29 Sep Starting From Scratch: Top Tips Before You Start Your Start Up
Becoming an entrepreneur is becoming an increasingly popular way to make a living. Being your own boss, and escaping the ‘9-to-5 rat-race’ is very appealing, and it has become easier than ever to do, as the internet allows you to run an empire from absolutely anywhere. But what should you keep in mind if you are considering making this huge life change?
Don’t quit your day job immediately. The number one piece of advice that entrepreneurs will tell you is phase into being a full-time entrepreneur slowly. Living just off savings is stressful, particularly when you have to spend money on your business, rather than budget tightly. If you have loved-ones who are dependent on you, this can be stressful for them as well.
Start it as a hobby, and build it up from there. The best time to quit your job is when you’ve done all the foundational work, and, most importantly, when you’ve got at least three years personal expenditure saved, with enough money to invest into your own business when the time comes.
Still, it might be a good idea to go part-time, rather than fully self-employed at this stage, if you can.
Don’t celebrate anything too soon. It will feel like a painful struggle, but getting your initial financial support can be ‘easier’ than getting further financial support, later down the line. This is because initial finances can be quite small, so ultimately, people are willing to part with a small amount, for a possibly huge return, much later. Whoever invests in you at this stage, is investing in you as a person, and it is relatively easy to convince someone you, or your partner, are great – particularly if a proportion of your investors are friends and family.
Your second and third stages of investment are more likely to require hard facts and figures, proving you are, or more likely will be, a success. This is especially hard because you will not actually be in a position to prove this without a doubt. You probably will not have made a profit yet, so it becomes an argument of ‘look how much money I could have theoretically lost, and look how much money I actually did lose!’. Not great. Your friends and family are unlikely to be able to give you a second loan so soon, and you are going to be asking for a larger amount. This stage can cripple a fledgling company.
When you are asking for your first ever loan, you might think to go to the bank, or a financial investor. You can try, but you almost definitely won’t succeed, unless they are a personal friend.
Your first loan, as we have already alluded to, is much more likely to be friends and family, and personal connections. You can try Kickstarter, and other such funding websites. But it is too early to ask financial institutions for a loan – they will want you to prove yourself first.
It is also important to note that you are going to need to put your own money into the project. This is partly out of necessity, but also because it signifies confidence in yourself. Would you invest in someone who didn’t feel confident enough to invest in themselves?
Find a co-founder. After everything that has just been said about how difficult money will be, you may think it is madness to ask someone else to join you. This would mean you both need to have savings, and when you do eventually make a profit, it will be divided into two.
But, it looks much safer to investors. Groups are generally more competent and have better ideas than individuals. Maximize this effect, by choosing someone who balances you out. If you have a great product, but no business experience, find someone who does. If your technical skills and understanding of the product are lacking, find someone who really knows what they are talking about during a pitch, and who can fix problems on the spot.
You could even have a total of three founders – but anymore and you are risking ‘too many cooks, spoiling the broth’. There are many examples of creative differences ruining otherwise great companies and ideas – don’t let that be you!
You probably won’t become a millionaire. Many entrepreneurs go into business, simply to be their own boss. However, many people have romantic ideas of being the next Steve Jobs. It is always possible, but very very unlikely. You should be aware of the reality of being an entrepreneur. Working 70 hour weeks, for, ultimately, a good-but-not-insanely-good income, is not for everyone.
If you are thinking about doing a start-up to be a millionaire, you will be bitterly disappointed. Almost every millionaire success story, is built on a massive, and serious, failure story. And the average person can’t afford to invest money just to fail, in order to live and learn and start again.
Similarly, if you are thinking about doing it simply because you hate your current job – it may be a good idea to think about re-training in another field which you will enjoy, rather than take the financial risk. Education can be a better investment in yourself, than starting a company, so it is worth giving the idea serious thought.