In this episode of Startups For The Rest Of Us, Rob and Mike talk about planning your move from day job to product. They give you seven milestones to follow to help you get closer to working from your business full time.
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Rob [00:00]: In this episode of Startups For The Rest Of Us, Mike and I will discuss planning your move from day job to product. This is Startups For The Rest Of Us, episode 254.
Welcome to Startups for the Rest of Us, the podcast that helps developers, designers, and entrepreneurs be awesome at launching software products, whether you’ve built your first product or you’re just thinking about it. I’m Rob.
Mike [00:28]: And I’m Mike.
Rob [00:29]: We’re here to share our experiences to help you avoid the same mistakes we’ve made. [What are this week?], Mike?
Mike [00:34]: I’ve only been back from MicroConf for a couple of days now, so I haven’t gotten a whole lot of work again. But aside from that, I bought a new car and it’s been the most painful experience I’ve had all year.
Rob [00:44]: All right.
Mike [00:45]: That’s like two or three years. For whatever reason, like they don’t make it easy to get a price quotes, and I kind of get the reason, but it’s just painful to get price quotes from anybody without having to actually walk in the door. It just sucks.
Rob [00:57]: Even on this day on age of the internet, car buying still not solved.
Mike [01:01]: Like I said, I understand why they do it because they don’t want you to go around to like 10 different dealers and get a price quote from them and then shop it around to them. But still, it’s just like you think it would be easier.
Rob [01:12]: You’ve done a lot of enterprise software sales, now you know what it feels like to be on the other end of that. Am I right?
Mike [01:19]: I appreciate that.
Rob [01:20]: Totally. Me as well, I’ve been back to work essentially two days. I did some work over the weekend to try to catch up on e-mail. I had a big backlog, but I spent the last two days kind of cranking though and getting caught up and really figuring out the focus of the next couple of months because it’s kind of time to continue building what we started during the summer with Drip. We’ve been doing webinars. We ran a contest. We have the content [?] going. We have a ton of integrations going. There is just a lot going on. While I was away in Europe, I was able to keep pretty close tabs on that.
What is nice is with [Slack?] and e-mail and get GitHub with Codetree on top of that. It was just easy for me to keep an eye on and figure out what was going on, to kind of keep up [the tabs?] with it. The nice part about being in Europe for that month was that I was able to do a lot of thinking and I had enough space because I was separate from the office, that I wasn’t kind of caught up in the day to day as much.
I made a bunch of notes about some entirely new projects that I want take on, some new angles about marketing and on the sales side. We actually need some inside sales help and I’m going to be looking for someone part-time to help with that. There is a lot of interesting stuff that’s on the dock and I’ll probably talk about it once more if it’s implemented. But, kind of planning right now about the next 60 to 90 days of what I see the marketing and sales winding up and then also working with [Derrick?] on figuring out what the next 60 to 90 days of the product is going to look like.
Mike [02:51]: Do you have an idea of how you’re going to go about planning that stuff? Is it going to be based largely on, I guess, interpretation of what customers are asking for or do you have specific things in mind that you know need to be done and it’s just more matter of prioritizing at this point?
Rob [03:06]: It’s the ladder, yeah. We have a couple of hundred feature request, additions, tweaks, some of which have come from internally of how we want to make the tool better for our own use. I use Drip- we use it for MicroConf. I use it for my book. I use it for the podcast. I use it for Drip and HitTail. I use it for ZenFounder and Startups For The Rest of Us podcast. I have a [?] of use cases on my own and we use it internally. Everybody in there is kind of putting feature request in.
Then we have customers constantly asking for stuff so the list is long. The challenge is prioritizing and figuring out what is the next thing that is going to either retain the most customers or get us the most new customers, and that’s really the evaluation process we are going through.
Mike [03:54]: Cool. What are we talking about this week?
Rob [03:57]: This week, we got an e-mail from [Casey Collins?] and he asked a question that spurred me to basically outline an entire episode, and his e-mail reads, “I’d been interested in hearing an episode on how and when to make the leap from the day job to working for your business full-time. I’m working a standard full-time job and just starting to build my SaaS app. What goals or milestones should I set to gauge whether or not I’m ready to make that leap.”
