Episode #48: How To Successfully Move From Employee To Entrepreneur During The Great Resignation
Raise your hand if, like me, you’re super confused about what’s happening in the job market right now. People are resigning from their jobs in spades, businesses and employers across all different sectors are declaring that they can’t offer their services properly because of huge labor shortages, unemployment rates are steadily dropping back down to pre-pandemic levels, and the economy’s been on a tear.
It’s crazy out there, but what I do know is that more and more people are looking towards entrepreneurship as a way to escape things like the corporate ladder, glass ceilings, gender and race pay gaps, and low income to cost of living ratios in big cities. And I think this change is commendable. I get excited thinking about all the different businesses and innovations that have the potential to come out of this period of time! AND I think that more people are cut out for entrepreneurship than we realize because it’s not really made available to us in school as a viable career opportunity, which is something I hope to see change in upcoming years.
I have been self employed for my entire working adult life, so I’m all in on this lifestyle. I currently have and have had a number of different small businesses, some of which worked, some of which didn’t, and some of which are still TBD. So, for today’s episode I wanted to speak to the financial side of being self-employed. Specifically how to set yourself up for success as an entrepreneur financially before you quit your job. AKA: How to keep paying your bills when you’re starting a business.
With so many new people flocking to the world of self-employment, I don’t want to be the bearer of bad news, but I feel compelled to talk about the statistics that 10% of businesses fail within their first year, and 70% fail within the next 2-5 years. That means that only 30% of the businesses that people are currently quitting their jobs to start will have any sort of long term success. And I personally don’t want to see 70% of the new entrepreneurs finding themselves having to get back into the job market that they just left. I want to see so many more people able to continue with their entrepreneurial dreams
So, if you have a business idea that you’ve been considering starting, stick around for 8 questions you should ask yourself before quitting your job and yoloing all your money into your business idea for the next greatest banana stand.
Question #1: What problem does this business solve? What value do I offer people?
Instead of being obsessed with the lifestyle you picture having as an entrepreneur, become obsessed with how you and your business can improve the life of your clients. Being obsessed with your clients success, happiness, well being, whatever it is that you offer them, is the first step towards making sure you don’t join that 70% of business owners who have to close their doors within their first 5 years.
As an example of this, I want to take a look at the many people who are trying to start their careers as social media influencers. Let me start out by saying, I don’t want to seem like I’m picking on this type of business because there are a lot of great and savvy entrepreneurs out there who absolutely kill it with the influencer business model. What I want to point out though is how specific you need to get to answer the question ‘what problem do you solve and what do you offer your clients’ . And it seems like a lot of influencer type businesses say that they provide ‘inspiration’ to their clients. They want to lead a life and photograph a life that’s inspiring to people visually, and that people will watch and follow in awe of their cute slippers, cuddly puppies, and cozy at home loungewear. Frankly that’s not enough. Yes you can offer inspiration when you’re running an influencer business, but you need to offer more. Does your business model save your followers time, or money, or energy? Does it provide them with connections that they need, does it provide diversion and entertainment, how can it impact their day to day life for the better, and what will you offer them to get them raving about your business to their friends? THIS is what will help you create a successful business in the long run.
Question #2: Is there room in the industry, and what differentiates you from your competitors?
There are always industries that need people and businesses and innovators and it’s much easier to start a successful business in these fields. More often than not though, when you start looking, you’ll find that the industry you’re getting into is super-saturated. BUT, don’t give up there, instead move on to the second part of the question which is: what differentiates you from your competitors?
This is an awesome question because it really prompts you to get creative and to problem solve for your customers. Look at what other businesses are doing, think about the gaps that they’re leaving, and ask yourself how you could do it differently or better. I’ll give you an example from my background in starting off running a wedding photography business.
Wedding photography is an incredibly saturated industry. It seems like everybody and their uncle is a wedding photographer. So I looked at what I could do differently and how I could do it better. And what I found was that a lot of wedding photographers think of themselves as artists and they let their creativity override the need to also run a good business and create a good experience for their clients outside of their wedding day. They take jaw dropping photos, but the customer experience outside of that can sometimes be forgotten. I decided to focus on doing things like setting up systems so that my clients received prompt email replies, or never had to wait for their galleries because my editing que was too long. I followed up with them, I sent emails and sent resources that preempted the questions I knew they would have along their planning process. I offered custom design and product printing so that I didn’t leave that very important part of the process of printing their photographs up to them to do at some questionable photo lab where their images would look terrible. These examples along with 100 other little things like this helped my wedding photography business take off in the first year, and receive so many referrals and recommendations from word of mouth that I hardly ever spent any advertising dollars and booked every season as full as I wanted to despite the fact that, like I said at the beginning, everybody and their uncle seems to run a wedding photography business.
Question #3: What is your plan to stay motivated and diligent?
When you run a business, YOU are responsible for everything and you have to think ahead, make plans, and stick with them. This means doing the work every day regardless of whether or not you feel inspired or motivated. It’s not about inspiration, it’s about diligence, and you need to honestly ask yourself how motivated you are to be diligent and do the work, and what you can do to set yourself up for success here.
