As the Great Resignation ramps up, millions of Americans are quitting their jobs to find better work or strike out on their own. According to Harvard Business Review, over 4 million people quit their jobs in July of 2021 alone.
Many people who leave traditional work are likely planning to start their own business, whether that’s a tech startup, a consulting business in the same field where they previously worked, or something totally different.
That’s fantastic, but also a little scary. I’ve been an entrepreneur for over a decade, and I feel completely and unequivocally that it’s a much better alternative to traditional work. But I also know that it comes with challenges — and that many people who have worked for an employer for years or decades probably aren’t aware of them.
If you’ve recently joined the Great Resignation or you’re planning to ditch the office soon, here are three things not to do when starting your own small business.
Ignore the Books
Sure, when most people think about entrepreneurship, the concept that leaps to mind isn’t “I’ll be my own accounting department!”, and most would-be small business owners don’t fantasize about spending hours slaving over Quickbooks trying to generate a P&L statement for the IRS.
In reality, though, understanding your business’ books is a vitally important part of being an entrepreneur. You need to know where you stand financially at all times, so you’ll know whether you’re about to run out of money and have to shut down, or whether you have excess funds available that you can reinvest into establishing a new business line or growing an existing one.
Over 20% of new businesses fail within their first year, and 50% fail within their first five years, according to data from the US Bureau of Labor Statistics. Of those that fail, almost 30% do so because of problems with cash flow. That’s why if you’re starting a new business, it’s essential to manage your cash, establish good margins from the get-go, and have a solid handle on your burn rate.
If you have no idea what those terms mean, make sure to learn before you even think about starting your own venture. And do future-you a favor; get set up with accounting software like Quickbooks or Freshbooks from the first day you launch your business.
Accounting may not feel essential now, but take it from my experience — if you get your books in order from day one, you’ll save yourself a huge amount of hassle piecing them back together down the line, once your venture has scaled and your finances get more complex.
Seek Investment Too Early
If you found a promising venture — and especially if you reach profitability relatively quickly — you’ll find that investors are constantly trying to throw money at you.
You’ll meet people who tell you that they’re happy to invest in your business, and all you have to do is give them a percentage of ownership for X amount of dollars. In the beginning, the percentage is probably going to be high, and the X will be shockingly low.
It’s flattering — especially when you consider how difficult it can be to convince a bank to loan money to a budding small business owner — but accepting funds too early, or raising the wrong kind of capital, can come back to haunt you as your venture scales.
In many cases, if you accept an investor early in your launch, you’ll be working with them for months or years. They might have different ideas about where your business should go than you do, or they might want you to scale too quickly so that they can cash out. Even if they’re in it for the long haul, by giving up equity early you’re parting with shares of your company that could be extremely valuable down the line if your business takes off.
Instead of accepting equity investment early, look at other ways to fund your business. Start off as lean as you can — if you can skip having a physical office (this is much easier during the pandemic), hire freelancers instead of employees, and use a cheap service like Squarespace instead of buying a professional website, you’ll reduce the amount of capital you need to grow your business.
Likewise, if you can start your venture as a side-hustle while you work a traditional job, that’s even better. When I launched my current business, I worked as a consultant for more than five years in order to get it off the ground. It was a lot to do two things at once, but now I maintain much more control over the business and have retained much more equity than if I had gotten an angel investment early on.
Ideally, you want to grow your business as far as you can without taking dilutive equity investment. If you can bootstrap until you’re able to get bank financing, that’s often the best outcome. Of course, there are certain industries where this doesn’t work — life sciences, for example, requires lots of capital upfront.
But for many small business owners, consultants, product creators, and the like, you can bootstrap for a long time before bringing on investors.
Network Too Much
This one might seem surprising — establishing a network of colleagues and potential customers, after all, can be crucial to getting a new venture off the ground. Especially if you’re in an exciting new field, though, it’s very possible to spend too much time on networking, and not enough on actually growing your customer base or refining your product.
When cities, universities or local groups decide they want to foster an entrepreneurial ecosystem, they often try to do this by holding lots of events — pitch events, competitions, mixers, lectures about entrepreneurial topics, and the like. Attending these can be a great way to test new pitches for your business, or to meet other founders who can be a sounding board for new ideas, and a crucial source of social support.
But in most cases, your actual customers won’t be at these events — you’ll probably be talking primarily to other entrepreneurs. Going to some of these events is fine, but if you’re spending weeks preparing a deck to present to a room full of peers instead of seeking paying customers, you’re ultimately shooting yourself in the foot.
Focus on building your initial customer base and refining your product in the early days of launching a business — not pitching and networking. This will help you prioritize revenue above valuation, and in most cases, this is what it takes to build a real business that lasts.
When you do attend a networking event, make sure to do it with a specific, stated intention. Are you trying to meet fellow entrepreneurs, to learn from their experiences? Great — seek them out, make some contacts, and build on those before you attend another event. Trying to seek investment? Make sure to attend events where investors will actually be present and tailor your presentation or elevator pitch specifically to their questions. Looking for partners? Skip general or region-focused events and attend an event, conference or trade show tailored directly to your industry.
When you go to a networking event without any particular goals in mind, you probably won’t get much out of it. You’d be better off staying at the office and working on your product, or calling some potential customers and pitching your business directly.
Starting a new business isn’t easy, but it can be incredibly rewarding. If you plan to join the Great Resignation, keep these tips in mind as you launch and grow your own small business.