Dreaming of Becoming Your Own Boss?
Many dream of starting their own business, but few know what it entails. These eight tips give you some answers.
Having your own business or starting one has a certain ring to it. Many seem to believe that being an entrepreneur is like living a dream of freedom, independence, and wealth. No wonder many employees working for large corporations long to become their own boss. Frustrated by being pushed around, participating in countless video calls, or being passed over for a promotion, the idea of starting your own company where you are the boss can act like an escape hatch.
However, before you rush to quit your corporate job, here are a few realities that can help you set the right expectations of what it's like to be your own boss.
Do You Have to Live From Your Company's Profit?
Over the years, I have met several entrepreneurs who retired early and started their own businesses to pursue their hobbies. They didn't need to depend on their company's profit to cover their living expenses. They had accumulated enough wealth in their corporate jobs. The reason why they started their business was to keep busy as long as it didn't interfere with their other interests.
However, if you depend on your company's profit to cover your living expenses, then continue reading.
Does Passion Drive You?
Contrary to popular belief, having your own business can be stressful and exhausting.
In the first couple of years, before you can afford help, you will be responsible for everything, sales, marketing, procurement, operations, legal, and accounting. You will be the one writing the legal terms in your contracts because you cannot afford an expensive lawyer. You may have an accountant to prepare your income tax return, but many business owners file their taxes themselves. Ah, and don't forget to file your sales taxes and business property taxes on time. It will be overwhelming. That's part of the reason why the majority of new businesses do not make it through the first five years.
However, those entrepreneurs whose business survives are exceptionally passionate about what they do. Every morning, they get up eager to make a difference. And when they go home, they know they will have to take care of all the back office work, returning customer calls, preparing proposals, issuing invoices, and paying suppliers. They don't complain. It's part of having your own company.
▶ Sometimes Success Takes Time
▶ Does Your Website Show Purpose?
How Proven Is Your Business Idea?
When you start your own business, you need to be able to describe what your company does. Does it sell a product or a service? And what product or service specifically? Do you already have this product, or do you still need to develop it? These are crucial questions that determine how much cash you require for the first couple of years.
If your business idea is well established, you have it much easier. Your future customers are familiar with the type of products and services you offer. You only have to convince them that yours are superior and that they should buy them from you.
However, if your business idea is so novel that a market does not yet exist, your cash demand will be enormous, making it potentially necessary to bring outside investors into your venture. These investors are called venture capitalists. They specialize in funding start-up companies with promising new ideas. In exchange for investing in your company, they want to become partial owners. You may still run the company, but these investors limit your entrepreneurial freedom by making you adhere to strict development milestones. The only way that they can get their money back is by scaling your company fast and then selling it.
▶ How to Make Your Business Stand Out in a Crowded Field
Is Your Business Idea Scalable?
Some business ideas look great on paper, but if they lack scalability, they are not viable.
Suppose you are an event planner who organizes one event per week. Could you also handle one event per day with the same staff at the same sell price?
If the answer is yes, it's great because you could increase your efficiency five times. That means, without increasing your cost (input), you could sell five times more (output), leaving you with five times the profit. In that case, your business idea would be sufficiently scalable.
However, if the answer is no and you cannot scale your business to more than one event per week without hiring more staff, your business idea offers much lower profit potential and may be less interesting to pursue.
In business, it's all about efficiency, and profit is the best metric to measure it.
▶ 5 Reasons Why Knowing Your Profit Is Crucial for Your Company's Success
▶ Don't Be Afraid of Your Finances
▶ How to Achieve More With Less
▶ Why You Should Control Your Expenses
What Barriers to Entry Do You Need to Overcome?
Barriers to entry make it difficult for outsiders to enter the market and compete with established players, the insiders. Keeping new entrants out protects the price level for their products and services. To overcome this barrier, you may need to invest a lot of money before you are in a position to offer your services to customers.
Take the telecommunication industry with its few players as an example. Before a new entrant can seriously compete with AT&T, Verizon, and T-Mobile, you need to pay a lot of money to the government for frequencies you can use and then invest even more to build a parallel network. These barriers are so high that they keep new competitors out and prices high.
Of course, you are not going to compete with AT&T, but check if your services require a professional license. If they do, you will have less competition and a greater chance of earning enough money to support your family.
Do You Have the Skills of an Entrepreneur?
Many believe their corporate career has prepared them enough to become successful business owners. I don't like to be blunt, but I do not think any corporate job will prepare you for what an entrepreneur must deal with daily. The worlds are too different.
Large companies are organized into departments, such as sales, marketing, procurement, production, legal, and accounting. When you work on a project, you are part of a team of specialists. Teamwork can be frustrating and annoying as progress may be slow, but you will rarely encounter blind spots.
As a solopreneur, you are on your own. There is no team of experts helping you unless you hire and pay them. If you don't know the answer to the question, the question won't be answered — assuming you know what questions to ask.
▶ The One Trait Many Successful Entrepreneurs Share
▶ Focus! The Secret of Successful Companies
▶ How Do You Allocate Your Capital?
Your Competitors Are Eager to Take Your Customers Away From You
The marketplace is a jungle, and the competition for the same customers is fierce. Only one small misstep that leads to a negative review, a family emergency, or sickness can cost you valuable business. You must be alert and give your 100% all the time. Your customers have priority. There is no slowing down, sleeping in, or extended vacation.
Until you build a loyal customer base from which you can derive enough profit to cover your living expenses, you always run the risk of not reaching your financial goals.
▶ What Is Customer Lifetime Value (CLV) and Why Small Businesses Should Embrace It
▶ Why You Should Protect Your Customer Relationships
▶ Reward Loyal Customers Without Spending Anything
Failure Is Never an Option But Always a Possibility
I have not met one entrepreneur wanting their company to go out of business intentionally. Failure is never an option that is on their mind. They want to be successful and work long hours for their venture to survive and grow. But the risks are high. Failure may never be an option, but it always is a possibility.
To shift the odds in your favor, you have to prepare yourself. Spend time refining your business idea and learn about legal concepts, accounting, marketing, and sales, all those areas that were not part of your corporate career. As Douglas MacArthur famously said: "Preparedness is the key to success and victory."
On that note, once you have completed your due diligence and learned what it takes to be an entrepreneur, you are ready to make your dream of becoming your own boss a reality.
