I used to run a small business, instead of having a job, and I enjoyed the benefits associated with it. So, will detail my reasoning for starting another business – and detail a bit on my adventures of doing it on the side.
Starting a business had many advantages over working a job. While a job provides a monthly income, in my experience you can only grow it so much before your increases became tied to inflation. I did manage to get a few big increases, both by changing industry (from tech to finance), and then again with switching a few times between companies.
Finance also has decent bonuses, so there were great years and less great ones. Now, the only way to grow income is to have a large performance/equity component, since the base salary isn’t moving the needle that much anymore.
Jobs come with limited opportunities for growth. In contrast, a business allows you to create your own income streams, and the potential for growth and earning is infinite. Over and above, your equity could have value and because of the nature of earnings, you can exit at a multiple. A job making R1m per annum, and a business making R1m per annum are not the same. When you stop the job, the income stops. The business could be sold, and that’s worth 3, 4 or more times the annual income of the business. Of course, we’re talking profit, not revenue here, but the point is the same.
Another benefit, when you own a business, you have the flexibility to create your own schedule and work on projects that you think will have the largest impact. Starting a business can offer a greater degree of financial security and independence, as well as the potential to create a lifestyle that aligns with your personal and professional goals.
Online versus Physical Business
Starting an online business has a few attractive qualities to me versus a traditional business. For me, the key reasons would be:
1. Low overhead costs: One of the reasons to start an online business is that it can be inexpensive. If you want to start a clothing store, you will need to pay rent, utilities, and staff. However, if you decide to start an online store, you can avoid these expenses and create a website to sell your products. This means you can save a lot of money and invest it back into your business. I’ve been looking at Shopify and whether it makes sense to throw up a storefront. Nice idea, need products =)
2. Flexibility: With an online business, you can work from anywhere as long as you have an internet connection. This gives you the freedom to work from home, a coffee shop, or while traveling. For example, if you run an online marketing agency, or a software development firm, consultancy, etc., you can work with clients from all over the world without having to be in a physical office. This means you can travel while still earning an income. Also, it means I can hedge out some of the risk of the country I live in, take on geographic arbitrage on costs, hire anywhere. Remote work is a wonderful advantage of any business, but especially since I’m looking at creating a business that is both profitable as well as provides benefits like lifestyle. Unless I want to build as fast as possible and sell for a reasonable exit. Then profit maximisation would be the objective, rather than lifestyle.
3. Access to a global market: An online business allows you to reach customers from all over the world, increasing your potential customer base and revenue streams. You can sell your products to customers in different countries without having to open a physical store in each location. This means you can increase your sales and grow your business faster.
4. Scalability: Online businesses are generally easier to scale as you can automate and systematize various aspects of the business. This means you can grow your business without having to hire more staff or invest in additional infrastructure. For example, if you offer online courses/digital products/software or other online product, you can create processes to sign up, delivers content, and handles payments without needing any actual people handling the orders. This means you can scale your business without having to spend more time or money on hiring extra staff.
My plan to start the online business
I had originally planned to utilize my capital to live off the 4% rule and just generate enough and retire.
I have however discovered a few things in the past few years, namely that the reason I wanted to retire was due to thinking that I disliked my job and just wanted to chill. That has proven to be false. I do want challenge in my day to day.
The second item I discovered is that although our net worth has continued to grow, and got below 3% withdrawal rate (around 2.5%), that I still became anxious whenever I needed to purchase more than budget. See, because our assets are in equities, we don’t generate a steady income stream, it is lumpy dividends. This made me discover that I like earning enough to cover my expenses, and I can let me net worth grow. The past year or so, I’ve been consulting and that covered the expenses.
The consulting then led me to realise that actually I do enjoy the work. I had been so focussed on hitting the number, that once I reached the line of 25x expenses, I just wanted to quit. I’m now more excited by the journey, and enjoying the challenges. So because of that insight, I’ve actually gone back to work in a full time role again. Parts of me hated some loss of autonomy, but it has been a net positive.
Which leads me to the reason for starting an online business.
I know that I enjoy challenges. I know that I will not work a job forever, and the income earned from the job is actually not significant enough to move the net worth anymore. However, I also know that when the job ends, so does the income. So I’ve decided, I will carry on with this role, until I have a decent side business that I can switch to, or if I get bored/ dislike the new job too much, then I will find another one that is more enjoyable.
Hence, start a side business, and try to leverage the security of having more than enough assets to cover my expenses should I lose my job. Use the income from the job and work on a side business without real fear of it failing, and with disposable income to grow it/increase the net worth some more.
