Ian Landsman is Starting From Scratch, July 13, 2006:
Do Quit Your Day Job
If you're in the market for a powerful and user friendly Help Desk solution, please take a look at my company's flagship product HelpSpot.Phil has an interesting post about why MicroISV's shouldn't quite their day jobs as they're starting up their businesses. I disagree with Phil, but before I get into the specifics I think it's important to cover the MicroISV "camps". Most people seem to view MicroISV's as one group, however, I have always viewed them as two distinct groups. Group A (for lack of a better term) is the side money group. They have a decent idea, they've started working on it, it may or may not be viable enough to become a full time business. If sales are good enough to do it full time they would love to do that.
Group B are people seriously dedicated to starting a company as a full time endeavor and (this is important) financially able to do so. Anyone who in a reasonable time frame can't save enough money to realistically quite their jobs is automatically in group A.
I don't think one group is better than the other, just that they exist. If you read most articles by MicroISV's it's easy to see which group they're in. Are their ideas small in scope, in non-competitive markets, in niche markets? Those are group A. Group B tends to attack markets with higher price points, require lots of customer contact, require at least some startup money.
So given the two groups I think Phil's article applies nicely to group A, but is poor advice for group B. Here's why:
You should quit your day job if you've properly planned for your business and have a reasonable chance at success. Success meaning you would be covering your lost wages plus some. You know if you have a good chance by doing your homework. That doesn't mean having an idea and starting to code. That means having an idea and spending months researching the market, is it big enough, can you charge enough, what's your value proposition versus competitors, etc etc.
Let's take a close look at Phils downsides and I'll add my thoughts along the way:
"1) The cost to launch is now the money you make from your mISV minus the amount of money you would have made at your job. So even if your mISV is a huge success, if it takes 3 months to develop, and you make $80k a year, you've lost $30k in salary to start your business. Just to get dollar one. You may also need to eat into savings to pay the bills, add that to the startup costs."
True, but this is not necessarily a negative thing. It's a misconception that you can start your MicroISV for nothing. In this case you'll be trading time for money. 3 months salary is a pittance compared to what it costs to start most businesses. Again if you've planned properly this is not a surprise and you'll have funds to cover or have made expense cuts to cover or most likely both.
"2) and 3) don't really change"
These referred to not needing a physical location which I agree with
"4) You now need to pay your OWN salary before you pocket a single dime. Even if your significant other/parents support you, you're still $80k in the hole from where you started."
True, but again not necessarily a negative. First you're working for yourself not someone else. What's that worth? More than 80K to me. Second, what's your upside at your current job? So in year one you're 80K down. How about in year 3? More than likely your business has a much higher upside 3 years out than your day job.
"5) Risk is now extremely high. 90%+ of businesses fail. Your idea for a Web based stop watch may not look like such a good business plan when your out of savings. You are now in a sink or swim situation, if your business isn't profitable in say 3 months, you may have to shut down. What if month 4 was where your business would have taken off? I can tell you that the 10% that do succeed usually don't do it by their 3rd month."
Man I hate the 90% of all businesses fail argument. That stat has been around forever and covers ALL businesses. You're not starting a deli. You're starting a software business for next to nothing (even if it's 80K) where you margins will be somewhere between 80->99%. A guy who starts a deli is trying to live on 5% margins and he needed a 400K bank loan to get started.
Again the rest of his point is error due to poor planning. Of course if your planning is poor and you try and do a web stopwatch you'll fail. There's no market there. If you've only given yourself 3 months to succeed then again you'll fail.
Here's the big secret on how to do this and fail for the right reasons. Your pre-planning needs to be 100% focused on making your success or failure about the execution. So you need to plan away those things that are not execution related. It's really not that hard to do. Make sure you can survive for enough time to see if it works out. Make sure you're going after a market with enough money in it to support a new option and where a small fraction of it will make you a success. Make sure you start marketing your product "before" it's ready so you have a few customers when it is.
