More Than A Side Hustle: When Should Entrepreneurs Quit Their Day Jobs
If your dream is to turn such a side hustle into your livelihood, how do you know when the time has come to make that leap?
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Many startup businesses begin as something the founders pursue in their spare time, while still working a full-time job. If your dream is to turn such a side hustle into your livelihood, how do you know when the time has come to make that leap?
My latest book has the answer to that question- as well as 19 other key considerations for any would-be entrepreneur. I have been directly involved in several startups, taught entrepreneurship at Michigan Ross for 16 years, and I'm an entrepreneur in residence at the Zell Lurie Institute. Now, I've gathered the lessons I've learned along the way in a book, The Launch Lens: 20 Questions Every Entrepreneur Should Ask, published by the University of Michigan Press.
Of course, not everyone with a startup on the side wants to take it full-time. However, I have noticed an increase in the number of people who launch a side enterprise thinking maybe someday it might become their main source of income- largely because this is such a great time to start a business.
It's much more common for people who used to be just moonlighting to say, "Wow, I might eventually be able to quit my day job." People who formerly never would have even considered entrepreneurship are now considering it actively. It's so much faster and less expensive to get a business launched.
Related: Making The Leap: Three Tips On Moving From Being An Employee To Becoming An Entrepreneur
In my New Venture Creation class at Michigan Ross, I have taught more than 2,000 potential entrepreneurs, and I've gone through the startup process myself more than once. My experience as both an entrepreneur and a teacher inspired The Launch Lens, which poses 20 key questions to evaluate the potential of any startup idea. The questions are focused, and the answers are illuminating- for example:
- What are your customers' unmet needs?
- How big is your market?
- How will you price your product?
My book helps readers answer each question with hands-on tools and advice, with the goal being a decision of whether your startup idea deserves to be pursued.
One of the trickier questions is: at what point could you quit your day job? To answer this one, I take the reader through the creation of a reverse-income statement, which isn't nearly as intimidating as it might sound. Basically, it's getting a realistic estimate of how much money you need each month for salary, benefits, and overhead, and dividing that by your expected profit per unit. This tells you how many units you need to sell each month to break even.
Your calculations don't have to be precise early on in the startup process; in fact, they shouldn't be. This is the back-of-the-envelope stage, when you're trying to get an idea of whether your idea might be viable. You don't have to figure things out down to the penny.
Don't be afraid to make preliminary estimates. Model early and model often. Say, "Okay, so what could we charge for a monthly subscription? What do you think it would cost us to garner each of those customers? Okay, that doesn't look good. Is that a structural problem with this business idea- that it just stinks? Or can we improve the unit economics by either charging more, lowering production costs, or spending less to capture those customers? Is there potential here?" It's all very iterative.
Throughout The Launch Lens, one piece of advice for potential entrepreneurs becomes a theme: don't be afraid of competition. In fact, if absolutely no one has already thought of your idea, that might be because it has problems. At the same time, if other companies are already pursuing your idea, that isn't necessarily a bad thing.
I keep having to fight that feeling myself. You start out thinking, "Oh, shoot. My idea is already taken." But then you start looking at the details, and you realize they're only serving a small segment of the market, or a small geographic area. Or perhaps they're a huge company, and they're just not doing it well. That's an opportunity for entrepreneurs.
Related: Side Hustle: Full-Time Employees In The UAE Can Also Take On Part-Time Work At Other Companies