Here’s the Real Way Entrepreneurs Make It All Work Financially

Don't cut off needed income streams until they are replaced.

Don’t cut off needed income streams until they are replaced.

This piece originally appeared on QuoraHow do people survive financially after quitting their job and pursuing the entrepreneur route of a startup?

It’s a misconception that people quit their jobs first, then start companies. Often people start companies while they are still employed somewhere. Although it’s been said that hunger drives a great startup, it’s also clear that starvation drives people to behave badly. Don’t cut off needed income streams until they are replaced.

Entrepreneurship feels risky to a lot of people, but it doesn’t have to be that way. A little financial savvy goes a long way. Diversification of income, meaning that you have multiple income streams and that they are very different from each other, is the way to de-risk your finances. A multi-pronged set of income streams is the way to survive financially when starting a new company or through any financial turbulence.

The five reasons to get paid:

Each of these five things creates value for someone and therefore people are willing to give money in exchange. These things can be alone or used together.

Time
Hourly pay makes a lot of sense to most people because it’s what we often start with when we first go to work. Everyone has time and everyone’s time is limited. Therefore time is a valuable resource.

Task
Accomplishing something is valuable. A task is often accomplished within some expenditure of time. However, automation of a task can separate task from time.

Caring
Imagine what a coach does from the sidelines. There is a lot of hand wringing, watching, thinking, and sweating. Caring means staying abreast of changes over time, observing details and applying them to history and future, even strategizing. Caring encompasses non-task work done “off the clock”.

Use of property
Renting a home, licensing a patent, watching netflix, or selling stock are all examples of use of property. The use can be temporary or permanent. The value of the property changes depending on the value to the buyer.

Risk
The higher the risk the larger the payment. An illegal pot dealer risks jail and therefore sells the drug at a much higher price than if he’s selling where marijuana is legal.

Examples

A medical device sales job with a small base pay and high commission includes task, caring, risk, and time. If the job includes driving in your own vehicle from hospital to hospital, then it includes use of property too. You’ll be paid a high commission because you are taking a risk that you’ll do the job and you’ll be paid meagerly unless you successfully close the deal. It will take time to sell and you must be skilled in the art of selling to be successful. You have to care about competitors and changes to the market even when you aren’t working.

A retail clerk who is paid hourly can boast that his job is simply paying him for time. If he can get away with showing up and doing little else, he’s right!  If the job requires tasks to be completed and an ongoing sense of staying abreast of changes even on his day off, then he’s paid for time, caring, task. If the job required him to buy his own uniform, then you can add property to the list.

An attorney formalizes the act of caring by taking a retainer when a client signs up to be represented. Ongoing work is billed hourly (time) and the rate at which the lawyer bills will be indicative of experience (task). A litigator might have a reputation of number of cases won to uphold (risk).

Income portfolio

A well rounded set of income streams will include something with a primary focus from each category. A financially savvy person might have a series of income streams that look like this:

  1. Executive board member (caring)
  2. Publicly traded stock portfolio (risk)
  3. Vacation rental condo (property)
  4. Job as VP of business development (time and task)

Another savvy person’s income might look like this:

  1. Owner of an Etsy art sales website (property)
  2. Main job as a Nursing Assistant (time and task)
  3. Part-time Lyft driver (time, property, task)
  4. Interior decorating consultant (caring, time)

Yet another might look like this:

  1. Owner of a startup in revenue (time, property, task, caring, risk)
  2. Part-time job in hardware (time, task)
  3. Private stock portfolio (risk)
  4. Consulting business (time, caring)

No one income stream should carry the weight of the person’s living expenses. If one stream dries up. ie, the Nursing Assistant is put on part-time work at the hospital, the other streams can take up the slack.

Related links:

How do I get over my sensitive and over-thinking nature?
What is the best book on self-development and leadership?
What are a few unique pieces of career advice that nobody ever mentions?

Nicole Gravagna is a speaker, entrepreneur, co-author of Venture Capital for Dummies, and author of MindSET Your Manners (Fall, 2016). Nicole is also a Quora contributor. You can follow Quora on Twitter, Facebook, and Google+.

Co-Author Venture Capital for Dummies