If you plan away those risks then your main risk will be execution. That's a risk you'll have to live with and if you fail you fail, but it will be because you didn't build a great product not because you ran out of time or ran out of money and your chances of failure will certainly be below 90%.
Phil did have one more quote that had me yelling at my screen
Given the above scenario, it could take basically $50k to make your first dollar. If you invested that in stocks, you have a much higher probability of making a profit then with your business. You could take a $50k loan to startup a traditional retail business and probably still have better odds of making a few bucks or breaking even.
This one is just way way off. If you've ever invested in the stock market then you know it's a lot tougher than outlining a software business and takes just as much time and effort. The second line is just not even in the ball park of correct. 50K isn't enough for a down payment on the loan you'll need from the bank to start a brick and mortar retail business. I worked in retail for almost 10 years before getting into software. Let me tell you it's low profit, high overhead. If you think you can get your software company up and running for 50K that's a deal and it should be viewed as such.
Phew...
I think that's it
Phil much love! Not knocking on you, just sharing my take on the idea
Discussion
I agree on the Group A + B distinction. Although you're one of the few mISVs that belong in Group B.
Initially I intended to be in group B, but then got scared and stayed in group A. Doesn't seem a bad decision so far, you can still grow a business like that although in a slower pace.
But the question that is killing me is: what would have happened had I really quited my job? Would I have put out new version after new version, created dozens of new features and have x10 the sales? I guess I'll never know.
Created by Dimitris Giannitsaros on 07.13.2006 11:07 pm
Great link thanks Chuck!
Created by Ian on 07.13.2006 11:07 pm
Ian, you've probably seen this, but for the benefit of any who haven't: Steve Pavlina has a great take on the 90%-of-businesses-fail mentality.
This reminds me of people who hesitate to marry because half of all marriages (in most of the developed, Western world) now end in divorce. As though marriage were a crapshoot, and not far more dependent on the wills, dispositions and choices of the parties involved than on random chance.
Created by Chuck McKinnon on 07.13.2006 11:07 pm
[...] Do Quit Your Day Job - Ian Landsman explains why in some situations (ie: when you are committed and can afford to do so), quitting your day job is the best thing you can do for your mISV [...]
Created by Ellis Web » Items of Interest: 2006.07.19 on 07.13.2006 11:07 pm
Hi Ian,
Great post! I completely agree. Some other things to consider as well that play in your favor of leaving your employment:
- Lower gas bills (no need to drive to work everyday)
- Lower car repair bills (less mileage), etc.
- Less expensive clothes (you no longer need to dress up as much)
- Cheaper food costs (going out to lunch does add up)
- And so on.
In addition, some other things to consider, its the speed at which things happen. If you work in your off hours, what could take you a year now takes you about a month!!! Talk about a different growth curve 
Created by Stephane Grenier on 07.13.2006 11:07 pm
[...] Do Quit Your Day Job Under the right circumstances, Ian Landsman suggest that you do quit your day job: Phil has an interesting post about why MicroISV’s shouldn’t quite their day jobs as they’re starting up their businesses. I disagree with Phil, but before I get into the specifics I think it’s important to cover the MicroISV “camps”. Most people seem to view MicroISV’s as one group, however, I have always viewed them as two distinct groups. Group A (for lack of a better term) is the side money group. They have a decent idea, they’ve started working on it, it may or may not be viable enough to become a full time business. If sales are good enough to do it full time they would love to do that. [...]
Created by Startup Fever » Blog Archive » Do Quit on 07.13.2006 11:07 pm
Great post, but how could you spend months in planning?? Sheesh. I can never wait that long just to get started :D (although I have spent a few weeks just sketching down the interface before coding something, and this will probably go on for a while).
I'm happy to say that I'm in group B right now.
Created by Ali on 07.13.2006 11:07 pm
I agree with Anthony above on his #2 point. From my experience, it is extremely difficult to be a success in group A and hold a brain-intensive job at the same time. If you have to spend 8 hours a day thinking about one thing, it becomes very difficult to come home and completely shift gears to work on your own project.
