Steve at My Wife Quit Her Job (an excellent blog for freelancers and other entrepreneurs) came up with a list of 10 ways to mitigate risk when starting an online business. While risk is inherent in any endeavor, your options have to be either success or financial ruin.
Of what he listed, here are the steps that I’ve taken, why, and how they’ve worked out so far:
Keep a Nest Egg
Check! We have both an emergency fund and when I was only working part-time and freelancing more we had a freelance cushion too. I can’t recommend the cushion highly-enough when you’re getting started. Even if you never need it, it’s good to know that you won’t have to close up shop if you hit a dry spell. Don’t let your plans die early because you weren’t prepared for a drop in business.
Keep Your Full-Time Job
Initially, I was working two part-time jobs, though neither of them was 20 hours/week. Having a full-time job may not work for your type of business, but if you can ease into building it nights and weekends, it’s a good idea. You build a client list & portfolio, test your market (something that took me some trial and error), and really learn how to manage your time.
Right now I’m working full-time and doing consulting work. Can I do as much as I did when I wasn’t working as many hours? No. But some businesses allow you to schedule blocks of work time. If my clients want someone they can count on from 9-5, they’ll have to look elsewhere, but if they just need me to get a project done in a time-frame in which I can do it, there isn’t a conflict.
Even if you’re selling a physical product, lowering your volume initially (another one of his tips, though one that has less to do with my work) may be the way to go while you keep your full-time job. You don’t have to take on every client that asks and you don’t have to sell an infinite number of units if selling a set amount will keep you afloat.
Pick a Narrow Niche
While in my mind’s eye I see my start in freelancing as floundering wildly from one thing to another, I actually ended up in a rather narrow niche and one I’m pretty good at—blog migration. I do a fair amount of other work, but what I do for over 50% of my consulting projects.
Being so specific has helped me get good at doing it, too. Not every migration has been perfect, but I’ve learned to handle a number of hurdles that I’ve encountered along the way and have notes on method for dealing with X or Y in case I run into it again. I also know that I cannot move a 3000 post blog from Typepad to Blogger (in theory, it’s doable), no matter how hard I try and that I’m not ever going to try that again. In fact, I decided that my specialization didn’t include Typepad at all because their export system is very poorly-constructed.
Keep Spending Low
I really wish I could find the post, but over a year ago DebtKid outlined a number of things that he didn’t need to spend money on when starting his business. Instead of starting small in his parents’ large basement (and even renting that), he leased office space, bought nice new computers, and generally approached spending with the assumption that things would go great.
Depending on what you’re doing, you may need to buy supplies or rent space. But for an online business you rarely need to impress the customers with your workspace. Impress them with your product instead. I always feel frustrated at tax time because there’s so little I can deduct. The most money I spent last year on a single product was buying a developer’s copy of Thesis so that I could learn what made it tick and use it for clients. If I’d been feel really cheap, I could’ve justified playing around with a client’s copy, but I wanted forum access, etc.
Have a Backup Plan
This could also be filed under keeping your full-time job. Your backup plan doesn’t have to be a fleshed-out plan you fixate on (because if you spend a lot of time thinking about it, it’s likely to become your primary plan). Before I was working full-time, our backup plan if it didn’t worked out was to use the financial cushion and possibly emergency fund while I looked for a job.
As it was, I was able to find the full-time job I wanted and when I wanted it, rather than settle. And I was sure going into it that this was the right decision.
How Much Risk Is Already In Your Life?
Also, keep in mind that everything in this world is risky. Everything. Life is incredibly fragile and often hangs by a slenderer thread than we let ourselves realize. In March, our car suddenly turned off while driving on an interstate. I have never felt more vulnerable, especially since the place where we ended up left part of the car sticking into the road on a turn. At a minimum, I was sure our car would be destroyed by someone going too fast to see it in time. Everything turned out fine (thank you state of Connecticut for the roadside help that arrived before we’d even finished scrambling as far away from the car as possible).
People lose their jobs every day, discover they have cancer, get killed by an inattentive driver or a car malfunction. Houses burn down, CEOs drive their company into the ground, people’s hearts just stop beating—there’s no way you can actually avoid risk. Do your best to plan wisely for contingencies, but don’t let the riskiness stop you from undertaking a project/business you think is worthwhile.