Great Escape Podcast episode 34 - What is it really like to work for yourself?

Several people have asked me recently what it's like to work for yourself, to run your own business, and so I thought I'd kind of talk about that a bit today. I've been running my own businesses, or starting businesses, since about 1995, and at that point, my then wife and I had two small children, one on the way. It was a decision in a way that was forced on us at that point. My employer had just been taken over by its largest competitor, and we were basically shut down. The whole business was closed, so I was made redundant along with all of my colleagues. So I had to do something, and to me at that particular moment in time, starting my own business seemed like the only sensible option, which was fine, except I really had no clue what I was doing. So if I was to look back on that now, I'd do loads of things differently. But since then, I've started lots of businesses of my own, and been involved in several startups with other people, and one of the worrying things that you hear is this horrific statistic that 1/3 of companies fail in their first couple of years, and whilst the figures at Company's House kind of back that up... Company's House is the U.K. registry of limited companies. There are similar things and similar statistics in the U.S. and in other countries. That number doesn't really tell the whole story, because a lot of companies, or businesses, are started for a very specific project. They are started to do something. A really good example is the film industry. You will often see at the beginning of feature films, half a dozen or more company names with nicely animated logos, and some of those you will see time and time again, from film to film, but lots of them you will only see for one film, and that's because that company was formed in order to be the legal vehicle that created, paid for, funded that film, and there's lots of reasons why that's done, one of which is if the film crashes, and burns, and there's no, it doesn't make any money, in fact if it makes a loss, then the organizations that put their money into helping make it, so basically the people who funded the film, when the film company goes bankrupt at the end of the process if the film tanks, those other businesses only lose the money they put in. They can't be chased for any other losses, which is what the meaning of the phrase limited company is. The limitation is that the shareholders liability is limited to the amount of money they put in. So if the company fails with massive debts, the shareholders can't be chased for more money than they put in. Now obviously Hollywood hopes that the film won't tank. The company stays in existence for as long as money still keeps coming in, and then it's folded. I've done this a number of times, where an opportunity came up, a particular project needed delivering. We've created a business. We've put money into that company. We've delivered on the project. We've paid out the profits to the shareholders, and then we've closed that company down. So, the statistic that 1/3 of businesses fail within the first 18 months isn't true. 1/3 of businesses may not live longer than 18 months, but it's not true that they failed. An awful lot of those companies were only ever designed to exist for a very short period of time. They were formed, they did the job they needed to do, and then they were closed profitably. So, that's the first thing really, is don't be afraid that the high rate of startups failing means that you're going to fail, because there isn't that high rate of startups. There are lots of businesses formed for specific purposes, and then closed, and that's a very, very different thing. So, in this case, the statistics aren't quite telling the whole truth, when you just read the headlines. You have to delve inside it. For a lot of people, actually creating a company, whether a limited liability company, known as an LTD in the U.K., or incorporation in the U.S., isn't necessary. If you're just going to be a self employed person, a consultant, or a hairdresser, or a plumber, or an electrician, then it's perfectly reasonable just to be yourself, just to be a sole trader, without any legal structure around that. Now that does create some risk, and I'm not gonna go into all of that now. That's a long subject to go into. If what you're planning is going to get larger, if you're planning to build a business that is going to start employing people, then that's the time to start think about incorporating. But either way, to begin with, it's just you. It's you, it's an idea or a dream, it's some money that you've managed to scratch together, or borrowed, or, I wouldn't recommend it, but I do know people who started companies by getting money off credit cards, and there's a day where you hand in your resignation with your employer, and you no longer have that surety. You know longer have that safety net of the paycheck coming in every month. The bills will only get paid at the end of this month if you've got money in the bank, and that can only happen in one of two ways: your savings, or what you've managed to sell, your income. And for a lot of people, that risk is too much, and I'm, far from me to criticize somebody who looks at that risk and says, "Nope, too scary, "not gonna do it." If that's too scary, don't do it. If you can't take that risk, don't take that risk. The concept in entrepreneurship research is called affordable loss. If you are going to do something like start a business, then you need to have some understanding of what it's going to cost you, in terms of setting up the business, and running it for a while, until you actually manage to get those first sales in. And part of that cost is your own living expenses, which a lot of people seem to forget, that actually they have bills