An Entrepreneurial Leap of Faith

My friend Sparky called last night. “I'm thinking of starting my own business,” he said. “I need some advice.”

I wondered why he wanted my advice until I realized that:

  • I help run a million-dollar-plus family business;
  • For the past six years I've operated a small computer consulting firm on the side; and
  • I've often mentioned how I treat Get Rich Slowly as being similar to a business venture (in mindsest, not in application).

Sparky's proposed bike-fitting business seems very much like my computer consulting business; they're more similar than different. We spent an hour discussing best practices and the entrepreneurial leap of faith.

“What made you decide to do this?” I asked.

“It's crazy,” Sparky said, “I was biking to work the other day and it hit me. I recognized I had a passion for something and I couldn't deny it. I love bikes. I want to help people find the right bike. I'd be good at it. Then I got to thinking about that CD you made for your 31st birthday. Back then, you said it represented your entrance to adulthood. We're 37 now, and I don't feel like an adult.”

I agreed. “I still feel like I'm seventeen,” I said. I told him about my own Eureka! moment, the spark of inspiration for this blog. “I was soaking in the bath reading Loral Langemeier's The Millionaire Maker when something in the book hit me like a ton of bricks. I realized I had a passion for personal finance and wanted to share it. I put the book down, got out of the tub, didn't even towel off, and sat down naked at the computer to draw up plans for Get Rich Slowly.”

Sparky laughed. “Too much information,” he said. “But yeah, this was was like that. I had a flash and knew that I could do it. That I should do it.” His voice was edgy. He was nervous. He was bursting with enthusiasm, with excitement, and with trepidation. That's awesome. It's a great combination for a new entrepreneur to have — you want to be eager, but you also want to be a little scared.

“So what advice can you offer me?” he asked.

“Well, first of all, you need to know that I'm no business expert. All I can do is give you anecdotes based on my experience. Some of what I tell you might be wrong. You're going to need to consult an accountant.

“To my mind, the most important thing you can do at the start is to keep your business accounts and personal accounts separate. Open a checking account specifically for the business. Deposit $100 or $500 or $1000, whatever you think you'll need. Document everything that enters and leaves that account. Keep files. Don't intermingle business and personal funds.”

“Why is this important?” asked Sparky.

“It accomplishes a number of things. It helps you know the status of your business, and it covers your ass in case something goes wrong. It also helps your tax preparer. Most of all, it makes the IRS happy. They don't want to see you mixing funds. They want to know if your business is making money or losing it. Your business needs to make money in three out of five years to even be considered a business and not a hobby.

“On a related note, as much as possible, don't incur debt. Some businesses have to. If you were opening a bookstore, you'd probably have to go into debt to stock your inventory. But for your bike-fitting business, you shouldn't have many up-front expenses. You already have excellent personal finance skills, and those should stand you in good stead here. My box company, which has hundreds of thousands in inventory, is completely debt free, though it wasn't at the start.”

“What about training?” asked Sparky.

“Training is an exception,” I said. “Be willing to spend for training. Buy the books and manuals you need. Take classes. If you can avoid debt, do it, but be willing to view training as a necessary business expense, much like paying for college in the Real World.”

“I hope to borrow some of the books I need,” said Sparky. “I want to keep my expenses down.”

“That's a great attitude,” I said. “This is the kind of business you can start on the side and slowly grow into. You're not planning to quit your current job, are you?”

“Not at all,” he said.

“Excellent. Don't quit your day job. For a business like yours, or like my computer consulting gig, it's best to begin by working evenings and weekends. This allows you to get a feel for it, to discover if you truly want to pursue it full time. In my case, I discovered that although the money was five times what I make at the box factory, I really didn't want to work with computers the rest of my life.”

“Right,” Sparky said. “But at the same time, I'm prepared to quit if my business is successful. If I can make $X a month at bike-fitting, that's a sign I can make it on my own, and I'll do it.”

“Perfect.”

“Your advice is great so far,” said Sparky. “Looking back, what are three things you'd do differently if you started over today?”

