I have been a little surprised at the large volume of emails I have gotten from people concerned about starting a business when they are the only income earner in their family. These are working dads with stay-at-home wives, working moms with stay-at-home husbands, or working singles with financial responsibility for their parents or younger siblings.
It is definitely more difficult to start a business if you are the only one working, since there is no backup income if business plans do not turn out as anticipated. But with some careful planning and risk management, I still think it is possible to make the shift from employee to entrepreneur. Here are some things to consider if you fall into this category:
Get your financial house in order. Get a crystal clear picture of where you stand financially so that you know exactly what you are working with. Evaluate things like:
- Monthly budget – How much do you spend each month? Are there any areas of expense that you could trim to give you more working capital?
- Total debt – What is your total outstanding debt? What interest rate are you paying on your credit cards? Is there a way to negotiate a lower rate?
- Long-term financial needs – How much do you need for your kid’s college fund or parent’s medical or housing costs? What kind of retirement plan do you have in place to make sure you have a happy and healthy life after work? Are these costs currently part of your monthly expenses?
- Savings – How much do you currently have in savings? How many months of living expenses do you need to have to feel safe? I know that many people recommend having 12-18 months of living expenses saved before starting a business, but in my experience that is extremely challenging for most people to accomplish. If you can do it, more power to you. But if not, know where your comfort zone is and work diligently to stash money in the bank.
You must shave your expenses down to the minimum and have a crystal clear picture of what your "burn rate" is every month so that you can factor that into the assumptions for your business plan.
Create a business plan. I believe the greatest way to mitigate risk about your new venture is to be very concrete and realistic in your business planning. You want to have a very clear picture of how you will make and spend your money. You want to make sure there is indeed a market for your services or products and that you have a unique competitive advantage in that market. You do not need to prepare an overly complex document, but I do recommend going through the exercise of planning. Startup Nation provides some guidance on this, as does Guy Kawasaki in chapter four of his book Art of the Start. I love what he says under the heading Write for the Right Reason on page 67:
"Unfortunately, naive entrepreneurs believe that a business plan alone can produce an awestruck reaction, followed by one follow-up question Can you send me the wiring instructions for the money?"
Do the plan for yourself and the health of your business. If done well, it will also help recruit good partners, employees and investors.
Start work on the side. The best way to see if you have what it takes to make it as an entrepreneur is to try it. Start with a small project and you will learn a ton. I know it is challenging to work full-time and do work on the side, but if you are truly committed to being an entrepreneur, you better make sure that it is what you want to do and you have the skills to do it. One of my clients took vacation time to do an independent project and he said it was well-worth the sacrifice since it absolutely validated all his assumptions about his nascent consulting business. There will be a point where your business grows so much that you will need to quit your day job. This is a good thing!
Decide if you could move somewhere with a better cost of living. My good friend John has been contemplating entrepreneurship for a long time, but has been somewhat backed into a corner since he and his family live in Silicon Valley, one of the most expensive areas in the entire U.S. It has been important for him to live there during his tenure as an employee since he has worked for high-tech firms. But if he were to get serious about taking the leap, he could sell his house and move somewhere with a housing market that is not on crack. My smart reader Matthew did just that, moving his family from California to Oregon so that he could comfortably start his new business The Life’s Work Group.
Learn as much as you can about your new venture. You need to get out of the conceptual land of dreaming about your business and start to talk to people who are actually doing it. Identify a group of mentors that can give you feedback and guidance as you make your plans. Observe experts in action and pay close attention to what they do that makes them successful. Take advantage of any and all employer-sponsored training programs that will further your cause.
Have a plan B and C. If you decide to quit your job, you are not forever leaping into a dark abyss. You control what happens with your career. If you you try to make it on your own and it does not work out the first time, you can always choose to go back and do another stint as an employee! This is not an admission of failure, it is a good strategy for taking the time that you need to be successful. I often call a stint at employment "being your own venture capitalist." You are clear in your reason for taking a job and you are deliberate in your use of the income you receive from it. So don’t cut ties with recruiters or work colleagues. Which leads me to my next point:
Absolutely, positively do not burn bridges with your old employer. I don’t care how fed up you are with your current boss or managers, it will not serve you well to leave under tense or uncomfortable circumstances. Be as upfront and honest as you can with your plans for leaving. Make sure that you clarify that your reasons for leaving have to do with your desire to do something challenging and rewarding for yourself, not because you think they are all a bunch of political, backstabbing, spineless and soulless schmucks. You may indeed feel that, but there is absolutely no benefit to share this with them when you are leaving. If things do not go as planned, you may need their reference for another job, or they may personally know one of your new clients. You will show your good character by not stooping to petty behavior when you leave.
There will come a moment when you just have to close your eyes and leap. There is no amount of planning, networking, saving or wishing that will guarantee that all your risk is mitigated if you start a business. Don’t forget that you are currently assuming lots of risk as an employee! Your job is not guaranteed and if you are like most people, you have felt the knife of layoffs close to your neck many times in your career.
Building a business is really about building a better life. Great love involves great risk. If you make the leap, I do guarantee that you will grow in ways that you never anticipated.
I would love to hear from those single-income readers who have successfully made the leap from employee to entrepreneur. What different/additional advice would you share?