Three Steps towards Self-employment

Over the last few months, several friends and colleagues have asked me for tips on becoming an independent consultant, a euphemism for being unemployed :) Many others have asked me how one can prepare for the life beyond a regular job. It made sense to share my thought process while it is still fresh in my mind, and not coloured by the eventual outcome of the decision.

In my experience, there are three major steps. (Please note that these may be relevant if you are turning towards entrepreneurship too, but I wouldn't know for sure. My thoughts are about the process of moving from corporate employment to being self-employed.)

1. Financial Planning

One of the certainties of having a job is the pay-check at the end of each month. Over time, as the salary increases, your monthly earning is easily much more than what you need to spend. But you stop caring. Of course, many of us plan for the future and make investments / retiral funds, etc. However, the reality is that you don't know how much money you need. You earn X and as long as you are spending / investing less than X, you are OK. (By the way, when I say "you", I am referring to all the earning members of your family; depending on the composition of the earning, some of the below may not be relevant to you.)

The day you become self-employed, the X vanishes. Now you have an income stream that could vary considerably month to month. The approach now has to be, what is the Y that I must earn every month in order to live a decent life. For that, you have to first define what "decent life" entails... what are your unavoidable expenses, E1 (e.g. society maintenance, electricity, school fees, groceries, phone bills, insurance premiums, etc.), what are your basic lifestyle expenses, E2 (e.g. eating out / movies once in a while, fuel and driver expenses, new handset once in x months, clothes & accessory shopping, replacement of consumer durables, repairs & maintenance, etc.) and finally, what are your luxury lifestyle expenses, E3 (e.g. family vacations, new gadgets, new jewelry, saving more for future, etc.). Believe me, getting to an estimate of these numbers is not easy since most people don't track their expenses at this level. Once you have an estimate of E1, E2 & E3 (all converted to a monthly equivalent), you can decide where to draw the base-line. I would believe that E1+E2 (net of what other members of your family earn) would be the minimum line and E1+E2+E3 is the earning goal.

As I said earlier, some months, particularly in the initial months may not get you E1+E2, maybe not even E1. So you have to be prepared for it, with liquid funds available to take care of the short-fall. Also, in order to ensure that E1 is not a humongous scary figure, the following assets should have been already paid for: the house you live in and the car that you drive. With the big ticket items out of the way, you should have liquid / near-liquid funds equivalent to at least 18 months of E1+E2. That will give you the freedom to experiment with your new career/life without worrying about basic necessities. The 18 month funda is simple... 12 months to experiment without any tension and 6 months to find a new job, if you eventually decide to give up.

The biggest learning of this exercise is that you will now be able to earn what you need rather than spend what you earn.

2. Make a Positive Change

Self-employment is not a solution for a job gone wrong. Don't take a negative decision to quit your job out of frustration and think that being self-employed will give you joy. Not only will your monthly pay-check vanish, but also many other things that you take for granted will go with your job. As I wrote in my earlier post, the biggest issue will be to answer the question, "What do you do?" Try explaining to your grandmother or the nosy neighbor why you don't go to office any longer. You were used to people listening to you when you spoke as the 'so&so' of this big company; now, you represent yourself and it is a very different thing. Being self-employed will also mean a whole bunch of new administrative things that you never worried about earlier. Get yourself registered for service tax and professional tax; raise invoices; collect your dues; pay service tax and advance tax quarterly; track all your business expenses and create your P&L... the list goes on! 

The only reason to still go through with it is because you care about what you are doing. The passion to do something different should drive you to make the change and will help you through the uncertainties and challenges of carrying it on. So, make a positive change.

Another thing: if you have to ever give up your new endeavor and go back to your job, it would help that you didn't hate it in the first place!

3. Test Market your Passion

It is one thing to believe that you like something and another to live your life doing it. One way to know for sure is to of course, do it. But that need not be the only way. Why not test it out, if possible? How would it feel when you actually pursue the new career idea? And more importantly, would others (say, your prospective customers) accept you in that role? In my case, I got several opportunities to test out my interest in teaching, both within my corporate environment as well as outside, in the academic world. 

Since it was "teaching" (seen as a 'noble' activity), I was able to do it while keeping my day job but it may not be possible for you to moonlight as a consultant. An alternative test would be to write out your "pitch" - why should anyone engage you? If you want to be a strategy consultant, make your brochure or pitch presentation. Ask your friends if they would engage you (instead of say, a consulting firm) for any project? Would you, objectively, engage yourself for your current employer?! Writing out your value prop and perhaps, your business plan, will help you clarify your thoughts and build confidence about what you are about to embark on. You may, in this process, even identify your early / anchor clients and start focusing on the first income stream.

The other benefit of doing this, in case you decide to progress, is that you have already begun your preparation for your next avatar, and can get off the ground running. (Note, you have to ensure that you are not violating any rules / codes of your current employment - as mentioned above, you want to leave your job on a positive note!)


Those are my three preparatory steps towards making the transition from corporate to self employment. You would have noticed that I put the financial planning up front, even above the passion bit. In that sense, it is different from becoming an entrepreneur. Becoming self-employed, I have felt, is just another form of career progression (towards Maslow's self-actualization level); it's mostly a low-risk move and at the same time, it isn't aimed at very high returns or wealth creation. Also, to be professionally self-employed, one needs to have built some credibility and a good network that can only come with time. 

Hope this helps; I would be happy to hear from others who have taken or are contemplating similar moves. It is still early days for me and I am eager to learn more.

9 responses
Dear Mr. Adepalli, I have recently quit my job to go freelance, and am facing a similar situation to the one you've spoken of. Luckily the E1 and E2 aspects of my life are taken care of because the X that my wife gets home helps provide for that. I like what I do and do what I like... But sometimes merely doing what you like may not provide for any X factor, what does one do in such a case. Should one then change tack completely?
One more thing I would recommend under `Financial Planning' is taking care of comprehensive medical insurance for your family and dependent parents (if any). If you have worked at a respected company you would have had an elaborate cover for yourself and your dependents. It might be tricky to find equivalent coverage as an `individual'.
Great post Srini! A handy set of tips for those of us who want to embark on this journey sometime in future..
Somewhere I find the conflicting zone of my passion, love, responsibilities and struggle in this post of yours, Sir. After having a state rank in HSC, completing B.Tech, working for an MNC, then an Ed-Tech start up; I left everything in one go! Now, I am into Film Making. In spite of winning awards and appreciation for the body of work produced in small span of one and half years, the difficulty of meeting E1+E2 makes me frustrated. Sometimes passion for point 2 becomes hazy and point 1 becomes the determining factor. However, my journey is still ON. With hope to build credibility soon! :)
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