We’ve prepared seven milestones that I think you should target along this path. It may not be the same in every case, but this is a nice general framework to kind of get you going. Under each milestone, we have some action items you should take to kind of make sure that milestone is accomplished or to help you get to that milestone.
To kick us off, the first milestone is preparation, it’s really pre-milestone. There is a couple of things here that I think are key if you are going to embark on this journey and try to get from salary gig to making a living from product or even a productized consulting service. The first thing I think you want to keep in mind is that having a runway of some kind, some type of cash runway is amazing.
If you can get three months of living expenses, awesome. If you can get six months, even better. Because, even once you make the leap and you have an app that’s covering a good chunk of your income, it is so nice to have that comfort and the lack of stress by knowing that there is a chunk of cash in the back that you can turn to if you need to in like a dire situation or in case anything goes wrong as you make this jump to living off your product.
Mike [05:33]: I think something that kind of goes along tightly with that is making sure that you don’t have a lot of debt when you are trying to start a business. Debt itself can be crushing especially if you are floating a lot of money on credit cards or different debts that you’ve accumulated, whether it’s student loans, or mortgage, or car payment, or even just things where you have refinance something. Or you have financing on something for like your house, whether it’s like roof or siding or anything like.
Any of those debts, they basically weigh you down and they can make it much more difficult and much more stressful to start a business because you have all this interest in extra debt that you’re paying on a monthly basis. Yes, in some cases, it’s very valid, but it also hurts a lot because you have to pay attention to that and there is mental [?] associated with all that stuff. It’s not just about reducing the cost of your day to day living expenses, it’s about reducing the outgoing cash flow on monthly basis as well. Not just [?] cash itself, but the interest associated with it too.
Rob [06:31]: If I were in a position where I had $10 or $20,000 of credit card debt and I was considering going and start a product business, I would not start a product business. Instead, I would take my evening and weekend hours and I would do freelance work and I would pay that debt full before I did it. That’s just my style. I think that’s probably the best advice in most situations.
But, as you said, it’s just like anchors it, like sucks the cash out of you and it’s really going to be that much harder to start to make a full-time living off a product. It’s not hard enough without having that as well. I think the second piece of this preparation milestone is to get buy-in from the key people in your life. That’s most likely a significant other, whether it’s a girlfriend, spouse, husband, kids who are old enough, maybe it’s them, maybe if you still live with your parents, it’s them. But it’s someone around you who is going to be impacted by this. I think that’s the biggest deal, right, is are they going to be impacted by taking this leap?
If you share finances with someone else that someone who kind of needs to do the buy-in, and I think a husband or wife is a perfect example of this. Without getting their buy-in, A: you’re not really treating them with respect, like you’re going to be making financial decisions that could negatively impact the partnership and could negatively impact both of you and that person deserves a say before you do that.
Then the other thing is it can cause a real rift. I mean, businesses can cause divorce and it cause people to split up and that’s not something you want to do. I think having that conversation really before you start building this app and going on this [?] pretty tough journey is a good step to take.
Mike [08:11]: I think sometimes it’s difficult to explain exactly why it is that you want to do this. Because, building your own business is a heck of a lot harder and more involved than just going out and getting a full-time job, and you get the income from that full-time or the consulting revenue fairly quickly. Trying to relay that information about, “Oh, this is why I want to do this” and if you’re looking down the road a long term fulfillment or the monetary rewards down the road, it’s not always clear cut to most people.
I find that my brain tends to be wired a lot differently in terms of how I look at things like that than other people I know who are not entrepreneurs or not doing their own thing. They have a 9 to 5 job, they go to it, and they come home and they don’t really see how, “Oh, why is it that you’re working on this thing that you’re not seeing any benefits from it right now” and it could be very difficult to explain that kind of stuff.
You really do need to be on the same page, not just in why you want to do it, but what are the long term benefits of it. Let’s assume that you are successful and that also goes along with making sure that you’re relaying information about how things are going to your significant other, because they need to know how things are going, because they are invested in the relationship, maybe not necessarily in the business they want you to be successful, but as a by-product like it does affect your relationship and it really can hurt it over time.
