We hear a lot of stories about people who quit their day job to run a dream business and became rich. But newspapers don’t run accounts of people who fail or people who are only marginally successful. I wanted to share an account about what it’s like to make the transition from full-time employment with a large company to a small startup in order to give a sense of what’s involved, the risks and benefits, all the challenges and surprises that pop up, and finally the potential that exists if the business succeeds.
- Real-Life Story – I have a friend from university that had been considering starting a business for some time, as he wanted something bigger and better than his standard day job as a civil engineer. He noticed the opportunity for outsourcing AutoCAD work at his firm and decided to start his own AutoCAD outsourcing firm by using lower cost educated CAD drafters overseas and then pitching the service to larger firms in the UK, U.S., Australia and other English-speaking countries. We partnered up — I provided some funding and web expertise while he ran the operations and sales side of the business. So that’s the context for this situation.
- Passion for Business – My partner had a real passion for the business model and was very ambitious in setting up automated voice mail service, customer acquisition, online ads, outsourcing accounting activities and many other things a larger business does. By acting “big” right at the outset, it gave our firm the appearance of being more established and allowed him to focus on building the business and selling. If he wasn’t passionate, but was just doing it for a change of scenery, it would probably have failed quickly. You need to be passionate about the business you’re starting.
- Funding Challenges – One of the big problems with running your own business — especially at the beginning — is cash flow. See, we owe our expenses at the time they are incurred, but don’t get paid by clients until 30 – 60 days after the job is complete. So if we bought computers, software and have labour expenses in a given month, we may not be paid to complete a large job for 2 – 3 months in total. We needed funding to carry those expenses each time we expanded. So I had to add some more money along the way and we ended up adding two other investors as well, which diluted our stake. But this is the price of entrance.
- Quality of Life/Flexible Work – One thing my partner enjoys is that since he no longer has to go to an employer every day, he just works out of his home. While he ends up taking phone calls at night and on weekends to get to clients quickly, at the same time, certain days, he’s out at a park with his kids or taking day trips. He works on his schedule. It’s a nice change from the grind he was used to.
- Potential Riches – When we look out at some of our large clients and how we can continue to roll any profits into expanding the business to acquire more clients, there is the potential to grow the business very large and then take profits in the future. It’s quite exciting.
- Risks – The thing that can’t be ignored of course is that the business could fail eventually. If we don’t keep acquiring new clients and keep up with expenses for payroll and licenses, we could run out of money, run out of investors and run out of interest to keep funding it. That would mean all investment funds would be lost and my partner would have to go back into the routine workforce. Chances are that he could find gainful employment again, but that doesn’t happen overnight, so it’s certainly a risk.