Maintain an Income Stream
If you are thinking about quitting your day job to start a new business, I urge you to first take stock of your financial situation. Most startup founders need to work for free or limited salary for at least the first 12 months in their new business. Can you survive that long without any cash coming in? What happens if 12 months stretches to two years or longer with limited salary? Often when I am advising first time founders, I counsel them to find a way to keep the income stream coming in until the business has found a firm footing. While this might slow the growth, it is the only prudent way for many people to start a company.
There are plenty of examples of hero founders that risked it all, went all-in on their business, and got rich. However, there are way more examples of founders who ended up broke and deeply in debt with this strategy. Starting a business is hard enough without worrying how you will make rent or be able to buy food. I never recommend a founder take this path. Instead take a hard look at your personal finances before getting started. How much cash do you have in the bank? What are you typically spending each month? If you cut back on some of the nice to have items, how long can you stretch this runway without going broke?
Starting a business means that eventually you will have to leave whatever job you are currently working, and you’ll have to forgo some or all of your salary to do this. Before you storm out, see if there is a way to do the early legwork while still employed. As long as you are not competing with your existing company, you can probably do a lot of work in the evenings and weekends to advance the ball for your new endeavor. Maybe there is a way to work parttime with your existing employer for a period of time at a reduced salary once your startup is showing traction. This would allow you to have some cash coming in while you ramp up your startup. Possibly you have a skill that you can use freelance to bring in cash in the early days. Maybe you’ll even be able to bring in enough freelance cash to pay your personal bills and feed some money to your startup.
If none of those apply to you, then consider driving for Uber or DoorDash or otherwise rent out your time on a flexible basis. This will allow you to scale up or down as your time and cash needs fluctuate with the business growing. It may not be fun, but if you are truly committed to the mission of your business, it is not the worst way to extend your runway.
I fully understand that splitting your time will hurt the growth of your fledgling business. However, I hate it when founders put themselves into dire personal situations. While making the rent can be a powerful motivator, it isn’t the only path to success. Startup life is stressful enough without the pressure of crushing bills.
Thanks for reading today’s post, I hope this gives you a framework to consider your personal cash flow in a productive and healthy way.