There is a huge difference between building a product, a business, and a company. It’s a progression from one to the other, usually involving making significant changes in your life. Requirements change, and so does our lifestyle to make our dreams possible.
Ideally, we have a master plan on how to get there.
But in reality, we have to pay bills, take care of our family, and deal with the often unexpected hardships of life.
And while everyone’s situation is unique, many entrepreneurs have found ways to finance their business-building journeys and make ends meet. That’s what we’ll be talking about today.
The Stair-Stepping Approach
In my conversation with Jakob Greenfeld this week, we touched upon the iterative nature of moving from novice to expert, from wantrepreneur to established founder. This tends to be the progression for most newly minted founders: they come up with ideas, start side projects, and end up going full-time on the one that is promising enough.
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But running a side project while you’re mired in a full-time job is just “yet another thing to take care of” for most of us. Sooner than later, we want to have the mental and financial capacity to focus on our own business enough to do it justice.
I find Rob Walling’s Stair-Stepping approach extremely useful to think of this journey in discrete and achievable steps that build on top of each other. Instead of quitting our jobs to “go full-time” on our ideas, Rob suggests building a self-sustaining system of small experiments that build a foundation for you to shoot for the big dreams. Rob suggests starting with a single-channel effort, such as creating a WordPress plugin or a Shopify add-on, generating a small but reliable revenue stream. Do that a few more times, and you end up with a diversified range of products that help you own your time. (Of course, some of these experiments will fail, which is why you don’t just rely on one of them.) Ultimately, once you have control over your calendar, you can build your Software-as-a-Service business.
That’s the Stair-Stepping approach in a nutshell.
But how do we find the time to build these little experiments?
For most, it starts with moonlighting. In other words, we work a full-time job and spend an hour or so at night (or early in the morning) getting some work done on our side projects. This is the most common way founders start out with, and it’s also one of the most straining. The hardest part is often just time management, but there is a hidden cost to moonlighting: context-switching. After a full day’s work, it’s hard to compartmentalize what we were working on and focus on an entirely different project.
I recall struggling with this a lot during the initial days of FeedbackPanda: during the day, I was building an Internet-of-Things platform, and after work, using the same tech stack, I was working on a productivity tool for Online Teachers. While technically distinct, the mental models of these two codebases bled into each other in my mind. It got much easier later when I quit that job.
But that’s the thing: quitting a job means dealing with a much more urgent problem. Without a paycheck, priorities change, and what used to be an interesting project now needs to make us money immediately. That’s why moonlighting —with all its focus and time management issues— is a valid way of getting your feet wet with entrepreneurship.
Two thoughts here: make sure your employer allows for this kind of work to happen. Too many employment contracts have a “we own everything you do” clause that —while often not enforceable— can cause issues with the company once you build something valuable outside your working hours. And even if your employer is okay with this, ensure you don’t overlap your work and side projects. Don’t build for-pay software on the same computer you build your side project on. Separation of concern begins with this. You don’t want to end up losing your business over something as stupid as losing access to your work laptop.
But as risky as all of this sounds, this is still the least anxiety-inducing version of paying the bills while you get a business going. As long as you put in the effort your employer expects, you have a full-time income to make ends meet.
Reducing Hours & Going Part-Time
But it’s not a choice between full-time or unemployment. Many employers understand the entrepreneurial drive of their employees and are willing to facilitate a part-time accommodation. This comes with reduced pay and hours, freeing up time to work on your project and increasing the pressure on your new business to eventually make some money.
Part-time work becomes beneficial when it allows you to mentally separate employment and entrepreneurship. Instead of working fewer hours per day, get full days off. Otherwise, you’re just stretching out your mind, just like with a full-time job, but for less money.
The boundaries between your work work and your business work need to be drawn even more clearly here, for your protection (and your employers.)
Freelancing, Consulting, and Building an Agency
This separation becomes much easier once you don’t have an employer. I recently asked my Twitter followers about their funding sources, and while almost half chose the moonlighting approach, 38% of founders out there are bolstering their income with freelancing or consulting.
It’s a version of stair-stepping: before you start your own fully-fledged business, you start a small one-person business to keep the lights on.
I’ve been there before. My first attempts at building bootstrapped businesses, no matter how horribly I failed with them, happened while I was consulting on the side. Three days a week, I’d help out software businesses build better products, and for the remaining two work days, I’d focus on my own business.
It was a fun way of learning the ropes of running a business. I dealt with clients and their less-than-stellar ways of running their own businesses. Many invoices were filed, most were paid, and I learned how to protect myself from the whims of bigger companies.
I heavily recommend doing this at least once in your life. Choosing clients —and firing them when necessary— has a steep learning curve, but it creates a foundation of confidence and expertise that no future angry customer could ever destroy. If you can land, serve, and bill a client, you can do anything.
In my experience, as long as you can get into a groove like the 3-day/2-day split I just mentioned, you can freelance and consult while building your own business. I have also heard from founders who freelance in bursts: they get a massive client project, work on it for a month or so, charge handsomely, and use the cash to pay for a few months without having to do any extra freelancing. Depending on the needs of your slowly growing side project, this might be a great approach for those who have trouble context-switching.