Rob [09:30]: Yeah, I agree. I also think that I would consider giving someone who had a lot of questions about this and really wanted to begin with, give them the book “The End of Jobs.” Taylor Pearson came on the podcast awhile back but it helps explain why entrepreneurship is actually a logical choice and can be as good as or better than employment, especially moving forward, and it makes it kind of logical argument around that.
Last step for preparation is to put together a spreadsheet with estimates of how long it’s going to take to build what you need. At this point, it’s going to be more of a guess because I’m assuming you’re just starting conversations with customers or future customers at this point so you may not know exactly what you want. But a problem I see with some folks who are building products, actually, many of them, is that they don’t have any concept of how long it’s going to take them to build what they are building, and they just sit down to build the next page in the website, really, without a spec telling them what the overall scope of things is and no concept of when they will be done.
When I say spec, I don’t mean that you write some type of full functional spec like you would if you’re a consulting firm, I mean, a few lines on an Excel spreadsheet or a Google Doc that basically says, “Here are the high level” whether you want to do it from database up or top down from the UI element.
I’d typically go from UI stuff and you say, “How much each page is going to take you” and then you add some leeway time and you add some database architecture time, and some deployment time, and you can get a reasonable estimate, even if you’re not that great at estimating. If you’re within 30%-40%, that will help you know, is this a true year development project you’re tackling or is this a 3-month development project you’re tackling. Knowing that from the start is huge, and I think doing that, I feel like you’re flying blind and you have no concept of what it is you’re building and how long it’s going to take.
My other kind of final act for this is there is this cool function in Excel and in Google spreadsheets, called Workday. If you put all the numbers in, forget how many hours it is, you could put workday in and you can figure out what date that you’re going to complete this project, and it will give you the date as of today if you work certain amount of hours per week.
Then, if you don’t work in a week, that date pushes out and so this is a very tangible and real way to watch your date slip, really, without any work acquired on your [?]. Every time you log into this thing, you’re going to see, “Oh man, I’m not going to launch until February of next year” and you really need to get on this thing.
I think this is a key component to preparation as to have a concept of the scope of what you’re building, even if that changes, you’ll be within a month or two of it and when you’re working part-time like this nights and weekends, having this is I think a big kind of sanity checker to be able to have an idea of how long you’re going to be working on this on the side.
Mike [12:14]: Yeah. I think that’s a great suggestion. I didn’t know about the workday function, I use FogBugz and Teamwork and couple of other tools. But the interesting thing about that is that it’s almost like if you’re using a GPS and tells you that you’re going to arrive at 5:10 PM or something like that and you hit traffic, and suddenly it’s taking you longer and it continually pushes out.
At the end of the day, of course, when you’re 30 seconds away, of course, it’s going to be extremely accurate. But the further you are out, it is less accurate and that helps to give you an idea of how far you’ve realistically are from it. Because the further you are away from something, the more difficult it is to estimate it and I find that when you have a lot of test that you’re not necessarily as familiar with doing because you don’t do them on a regular basis, you can be wildly inaccurate by as much as 10x of how close you are with just your initial estimate.
Then even the things that you are familiar with, those things are very often inaccurate as well. I’ve seen developers who are like, “Oh, this will only take a couple of hours” and inevitably, it takes two or three days. I think I saw something recently where it basically said, “Take any estimate you have in order of magnitude in order to make it accurate.” I wouldn’t say that that’s necessarily far-fetched in many cases.
Rob [13:26]: That was our first milestone preparation. Milestone number two is to have one person commit to paying you for your product, and this is standard customer development, right. It’s getting that commitment and trying to validate the idea [?]. Notice no one has written any code yet, don’t go often build your product. In fact, Casey had said, “I’ve just started building my SaaS app.”
Casey, I would advise you to stop building your SaaS app and go do this instead. I say one person committing to pay you, that’s the first milestone and really, the next one, we will kind of combine it with this, is to get 10 people to commit to paying you. Name a price, get 10 people to commit and this is going to happen in person conversations, either in person, via Skype, or via e-mail, but it’s going to be one on one conversations. You can do this with split testing and sending bulk e-mail and using surveys. Right now is the time to dig in and really get 10 people, and don’t write a line of code until you have those 10 people.
