Most small business owners run into problems with transitioning from one stage of their business to the next.  I want to focus today on the transition from an employee to a solopreneur.  Let’s say that you are a superstar at your current company, but you get laid off; or simply decide to start your own business.  Your new business venture may or may not be in the same profession you had as an employee; but it is a passion of yours and you feel like you ought to be successful in your new business venture.

The Story of the Employee Turned Solopreneur

In most cases, professionals will charge their clients by the hour.  They believe that if they sell their time at $50/hour, they’ll make plenty of money if they put in a modest work year of 2,000 hours.  After all, 2,000 hours at $50/hour is $100,000 per year.  What a great living!

Then reality hits.  Where do I get customers?  What should I do about book keeping and accounting?  Who will answer the phone, when I’m not available?  I heard that I need to do a business and marketing plan, but have no idea what that is.  So, you turn to Google.com for your answers at first.  You decide you can quickly learn all of the answers to your questions if you just do some modest research.    Some ingenious bloggers tell you to go to networking groups; build a killer website; and buy some business cards.  You do all of this, you are down $2,000 and you still don’t have customers.  What went wrong?

You may continue to spend money with no return, or you may start to develop a better plan that actually starts paying off.  Let’s say you figure out how to navigate the marketing and sales obstacles.  You now have a few customers who are interested in hiring you.  Eventually, you get a few more and now you feel like you have successfully transitioned from employee into a solopreneur.

Not so fast.  You are now working close to 3,000 hours a year and only billing 50% of the time you thought you would.  With all of the time spent on marketing, administration time, and networking, you can only spend 50% of your time actually serving clients.  At this rate, you will have a business that has a gross revenue of $50,000 per year and you are working yourself to death.  You had it much better in your $60,000 per year job with benefits and vacation time.  Why on earth did you think you could make it as a solopreneur anyway? And, how can you get out of this ugly trap you have created for yourself?

What Went Wrong?

Different people take a different path to becoming a solopreneur.  However, the story I just told is quite common.  The reason that a burgeoning solopreneur gets into the dilemma of working 3,000 hours a year and making little money is that they fail to understand what it takes to actually run a small business.  Most solopreneurs have never marketed or sold a thing.  They first of all get surprised by this aspect of owning and running a small business.  If they figure out this aspect of their new business, they often will not have enough time to do the professional they love to do.  They end up miserable because they don’t like marketing and selling; and they are not making the income they desired when they started their small business.

Let’s look at the math involved in this situation.  Let’s say that you start a small business and offer three services that you feel you are modestly proficient at delivering to your customers.

Solo - Table1a

If you consider all of the work it takes to run your small business and you could hire proficient resources to do every job perfectly, this collective group would spend 3,000 hours and be able to bill clients approximately 1,800 hours.  Most new small business owners are willing to sacrifice and work harder to earn a decent living by doing all of the tasks required to run their small business.  However, the problem is that most new small business owners are not proficient at many of these jobs and so it takes them longer to accomplish the tasks to support their business; and they have less time to spend with clients.   So the actual hours it takes to accomplish these tasks once you factor in the poor proficiency of the new business owner looks more like the table below:

Solo - Table2

Rather than working yourself to death, most new small business owners decide to take shortcuts.  In many cases, they don’t even know they are taking shortcuts.  They decide to skimp on sales and marketing when it is not their strength.  After all, why does it matter if you’re not proficient at everything?  You ought to be able to be good enough to get by for now.  So, the diminished quality output table looks something like this.

Solo - Table3

The sacrifice column shows the short-cutting that is happening in each area of the new small business.  You have now successfully reduced your overall working hours to something that is more manageable; but you are struggling at almost every aspect of your new business and are only able to bill 50% of the hours you had hoped to bill.  At this stage of the game, many new business owners give up and go back to being an employee; or continue to struggle thinking that this situation will get better.

What is the Solution?

The solution to the solopreneur dilemma varies.  Most either hire a consultant to help them understand their inefficiencies and or attempt to solve the problem on their own.

