This is the second post in an ongoing business series I’m going to be writing. You can view them all by visiting here.
So there you are, on the brink of making a big life-changing decision, and you’re trying to get the nerve to finally do it. You have this great business idea, are tired of your current 9-5 job, and are ready to take the plunge off the cliff, hopefully landing somewhere far better below.
This is probably the hardest stage of a new business, in my opinion – getting up the nerve to quit your day job. You’re forcibly taking action that is going to upset your life and move you pretty much as far away from your comfort zone as possible. In my case, it took me nearly a year to get my life in order such that I could minimize the risk of a new endeavor.
And that’s really what is important. Trying to set yourself up such that the impact of a failed endeavor isn’t a situation that is nearly unrecoverable. Some questions you should ask yourself are:
- How much money can I live off of each month?
- Is there any way to reduce my expenses for while? Can I stop RRSP payments for six months, or possibly move to a cheaper apartment?
- Will my family support my decision, even if things become hard for a period of time?
- How long am I willing to try to make my new business work
With regards to the last point, I think it’s important for every person to put a hard line in the sand with regards to a new endeavor. It’s sort of like the casino — most people have a maximum amount of money they are willing to lose, after which point they simply walk away from the table. I think having a similar strategy for business is wise, that way you can walk away from the table if things aren’t working out. The problem with starting a personal business is that invariably emotion becomes part of the equation — you’ll be putting your sweat and tears into it for months or years. So it’s important to have an idea before hand of the circumstances that would cause you to call it quits, that way you can make a logical decision when the time comes.
And while I’m pointing out the importance of having a safety net, I don’t want to discourage people by acting as if failure is a predestined result. But I really believe that if you’re constantly worried about money or how you’re going to pay next month’s rent, you’ll never be able to properly focus on your business and make it a success. So I really believe it’s important to make sure you have enough of a safety buffer such that you can fund yourself without a lot of stress for a period of time.
That hardest aspect of this whole process for me involved finances. I had a very well paying job in Vancouver that ultimately gave me around $2,000 of disposable income every month, even after making $1,000 in loan payments and a $750 contribution to my RRSP. That’s a hard salary to give up, especially when there’s a looming recession on the horizon. In addition, I was carrying a $20,000 debt load, which effectively increased my expenses every month by a large amount. So I told myself that quitting my day job would be too risky unless I had six months of expenses in the bank, and also reduced my debt load by a significant amount.
And that’s basically how I started. For six months, I watched my expenses and banked as much money as I could into a savings account. In addition, I started doing web development work (which was the business endeavor I ultimately wanted to take full time) on the side, which brought in some additional income, and allowed me to figure out a good process for doing web work prior to actually quitting my day job. The obvious downside to this approach is that you’re basically working two jobs for a period of time. I won’t lie and say that’s easy — it’s not, and I was extremely tired some days, having spent most of the night doing web work and most of my day doing C++ coding during my day job. But I got through each day by thinking about how much better things were going to be when I was my own boss, somewhere in the near future.
My personal goal was to bank six months worth of expenses such that I could fund myself without any income for the foreseeable future, and also pay off my car loan. To help with that, I committed to not only saving some money, but also to reducing my expenses as well (primarily by reducing my RRSP payments and also by moving to a cheaper location). In my case, my goal was to move to a little farming community about an hour away from Vancouver, somewhere where the cost of living was cheaper than Vancouver.
After approximately six months, I managed to bank around $12,000, which was approximately equal to my expenses for six months (assuming I moved out of Vancouver). I had about two weeks of vacation banked at my day job, and figured that my vacation pay would effectively cancel out my car loan, so I factored that into the equation. All the pieces were there at that point, and the only thing left to do was to quit my job — unfortunately, I simply couldn’t find the courage to do it.
I had many conversations with my friends and family at that point in time, and they were unanimous in their support for me venturing out with a new business. They managed to convince me that the absolute worse case scenario was that I burned through my savings account, and simply found another 9-5 job somewhere else. And they were right — really the risk was fairly small, but the potential gains were massive. In addition, I was going full-time with a friend of mine, who was also taking some risk by leaving his job as well, so that made the whole process seem a lot easier.
So in December of 2008, after much deliberation, I walked into my job one morning and handed in my notice. At that point, I was essentially a free man.
Stay tuned for the next part of this series, where I talk about the first few months of the adventure.