That’s what we did with Drip. I’ve refused to get started on it until we had some commitments and I knew that we had enough interest that it was worth digging in and starting to write code.
Mike [14:32]: I think that step is really hard for a lot of people, because they don’t have anything that they can really show to people, yet, you’re kind of asking for people to make commitments to pay you for something that just simply doesn’t exist. The term that comes to mind is [vapor?] [?] “Oh, you’re selling something that just doesn’t exist.”
In some cases, the advice is, “Oh, you should definitely take somebody’s money and there is a counter advice which says that you shouldn’t, at a very least, get the commitment. But those two things are just kind of a natural progression. If you get somebody to commit paying you money, that’s only one more step to get them to actually give you the money. If you don’t deliver, if you don’t follow through, then give the money back. It’s not that big of a deal.
I was talking to a couple of entrepreneurs who deal in the real estate space and they were having a hard time doing this and I kind of put it in perspective for them because I was like, “Well, how much are they paying for some of their leads and how much are they making from some of the different things that they are doing” and of course, it’s thousands and thousands of dollars because it’s a percentage of the real estate transaction.
I was like, “You’re asking them for a commitment of $100 to $200 which is not a big deal and later on, few weeks later, we talked and they are like, “Oh yeah, I went out and I did that and I got three people to give me a $100.” And they are like, “Oh yeah, it was no big deal at all. The other person just didn’t even blink.” They are like, “Oh, $100?” “Sure, no problem, whatever.” Because in the [grand scheme?] things to that business, that $100 does not make a difference, but to an individual, it might.
It does depend a little bit on the type of business that you’re talking to. But getting that commitment means a lot and it helps you really determine, whether or not, it’s something that people are willing to pay for. Whether you ask for the credit card or you just ask them for that commitment, each of those things are a step that takes you a little bit further and it really just depends on how far you want to go.
Rob [16:14]: I agree with you that this is hard for most people and most people don’t do it actually, and this was very hard for me when we were getting Drip started because we wanted to build the thing. We just knew that everybody was going to throw money at us when it was done, and these conversations are hard. They are uncomfortable because you have an idea of what you want and you feel like when people tell you that they don’t quite understand what you are really saying, they don’t really get what you want to build.
But this is when the iron meets iron and the sparks fly and you have to figure out your vision for your product is correct, or if you need to make adjustments, or if you’re just not describing it well enough. This is where- I didn’t have anything to show. We had no screenshots. If I were to do it again, I would probably try to produce a screenshot or two or a flow diagram or something to demonstrate it, but all I had was a list of bullet points and it was just a value proposition.
You don’t need to walk through and say, “These are all the screens that are going to be in there and then you’re going to click this button and then that.” That’s not the point. The point is would you pay for something that does this, that gives you this end result, that’s what you’re selling here. You’re really selling a solution to a problem rather than an actual piece of software at this point, and you’re just finding out, “Is this enough for a problem that you would pay X dollars to have it solved.”
If you can get commitments for that, then you have to solve the problem, and maybe the software you have in mind right now, solves that problem and maybe it doesn’t, but at least to just start. If you launch that version 0.5 and it doesn’t quite solve it, then you iterate on it until it does solve that problem. But if you valid that this problem has a need, and people are willing to pay $100 a month for this thing, that’s a really good start, that’s 10x better start than most founders I know have these days, when they start writing code.
The second piece of the second milestone, which is basically to get 1 or 10 people to commit to paying you is to start building your launch list. It’s what to do right after you do get those commitments or as you’re going about getting those commitments. The traditional advice that I would give is to get a landing page up and start collecting e-mails from day minus one before you start writing any code, but you and I had a discussion offline, and doesn’t have to be an e-mail address that you ask for, it’s going to depend on your market.
If your audience is online, then yes, an e-mail address and a first name is fantastic, super helpful. But maybe you could ask for phone number instead if you feel like that’s going to be a quicker or an easier way to get in touch with people, or maybe you can just have a button right there that says, “Hey, if you want to hear about it when it launches, if you’re all in, give us your e-mail or otherwise, click this button right here and this will call me on Skype.”
