How To Go From Being a Freelancer to a Business Owner

Ankesh Kothari |
Business & Finance
| September 28th 2008

Photo by b0r0da.

“I would rather earn 1% off a 100 people’s efforts than 100% of my own efforts.” – John D. Rockefeller.

Most freelancers I’ve talked to have aspirations to start their own businesses. And build up a team of talent so good that they can dominate their entire niche. There are a lot of benefits of moving ahead from simply being a freelancer. But there are quite a few risks involved too.

Benefits of expanding from a solo freelancer to a team

Your talent pool becomes bigger and problem solving becomes easier
You can go after the creamier jobs that you didn’t have a chance before because the companies thought you were too small
You can take vacations (yay!!)

However, the transition from a freelancer to becoming the head of a team – a business owner – is one of the hardest things to do. The failure rate is astronomically high. And most freelancers who attempt to expand and hire employees find themselves facing cashflow problems within weeks and either have to disassemble their team and go back to being a solo freelancer, or have to look for a bigger company to swallow them up.

Why Does this happen?

The failure rate is so high because every time you hire a new employee, you will see a significant dip in your earnings before you see a rise. And most freelancers haven’t planned for this dip.

1. Cashflow Problem. As soon as you hire your first employee, your overheads increase as you’ll have to start paying him a salary. Yet it’ll take a few weeks for you to find new jobs for the new guy. So you’ll be draining yourself for the first few weeks.
2. Training Problem. On top of that, you’ll have to spend time training the employee to follow your rules and procedures and systems too. Thus, even though you would have hired a new person to save you time, the first few weeks you’ll find yourself having even less time than before!

How to get past the dip & succeed

Here’s what it takes for freelancing-turned business owners to succeed.

Mindset. During the California gold rush, a story took legendary status. It’s the story about one person who digs and digs and digs to find gold. He digs up to 99 meters in the ground. But yet finds no gold. And so he gives up. Someone else comes after him and strikes gold at 100 meters – after digging just one more additional meter.
Its very helpful to keep this story in mind when you’re going from solo freelancer to a business owner. You will face a lot of problems after your first hire. And you will think of quitting and going back to things as they were too. But if you just persevere, you’ll strike gold too!
Training Solution. Plan before you hire. Abe Lincoln is known for saying “If I had 6 hours to cut a tree, I would spend the first 4 hours sharpening the axe.” Early preparation in creating the training material for new employees will save you a lot of time and go a long way in cutting down the time it takes you to go past the dip.
Create process maps for your new employee before you hire him. These process maps and outlines should tell exactly what the employee should do in a step-by-step format.

Fast food chains like McDonalds have one of the highest employee turnover rates of any industries. But yet they produce food that tastes the same everywhere even. And that’s because they spend a lot of effort in creating their process maps that lay down exactly what a new employee has to do.

You could also use videos that show all the “how-to” steps the new employee should follow.
Cashflow Solution. Plan ahead to prevent the cashflow crunch. 3 months before you hire the new employee, start saving 15-25% of your income. This will come in extremely handy when you face the dip in cashflow after you hire your first employee.
It also helps if you hire your new employee on a probationary period. So that if things don’t work out, you can let him go without paying a big severance package.
Finding New Projects. Make sure you have new projects lined up before you hire the new person. The best time to hire someone new is right after you bag yourself a big project that pays in advance or in installments. This way, you won’t face a big cash flow crunch.
But it’s futile to wait and wait until you bag a big project to start expanding. So if you don’t have a big project lined up, then make sure you have a workable sales system that can be scaled up. Have a plan ready that can help you gain twice as much business as you can handle right now. And then create a waiting list of prospects who want to hire you.

Don’t hire a new employee if you have neither a big project nor a waiting list of clients lined up. Remember, you need to work on increasing the cash flow before you hire. Otherwise, succeeding past the dip becomes a lot harder.