Aspiring entrepreneurs are often faced with an incredibly difficult question: when do I go all in on my passion and leave my day job behind? For a myriad of reasons this is always a difficult question to answer. Chiefly, every individual situation is different and is complicated by things like a family to support, loans to repay and other obligations that can have a profound impact on the ability to forgo the reliable paycheck and gamble on some as yet unproven entrepreneurial venture. That being said, there are some guideposts that can help anyone in making this decision.
What are your true opportunity costs?
The very first thing to do as you analyze this decision is to do a thoughtful and realistic assessment of what the real opportunity costs of leaving your current job (or, in some cases, perhaps school) might be. Years ago, two young entrepreneurs I mentor and advise were faced with the decision of whether or not to leave their prestigious Ivy League University to pursue their dreams of building the next great software company. The trade offs were fairly obvious. If they left school they would not have a degree for some time and would miss out on the traditional college experience and all the relationships one builds during it. Further, they might potentially spend several years of their lives building something that, if it failed, would yield them no real wealth. On the other hand, regardless of the outcome, those years would almost certainly involve enormous amounts of learning far above and beyond that which might happen in the classroom. In the event that the venture went well they might have enough economic success to set them up comfortably for the rest of their lives, enabling them to pursue whatever future passions they might have with no mind to economic potential. The opportunity costs for these two young men listed above are by no means exhaustive, they each had many, many more things to consider, and it’s imperative that as you work to understand your own tradeoffs you must be thorough. In many cases this simple exercise alone will make the decision clear for you and everything that comes afterward may be moot.
Does the data support your decision to go all in?
Not everyone is analytical by nature and, frankly, the world is probably a better place for it. It is certainly a less boring one. However, in this case it is critical that you put pen to paper and understand the numbers. How much do you think you could make if everything goes well? What is your probability of success? Meanwhile, if you stay in your current job, what does that look like from an economic point of view? Some simple math is required here but it’s crucial you really understand what your likely outcome is in all circumstances. There is another benefit this exercise achieves – it forces you to come up with critical assumptions. To understand the total opportunity of your future endeavor you need to understand the total addressable market, how many customers you think you might find, who those customers will be, how you will retain them and so on and so forth. These assumptions normally form the basis for a basic business model, which, if you have not yet built one, I strongly advocate doing so before arriving at a final decision. This might help you realize that the bird watching app you’re so deeply passionate about simply doesn’t have a large enough potential user base to ever justify you committing to it wholly. It doesn’t say don’t ever build the app, but rather don’t put all your eggs in that one basket.
If you’ve already got a side hustle, are you the bottleneck to growth?
Said another way, do you know that your endeavor could be orders of magnitude larger if you simply were able to dedicate more bandwidth to it? Intellectual honesty is crucial here. Do you know that there is excess demand for whatever service or product you provide but you’ve thus far been unable to supply it by virtue of a lack of your own time? It is considerably less potent the more abstract it becomes – for instance when you feel you would have more customers if only you were able to dedicate more time to marketing. That might be right, but you might end up dedicating significantly more time to your marketing and see little for the efforts. The more directly you can identify growth opportunities that are tightly correlated with your time the more clearly you can defend your decision to move to full time.
Are you ready to raise money?
This is the easiest question to answer. If your entrepreneurial endeavor is at a point where it is ready for outside funds then it is likely also at a point for you to dedicate your entire attention to it. Importantly, I am speaking of true third party capital – not your generous aunt who has always been eager to make you a loan. Indeed, most investors will in turn expect that you are committing to your entrepreneurial endeavor on a full time basis. This is doubly so if you’re raising from anything that looks remotely institutional (venture funds, family offices or even more well-known angels). By this point, if you’re not willing to commit yourself to the venture full time you should not be even considering raising outside capital. To the extent that some of these third parties have approached you proactively about investing in your business, that is usually a great sign that you’re onto something special.
The decision to leave a good job is undoubtedly one of the hardest, and scariest, choices one makes in their career. Not only is one venturing into the unknown, but often doing so despite the very vocal risk averse friends and family who might be telling you what a big risk you’re taking. Those same people often cite well known statistics about how most startups fail within the first few years. However, if you have answered these four questions in the affirmative then there is every reason to believe that you have a far above average chance of succeeding in a realm where most do not. In having done so you can go into your next big adventure with the confidence that you’re setting yourself up to be one of those rare success stories everyone aspires toward.