There is like click to call services all over the place where they can click and they can either have a phone conversation with you right now, or they can schedule one. I can imagine some developers listening to this might think [you?] I don’t want to be talking to people, right, you just want to go in a basement and write code. I’m not saying you’re going to have to talk to people every time you sell every copy of your product. But at this point, this early in the game, if you’re trying to build something that people want, you have to get into conversations with people in order to figure out if what you’re building is going to solve their problem.
Mike [19:13]: I think that’s probably the most painful part of this is because we are so used to writing code that like that’s all we want to do and it does make sense because that’s kind of your comfort zone. It’s what you’re familiar with and you’re trying to talk to people about something that is very nebulous, it’s an unknown, you’re just trying to get to the heart of, “Okay, well, what is it that you would actually pay for as oppose to solving a problem” that somebody came to you and said, “I have this problem, solve it for me and please write code to solve this.”
What you’re doing is you’re kind of going at it from another angle which you’re just not comfortable with, trying to say, “Well, what problems do you have and are they painful enough that you will pay me for them or pay for a solution to them.” It’s just because of that, I’ll say, that awkward angle of approach, it makes it difficult for most people that are trying to make that mental leap.
Rob [19:57]: The last piece I’ll say about this building your launch list is we get this e-mail a lot saying, “How do I drive traffic to a pre-launch landing page?” and frankly, [?] you would do it after launch, you can do it pre-launch. There is SEO, there is pay-per-click that was mentioned in forums, there is in person conversations, there is called e-mails, and there is all types of stuff.
The point is not to get hung up with figuring out the silver bullet that’s going to drive this. The point is, at this point, really trying to validate the idea, make sure some people will pay you for it, and trying to build as large of an interest list as you can. Milestone number three is to get that first paying customer and this is that point, you’re still pre-launch, right?
But let’s say you’re approaching launch. I think this is when you probably have a beta version that does something and it does something well enough that some person says, “Hey, I’m really willing to kind of take a leap on you.” You give that credit card form, maybe you’ve let him use the app, you’ve let him tried out, get some value out of it, and then you ask him the big question [?] getting enough value out of this to pay X dollars for this app, whether it’s one time or monthly, and this is a big milestone. It’s milestone number three, which is basically to get some amount of money in your bank account from someone who is willing to buy your app.
Mike [21:14]: You’ll notice that this kind of comes before the full launch for the product. I think the last thing you probably want to do is to launch your app and have a ton of people using it, and only to find out that there are major problems with it, or there are things that you hadn’t considered in solving the problem that other people are having. I’m kind of a big fan of like the slow launch, where you take the product, you put it out there to like one or two people and get that feedback from them that you need in order to help make it better, but to also help flush out the bugs because you’re not going to have a perfect product from day one, and you want to start getting that feedbacks, so you can have conversations around some of the deficiencies of the product. Because there will be deficiencies, it’s not going to be perfect out the door.
The other thing that that does as kind of a side effect is that when somebody comes to you and says, “Hey, I like this and all but it would be great if it did this.” If you’ve already had those conversations, you kind of have a ready answers for those types of objections, and you can use that to help push people in one direction or the other, either that’s to say, “No. We are not going to do that because it just doesn’t make sense, it’s not in the road-map” or you can kind of twist that and say, “Well, yes, it is. That’s something that we are going to do and we are putting it in next week. Can I call you then or can we talk about it and revisit this conversation at that point?”
It puts you in a position such that you can have those conversations, you can have intelligent answers immediately at your tongue so you don’t have to sit around and agonize over what should I do here because you’ve already have the conversations, you know what the answer is.
Rob [22:44]: Milestone number four is to actually launch. Obviously, we can and have devoted entire podcast episodes to launching so I don’t think we should [?] this point. But what I do want to call out is that launching is maybe your halfway point. It might even be your third of the way point, because you barely have any revenue at this point. You kind of know that you might solve a problem for a small group of people.
I mean, you are really, really early in the game, so don’t feel like the launch is the finish line. The launch is when you e-mail your whole list and you try to convert as many as possible, you should have a really good launch day in terms of how many people you convert because this is your biggest interest list, make sure not to [conf the app?] to everyone on your interest list. It’s like the catastrophic mistake I’ve seen folks make. [You have?] 500 people on your list, it’s the most interested people you’ve gathered over the past six months while you’re building it and then you just give it away free to everybody on the launch list just to try to get them to use that and that’s not a good way to go.