“Three things, huh? Well, first, I'd be confident. People come to me for computer help because they don't know the answers. And they'll come to you for bike fittings because they don't know how to figure this out themselves. They're lost. They want us to guide them. They don't want to think that we're lost, too. Even if you don't know where you are, act like you do. When you start out, there will be times that you feel overwhelmed. You'll feel like you're drowning. Don't let your clients see this. Remain calm. They don't know you're scared. If you're really in over your head, break off the meeting and set up a time to get back together. Research that which was giving you trouble. You'll get it.”

Sparky interrupted. “That reminds me. How should I price my services at the start?”

“Well, that's another thing I'd do differently,” I said. “When I started my computer consulting business, I made myself available dirt cheap. I charged $25 an hour. I hated it. I absolutely loathed it. I wasn't making enough to keep me happy, and the customers who didn't know me suspected they were getting somebody who didn't know what he was doing. Charge the going rate, or something close to it. If a bike fitting normally costs $150, don't do one for $75. Charge $125 at a minimum. You may feel like you're taking advantage of people, but they won't. They expect to be charged that much. And you can deal with any pricing complaints on a case-by-case basis.”

“Right,” said Sparky. “That's what I'd already decided with one of my mentors.”

“Mentors?”

“Yeah. I know a couple of guys who do bike-fittings in other cities, and I bought one of them lunch the other day. He let me pick his brain.”

“Great move,” I said. “That's a the third thing I'd do differently. Use your contacts. Networking is an important tool.”

Sparky laughed. “Networking is often treated as a joke,” he said.

“It's not a joke,” I said.

“I know,” he said. “I see that now.”

I told him that I have a good friend who is an accountant. One of my oldest friends is a lawyer. Professionals like these are good friends to have. Moreover, my network of family and friends was my best source for new computer jobs when I was starting out. “Networking isn't about superficiality,” I said. “It's about cultivating friendships and acquaintanceships. It's like in The Godfather: you do something for me, I do something for you. Most people like to help.”

“I've started doing this a little,” said Sparky. “I know a guy who owns a bike shop, and he's going to let me rent space in it for cheap. And I called you didn't I?”

We laughed.

“I'm so emotionally charged by this,” Sparky told me. “But at the same time I'm scared.”

Exactly,” I said. “That's how you know you're on the right path. You're stupid if you're not scared. You're even stupider if you're not excited. That's the entrepreneurial mentality.”

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William Mize
William Mize
13 years ago

Now that’s the reason I read this blog.
Absolutely brilliant.

If you would be so kind as to pass a book recommendation to your friend, I would also recommend “The Portable Coach” by Thomas Leonard.

Roger
Roger
13 years ago

I’ve run my own business since 1997, and I agree with the advice above, especially the pricing one. Here’s some other things I have discovered about my business that might be food for thought: * Doing a job cheap for a chance to “get in the door with these guys, who will bring tons more work” rarely if ever actually does that. If you get mentioned by them at all, it will be in the context of “she does cheap work.” Indeed, I’ve found that when the “big job” comes along for these folks, they go looking for a “real… Read more »

Roger
Roger
13 years ago

Couple more (doh!): * I forgot: don’t give it away for free. In my business (design) people often ask for a “sample design” to be submitted with a proposal. Walk away from any job where a requirement is unique work done for free as a requirement to get in the door. It’s unethical of them to ask and you’ll inevitably get shafted. Think of it in terms of money. Would you pay them $500 or $1000 or whatever it costs you for your time and materials for a chance to be considered for a job? * Generally ignore open bids… Read more »

Bobo
Bobo
13 years ago

Hey Roger, would you mind emailing me? I have some further questions I would like to ask you. Thanks: [email protected]

dokaben
dokaben
13 years ago

Great post and comments! I’ve often considered pursing my own business but I’ve yet to experience that moment when everything clicks. Good to know this is something that will feel right when the time comes.

Does anyone out there work independently in software development? Most of the independent people I’ve met don’t seem to be that much better off than us company-employed folks. They work the same number of hours and make more, but have to handle the various bookkeeping and benefits management tasks after hours.

