Most of us know people who went to an early stage company and had great success. We also know those who have not been so fortunate. In today’s market starting a company or joining an early stage company is not for the faint of heart. Statistically speaking, less than 10% of all new companies last 5 years.
I am not trying to discourage people from taking risks. I know firsthand the tremendous upside that comes from owning a business. It is, however, critical that you fully investigate and prepare yourself for this new venture. Many of the common mistakes businesses make can be avoided by doing your homework upfront.
The below are five questions to help you assess your startup readiness and eliminate unwanted surprises.
1. Has your 10-15 years at ABC Company really prepared you for this new venture?
While many of the skills you have learned over the years will help you make the transition, many of the character traits needed to be successful have nothing to do with past experience or past job skills. While managing a large staff is great, managing 3 employees with little money in the bank is a whole different world. You need to have a combination of smarts, talent, detachment, energy, courage, thick skin and the ability to motivate not just yourself but those around you.
2. Are you crystal clear on what it is you are trying to achieve by making this move?
While this may not seem like a question to ask, ask it! Knowing exactly why you are working 60 hour weeks with no guarantee is going to give you the motivation to keep pushing. I know many people who built successful companies and were stunned when this success failed to make them happy. Is it money, autonomy, freedom, a simple change from your current situation?
3. Have you properly researched both the company/idea and is this a business that has potential?
Remember, great products/services are just a start. They certainly don’t guarantee long term success. Have you ever been to a great restaurant that a few months later was closed? They had a great menu, prices and still failed. Do your homework on the industry. Look at the statistics, research the market, and talk to people within this market. Research, research, research. Make sure you are not chasing the latest craze, the one with a very short lifespan.
I had a friend who swore the refinance market was a home run. He failed however to anticipate the number of others who had the exact same feeling. Competition is good; it proves there is a market. Saturation is a completely different animal.
4. Do you have the funding or access to funding to keep your dream alive?
Trust me, the few customers you know you can close are great, but can they keep your doors open for more than a few months? Can you survive 12-18 months if the current market conditions remain the same? What if they deteriorate? Failure to raise money is a very common reason small businesses fail. Many people don’t take the time to do a proper business plan. In some ways they are afraid of what they may find. Try and gain as much insight into this venture prior to quitting your job and investing your life savings.
5. Do you have a backup plan?
So you’ve done your homework, and you’re ready to make it happen. Have you thought about exit strategies? The what if’s? We all like to focus on the best case scenario; it’s what gets us to take the chance in the first place. We do, however, need to focus on the other part of the equation. What if this business doesn’t take off? What if you go 6-12 months with no income? How will this impact your family? Can you still pay your bills? Can you find another way to make money?
Lastly, there are many people (family, friends, and neighbors) who will no doubt tell you all the reasons not to make such a bold move. Be careful who you get your advice from. The best advice I received when starting my business was from someone who actually started a business and succeeded. While your friends and family will try to be helpful, their advice is not nearly as valuable as the advice you can get from those who have been in the trenches and know first hand what it takes to make your dream a reality.