Don’t. Please just don’t decide to jump ship all of the sudden. I did that back when I was 25, and as much as it has been an amazing learning experience, it has also been a very painful experience. I don’t recommend jumping in right away.
Of course, I recognize that circumstances differ from person to person. I hope the advice below will help. If you are an employee, there is plenty to do before you jump all of a sudden. You need patience by your side though.
One thing you -optimally- would want to do, is to lower the risk factors.
What does that mean?
Starting a new thing, although new, is not a black and white decision. You don’t just plainly succeed or fail. It’s an ongoing process, and you can prepare many things before you begin your journey. Among those, is what I call “risk factors”. When you start your business, you’ll face those anyways, so why not prepare a little bit before you jump ship, and get yourself a little bit of a head start.
If you don’t have the time to read the details below, then only take this advice with you: Get at least a few paying clients before you jump ship.
Arguably there are 2 types of finances you should be looking at. The first one is what will make you (& your family) live, i.e your salary. Ideally, you want to have at least 1 year worth of salary stacked to make sure you can weather bad conditions if you couldn’t make a profit early on in your business.
*Ramit Sethi has very good material in his book and blogs about how to automate your finances and build an “emergency fund”.
Businesses always cost. People who have never done business before might only calculate costs for creating their products and Human resource. But it is a lot more. If you open a company, it is more of a pandora’s box. Little things here and there. Need to setup internet, pay tax accountant, pay different taxes, domain, server, email subscription. Dropbox…etc.
For example, if you open a company in Japan, and running a business with 3-5 people, you can expect to pay -excluding salary- at least around $3,000 a year just for the company to run (i.e administrative costs).
Nonetheless, you’ll probably start as an individual before opening a company, so it is worth spending a few hours making estimated calculations for what your business needs, and saving capital for that. This will let you understand the depth of your business and industry much more.
Understanding the Industry
If you are opening a business in the same industry that you have been in for the past X years, you have a higher chance of operably being fine. You can prepare more by analyzing and asking industry professionals and spend time expanding your network there.
On the other hand, if you are venturing into a new industry, things can get a little tricky. I’d recommend doing a bunch of reading and interviewing people in that specific industry to achieve the following:
- Know who are the top players in your field (companies and individuals).
- Build a network in the industry.
- Which conferences and gatherings are worth your time.
- Understand the cash flow. Who pays who and when and why.
- Who are the suppliers?
- Understand what is the business cycle. When is the high season, low season and why?
- Why isn’t anybody solving the obvious problems? (Especially if you are an outsider, you’d see things from your perspective that might seem very odd. Don’t assume people want to solve it or want to try new methods. Explore the why and try to understand)
It’s worth spending time understanding how is your idea going to fit in the industry.
- Who are your -potential- clients.
- What value do they see in your product?
- How much will they pay you?
- Do they understand the value your product is providing them?
- What is the industry pricing norm for a similar product?
- How are they currently solving the problem (that your product solves) and why are they sticking to that?
Understand how your product works. Yes yes, you might think it is all clear in your head, but write it down on paper, step by step, then we can talk objectively about it. How do you generate profit? Who does what at what stage?..etc.
I always found it very helpful sketching on paper. Sketching workflows. Drawing relations. Understanding who pays and stakeholders.
Clients (& potential clients)
Finally, my biggest highlight of all the points is this. Get a few paying customers. This is the only truth that will validate everything you are doing. If someone is paying you for your product/service, they see value in that. Ask them and try to understand what is the value that they see in your product or service, and pursue that.
You don’t have to get everything down 100% before you go on solely on your journey. In the end, it is about your risk appetite and your personality. There are only guidelines from my experience that I hope will help you at least hedge some risk before you start.
Let me know what else do you want to hear about!