In my latest blog, I want to focus on two crucial considerations that are rarely discussed.
1. Appetite for business failure.
2. Bridging your skills gap.
Ignoring the first of these two pillars will likely place you in a difficult financial place over the next few years. Ignoring the second pillar and you’ll feel frustrated and dis-empowered during those years.
Understanding your Appetite for risk
Statistics vary but the truism is stark, most start-ups fail.However, the rate of failure is very interesting. Few start-ups crash and burn by their first birthday. Start-up failure occurs mostly in years two to five. Additionally, few start-ups are forced to close. Most close because at some point in their operation, the Entrepeneur simply doesn’t want to carry on.
Most business analysts that I’ve read will talk about the factors that impact on the success / failure of a business. I rarely see detail on how those factors personally impact on the Entrepreneur. This is wrong in my view as small business failure is only burdened by the Entrepreneur.
Therefore I think appetite for risk, needs to be analysed at the level of the entrepreneur and not just the level of the business.
Lastly, as a pre-start-up your mind is aspirational, positive and expansionary – your focus is how to be the one in five survivor. To understand your personal appetite for risk, I think it is better to project your mind to being in business at end of year two or three and ask questions as to the likely position you will find yourself at that time.
So allow me to take you forward in time – It’s 24 months since you quit your PAYE job and launched your ecommerce business. You are working hard, perhaps 6 days a week. You have only managed to pull a wage from the business twice in the last 6 months. With that scenario rank the following statements.
|Statement||Likelihood of this statement being true |
(1 unlikely – 5 very likely
|Rank this Statement |
(1 low low personal impact
– 5 high personal impact
(Likelihood X Rank)
|I am earning less Income that when I was PAYE.||5|
|I have repayment commitments on the borrowings I made to start the business.||Determined by start-up conditions, so fill-in yourself|
|I havent paid into my private pension since start-up. #1||3|
|I have lost access to Job Seekers Benefit and illness benefit. #2||5|
|I have less access to other state benefits. #3||Determined by personal requirements, so fill-in yourself|
|I am less employable #4||4|
|Total out of 150|
#1 – If my scenario is realistic you will likely stop private pension contributions, as you won’t have the income.
#2 – Sole traders pay far less PRSI than PAYE workers. As a result, you qualify for far fewer benefits. So if you pack it in after 2 years – you won’t get Job-Seekers allowance or sickness benefit.
#3 – This is one I have personal experience. SUSI (State-backed College grant scheme) has bizarre rules when it comes to the self-employed.
If you borrow to buy/build an asset eg an e-commerce website, then Susi will take your annual accounts, isolate the interest paid on any loans, isolate the depreciation on any assets (eg the website), add these figures together and treat that combined figure as an Income. You may not have actually sold anything, but Susi (and other state organisations) will consider you as already making an income. Madness – I know. But that’s their stated rules and they aren’t unique within the ecosystem of The State.
#4 – My argument is that if an employer has two candidates with identical profiles, one had a continuous PAYE history, the other the same profile except the last two years have been self-employed. The employer will nearly always choose the candidate with the continuous PAYE history.
What is an unreasonable level of risk – I’d say anything above 60. But the true aim of this exercise is to focus your mind on the personal financial burdens you will be carrying during the darkest hours of your ecom startup. Prompting you to ask the question “is this for me?”
The 3rd Path
There is an alternative to a red or green light decision. Start small and part-time. Don’t jeopardise your current PAYE income. Learn about your e-commerce business whilst still earning from the day job.
It will be tough with long hours and you’ll need occasional back up from friends. But it will offer you continued PAYE income while you build up the e-commerce business.
Then after perhaps two years you can close the ecommerce down as unviable, keep it part-time or quit the PAYE job and jump to full-time e-commerce, where the personal finance factors and risks are fully understood.
So that is my take on the personal burdens that come with a small ecommerce start-up. But there are also skill burdens.
Bridging the Skills Gap
There are many skills that an e-commerce start-up must gain a level of minimum capability. The issue is that there are so many different suppliers of courses. Some are free but they are trying to upsell you, some costly, others sub-quality and some simply too advanced. Within Mimitoys this has being my biggest frustration.
My recommendation is the Lynda educational platform. You can subscribe either through Linkedin or directly via lynda.com.
It costs $25 per month. It’s a cost I’m willing to bear as it gives courses.
• Pitched at my starting low level of competence,
• Fully focussed on the practical application of these skills,
• Fully independent with no upsell initiatives,
• That are no more than four hours online video per course.
Although it is not interactive, I have been very pleased with the courses I completed on Google ads, Google Remarketing, Advertising on Instagram & Twitter and Setting up Pinterest.
Summary & Up Next
In today’s blog, my intention was to bring cold realism to your e-commerce ambitions. To introduce the consequences of failure and if those consequences would severely impact you personally.
I also introduced a single training platform where you can bridge your likely skill gaps.
In my last blog, I talked about envisioning your ecomerce business as a jigsaw, I detailed how the first three pieces of that jigsaw are having a good knowledge of Facebook, Twitter & Instagram as a private user.
In my next blog, I want to delve into market research, estimating the volume of sales. I also want to get into the critical area of margin, how much you’ll make from each sale and also talk about the strategies to minimise fixed costs incurred every month