I could suggest was thank goodness this has occurred so early in your career, because you need to get used to it, if you choose to stay engaged in that employment model.
In his book “The Start-Up of You”, Linked-In co-founder and chairman, Reid Hoffman highlights how the concept of “full time employment” has become almost meaningless, and that every economically active individual today needs to think of themselves as they would a start-up company. That means, whether employed, contracted or out on your own, putting yourself in control of who you are, what you want and what you are going to do about fulfilling what you want – on your terms. Not giving that responsibility away to an employer, thereby allowing them to exploit you.
Timing and approach?
So when is the right time to go out on your own? Well, that’s akin to asking how long a piece of string is. I have learned from coaching so many clients through this process, that every situation is different.
- Some will be developing a “hobby” or an idea into a business. So they stay employed while developing their hobby or idea after hours.
In this situation, you would be developing the “idea” and the income it generates until you are unable to do both any longer. Or that (its or other forms of) secondary income has generated sufficient cash as a “safety net” to create a “war chest” that can cover you for a defined period of time in case there was no income from the business for a while. With other words, you’d quit your job when the income generated by your “idea” has surpassed the employee income and then some. A smart way forward.
(By the way, I always have my clients check their “moonlighting clause” in their employment contract so that there are no hidden risks, including that your employer ends up with the legal rights to your idea.)
- Some will have developed a full blown business idea and drawn up a business plan for the idea, be it one they will start on their own, or in partnership with (an) other(s).
Of course if you have a business that you wish to launch following the more conventional banking or angel investor supported financing model, then you would probably be developing a solid business plan that fully meets the expectations and the norms of those kind of players. However, please remember that a financing business model is very specific to those somewhat narrow requirements.
My experience has been that the broader the business plan can cover all aspects of your vision, financial and otherwise, the more relevant it will become to you as a monitoring mechanism for you to keep yourself on track to the longer term goals and aspirations that have really driven you to start out with it in the first place. When the business inevitably strikes the kind of typical obstacles most new ventures do, we can easily lose sight of the more lofty aspirations while we micro manage ourselves out of yet another crisis.
By the way, another aspect too often disregarded in the euphoria of getting a new business off the ground in which there are partners involved, is the partnership agreement. Even capturing written agreement of the most basic things like the valuation and management of contributions and entitlements, exit or termination strategies etc can make the biggest differences. My advice would always be to not only draw one up but also to have a professional look over it to be sure it covers what matters before you execute it.
Some will buy into or buy a complete business or franchise, where much of the start-up type work has already been done for you and which you pay for in the goodwill portion of the value of that business.
- Of course there are numerous other forms and types of business start-ups, which we won’t go into here, as they are often hybrids of the above.
I received some very good advice before I started my own business. I was taught to go the banks and maximize my borrowing capacity from whatever equity I had available, while I was still employed. I raised the largest mortgage the banks would grant me and placed those funds in an offset account, making them “interest neutral”. They were my “safety net” funds which I only would draw on if the business required that (and it did). Why is that important? Well, firstly, mortgage interest rates are the cheapest form of business financing you will ever find. And even if you are “only” earning $50K pa as an employee, the banks will bend over backwards to loan you as much as possible (by their rules, of course). But as soon as you are “self-employed”, they will stop talking to you and will not lend you a (mortgage) bean. Of course you will become eligible for all sorts of business loans but at a premium and with often very risky conditions for someone starting out, given the degree with which the banks will cover their own bases.
I’m not even going to try to address the myriad of questions applicable to analyzing an existing business for sale, other than to urge you to engage a professional to help you through this; one that has a track record and can really represent your financial and legal interests.
However, a critical aspect of any new business will be the management of its cash flow. I once heard it said that : ”cash flow is like oxygen – you can’t survive without it”. Please be extra sure that your business will be able to generate sufficient cash to keep going – from the first day andthen every day, and that you have the means to support it when it can’t.
So if we return to the timing question, I don’t believe there is necessarily a good or a bad time to start a business. Many will argue that in times of economic downturn it would be crazy to start a business. Others will argue that that would in fact be the very best time to, for instance if it enables a bargain price opportunity for buying or buying into a business. It all depends on “being cashed up”, whatever means you needed to leverage to have access to such cash. Being cashed up allows anti-cyclical approaches, which every investor will affirm is by far the best way to “buy” – namely doing the opposite to “the herd” or “the crowd”. Would you agree with me that each situation is going to be different and require different and specific consideration and advice?
Many people go into their own business “undercooked”; that is to say insufficiently prepared. The more research into the idea, its ability to satisfy needs and wants, its ideal client or usage base, its competitors etc etc etc the more likely it will have considered all the potential upside options and downside obstacles, the more likely it will be prepared to be able to exploit them or deal with them, the less likely it will become one of the alarmingly high statistics of business that fail to see out more than their first year or two of life.
This is where your access to people who have already been through something similar to what you are about to embark upon is so critical. Someone that can mentor you through the research and preparation process will be absolutely invaluable to you in this time. Having them challenge your thinking, your research and the interpretation of the upside potential and downside risks is often what might make the difference between initial survival or demise. The biggest obstacle to availing yourself of such insights? Pride and ego. Please don’t let them prevail and allow you to become “one of the statistics”.
If I were to ask you how strongly your idea is supported through a significant personal network of business contacts, would you show it me with pride, or might you cough and splutter? I had a good year of “gut feeling” that my redundancy was “on the cards”, so I networked with a passion and a purpose. Because my role was largely a “back office role” I didn’t have access to customers with whom I could build a network with. But I could leverage my contacts with my business partners and my vendors, which I did. In my blog Internal Networking I speak about potential conflicts of interest which you may want to read about so you never fall foul of this risk.
So what next?
OK, so we’ve covered a few considerations that anyone contemplating their own business would need and want to reflect on. There are probably a bunch of additional considerations that your specific idea will have had you focus on more than others and there will be some I haven’t even covered here (yet).
However, if there is one consideration above all others, I believe that there will never be sufficient preparation invested into the starting of a new business. Whilst I’m not saying that preparation should ever get in the way of actually starting – some people never get out of preparation mode and actually never get started – I am suggesting that this is one of those processes where it would make a lot of sense to engage a third party to assist you through the right level of preparation.
I am suggesting that, irrespective of how far you’ve progressed your planning and preparation, this is where working with a coach or business mentor might well be the smartest investment you will make for such an endeavour. One that will be your confidante, who will intelligently challenge your research thinking and road test your approaches and hold you accountable to doing whatever it will take to launch a successful business. You will probably find no other person that will not have some form of “their own agenda”.
So why not stack the odds in your favour and engage your own business mentor and coach? I know you will be so glad you did.