to pay themselves. And it could be that you spend six months trying to launch this business, and you can't get it to work. Either the idea is flawed, or perhaps you don't have the skills, or the knowledge, or perhaps you're just unlucky, or perhaps some huge economic shock arrives that you didn't see coming, and you spent six months doing it, the money isn't coming in, and you decide, you know what? I'm just gonna have to go and get a job, whatever that job is. And so yes, you will have lost some money doing that, or spent some money doing that, and I would always say, don't spend more money doing that than you can afford to lose. I suppose an analogy is if you're going out gambling for the night, you go to the casino, you might take $500 with you, play Blackjack all evening, and your aim is to come away with a profit, but if you have made a loss of say $100, then that was affordable, that was, in your mind, you've had $100 worth of fun. In lots of ways it's very similar. If you take your family to see a movie, and out for a meal, you might easily spend one or $200 doing that, and you've gone out for the meal, you've gone to the cinema, you've had $200 worth of fun with your family. The gambler, professional gambler, not the addicted gambler, or even the amateur gambler, has gone out for an evening, knows how much they're prepared to spend on the evening. They hope they're going to come away with a profit, but if they don't, they've still had that amount of money's worth of fun. For the entrepreneur, for somebody starting a business, it's a pretty similar calculation, is I don't want to lose this money, I want to start a profitable business, but can I afford to lose this money if it doesn't work? Am I going to be able to carry on living? And so that is kind of the first question is, can you afford to stop earning for a while, and try and start this business? And, if you can't, I would say now isn't the time to do whatever it is you're thinking of doing. Now is not the time to take that risk. Stick with the day job, get some savings built up, probably about six month's worth of minimal living expenses, and I say minimal living expenses because a lot of the time, we build up a standard of living where we're spending several thousand dollars a month on our living, you know car loans on relatively expensive vehicles, we eat out a lot, we go to the cinema a lot, we spend a lot of money on golf club memberships, or gym memberships and things like that. All of those things could be economized upon. You know if you... When was the last time you actually played golf at a golf club you're spending $200 a month, or 200 pounds a month, as a membership for? If you're not using it, save that money somewhere else. And once you've saved up at least six month's worth of minimal living expenses, so the rent, the gas bill, the electricity bill, the various utilities, any other regular things that absolutely have to be paid for, then is the time to start thinking about setting out and launching your own business. Now that's talked about some of the risk, the danger, the scary stuff of starting out. Let's talk about some of the joy of it. There is a feeling that is unlike any other in my experience, when you have set out to offer a service or a product, and the first customer actually pays for it. So you've gone out, you've said to the customer, "I'm gonna do this for you," and the customer says, "Here is the money." That first customer is a real buzz. It's an incredible feeling, an incredibly positive feeling. It's beaten only by the second customer, because you always wonder, is the first customer a fluke? Was it just a friend who felt sorry for me? Once you've repeated it, once you've done it a second, a third, a fourth time, then you begin to believe that actually you can do this. And, that feeling of achievement, that feeling of self reliance, that feeling of I did this is an incredibly powerful motivator. It's a huge affirmation to yourself, and it's, as I say, unlike any other feeling, and yes there's always that worry. Will I make enough this month to pay the bills? Will I make enough next month to pay the bills? Will I make enough the month after to pay the bills? And the answer is probably you will. Once you've got this thing up and running, once you've done the right marketing, and I'll talk about some of the things that trip people up, but one of the key things that trip people up is a lack of humility. We think we know what we're doing. We think we know everything there is to know about the thing we're doing, and the problem is, that the worse we are at something, the more we think we know everything there is to know about something. And so actually the key thing is to be really humble, is to go out there and learn. Go out there and find out everything there is to know about the area of business we want to move into. I was talking with somebody the other day. He'd got a dream for a business he wanted to start, and on the face of it, it looked like a reasonable idea. It was pretty niche, quite expensive, so it was a very high-end product for wealthy clients, but the gut feel was it could be made to work. And, not because I was going to setup in business with him, but I just thought I'd do a little bit of research, because it was an area of industry that I didn't know much about. And within 1/2 an hour of reading articles on the internet, and not just junk on Facebook, but actually digging in, finding the sources for articles rather than just the opinions, I realized that this project was going to be far more expensive, in fact it was going to be so expensive to setup, that the business would never move into profit. And, had I not done that 1/2 hour of careful research, with a spreadsheet open running some numbers, I would never have realized how difficult it would be to make that business work. And