Outsourcing

One solution to overcome your poor proficiency at some tasks is to outsource those tasks.  Some decide to outsource various tasks to others in order to gain more time doing the Direct Work for clients and increasing the amount of hours they can bill and increase their revenue.

Solo - Table4

Outsourcing is a little tricky.  First of all, you need to know that the people you are outsourcing to, are proficient at the jobs you are outsourcing.  The way that you can tell this is their price will reflect their efficiency.  If they are inefficient, often times their costs will be more than you can afford to pay.  If they are proficient at doing your work, their price should allow you to become much more profitable as a solopreneur.

The other trick to outsourcing is to have your outsourced vendors be self-directed.  If you have to tell your outsourced professionals every move to make, you have hired the wrong vendors; and will be stuck with management time that will rob you of the time you can spend with clients.

Growing Into Your Business

The most common method to overcome the bane of the solopreneur is to grow into your business.  It is common that a new startup will not have clients at first.  If you are patient at marketing and sales, you will gain clients one by one.  Eventually, you will have established a base of referral clients; and repeat business.  It often takes a few years to establish a reputation in doing whatever you are doing to then be able to start outsourcing some of the tasks that you feel you either don’t like doing; or others can do much more effectively than you.

The problem with growing into your business is that you will often run at a financial deficit for the near term; and will need to have sufficient savings to pay for your living expenses while you build your business.  This is the problem with most new solopreneurs.  They may have been recently laid off from a job and have some severance money, but have no idea how long it will take to develop their professional practice.

Contract to Your Former Employer

People leave employment for a variety of reasons to start their own practice.  However, if your practice is consistent with your previous job, it is common to contract with your former employer until you have developed the ability to gain clients on your own.

The problem with contracting with your former employer is that you may need to charge your former employer at least double what they used to pay you as an employee.  Many employers are willing to pay such fees to gain your expertise; while some will not.  Whatever you do, don’t contract to your former employer for the same pay you received as an employee… or you will never gain the independence you need to start your own business.

Finance Your Startup

For those who either purchase a franchise; or buy an existing company; or just completely know exactly what they will do without proving their concept; you can finance your startup and skip the solopreneur phase altogether.  A good example of this type of startup is a restaurant.  It is difficult to run a restaurant, by starting a hotdog stand and then growing it into a four-star restaurant.  Often times you will need to get enough cash to pay servers, cooks, dishwashers, lease payments, advertising and managers before your restaurant is generating enough revenue to pay all expenses.

Rarely will a bank give you the cash to start your business.  The bank may finance equipment, but you will either provide the startup capital yourself, or get investments from family, friends or angel investors.  The key with this type of startup is starting out of the gate extremely fast.  The longer it takes to break even, the more stressful it is on investors; and the less likely it is to become successful.

Even with sufficient startup capital, business owners can fall into the same trap as the solopreneur.  In an effort to save money, they decide they need to do everything themselves.  They fail to charge enough for their service or product and find themselves working long hours for little pay and owning a failing business.

Ask for Help!

The world is full of qualified business consultants and coaches.  They want to help new business owners succeed in overcoming the obstacles outlined in this blog post; and more.  New entrepreneurs may look at the price tag of hiring a coach for $100 to $1,000 per hour and decide they can’t afford such a service.  They rack up several hours and dollars in their head and decide these consultants are just too expensive.   Ironically, one hour with a qualified consultant or coach can make a world of difference in the direction you choose to take with your company.

If you’d like to spend an hour, at no cost, talking to a qualified business consultant about your small business, please contact me by completing the form below.

Note from the Author
My name is Jeff Schuster.  I am a certified Life and Business Coach serving small business owners, corporate executives and others who want to transition from “expert” to “entrepreneur”.  I have been a small business owner for most of my 30-years in the workplace.  I grew an energy efficiency and renewable energy engineering and construction company from nothing to over $10-million/year and sold it in 2013.  I now help other business owners make amazing progress toward their own dreams of business ownership independence and success.

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