What every entrepreneur should know before quitting their day job.
They say that at any given time 90% of Americans are thinking about becoming an entrepreneur and starting their own business. If you are one of them, or aspire to become one in the future, then the following lessons that I’ve learned along the way may prove interesting.
1. Money – it’s a tool until you run low or run out. Then it’s like oxygen.
- The best run companies keep 2-3 months of operating cash on reserve.
- Profitable businesses can still run out of cash when receivables pile up.
- Of all your resources in the early stages cash is one of the most critical.
- That being said, one of the best lessons I learned as a startup is how to be resourceful when there isn’t a lot of cash to start. The best question to ask yourself and your team is, “what are three ways we could solve this problem if we had no money to spend on it?” A good catalyst for innovation.
- Experiment: Gather enough cash to support your family expenses for six months. Then live on that budget for another six months. See if everyone is still on board with the idea.
2. People – As a startup, hiring full time employees should be the LAST way you get work done. Here is the progression I have successfully used to build a number of businesses. (Unless you are fully funded by a VC and have to put money to work.)
- 1. Friends and family who are willing to help out for free
- 2. Interns – college students (and sometimes even bright high schoolers) are always looking for experience.
- There are both paid and unpaid positions you could post. The difference between the two is what kind of experience they will be getting. If it’s future career building experience, it could be free. If it’s just labor or administrative level support, then it should be paid. Whichever school you are working through should be able to give you guidance.
- 3. Outsource – for intermittent work or small projects, outsourcing can be really helpful. Here are a few websites that I have used successfully over the years.
- www.upwork.com -(formerly elance-oDesk) – Freelance sight for professional freelancers. (Something to consider if in need of direct content.)
- www.Fiverr.com – a global online marketplace offering tasks and services, beginning at a cost of $5 per job performed, thus the name.
- www.mturk.com – Amazon Mechanical Turk. Hire people to do small tasks.
- www.freeup.com – (I have not used this sight, but have heard good things.) hire top 1% of online workers. 40% from Philippines. Outsource all kinds of tasks.
- 4. Part-time employees – when the workflow starts to become predictable enough that it’s more than you want to manage on a project basis, then part time help is a good option. A good rule of thumb is that when half of your time is spent on this activity (cold calling, marketing, content generation) or similar group of activities (bookkeeping, production, IT) then it is time to hire at least part time help.
- 5. Full time employees – once you start maxing out your part time help, it will become clear that full time employees are needed.
- 6. Equity Partner – This will be your most expensive investment so choose wisely. See #4 below for more details.
3. Equity – Most people say they want it. But what they really want are 2 other things.
A chunk of the cash they help to create and a feeling of ownership; A stake in the outcome.
But, mention the words “Capital Call” and the conversation changes quickly. We tend to only
think about the upside in business. Never the downside.
An alternative called “The Golden Chain Gang”, developed by Karl Neset, a fractional CFO at
Clifton-Larson-Allen, allows for everyone in the company to get a cut, but for the owners to
keep all the equity and ultimately control. I interviewed Karl for the Dynasty Leadership Podcast. It instantly became one of the most popular podcasts I have done. Thanks again Karl.
Guy Kawasaki also had some good thoughts in his book “Art of the Start”.
- 25% – reserved for future employees
- 35% – reserved for first two rounds of financing
- 40% – split up amongst founders
- Not necessarily equal
- Time, expertise and finances should be factored in.
- 4 year vesting – in case anyone leaves the company including founders
- 4. Partners – Choose them carefully
- 1. Find someone that thinks differently than you.
- 2. Find someone that has a different skill set than you.
- 3. Find someone with the same values as you.
- 4. Find someone with the same work ethic as you.
- 5. All partners are not equal. Therefore equity shouldn’t be either. See above.
- 5. Division of labor – early on, everyone does everything. And that’s good, because you can’t afford to have specialists in a startup. But the minute you cross the $1M line, you need to very clearly start aligning roles and responsibilities. Possibly sooner if you find yourselves duplicating decisions while other major jobs go unchecked.
- 6. Delegation – From $1M – $10M, the leaders should delegate their weaknesses. From $10M on up they need to start delegating their strengths. You don’t hear about Mark Zuckerberg still up all night coding and fixing bugs any more, do you?
- 7. Work-life balance – Anyone who tells you they have it as a startup is lying or soon to be out of business. The average entrepreneur earns about $70,000 a year. So don’t believe the hype about a”lifestyle business” with weekends and evenings off. Every successful entrepreneur I have ever known was all-in on their business to get it off the ground. A 24/7 commitment that will cut your sleep hours in half and pump up your blood pressure by 25%. That is a conversation you should have with your family before you even consider leaving your day job.
Maybe you have your own thoughts on this. If you do, I’d like to hear them. Even if they are different or you think I’m dead wrong. I’m always interested in learning. Email me at Todd@DynastyLC.com or put it out there in public on my LinkedIn page.
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