Hopping from client to client will likely be how you start your freelancer journey. But another model allows you to sell your time and expertise while building wealth over time: start an agency. The moment you are not just Jane Doe, the designer, but Jane Doe of The Incredible Designs agency, you’re already more professional in the eyes of your customers. You also can start outsourcing specific tasks to others while building up a repository of knowledge and process. This is already a valuable asset. Many people had successful exits from their agency businesses because they decoupled the results from their own involvement. The book Built to Sell is a story of such a transformation, and I can’t recommend this book enough, no matter if you end up building an agency or a SaaS business.
An agency can eventually grow beyond yourself. What starts out as getting contractors to help can quickly turn into hiring other professionals to start synergizing between fields of expertise. Of course, you can just stay a solo freelancer until your “real” business has enough momentum to turn into a full-time gig, which is when you can phase out your clients and focus on your own stuff.
There is another angle here, too, and this one is much more compatible with the ultimate goal of building something akin to a Software-as-a-Service business. It’s a transition between a bespoke service being rendered and a low-touch-highly-automated software solution: the productized service. Instead of building a custom solution, you offer a configurable-yet-mostly-standardized package deal for a particular, non-negotiable price. The standardized part makes this a scalable endeavor (which, in business terms, means being able to serve many more clients than just one as you would as a freelancer), and the configurable part makes this a desirable experience for your customers.
It’s a nice way to package your learnings and industry insights from freelancing into a lower-intensity-but-higher-reward offering. This is particularly compatible with an agency model, where you offload some (or all!) of the work onto employees or other contractors. It’s turtles all the way down.
Ultimately, you want to arrive at a business effort that is entirely customer-funded. You know, that thing when they pay you money every month to use the thing you offer.
Some businesses can generate revenue from day one. Others take a while to set up. But they all end up here — or in the startup graveyard.
There are ways to front-load a lot of revenue through customer commitments such as lifetime deals, but I would caution you against doing this without doing the math. If you build a service that costs you money to operate, but your customer can use it without paying after a while, you’ll be in trouble.
Pre-selling subscription businesses isn’t unheard of, but usually coincides with having already built a very trustworthy brand. If the founder of a tool I already use and love builds something new that I need, I might pre-buy it. But if they are new to the game, I likely wouldn’t trust them with my credit card until I have seen what they actually have to offer.
Let’s talk about the harder-to-reach (or straight-up privilege-based) alternatives to funding. Depending on where you live, what you have already accomplished, and who you have access to, these might work for you. Let’s go from most inclusive to least:
- Government entrepreneurial programmes & accelerators. Many countries —and often even cities— have startup funding options for local residents, often with some kind of local impact requirement. This might be a good idea if you can build your idea with this constraint. I participated in an EU-funded accelerator once. While we had to use their weird software platform, it was a great opportunity to experiment with business concepts while ensuring someone paid the bills.
- Funds from savings. Be super careful with this. Founders pouring their life savings into their business is a huge gamble and often creates anxiety levels that block people from making meaningful progress. I’d instead advise you only to build small initial experiments that don’t cost much (or anything at all) to maintain than investing your savings into your business. But if you have “enough” to give funding yourself a go, it might be a viable option.
- Funds from another company you’re running. Often, founders use their freelancing or agency to fund their lives until their business is up and running. But some founders keep funding their business from their “other business” for much longer to make sure they can spend the time and dedicated effort on building up the new project without falling for the pressures of having to make a profit immediately. Obviously, this requires that you have another business. But once you do, it can be a great way to fund your efforts with relatively low risk to your overall bottom line.
- Funds from a previous exit. The luxury version of using your other business to pay for the new project is selling your old business and applying these funds immediately. This is the gold-plated final step on the stair-stepping ladder. Selling a business to jumpstart an even more ambitious business is one of the most potent entrepreneurial moves you can make, and a lot of things need to have gone right for this to happen. But hey, something to aspire to.
- Outside funding. Finally, we have the bootstrapper’s worst enemy: other people’s money. The biggest drawback of outside cash is that it always has strings attached. These strings could be very much aligned with your own ambitions if they’re bootstrapper-compatible options like TinySeed or the Calm Company Fund, or they could go against every slow-but-surely growth expectations you might have (as most venture money comes with massive growth goals.) There is the informal friends-and-family round, but this can get quite messy when things go south. It’s usually better to have clear expectations about the potential negative outcomes of your efforts, and solid contracts by experienced investors help with that.
A Transitionary Remark
I have noticed one thing: the transitions between different kinds of finding are the hardest parts, and that’s when most businesses fail — or are sold because the founder just can’t handle it anymore. Moonlighting might have been going perfectly fine, but under the pressure of having to find freelancing clients, many founders focus their attention away from their lofty business aspirations. Or they stay in freelancing because it’s just so reliable — compared to a business that is only just getting started.
Understand that every founder goes through this journey, and those who stick around are the ones who don’t over-extend from one phase into the other.
I know this all is a bit frightening.
But that’s the nature of entrepreneurship: nothing is guaranteed. But there is a progression, and you can do it intentionally. So when you’re planning out your journey, don’t force any big changes: consider stair-stepping into being a founder.