While reading the post I couldn’t help but think of ‘The Wealthy Barber’. Coincidence?

Steve
Steve
13 years ago

One suggestion I make for people wanting to start a business – pick a business that would be the last kind of one you would like to do. Why? Well if you have understood Robert Kiyosaki’s Cash Flow Quadrant book a true business is one in which you DON’T work in but just work on. By picking something you don’t want to do you will hire someone else who does want to do it and get them to work for you. It is a protection mechanism against you working in your own business.

Lrrr
Lrrr
13 years ago

This is a fantastic post. One of your suggestions was to “not quit your day job.” Any suggestions to those would love to go out on their own but are struggling to find time to do it? I don’t waste time… other than reading a blog here and there! 🙂

Paul
Paul
13 years ago

William Mize said he recommended “The Portable Coach”. What were a few the tenants of the book that brought that suggestion to mind? Roger’s post within a post is the reason I read the comments. Great stuff Roger! Steve’s point about creating a business that you work on is interesting. I agree with pursuing business propositions that leave more time for leisure. I have an acquaintance that is able to “see” business opportunities as he drives down the street. After talking to him in more depth I concluded that this was an “art”. He had an imaginative gift to create… Read more »

ryan
ryan
13 years ago

Thank you so much for this post. I really feel like I am on the right track now.
Glad to know that getting excited and scared is part of it all. Seems like some great tips too!

J.D.
J.D.
13 years ago

I want to re-iterate, in strong terms, that this is merely a recreation of a conversation between old friends. I gave my best advice, and Paul shared his goals and fears. This advice is applicable to small service-oriented side-business such as Paul’s bike-fitting service or my computer consulting firm. While most of the advice is sound for other businesses, there are two points that may not be. Specifically, some businesses may have to incur debt at the start. It’s always best not to, of course, but few people can afford to start a bookstore, for example, without borrowing some money.… Read more »

William Mize
William Mize
13 years ago

Hey Paul!
Sorry for the delay in responding to your follow up; below is a link to the 28 strategies that Leonard outlines in his book “The Portable Coach”. They are simple, but not easy.
You’ll get a high level view from this PDF, but in the book you’ll be able to really dig deep.

28 Principles PDF.

Paul
Paul
13 years ago

Thanks for the pdf. William, that was helpful.

Steve’s post about owning a business rather than working the business has expanded my view of my future. Though starting a business that is service oriented will require that I work, I will keep my eye on expanding the services offered as I become more immersed in the industry. It is possible if I just kept myself anchored to working the business I wouldn’t be able to see the opportunity to expand into areas that may allow more leisure time and more income.

prlinkbiz
prlinkbiz
13 years ago

I am a huge fan of Kiyosaki- or rather of the principles he teaches- because they work. I literally built and sold my first business reading his books (especially RD’s Guide to Investing-the business building section). I am now financially free at 28 because of these principles and run with a sort of RD crew- all of whom are successful business owners and investors. Had to say that. As far as business start up resources- I wish I had read The Art of the Start by Guy Kawasaki before I built my first biz- very practical. A couple points- do… Read more »

prlinkbiz
prlinkbiz
13 years ago

PS- all business start off with you working them- they are a job, until you create systems to hire in other people and work your way out. If you work in your job, meaning YOU are the job, you are the business and it cannot function without you- you have a job- not a business. Does that makes sense?

Shanti @ Antishay
Shanti @ Antishay
12 years ago

I just got here from your recent links post. I’m curious how your friend is doing now. What’s he up to? Did he start the business?

I’m so curious!!

Tom
Tom
12 years ago

Me too! Seven months later – how is he doing?

mary
mary
11 years ago

Hi J.D.,
I am new to your blog and I love your content and your writing style. I am 24 and currently a third year employee at a small company in Japan. Since I come from an entrepreneural family, I’ve always thought I will follow my mother’s footsteps in starting my own business but I don’t know what it is I will do yet. Your words are very inspiring!

Thanks and please keep writing!

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