Leaving your current position to launch your own venture can be both alluring and fraught with risk. But before taking the plunge, ensure you have a fallback plan and consider these four steps, advises Mark Cuban, a highly successful entrepreneur and investor.
"Save your money first. Don't just leave [your job] unless you know what the hell you're doing," Cuban told Wired last month in a video Q&A. His reasoning: While tales of triumph exist, most individuals who abandon corporate life to pursue their own ventures encounter difficulties or outright failure.
Cuban pointed out many stories about individuals leaving their jobs, launching companies, and achieving financial success. However, he emphasised the lack of attention given to those who quit their jobs, started companies that failed, and are now stuck in jobs they despise.
Acknowledging these stories provide much-needed insight on what to do when one finally decides to once more launch a personal venture. For this, here are four things Cuban says you've got to do before starting your business:
1) Save Money First: Don't quit your job unless you have a financial safety net. He recommends saving up at least six months of living expenses.
Cuban emphasises financial preparedness before quitting your day job. He warns against the romanticised image of entrepreneurship, highlighting the stories of failures alongside successes. He recommends having at least six months of living expenses saved up (e.g., rent, food, bills) to act as a buffer during the initial, potentially rocky period of launching your business.
2) Do Your Research: Be prepared and know what you're getting into. This includes understanding your industry, competition, products, and target customers.
While passion is important, Cuban stresses the need for thorough research. Don't base your decisions solely on ideas or inspiration. According to Cuban, a successful entrepreneur should understand their chosen industry, the competition they'll face, the products or services they'll offer, the profitability of the business model, and their target customer base.
3) Have Sales Skills: No matter what business you're in, you must be able to sell your product or service.
Cuban underlines the importance of sales in any business. Regardless of the specific product or service, the core function of a business is to convince customers to buy what you're offering. He doesn't limit sales to just the initial stages; even after establishing your business, ongoing sales efforts are crucial for sustained success.
4) Be Passionate And Committed: Starting a business is hard work. You need to be passionate about your idea and be willing to put in the effort to make it successful.
The business landscape constantly evolves, so Cuban advises aspiring entrepreneurs to be curious and adaptable. This means actively seeking knowledge, staying informed about industry trends, and being flexible enough to adjust your approach based on new information or changing circumstances.
In addition to these four tips, Cuban emphasizes acknowledging the role of luck in success and believes wealthy individuals, like himself, should pay more in taxes to contribute to the system that helped them thrive.
Acknowledge the Role of Luck: While preparation is key, Cuban acknowledges that luck plays a role in entrepreneurial success. He mentions that some may have had a wealthy upbringing or benefited from external factors beyond their control.
Pay Your Fair Share: Cuban strongly advocates for billionaires paying more taxes. He argues that the country's infrastructure and social programs contribute to the environment that allows businesses to flourish. He views tax payments as a patriotic duty and a way to give back for the opportunities he's been afforded.
Planning For Success: Why It Matters Before You Launch
A recent Samsung and Morning Consult survey indicates that nearly half of Gen Z workers harbour ambitions of launching their own ventures. However, success is not guaranteed in this endeavour. Statistics from the US Bureau of Labour Statistics indicate that roughly 20 percent of new businesses falter within their first year, and over half fail to survive the past five years.
Financial advisors often recommend accumulating funds to cover a full year's worth of combined living and business expenses. However, Cubans suggest having enough for at least six months of living expenses as an absolute minimum.
In contrast, a 2019 report titled "Rules of Thumb in Household Savings Decisions", co-authored by Economist Emily Gallagher, Assistant Professor of Finance at the University of Colorado Boulder, proposed a more achievable savings target based on her data analysis from 2010 to 2012.
Her research suggests that a minimum of $2,467 is more realistic for low-income savers, who typically allocate smaller amounts monthly, than advising them to save for six months of living expenses.
The Importance of Proactive Planning, Particularly Financial Planning
Many entrepreneurs exemplify the power of planning. After an early career setback, Cuban, a visionary individual, launched a software company, MicroSolutions, that achieved remarkable success, selling for $6 million in 1990. Five years later, Cuba's foresight proved valuable when he co-founded Broadcast.com, which Yahoo acquired for $5.7 billion in 1999.
Even highly celebrated journeys like Cuban's were with significant setbacks. For instance, his early venture, MicroSolutions, nearly faced financial ruin due to a former employee's theft ($82,000). This incident highlights the importance of a financial safety net, as unforeseen challenges are inevitable for any new business.
Passion Is Paramount: Don't Launch Unless You Love It
Cuban frequently advises aspiring entrepreneurs to only launch a company if they're deeply passionate and possess exceptional expertise in their chosen field.
"Before you quit, be prepared, know what you're doing, save your money, have at least six months to live off, if you can," Cuban told Wired. "And, then, maybe you're ready to start your business."
Despite the risks of entrepreneurship, even seemingly stable careers can be unpredictable. Take, for example, the case of Feng Yuan, a former Principal Performance Architect at Microsoft who was let go after more than two decades with the tech giant. This story highlights the value of a steady income, especially as a safety net while pursuing entrepreneurial aspirations.