Created by Gil on 07.13.2006 11:07 pm
Great points Anthony, I agree 100%. I cut tons of costs before starting UserScape (ex:http://www.userscape.com/blog/2005/06/06/are-you-serious-about-starting-a-business/) and that was probably the biggest help. I think often that job can be side consulting, especially if you've already been doing that a bit (discussed here:http://www.userscape.com/blog/2005/06/06/dont-be-afraid-of-contract-work/)
Created by Ian on 07.13.2006 11:07 pm
Ian
I want to offer another option. When I mentor people looking to do something "on their own", I often recommend the following:
1) Reduce bills (be able to live on less income)
2) Exchange the "career" for a "job"
3) Focus and execute the plan
#1 means they will be able to make less and survive
#2 means they can move their focus from their "career" job to their business (and still make SOME income during the transition). Deliver Pizzas if you have to.
#3 is enabled by #1 and #2
Of course, if you have enough money in the bank to just quit, then do that (I suspect this is NOT the case for most making this transition though).
Created by Anthony on 07.13.2006 11:07 pm
Nice responses guys. I definitely want to be clear one more time that I have no problems with group A and if I couldn't have pulled off group B you would have found me running all around group A
I didn't get into the downsides of quiting but Phil did hit a huge one. The stress is huge and it takes time to learn to manage it. I'd say that only now am I really learning to deal with it well and that's certainly a factor anyone should consider. For me that was less of a downside though than the 'what if' stress Dimitris mentions above.
Created by Ian on 07.13.2006 11:07 pm
Excellent post, Ian!
I think you're right on all around here. Speaking as someone who *did* quit the day job (and recently picked up a new day job), I'd definitely recommend quitting and making it happen if you think the market is there.
My wife and I were talking about this a few days ago. There's a side benefit to quitting and then getting another job (or consulting) if you need to: there's a lot of work involved in building the business and v1.0 of the product. If you spend the time and get over that hurdle, you've got the start of a business. It's a lot harder to get a reasonable beginning to things completely off-hours.
Though I've got a job again, there's a good chance that the job will involve continued work on TurboGears (my open source project that builds on work I did with my closed source product). My DVD is producing revenue, the book may make a little money, and Zesty News development is ongoing with my partner (plus I have other revenue sources). All of this stuff was built up in my time away from a normal job, and it's unlikely I would have anywhere near that many things going on if it weren't for quitting.
Yes, there's risk involved... but do the legwork up front, as Ian suggests, to recognize the market and you're odds are much better than the 90% failure rate bandied about.
Created by Kevin Dangoor on 07.13.2006 11:07 pm
Hey Ian,
Good analysis, I figured i may get some backlash from those who did quit. I more or less agree with your group A vs group B distinction. If you are truely in group B, none of what I say applys because you can give your business time to grow. This takes a lot more then financial dedication though. It takes a VERY understanding wife. It also means that actual dollar figures are unimportant to you. Making money needs to be a side concern when starting the business to working on one's own. I think you are one of the exceptions to the rule. I don't believe most people are truely this dedicated or have the kind of risk tolerance and financial planning to make it happen. Many people, once they are on their own realize it's more stress then when they were under a PHB.
Also, I'm not sure the 90% of businesses rule has changed much in the virtual environment. It may have even increased more since there is less money lost by simply giving up. How many businesses do we see launched every day in the various forums that are never heard from again? It is definitely about execution.
Created by Phil on 07.13.2006 11:07 pm
I'm group B, in that its full time and paying the bills, but group A in being in a smallish niche. I'm not sure whether its better to be a big fish in a small pond or a small fish in a big pond. Being a bigger fish in a smaller pond is probably lower risk, but with lower potential rewards. I'm unlikely to be rubbed out by Google, Microsoft or Yahoo overnight. But I'm also less likely to be bought out.
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Created by Andy Brice on 07.13.2006 11:07 pm