If you actually want to make some revenue and get to the point where you can quit your job. This is milestone number four. It’s essentially getting to launch, getting through it, and getting some paying customers. Milestone number five is getting that first paying customer post launch from a cold lead. This is really starting your marketing after you’ve gone through your e-mail list or I should really say, continuing your marketing, because you should’ve already started it when you’re building your launch list, but it’s continuing to do those things and getting that first paying customer who signs up after launch.
This is really getting that first paying customer after you launch and now you’re building up towards that point of your quit my job income. I really should’ve added one more point to the preparation milestone, something you should’ve done before this is to figure out what is that number that you need to quit your job. It’s not your salary replacement, right, you might make $15,000 a month in your salary. But if you can cut your expenses and live on $7000 or $8000 a month, then that’s what you’re looking to do.
That should’ve been up in step one, is figure out your number, figure out the number that you need to hit. Right now, we are at milestone number five and you have your first paying customer from your cold lead after your launch, and you should be working your way towards that quit your job number that you figured out.
Mike [25:01]: I think part of the process that you go through after getting this first customer is to identify ways to make acquiring that customer or that type of customer repeatable. It’s really difficult, I think, mainly because there is such a small sample set here that you’ve only got one, what is it going to take to get another or should you go off in a different direction?
I think that most cases, you really want to try and figure out, “Can I repeat this?” and if not, “Are there adjacent areas where I would be able to easily get more customers?” so it’s about trying to expand from that one customer that you have into other people who are also cold leads, how do you go about [?], can you set up e-mail campaigns, how do you drive traffic, should you work on paid advertising.
These were all questions that you kind of have to answer and figure out which channels are going to work for you and which ones aren’t, and that’s not always easy to do, but there are definitely great resources out there like the Traction Book from Gabriel Weinberg and Justin Mares, that talks about all the different marketing channels you can try, and how to go into those and start testing them to see what will work for you, and what will not and what are the kind of the low hanging fruit for your type of business based on where your business is today.
Rob [26:13]: This is what I like to call, the scratching and clawing phase, because you’re basically doing anything, even stuff that isn’t repeatable to try to get to your number. As you said, you might be doing things that aren’t repeatable but you’re trying to figure out how to make them repeatable. The ones that work so so, you kindly leave behind, and the ones that work the best, even they are very time consuming or require a lot of manual effort, you still need to do them.
This is where your [?] things that are not going to scale at all. Because they don’t need to scale, they just need to get you to that $7, $8, $10,000 a month mark where you can quit your job. The last two milestones are really very similar. I put milestone six as hitting an arbitrary 50% of your income and this is having a net profit after expenses 50% of your income number that you need to quit your job.
Frankly, it’s just a milestone to celebrate more than anything. I don’t think there is any action items to take care other than to high five yourself and maybe have a nice sip of scotch on your way to reaching this income. This might take a few months, this might take a year. It depends on so many factors, but it’s when your heads down and you’re hustling, I find that having these milestones that you can celebrate with your mastermind group or with your significant other become a really big deal on your way to milestone seven, which is hitting that full income number that you need to quit your job.
As I said before, don’t try to replace your salary, just figure out how much it is you need to live and focus on that. The other thing I would look at is just decimating your expenses. Mike, you talked earlier about getting rid of debt, I know a friend who like sold a rental house that he had own for a long time and I think it was like upside down, so the rent wasn’t paying the mortgage and he went to this whole process of selling that before he tried to do this. I sold thousands of dollars of stuff on eBay and Craigslist as I was trying to make this transition. I mean, talk about scratching and clawing and doing things that weren’t going to work long term.
This is when you really have to kind of go to the mattresses and figure out what is it that I need to do, it’s not you’re responsible in order to kind of push me pass this point to where I feel comfortable, that I can leave my gig for the product income I have. Because, it’s never going to feel fantastic, right, it’s never going to be like, “Oh my goodness, I have so much income and I have so much free time and I’m just going to leave when I want to.”
