Quitting your corporate IT job to start a business can be one of the most exiting (er, exciting) -- and stressful -- decisions you ever make. Quite a few IT executives are considering that move right now. But how exactly do you walk away from a steady paycheck and benefits to the scary unknown of the startup? Here are seven variables I kept in mind each time I've jumped into the startup market.
1. Think Long-term: Sure, you've got a creative spark and a big idea for your own business. But you've got to look beyond the one-year and even three-year business plan. What you really need is a five-year and 10-year personal plan. Ask yourself:
- Big-ticket items: How will your personal expenses evolve over the next five years? For example, do you have kids heading to college or exiting college? When will I "need" a new car? And what other big-ticket expenses are on the horizon? Big ticket items require long-term planning. How will your commitment to a startup business evolve or change as those big-ticket items approach? What if the business falls short of your revenue and personal income goals? Will I abandon the entrepreneurial dream or somehow adjust my financial burn rate and planned spending?
2. Funding Costs: How much money will it cost me to launch and run the business for the first year? Where is that money coming from, and what's the impact on my long-term plan from item No. 1 above? Generally speaking, I always want to remain "safe" at home. That means I'm willing to invest heavily in my start-up -- but not if risks my family's well-being. I'd never take out a massive home mortgage or drain college savings or personal retirement accounts to pursue my entrepreneurial dream.
3. Lower Your Personal Cash Burn Rate Now: What are my monthly big-ticket expenses at the present -- mortgage, health care, car payments, etc. What can I do to drive down those recurring expenses (i.e., live below your means) ahead of quitting my job to launch/join a startup? And how do I keep a lid on those expenses? Get these costs under control, and you're in better position to remain "safe" at home -- not tapping into your retirement or college savings account.
4. Don't Go On A Starvation Diet: Much like a crash diet, entrepreneurs are sometimes tempted to "starve" themselves (and their families) during startup mode. You drive your family crazy by cutting cable, smartphone and other services to drive down your personal burn rate. You stop going out to dinner -- completely. In short, you put your home life on financial life support to deal with the fact that you're making no money -- at least for the first few months of startup life. In reality, you're introducing far more stress into your family life. You may even trigger resentment within the halls of your home. Your kids want to know that they're "safe" at home -- even as you educate them a bit about living more modestly than usual.
A good approach: Tighten your spending within reason. Watch an on-demand movie as a family, instead of paying $100 to see a first-run film at a theater. Or as I often told my startup peers, when you go out for dinner order the pasta -- not the lobster.
5. Don't Underestimate Health Care: Ongoing healthcare coverage has been my family's single biggest expense -- bigger than our monthly mortgage payment -- each time I went into startup mode. It is my biggest single financial concern and headache while in startup mode. It always works out fine -- but that's because both After Nines Inc. co-founder Amy Katz and I each stay ahead of the health care providers, terms, bills, etc., for our respective family plans. You can't go into reactive mode on health care.
6. Be Conservative: Of course you want a best-case revenue and income projection. But what about worst-case scenarios? What happens if the launch doesn't go as well as planned? At what intervals (weekly, monthly, quarterly, annually?) do you make minor and major course corrections to adjust the business. And at what point do you potentially throw in the towel?
7. Be Humble: When you're exiting your job, be sure to thank absolutely everyone on the way out. Because those may be the same people you need to open the door for you if you ever come crawling back in... Even if you build a successful startup, chances are you'll run into former co-workers as they move onto new businesses as well. Remain on good terms with those peers, as they start new jobs, and you'll be surprised by the win-win revenue engagements that flow your way.
Bonus - Business Partnerships That Work: If you are co-launching the business with another executive, make sure you share similar personal, professional and financial priorities -- and similar timelines as you plan new initiatives, course corrections and even a potential business exit.
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