Before you quit your job, make sure you’re committed to doing the work diligently and consistently, day in and day out, for however long it takes, and prepare yourself for it to possibly take years. Decide what will keep you motivated and stick with it. I also recommend finding a group of entrepreneurs who you can connect with, share with, and learn from as you progress, because just like in an office environment, these people will help keep you on track and showing up every day. Failing to be consistent to do the work and show up for your clients when, where, and how you promised them you would is a huge factor in businesses going under. So ask yourself this question honestly, and set yourself up with systems that will keep you honest and on the ball.
Question #4: Do you have the money set aside to support yourself while you launch your new business?
Most businesses take some time to grow and scale up to being profitable. That’s normal, and you can manage this in 2 different ways. First, you can keep working on your business as a side hustle until it’s making enough money for you to quit your job. If however you’re determined to quit as soon as possible to focus all your energy on your business then please make sure that you’ve set aside an appropriately sized cushion of cash to support yourself with until your business becomes profitable.
To do this, calculate what your monthly living expenses are, then set aside however many months worth of money you think you’ll need in order to see your business through the start up phase. Then, keep in mind that everything takes longer than you think it will when you’re starting a business, so if you can, take that amount of time you think you’ll need to support yourself for and then double it. It may seem like a lot of money to save, but this will give you the financial freedom to not stress, burn yourself out, and have to close your doors early because you’re hemorrhaging money and running out of cash before the business becomes profitable enough.
Question #5: Do you have the money you’ll need to successfully start your business?
Most businesses require some sort of cash outlay to get started. Whether that’s for something as big and expensive as product development, to something relatively inexpensive like running a website. Take the time to plan out what you’ll need to start your business, and how much it’s all going to cost.
Don’t blindly jump in and hope that you’ll have enough money to get the ball rolling. Plan for your success, and start saving up a business launch fund now. This is going to allow you to spend the money that your business needs to get started because you will need some money, and things will take so much longer if you’re trying really hard not to put any money at all into it.
Also, just in case you’re thinking of cheating a little bit, I do recommend that the money you’ll need to launch your business should be kept separate from the money you need to pay your living expenses while you’re starting your business. Don’t overlap these two areas or you’ll find yourself running out of money really quickly, and having to make really unfortunate decisions like: should you pay to keep your website up for another year, or pay your rent this month? It sucks having to make these decisions. Don’t put yourself in that situation.
Question #6: Are you willing to pivot your business idea?
What I’m going to tell you next is extremely important to understand, and that’s that it’s completely okay if your business doesn’t work out in it’s first iteration. That doesn’t mean that some version of your business isn’t going to work, or that your next idea won’t be a huge success.
It’s totally normal if you don’t hit on the perfect version of your business right out of the gates. Where people can get themself into trouble is when they steadfastly stick to their idea because that’s what they want to do, while their potential customers are over on the sidelines screaming about what they actually want and need. Always remember, the business is about what you can do for your customers, not just doing what you want to do and expecting other people to pay you for it. So, when you get started, talk to your customers, listen to them, read their reviews, see what they’re saying about similar businesses and pivot your idea if you have to.
One of my favourite examples that you might know is the software called ‘slack’. That company started out as a gaming company. It was started by some avid gamers, that was what they did, what they loved, what they wanted their business to be all about, but they realized that what they had created wasn’t working well in the gaming world but could have other really useful applications. So, they pivoted into an office communication messaging platform, and became hugely successful. They weren’t so tied to their original idea that they went down with the proverbial ship, instead they looked at what they had created, listened to their research and their customers, and pivoted their business to become a huge success. So, remember slack, maybe write this little anecdote down next to your desk, and remember this.
Question #7: Will your business cover your salary AND other benefits you’ll be losing when you quit your job?
Most people are used to receiving benefits from their job like dental coverage, or RRSP contribution matching programs. When you’re self-employed you don’t have any of these benefits, but you still need them and need to provide them for yourself. So many people think of running their own businesses in terms of being able to earn the equivalent of their corporate salary, but you actually need to be able to make at least that and then more unless you want to do without things like visits to the dentist and retirement savings accounts. Take stock of the benefits you have right now, assign a cash value to them, and make sure your business plan accounts for you being able to provide these benefits for yourself when you need them.
Now again, I don’t want to discourage you from the entrepreneur lifestyle. I love it and I think that way more people should be innovating, and dreaming, and starting businesses that will contribute to the world. I also think that a lot of people are enamored with the glamor of being an entrepreneur, and they could create very successful businesses, but don’t necessarily put enough thought and planning in before they decide to quit their jobs and dive in headfirst. Lots of people say things like ‘no everyone’s cut out to be an entrepreneur’ which can be true, but I truly believe that so many of the business that fail COULD succeed if they took the time to ask themselves these 7 questions, plan ahead, and make sure that their financial plan was solid before getting started.
Linked Resources
Want to learn the first steps you should take you start managing your money? Take the quick quiz on the How To Adult School home page!
Want to learn more about managing your finances like an adult? Sign up for the free back to basics beginner finance course.
Instagram: How To Adult School on Instagram
Tiktok: How To Adult School on Tiktok
Youtube: How To Adult Show on Youtube
Podcast: How To Adult Show Podcast
NOTE: This page contains affiliate links that allow you to find the items mentioned in this episode and support the show at no cost to you. While this show may earn minimal sums when the viewer uses the links, the viewer is in NO WAY obligated to use these links. Thank you for your support!