Coronavirus Impact: From Laid-Off Employee to First-Time Entrepreneur
Before you go from unemployed to self-employed, you’ll need a plan
The messages started trickling in at the end of February. They were my first indication that the impact of coronavirus on the economy was going to be worse than bad.
I’ve got a form on my website where any entrepreneur — or anyone interested in starting a business — can ask me questions. Maybe I’ll answer them and maybe I’ll write about them. I get a ton of questions, and I usually get a pretty healthy mix of topics. But beginning in February and into March, one particular type of question kept popping up.
To generalize: “I just got laid off because [coronavirus-related reason]. Should I start my own company?”
I get deluged with this question during every economic downturn, because it’s always easier to dream about starting your own company than it is to dread the drudgery of a job search — especially when there are no jobs.
I totally understand. The at-home CEO chair, the camaraderie of working with people who are invested in your idea, the fulfillment of turning nothing into something — that’s a much brighter picture than sitting in an unfamiliar cubicle doing meaningless work with complete strangers and a horrible new boss.
So when that question comes my way, my general answer is: Probably?
But I’ve seen this happen too many times: A person gets laid off, isn’t desperate, has severance or an emergency fund set aside, and so they jump right into their startup idea. Then they spend weeks, maybe months, endlessly tweaking the infrastructure of the company, or designing a hundred use cases for their product, or networking with anyone who might be interested in talking about their idea.
They wind up doing everything but making something and selling it.
So is the door closing on your job really a window opening on entrepreneurial opportunity? There’s actually a pretty easy answer for this. You just need a plan.
Here are three.
Plan A: How quickly can you get to revenue?
I mean like now.
This is the first question I always ask and it’s the most important one. Your revenue doesn’t even have to come from the fruition of your startup idea, it can just be a placeholder very loosely connected to your startup idea. Hell, it could have nothing to do with your startup idea, as long as money is coming in under your company name.
So ask yourself: Can I close a sale today? Tomorrow? What is standing in my way? How quickly can I knock those hurdles down?
Build your (imaginary) website
If you can indeed carve a path to revenue, run through this mental exercise.
Imagine you can put up a one-page website with:
- A three-sentence description of what your product or service will be.
- A single photo of the product or the service being performed.
- An offer to purchase the product or service at full price — what you eventually intend to charge.
- A buy button.
Then imagine sending the link to everyone you can reach, right now, with five words to get them to click. You can use email, social media, group texts, you can call people you haven’t spoken to in years.
How many people do you believe would shell out the money for your product or service? Divide that number by 100. That’s your first month’s revenue.
Now, consider how close are you to being able to fulfill the three-sentence description you wrote. Do the math and figure out how much money you’re willing to lose to get there. Not how much money you have — that’s a huge mistake, because chances are you’re going to fail at least once for sure, maybe a couple more times, and you don’t want to wipe yourself out completely.
Do you have the financial runway to make that happen? If not, go to Plan B.
Plan B: How can you bring in capital?
All startups exist either off incoming revenue or out of someone’s pocket or both. If your startup isn’t bringing in revenue today, and if you can’t realistically create enough runway with what you can afford to lose, you need to find another source of income.
Is it an investment? Probably not, especially if you can’t close a deal quickly. And if you’re starting your fundraise from scratch, forget it. Even in the best of times, a simple fundraise takes three to nine months. In this climate, multiply that by two.
You’re probably best off funding your startup with a paycheck, any paycheck.
I’ll admit I’ve had jobs in the past that I took just to provide funding for the company I wanted to start. That’s really difficult. I even stood up a whole consulting firm to spin out the side projects I wanted to build. That worked until the first side project was successful, then it became impossible to keep both the cash cow and the side project afloat.
If you can cut your expenses and create enough time to work a job in your field while you build up enough runway to get your startup off the ground, then that’s the most logical way to move forward.
But you’ll never know if that’s possible until you get work.
Plan C: Put everything into your job search and paint a different picture
If you’re looking back and thinking that your startup idea is something you should have been doing all along while you were working that job you just lost, then it’s time to start putting yourself into a position to give yourself a second chance.
A lot of people will tell you to just go for it, you’ll never start your own company if you don’t take the plunge, and now is a great time to take that plunge.
I really, really want to agree with those people. But the truth is you’ll never keep your own company if you don’t give it a fair chance by starting it correctly.
But I will also tell you this: Your new job isn’t going to suck as much as you think. And it’s actually going to give you some confidence.
Look at your job search as the new beginning point of starting your own company. You’re getting yourself back into the position where you can honestly take a run at starting your own business, and this time you’re not going to look back and regret that you hadn’t been doing it all along, because you’re going to be doing it all along.
Parts of running your own business will always suck. And the one that sucks the most is keeping it funded. Instead of skipping that step, or worrying about it later, look at your job search not as a life sentence, but as a funding opportunity.
The best time to start a company
The best time to start a company is when we’re in the middle of an economic boom. Tons of startups spring up during times of prosperity. But, like a lot of things that are easy to start, those companies are very difficult to sustain.
The bad news is: This is a horrible time to start a company. The good news is: If you can make it during the era of social distancing, you can make it for a good long time once the business climate improves.
And it will improve.
So even if you get to Plan C, understand that you can and should start a company, right now. Just make sure your first step is a step on a sustainable path, and not just a dream that will fade in a few months.
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