A friend wants to to do this and I believe it's a colossally bad idea but I'm not sure how to dissuade him. I know the job market is bad and he's been facing one disappointment after another, but I honestly believe he is potentially wasting his entire severance on a business that will most likely fail within a year and leave him in an even worse position. Am I wrong?
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I spent some months on this myself, did business plan, marcoms, web-site, got to the point of approaching launch (needed a shop-from, not an IT business), and had a phase-1 / with a better phase-2 plan ready, however discovered several points along the way:-
- The startup capital for a high-street shop is high.
- Rent (12 month contract), Business Taxes, Regulations (my industry had many), equipment, marketing, plus reliance on another key worker, location for mine was not ideal either.
- Judging from similar successful phase-1 businesses the ramp up time was 5-10 years, if successful.
- My Phase-2 plan when I consulted a successful CTO I used to work with I realised would require a lot of VC funding, programming, and more imprtantly I didnt full own my own IPR (being based on several others IPR work at core).
And yes, consulting with my CTO ex-colleage, it really was 10 years of sleeping on couches, etc - all for a 10% payoff that in all likelyhood would not be great.
Did I regret doing it?
Absolutely not! I would have regretted it had I not tried and I learned a lot from the process!
Would I do it again?
Personally speaking at this point with child.
No, putting the same focus into my own education got me a steady 100k a year contract or permi work for far less stress and uncertainty. It could be many years before I'd see that again in such a venture, with a good chance of loosing a lot of my redundancy money along the way.
But were I a young, single and childless, it might have been a very different answer..
The best thing you can do is support your friend in their goals. As someone said below you can find 10 reasons to not do something
This is a brilliant idea. If their opening it in the United States, this is the land of opportunity. I like the advice of the first poster, cut it away back and DIY it. You will regret it if you don’t try it!
you can always find ten reasons not to take a risk
This is a remarkably good idea.
in fact, startup costs can be deducted. go for it.
I own a few businesses. Here are my suggestions:
- estimate burn rate. How long can I survive with zero income? use that date minus 2 months as drop dead.
"severance" is not the right criteria. cash on hand is better.
he will need fuel for reentry if the launch fails.
the first step is to drastically reduce expenses. by drastically I mean zero it out.
CUT. EVERY. UNNECESSARY. EXPENSE.
if he has a nice car, sell the nice car and get an old honda.
cancel the gym membership and for exercise, cut firewood (because the thermostat has been lowered)
He should never again see the inside of a Starbucks because he has a 12 cup coffeemaker and a big bag of Costco grounds.
that sort of thing.
- focus on 'lean'. read $100 startup.
- create an LLC DIY (don't use a service) . the process of learning everything needed will be extremely valuable. it is relatively easy to do.
KISS - find a need and fill it. don't go crazy with complexity.
His experience with starting a company even if it fails is worth more than the money.
Lots of on-line opportunities for cheap now. Worth a shot. I would try them while interviewing. One has to hit.