You’re not going to have enough time before you have enough income, if that makes sense. I mean, you are going to be working 40 hours during a week for your day job and then 30 hours a week at night way before you have enough income to actually leave the job. You really have to kind of maximize this thing if you want to leave the job as early as you can.
Mike [28:51]: This is one of those situations where it’s unclear early on but as your income from the side project becomes much closer to your full-time income, this is where that runway becomes super important. Because, if you have that runway and you’re able to reach, let’s say, the 50% of your income, well, suddenly, if you had six months of runway before you started this process, once you’ve reached that 50% of your income mark, you now have 12 months of runway, not just six. Because, you essentially have all this money in the bank and the money that you have coming in on a monthly basis, essentially, extends that runway for you.
As your monthly income goes up, your runway gets longer and longer. Obviously, there is subtleties in there where the business starts to tank or things aren’t going so well, your runway can decrease as oppose to increase. But it’s helpful to have that, it really helps from a piece of mind standpoint and being able to, as Rob just said, decimate your expenses and get all of those things off the table. They help to avoid eating away your runway, and getting rid of those expenses that you just simply don’t need.
Rob [29:56]: Last thing I will add about reaching this seventh milestone of kind of your full income that you need is to think about how stable that income is, is it going to fluctuate? Because obviously, if it is a bunch of one time sales and you know that you’ve started zero at the start of the next month, then maybe you need more margin, maybe you need more runway. But if you have something that’s pretty consistent, even if it’s not a subscription, but let’s say it’s a WordPress plugin or it’s a website that has nice, solid, organic SEO and it’s pretty consistent month after month, then I think that you have a little more reason to be confident in that.
Obviously, if you have true subscriptions like SaaS apps or membership website or something like that, then maybe you need a little less margin and can leave as you approach that number. I don’t necessarily know that you need to hit that number if you can see your growth number is going up and you have a trajectory that you know within a month or two you are going to hit it all together.
I stopped doing consulting when my product income hit somewhere around 70% to 80% of my number, and remember, my number was way less than what I was making consulting. But when I got to that 70% of that number that I knew that I needed to make a rent and take care of the family and such, I knew I probably make it work for the next three or four months and kind of grow the revenue to get there because I was pretty desperate to get away from work and for other people.
Mike [31:16]: Yeah. All of this is about risk tolerance at the end of the day. I mean, that income stability and being able to cut your expenses, it’s a way to help mitigate the risks of going off and doing your own thing and not being reliant upon an employer for W2 form or 40 hours a week or what have you. You want to be able to being control of your own destiny and sometimes that means taking a little bit of risk. That doesn’t necessarily mean that you should put it all on the line and take an extended amount of risk. But there are certain cases where it does make sense to do that and it’s all about risk mitigation.
I’ve talked to people before where they think, “Oh, you’re an entrepreneur. I can never do that. It’s too risky.” The reality is that almost every entrepreneur I’ve ever talked most of them don’t like taking huge risks. They like to figure out what the risks are and do whatever they can to minimize or mitigate them or make sure that it’s not going to be a problem. It’s not about having high risk tolerance, it’s about making sure that the risks that are there that you are aware of, you try and do as much as you can to get rid of those risks. The reality is like that’s what this entire outline is about, it’s about how can I minimize the risk of going out on my own.
Rob [32:23]: I’m glad you brought that up. I’m actually listening to an audiobook right now, called The Self-Made Billionaire Effect. It is that small group who researched and studied a bunch of self-made billionaires. They had a list of 600 and then they randomly narrow it down to 120. They tried to do a scientific study of them and their predispositions and distill some of the characteristics and the behaviors and one of the things they said is that they did tend to have lower risk tolerances.
They were not these crazy risk takers like the world mythologizes and the press talks about. Not that we are trying to build billion dollar businesses here, but I do think that the sentiment is shared. That most of these successful founders I know are pretty methodical and consistent and they don’t tend to just jump around and take these massive risks like I think people think they do.
Mike [33:09]: That wraps us up for today. If you have a question for us, you can call it in to our voice mail number at 1-888-801-9690, or you can e-mail it us at firstname.lastname@example.org. Our theme music is an excerpt from “We’re out of control” by MoOt used under Creative Commons. You can subscribe to us in iTunes by searching for startups and visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening and we’ll see you next time.