By James W. Chan, PhD
The coronavirus pandemic and the resulting economic upheaval has caused great disruption in the job market. Maybe you are considering going out on your own. Just know that starting and sustaining a sole proprietorship is no small feat. The U.S. Bureau of Labor Statistics reports that 20% of small businesses fail in their first year and 50% fail in their fifth year. I was able to beat the odds, and I want to share what I’ve learned to help you survive and thrive if you choose this path.
I resigned my job in 1983 as the China Area Manager at Academic Press Inc., a subsidiary of the publishing company Harcourt Brace Jovanovich (HBJ). Two years before my resignation, I succeeded in opening the China market and tripled sales to Southeast Asia – achievements that gave me the chutzpah to start my own business.
Often, the market will tell you if your idea has legs. One month before I quit my job, I had mailed 300 letters to CEOs I selected from a directory of 3,000 firms in my industry. Within 30 days, I got three paying clients.
I found my clients through direct mail in the early years. I mailed more than 15,000 letters to companies within a three-hour drive from Philadelphia where I live and work. One client I found in 1984 lasted for 24 years. Another, who I also found in 1984, is still a client today. One Fortune 500 company found me online, while others came from the many industry seminars I made across the country. When you have your own business, you must try all possible avenues to market your services. Clients come to you in mysterious ways – but never when sitting on your hands. It is easier to get short-term clients, but good clients, those that stay with you for years, are rare treasures that require careful cultivation.
The conventional wisdom is that you charge three times the hourly wage you earned when you last worked full time as an employee. For example, if you made $80,000 in your last job, your full-time hourly wage was $40 per hour ($80,000 divided by 2,000 hours in a year). When you set up your own practice, this simple formula suggests that you need to charge $120 ($40 multiplied by three) per hour.
The lack of enough paying clients is deadly. Among beginners, charging $120 per billable hour of work may seem like a lot. It is not. You will be extremely lucky if you can find enough paying clients to fill up one-third of the year’s 2,000 billable hours. Marketing yourself takes at least one-third of your time. The remaining third will be consumed by IT, administration, research, and myriad uninteresting, quotidian tasks. Remember, you will have significant business expenses even if you work from home. It took me 15 years to learn how to charge to ward off failure.
Yes! They are the key to your survival. I have had a few big-name clients, but they are little more than ornaments on my résumé. Small businesses have needs, and they have money. They are the soloist’s bread and butter.
Don’t merely react to bad times in the moment. Always (in good times and bad) watch your overhead costs and save for rainy days. In 1989, 5 years into my business, the Tiananmen Square incident took place in Beijing. It disrupted U.S.-China trade relations, and my work suffered. I could not live on my savings. I decided to find a full-time job, and was lucky to find a position at a company that is located one hour away by car from home. But I also didn’t give up: I asked two of my retainer clients if they would still want my service, even though I could only dedicate evenings and weekends to them. They said yes, and two years later I was able to resign from my job and recommit to my full-time consulting practice.
I started in business by myself and I have stayed that way. I have little overhead, no staff costs, no bureaucracy to please. I make my own decisions and my own schedule. By staying small, I’ve had it all.
James W. Chan, PhD, is author of the book Spare Room Tycoon: Succeeding Independently, the 70 Lessons of Sane Self-Employment. The book documents the real-life stories of 40 men and women who started a solo practice. He can be reached at firstname.lastname@example.org.
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