actually today we bumped into each other, and I said to him, "I was doing some thinking "over the weekend, and I realized, "I couldn't work out how the business "would ever become profitable," and he looked at me and he said, "Thank you so much, because that's what I thought. "I just didn't want to believe it, "and now at least you've kind of proved my fear. "I can put the idea down, "and get on with something better." But if I'd gone with my initial gut feeling, yes, this could work, I could have encouraged him to go for it, and he would have ended up in a disastrous situation. Now that was a very high capital expenditure business. Let's say you're doing something much simpler. For example, being a self employed celebrant, or a plumber, or something that is just you. So, not a huge amount of capital outlay to setup. Relatively simple to market. Relatively simple to deliver, and I don't mean that that's not skilled. Both of those jobs, either celebrant or plumber are very highly skilled, but they don't involve huge teams of people, and very complex project management is what I mean. Again, that element of humility is do I know enough? Do I really know enough? Have I worked out who the people are in this industry who are the experts, the incredibly successful people, and have I understood not what they know, but what it is that they know that I don't know, and have I worked out how I can get from where I am, my position of relative ignorance, which is something that's uncomfortable for any of us to admit, that we are ignorant, and have I worked out how I can learn enough, in order to be even moderately good at what it is that those experts in the industry are doing? Then comes a question is, am I capable of doing it? And a really good example, today I took a funeral. Now I'm reasonably good at funerals. I understand the industry, I understand the processes involved, I understand how to work with a family to create a lovely, wonderful tribute to their loved one. And this particular family wanted a live pianist to play some of the pieces of music that their father loved to play when he was alive. Now, if I was to practice for an hour a day for a year, I could become a reasonably competent pianist, but I am, I know that my own skillset, my own gifts and innate talents mean that I would never be an outstanding pianist. And the guy who we hired to play these pieces of music today was exquisite. He played these pieces of music with immense sensitivity and joy, and as I sat, and listened, and watched him play, I was so glad that I have never tried to learn to play the piano. It's just not something I will ever be that good at. And so, actually, whilst I can see how his business model works, and he makes a reasonable living out of it, I could also see that I would never be able to do that. I just don't have the skills, and there again is where the humility comes in. The people who make the worst business mistakes are people who are unwilling to admit their own limitations, their own lack of knowledge, and their own lack of expertise. If you can be honest with yourself about those three things, and then either learn the skills necessary, learn the techniques, practice them, or outsource the things that you don't know how to do, then you have a good chance of building a successful business, and there are many parts of my business that I simply outsource. It costs me money, but it would drive me nuts to do them, and other people are much better at them than I am. So, that's been quite a long one for a Wednesday. It's been quite a long one for just me talking, but in essence, it feels terrifying to start your own business. Somebody once said to me, "It's like watching you jump off a cliff "with all the parts of a hang glider, "hoping that you can put the hang glider together "before you and the parts hit the rocks "at the bottom of the cliff." And that's not how I see it at all, because I feel like when I've got the hang glider together, and I'm soaring, it's the most wonderful feeling in the world. Somebody in eastern Europe once said to me, "I feel this immense sense of pride, "where the work of my hands, my skill, "is paying the bills for my family, "is putting food on the table for my family, "in a way that when I just worked "for a big faceless corporation, "and the money arrived every month, "whether I did a good job or not, "I just didn't have that sense of pride of what I did." So I hope that's given you something of the feel of the joy, the risk, but also some positive ways of minimizing the risk. First is, let me summarize. Save up some cash. The second is, minimize the expenses. The third is, be brutally honest with yourself about what you are and are not capable of doing, and be brutally honest with yourself about the skills and knowledge that you do have, and humble enough to go and workout what the skills are that you don't have are. If you can do those things, then when you then sit down to plan and design your business, you are far, far more likely to be successful. Thank you so much for listening to this episode of The Great Escape podcast. You can find other episodes at all the usual places on iTunes, Stitcher, and Spotify, or at the website, https://GreatEscapePodcast.com/episodes, and if you'd like to contact me, to talk about any element of this episode, or others have covered, please go to https://GreatEscapePodcast.com/contact, and you can find all the ways of getting hold of me there. And if you're stuck in a situation, and you can't find the way out, please go there, send me a message, and let's see how we can work together to get you unstuck and moving forward with your life again. Please do share this podcast with your friends and family, other people you think might appreciate it, and comment on episodes, or send me a message. I'd love to keep the conversation going.