Many students and future entrepreneurs ask me how it is possible to leave their job and security without the risk of ruining their life. In fact, this fear is irrational as is the illusion of security in your job. That will be subject of a future article, but in the meantime here’s the one thing I generally recommend for start up without risk.
You must have enough money put aside to support you financially for an entire year.
If you do not, you will be at the mercy of each little setback, making your journey much more difficult. And to launch your start up without working on it full time will also affect your chances of success.
Here are the 6 steps you need to go through to quit your job safely:
- Reduce your monthly expenses to a minimum
- Save any extra money
- Increase your income
- Get ready for the adventure
- Negotiate your departure
- Commit yourself fully
The first three points can be found in dozens of books on managing personal finances, with the common denominator : spend less than you earn and put the money aside. The aim of these three points is to get yourself into a good financial situation. The final three points are really important for a good start. Missing one step can act against you.
Here’s an explanation of the 6 steps:
Reduce your monthly expenses to the minimum
Have a modest lifestyle then you can dramatically increase your level of freedom and your ability to seize opportunities. People with a very high standard of living are often prisoners of this lifestyle and slip into a vicious cycle called The Rat Race. They are on the treadmill never able to stop, because stopping would mean big problems. Having a modest lifestyle is a luxury accessible to all.
Get rid of all the unnecessary stuff in your life. This could include selling your expensive car, reducing your frenetic shopping and the number of meals out in restaurants every month. Instead of an expensive gym subscription try running or cycling outdoors. Consider swapping your shiny, new, latest generation iPhone for a second hand android and don’t forget to cancel all the subscriptions that you don’t really use. Next summer instead of going abroad to a 5-star all inclusive hotel try camping or bed and breakfast.
Worried about loss of your well being? Scientifical studies (Malka/Chatman 2003, Baucels/Sarels 2010, Boyce/Brown/Moore 2010 & Krugman 1999) prove that once your basic needs are met, any extra money won’t really affect your happiness. In fact, too much stuff in your life may introduce boredom and anxiety. More is less.
Still worried? Don’t forget it’s just temporary until you can afford it (again). In fact you should never buy anything you can’t pay for with cash. If you can’t pay in cash (with the exception of your house), it means you can’t really afford it. You’ll be able to buy all the luxury you want with the extra money you’ll get from your successful company.
I personally sold my brand new luxury car (Mercedes ML) for a simple and cheap second hand utility car (Ford Transit Connect for less than 8K). Less happy? On the contrary! Liberty of choice is priceless.
Save any extra money
The difference between your income and expenses, is your ability to save. The bigger the gap is, the faster you will reach the goal of the equivalent of one year of expenses. If your start up requires an initial investment, you must include this in your calculation.
We saw earlier that your income, after a certain point, won’t affect your happiness much. Lack of savings can really affect it (Gavin 2005).
What you do by taking all your extra money is pay yourself first, a lot. Here are the definition from Investopedia:
A phrase commonly used in personal finance and retirement planning literature that means to automatically route your specified savings contribution from each paycheck at the time it is received.
Because the savings contributions are automatically routed from each paycheck to your investment account, this process is said to be “paying yourself first”; in other words, paying yourself before you begin paying your monthly living expenses and making discretionary purchases.
Increase your income
To speed up the process, I strongly recommend you increase your income. You can do this simply by asking for a raise (it works, really, just try), finding a second job on weekends or evenings, or by getting rid of all those gadgets that you do not need anymore by selling them on eBay (whatever you may think of it). Ideally, you can do all three at once!
One really original way that I have had occasion to test with success is proposed by Timothy Ferriss in his book The Four Hour Workweek.
Please note that this mustn’t be to the detriment of a well balanced life. If you really can’t afford to work extra hours, don’t do it.
Get ready for the adventure
Just because you work full time elsewhere does not mean that you cannot clear a little time to prepare your start up. This need not be more than 4 hours per week. If you have to choose between working more (previous step) or this one, pick this one!
I highly recommend that you use this time to talk to the potential customers of your projects. This will allow you to adjust your business plan in order to develop a product that truly meets market expectations. This is called Customer Development.
Many start ups fail because the entrepreneurs have never talked to customers and therefore “derived” requirements based on their own experience. What they did not know is that their experience is unique, and often does not reflect reality.
Starting well prepared will help you to face the challenges in a more serene manner. Of course you cannot predict everything, but read enough about the subject and you can protect yourself from most common mistakes.
Additionally, start to subscribe to every major blog of your industry and follow the specialized press. Watch similar companies and try to attend to few trade shows to observe the market.
Finally, to help you prepare, I recommend that you read Four Steps To Epiphany, you can get a pdf version here.
Negotiate your departure
Once you have gathered a year or more of expenses, it’s time to get started.
This is the simplest step, and yet it is one that can seem to be the most insurmountable! It’s not really the fact of announcing your departure to your boss that causes the most concern, but actually making the leap.
Many choose to apply for a sabbatical year (this is a legal right in some countries), others consider this step as a liberation in itself.
If you have fully realized the previous steps, you will be much more confident. You will have enough money to both achieve your business and live normally.
The most elegant way to announce your departure is to request a meeting with your boss and explain that you are going to try the great adventure. During the interview, take advantage of their experience to ask for advice! Send your official letter of resignation only after the interview.
Make sure that your departure is not too detrimental to the company and that your departure is not too painful for your employer.
If you are lucky enough to have a good boss, they will let you go without putting any obstacles in your way. Otherwise, they might try emotional blackmail. If your departure harms your employer, it is likely because you have been poorly managed. It’s rarely your fault. This will be your first test: to deal with this while remaining professional.
Commit yourself fully
You have started! Now you need to focus on your business full time. This is no time to indulge in other things. If you chase two rabbits, you won’t catch either. Don’t start two businesses at the same time. Focus on one and only one. You’ll be able to work on different things at the same time once you get more entrepreneurial experience.
You will probably read in many other information sources that the best entrepreneurs work 100h per week. I really think this is as ridiculous as it is dangerous. It’s true that working many extra hours will provide you with extra productivity short time, but will likely harm you long term. You must work hard, but not destroy your health, which is more important than all the money in the world. In fact, I believe that working too hard can prevent you from being successful as much as not working enough! Dead or burnt out, you are useless to your business. Your start up needs a healthy entrepreneur with a well balanced life. I highly suggest you that you don’t work more than 9 hours a day, with regular breaks, including lunch time away from your computer. Invest the rest of the time in what should be the most important: your family and yourself.
Whatever happens you have this advantage: you will not have the pressure of needing an immediate result. You know you have enough money to support yourself and in case of problems, you know you have the capacity for a much better job than you had before.
What if I fail?
The success of your business is not the subject of this post. That being said, you do need to consider failure. Statistically, it is even quite likely that you will fail, but if you prepare properly you greatly improve the chance that you will succeed in developing a profitable business in which you blossom.
In the event that it just does not work, know that you come away from this adventure much stronger than before, which will greatly increase your chances of finding a better job.
The reason is simple: Employers love people who take things in hand, those that turn problems into opportunities. They are quite rare and generally, people who can do this are probably already employed and so not likely to be applying for jobs, or have already set up their own business – this means these skills are in demand.
Indeed, fear of failure is so great that very few people manage to succeed as far as point 5 point, even the brightest. You will be in a unique position that allows you to find an exceptional job.
If you can afford it, save a little over a year in advance to give you a few more months to find a job in optimal conditions, ie without pressure. For you, the key to finding a better job is that you have become more competent, with no debt and most importantly, with no regrets for not having tried.