Which is the more important question – How to start your own business, or should you start your own business?
Many books are written on the steps needed to establish your own start-up venture. Some of these are common sense and practical, many are written by so-called experts who aren’t themselves successful entrepreneurs. But another question should be addressed before we even consider the how, and that question is “should” you start your own business? Let’s consider this question in more detail.
SHOULD YOU START YOUR OWN BUSINESS?
This is of course a highly subjective question and everyone will have their own opinion based on their experiences and risk profile. However there are two distinct aspects to whether you should start a business. These are your personal risk profile and the viability of the business model in question. Let’s say you are thinking of setting up an on-line portal to aggregate retail product offerings, or maybe you have a much more traditional venture like opening a restaurant. The preliminary issues to consider, irrespective of the particulars of the business idea, is around your confidence and risk tolerance, are you willing to give up your day job? And are you willing to mortgage your house to get it off the ground?
1. Am I prepared to give up my day job?
The commonly held view is that starting your own business is a huge risk, personally and financially, where only those with a steely-eyed confidence are willing to back themselves against all odds and give it a shot. At the other end of the spectrum is the sure fire, safe bet of working for the man – some multinational corporation. In this scenario, you merely show up, quietly do your job and then have pretty much guaranteed job security, right? Well I simply don’t buy it. Firstly, for many there is no choice between the so-called safe or risky options. Consider migrants, people with learning difficulties like dyslexia who may have dropped out of school or other such examples. These people don’t fit the standard mould for corporate hiring. For them it’s a choice between unemployment or getting out and building your own business. Luckily in many cases, as so many have turned adversity into incredible success stories. For most of us though, this consideration around risk I believe is backwards. I believe that starting your own business and being in control of your own destiny, being able to work on what you want to do, the way you want to do it, is securing your own future. Employment on the other hand, is a total loss of self-control. You can turn up to work one morning, like many workers recently at some of Australia’s largest corporations like Telstra, Holden, SPC, Ford and others, and be handed a corporate memo. “Sorry your job is no longer required, we decided to shut down this factory”, or, “sorry to inform you but we decided there is cheaper labour available in Asia”. Or my personal favourite, instead of coming clean about sacking staff merely to cut costs, it’s merely “right sizing” the corporation. I don’t see how having no control over one’s destiny, is a safe bet.
We could use the analogy of renting versus owning your own home. Many believe that buying your own home is a big financial risk and renting is a safer and simpler option. But when you own your home, you can choose to keep it, sell it, renovate it, rent it out, whatever suits you at a particular time. When renting, it is very simple and inexpensive to get into the property, but you must follow the rules, you can’t alter the house to suit you, and depending on your lease terms, can get a notice to be thrown out with just 4 weeks notice. Yes getting a job, or renting a house for that matter, is very easy to get into, but it’s a false sense of long-term security. So we may need to re-frame the psychology behind start-up ventures away from trying to talk down the risks associated, to talking instead about the long-term security benefits of taking ownership and control. In my experience the only true security one has is the one they create for themselves.
Is there a safe middle ground? This is a great question, and very many people believe this exists. Why not keep your day job and start your business venture on the side until it is ready to step into full time? This is a great option, if only it actually worked. The reality is that there is no being half pregnant, and there is no being half an entrepreneur. I have seen many people try this strategy and I have never once seen it succeed. An early stage start-up business is the polar opposite of a side project. It is a 7-day a week (and 7 nights a week) project to get off the ground. So unfortunately, the decision will still revert back to the same question, are you prepared to give up your day job in order to pursue your bigger dreams?
Am I prepared to finance this venture?
So now we have passed the first hurdle and you feel totally confident about being your own boss, but hold on for a few more seconds before handing in your resignation. How is this venture going to be financed? You may be thinking that you need to first obtain investor financing, however this will in most cases put you in a catch-22 situation. For the reasons already mentioned above, you’re not fully committed and won’t get off the ground until you go full time, but you can’t go full time until you have your finances in place. There are of course exceptions and some people may be willing to back you based on a business plan without any real traction. This is however unlikely. What is more likely is that you will get screwed by investors for selling out at such an early phase.
The more realistic scenario is that you will need to take on considerable financial risk -working for no income, or even worse, going into debt in order to finance your start-up. According to one of Australia’s most successful self made billionaires, Lindsay Fox “if you’re your not prepared to mortgage your house in order to do the deal, you shouldn’t do it”. Whether you should take on this financial risk is one of the toughest decisions you will ever make. But one thing that I do agree on, if you’re not prepared to put your own money on the line, you probably shouldn’t be going down the path of setting up your own venture.
Mathew Jacobson
This is a sample from a chapter in the best-selling business guide book: Insiders Know-How: Running Your Own Business. The book is available from Mithra Publishing. Mithra Publishing is based in Ifield, Crawley.