One of the biggest risks many entrepreneurs face when starting a new venture is abandoning the trusty pay-check and the financial stability that comes with a predictable and steady source of personal cash flow.
For a founder, the first few years of any new business are typically plagued by concerns about whether (or when) they will see a return on their labour and investment. These concerns are even more pronounced in first time entrepreneurs, or founders who are supporting a family along with themselves.
Whilst it’s easy to believe that a ‘both feet in’ approach to entrepreneurship is the surest path to success in a new endeavour, a recent study backed up by some heavy hitting anecdotal examples suggests that taking a staged or ‘hybrid’ approach to entrepreneurship, where a founder maintains paid employment and gradually transitions to running their new business, can yield similar results whilst minimising the risk of personal financial trouble.
Discussing a staged approach to entrepreneurship is a divisive topic. The clip above from the BBC’s Dragon’s Den highlights this to a tee (I personally think Duncan was on the money here).
Research conducted by Professors Joseph Raffiee and Jie Feng at the University of Wisconsin-Madison which was published last year in the The Academy of Management Journal (link here), found that entrepreneurs who employed a staged or hybrid model to their new businesses were 33.3% less likely to fail than those who left their jobs to start a new venture full time.
The study (which is pretty weighty but full of nuggets of insight) of over 5000 entrepreneurs who had left full time employment using either a hybrid/staged or ‘all in’ approach, uncovered a number of factors which allowed those employing a staged approach to be more likely to prosper from their endeavours.
Primarily, founders who employed this model benefited from a low risk environment, where they were able to take more time to refine their businesses and products, testing hypothesise about whether a business or product would be successful before committing all their time and resources to pursuing it.
Additionally, the study found that entrepreneurs employing a staged approach were able to take more time to improve their skill set as a founder, without the inherent risk and pressure that comes with the traditional all or nothing approach to starting a business.
The study points to a few well known examples of entrepreneurs whose hybrid approach to entrepreneurship paid off in a big way.
Firstly, Steve Wozniak could almost serve as the poster boy for a hybrid approach to business, designing and building the first Apple 1 prototype whilst he was still employed at Hewlett Packard. Wozniak would later point out that he actually offered the designs for the Apple 1 to HP five times before leaving, out of a sense of loyalty to his employer.
Pierre Omidyar’s hand in founding eBay is also highlighted by Raffiee & Feng. Omidyar initially founded the site Auction Web (which would later be renamed eBay) whilst he was still employed as a software developer at General Magic. Omidyar knew it was time to jump in to his business with both feet when the revenue from his site was outstripping the salary from his day job.
Putting Research into Practice
Before you jump into a hybrid venture, there are four things you’ll need to address upfront:
- Decide early on about the level of visibility you want your current employer to have over your new endeavours. In my experience (starting two businesses whilst still employed full time in finance) it is better to be upfront and honest with your employer from the beginning.
- Research your company’s moonlighting policy and understand what types of businesses your employer is comfortable with you starting, and which may create a conflict of interest.
- Prepare to overcome the inherent difficulties of starting a business whilst working a 9-5 (or longer) day gig. This means being creative and flexible with your time and preparing for at least a bit of overwhelm in the early days.
- Set a clear goal from the outset that will define when you will transition to your business full time. This goal may be based on a financial measure (like the example from Pierre Omidyar above) or other factors that indicate your business is going to be a success (such as number of new customers, customer return rate etc.).
There are many paths to success on the entrepreneurial journey, and the method I’ve just discussed may not be right for everyone. But, for those would be entrepreneurs who aren’t ready to risk it all by quitting their day job, a hybrid approach could be just the ticket.
I hope you enjoyed this article and found some practical applications to your own business. If you liked the article please don’t forget to hit that like button or drop me a comment below.
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