Start A Business Or Stay Employed?
Start Your Own Business Or Stay Employed?
The problem with being employed by someone else is that there’s an upper limit on how much you can earn. It doesn’t matter if you work extra-hard or slack off; you still get the same wage. To make more money, you have to get promoted or get another job.
So you save up your cash and get your business going in your spare time. When it becomes clear that you can make a net profit, it’s time to strike out on your own.
You can work from home or rent an office or just share office space with others, or just buy the right to use someone else's address.
So what are the pros and cons of striking out on your own? Here's a simple list:
- Make a living doing what you love (or just like a lot).
- Control your work life, from when, where and with whom you work.
- Choose your clients, projects and niches.
- Balance your work and home life.
- Get things done faster and better.
- Earn more. Anything left after expenses and taxes is yours.
- Job security. If you annoy one client, you have others. As an employee, if you annoy your boss, you're fired!
- Satisfaction. You have genuinely accomplished something.
- Uncertain income and possible cash flow problems.
- Finances get more complicated e.g. taxation. You'll be held to a higher standard by lenders if you want to get a loan or mortgage.
- No delegation or procrastination; it's all down to you.
- Do everything yourself; accounts, admin, post, contracts, the lot!
- More likely to overwork and burn out.
- Uncertain income and possible cash flow problems.
- No paid vacation time. No paid sick leave. You pay into your own pension.
- Isolation, pressure and loneliness. It's all down to you and there's no one to talk to
- Put the family under more stress!
What You Need When You Decide To Jump Ship
You need money. Have enough money to last you two years. You should already be earning from your project, part-time, while employed. Don't quit your job on the mere hope of success; test your ideas first.
2. A Base of Operations.
A bedroom is fine. So is a shed. Anywhere you can make and receive calls. A sole trader only needs to register with HMRC, so a sole trader can operate from home.
If the landlord says "No!" when you ask about registering a company at your address, get a mail-forwarding address. If you need to put a limited company between yourself and litigants, then a virtual registered office will do; you rent someone else's address. It's perfectly legal and standard practice. Otherwise, all startups would have to rent expensive office space from the get-go.
A table, a desk, a laptop and a mobile phone are all you need in the information economy. A tradesman needs a shed as well. The professions, on the other hand, outsource everything they can.
4. Red Tape.
Register with HMRC as soon as you can. It's better you contact them first rather than have them coming after you(!) Good news: one can now file returns online. This is ok for people who understand accounting terms and can bookkeep. And who have ultra-simple accounts. Otherwise, get an accountant.
A bank account;
A phone number (a virtual one will do);
A graphic designer, for your logo and cards;
Webhosting, for your website;
A web designer, for your website: Keep it simple and professional looking.
What To Jump Into
So what can you do? There are a thousand possibilities. So, find a niche …
- Which you love;
- Which you can be the best in;
- Where people will pay you for it;
- Where there is sufficient demand;
- Where there is a fat net profit.
These criteria are essential and narrow down your possibilities considerably. Miss out one and you will struggle and eventually, die.
Franchising is one overlooked option in the UK. It's very popular in the US. On the plus side, you get a ready-made product and marketing help. On the minus, the franchisor gets a percentage and you have to operate to their standard. You can't branch into other frachisee's territories.
Daniel Gulati, author of Passion & Purpose, spent a month investigating where successful entrepreneurs got their ideas. He surveyed 50, in 3 different stages of company development: 'pre-funding', 'growth' and 'gone public'.
He then came up with a list of the top 5 sources:
1. Experienced a pain point in their life and wanted to solve it.
2. Met someone talented and started a company together.
3. Had a special skill or passion and turned it into a business.
4. Worked in an industry for a long time and saw a customer need.
5. Researched many ideas and eventually narrowed it down to one.
Neil Blumenthal is an example of 1, above. Warby Parker, his company, solved a personal frustration; the high cost of spectacles.
What Not To Jump Into
Businesses fail all the time. Not everyone can be a winner. 95% of businesses fail in the first 5 years. High risk businesses are retail stores, independent restaurants and businesses which involve direct selling. These are the kinds of business Joe Public blunders into because he's in love with the idea of running his own business and not so focussed on the outcome. He doesn't quite know where he's going and wanders into a bog.
Take a quick quiz and find out if you've got the personality for it.
Thus, you get clever City of London financiers quitting their jobs and trying to run a hotel in Provence. That's not smart; it's labour-intensive, with high overheads, long hours, low profits and they don't know the area or the trade.
They go from taking home £100K a year to £20k, after expenses. If they're lucky. Something that seems fun while you're on holiday can look very different from the inside. You have to seek wiser counsel. Exhaust yourself researching the business, first.
So, how to avoid returning to the 9-5 grind?
A simple trick is to copy what someone else is making a good living at and do it better. Make it cheaper, faster or higher quality. That's all there is to it.
Another thing to beware of are get-rich-quick schemes and Multi-Level-Marketing (MLM) schemes. Amway is one famous example in the US. These tout exaggerated profits with long sales pitches and dubious testimonials. Their weakness is that they require you to sell to your friends, which alienates them. The more people that get involved the more are needed in the MLM downline to fuel the enterprise.
You may as well source and sell your own goods if you go down that road.
However, there is one thing you can learn from them: how to write a sales letter. Affiliate sites like these use every sales letter trick in the book to land you. If the potential customer is halfway interested at the beginning of the screed they’ll be slavering to sign up at the end.
It’s never been easier to set up your own business. All you need are a remarkable product or service and a website. To protect yourself legally, a limited company and a virtual office address give peace of mind.