How to Start Your Own Business With Minimal Risk: 3 Best Ways

Leaving your full-time job behind to become a small business owner is one of the best ways to improve your quality of life and your earning potential. However, transitioning into self-employment can be risky, especially if your financial position is vulnerable or if you choose an expensive business idea.

If you’re interested in becoming self-employed, you need to make sure you don’t Here are some of the best ways to start your own business without taking on significant financial risk.

Passion vs. Practicality: The False Dichotomy

Let’s talk about “pursuing your passion” for a second. Why does that phrase conjure up the romantic image of someone who risks it all for a chance to win big? Because there’s a popular false dichotomy that you can’t have enthusiasm for your work and remain practical.

At the beginning of my career, I fell for that trap hard, and you might buy into the idea yourself. Unfortunately, operating under that unhealthy misconception is a sure way to ruin your happiness, whether you choose to follow your dreams or not.

Whether you’re a wannabe movie star who moves to LA with no safety net or an engineering graduate who takes a job for the money even though he hates numbers, you’re probably going to struggle to find happiness and success in your career.

But those aren’t your only options. Instead of sticking it out at a job you hate or rage quitting to be a traveling poet with no income, try taking the middle way (not the Buddhism one).

The Middle Way

Okay, it’s a little like the Buddhist concept. Essentially, it presents the idea that you can often find the greatest virtues in the middle of two contrasting extremes, which means that moderation and balance are critical to success. That applies to indulgence and self-discipline, honesty and tact, ambition and gratitude.

It also applies to passion and practicality. The key to building a great career is to strike a healthy balance between them. When you start your own business, you have the opportunity to set yourself up in that sweet spot, because entrepreneurship is the perfect combination of:

• High income potential
• Freedom and flexibility
• Room to pursue your passion

For example, let’s say you’re a pretty talented guitar player who would love to make it your career. If you operate under the assumption that you can either be happy or practical, you might think your only options are to:

• Quit your job and start performing for anyone who will let you in hopes of making it big
• Keep your 9-to-5 job forever and settle for playing guitar only for your family and friends

Fortunately, there are many ways for your to have your cake and eat it too. For example, you could:

• Give guitar lessons in your evenings after work
• Write an album and try to build a following on YouTube
• Create a course for novice players and sell it online

These might not provide the same rush as jamming on stage in front of thousands of people, but they’re a lot more achievable. And more importantly, you don’t jeopardize the stability of your finances by pursuing them.

Now we’ve hit upon the key to successfully transitioning into self-employment: risk management. Let’s talk about how.

The Real Reason You Haven’t Started Yet

If I had a dollar for every time I heard someone say they wanted to start their own business, I’d have financial freedom. So why do so few people follow through? Here’s what you might tell people when they ask you about it:

• You can’t come up with a good idea
• You don’t know how to get clients
• There’s not enough time in your schedule

These are definitely roadblocks, but what really holds most people back is that the risk of failure is too high. Maybe you’re afraid of being embarrassed, losing your current job, giving up on your dream, or going into debt.

Whatever they are, your fears are what usually hold you back from trying new things.

Let’s use free climbing as an example. It’s a hobby for crazy people that involves scaling the side of a mountain with safety ropes but no assistance.

There are a lot of barriers to entry for the sport. You need serious strength to suspend your body weight and terrific skill to navigate complex rock formations. But those aren’t the main things that stop you from climbing a giant mountain.

You don’t climb mountains because you don’t want to fall off. You have a (probably healthy) fear of failure and the obvious consequences.

But what if you could grow a pair of wings? Imagine how many more people would try to scale giant rocks if they could fly to the ground whenever they made a mistake (ignoring that they could also fly to the top in the first place).

The same principle applies when you want to start your own business. Before you begin, build a pair of wings you can use to catch yourself if you fall. Here are three of the best ways to do that.

3 Ways To Start Your Own Business With Minimal Risk

I’ll let you in on a secret: Most successful entrepreneurs build their businesses without throwing caution to the wind. They don’t leap in headfirst. They wait until it makes sense, like when they:

• Have enough cash to go without income for many months
• Can cover their expenses with their business profits
• Can’t keep up with client demand without quitting their day job

Only then do they switch over to pursue their business ventures full time. Here are three time-tested strategies that you can steal from the most successful entrepreneurs and use to start your business without fear.

      1) Moonlighting
      2) Reverse Moonlighting
      3) The Comfortable Cushion

1. The Moonlighting Strategy

If you have the energy and the time (you’ll need both), this is probably the safest way to build your business. It’s also (usually) the slowest. The idea is to work a full-time job that powers your finances while you hustle for yourself in your remaining hours.

Zach, the owner of Four Pillar Freedom (4PF), is one of my favorite examples of someone who used this strategy with great success. Up until 2019, Zach worked full-time as a data scientist.  Much like myself, he wasn’t a fan of corporate American life. 

Even though he enjoyed working with data, his workdays were often filled with everything except that core function: meetings, paperwork, performance reviews, and status updates. I sympathize. You probably can, too. So he quit. Now he makes a living building profitable websites.

And 4PF recently pulled in over $7,000 in a single month. But he didn’t get there overnight. And he didn’t jump into his business face first. Over two years, he built up his website during his evenings and weekends. Eventually, his revenue through ads and affiliate sales covered about 80% of his expenses.

Since his monthly spending was only about $2,000/month, that meant he only needed to earn an extra $400/per month after quitting his job to break even.

2. The Reverse Moonlighting Strategy

Moonlighting can be a great strategy for those with

• A high-paying full-time job
• Few other demands on their time
• Patience and an abundance of energy

But not everyone can force themselves to put in an extra 2 to 4 hours in the evenings on top of a full-time job. Maybe you have familial responsibilities, despise your current career path, or are just anxious to focus on working for yourself.

All of those are understandable. If you’d rather focus most of your working hours on your business while retaining financial stability, I recommend employing the Reverse Moonlighting Strategy. In essence, you’ll prioritize your riskier venture (or personal time) and lower the hours you work for your more reliable income.

For example, traditional moonlighting would mean working for an employer from 9:00 am to 5:00 pm and working on your business from 7:00 pm to 9:00 pm. That’s a 10-hour workday, with just 2 hours a day spent on your own business.

In contrast, reverse moonlighting would mean working for yourself from 8:00 am to 1:00 pm and taking more reliable gigs from 2:00 pm to 5:00 pm. That’s an 8-hour workday, with 5 hours a day spent on your business.

You’ll probably be sacrificing some cash flow in the beginning, but your business will grow a lot faster. In addition, if you have personal concerns that demand a lot of attention or need a better work-life balance, you’ll be able to squeeze that in too.

3. The Comfortable Cushion Strategy

What if you don’t have the time to pursue two demanding career paths at the same time? Maybe you have a very time-consuming full-time job and your young children take up all your evening hours. Don’t worry. You can still safely start your own business.

Instead of working two jobs simultaneously, work hard for an employer for a few years. Use that time to squirrel away a big chunk of change. That cash will fund your lifestyle when you start your own business.

My own story is a good example of this. I left my gig as a Certified Public Accountant earlier this year. It was a steady paycheck and solid career path, and I’d worked hard to get to where I was.

You might think I’m crazy to give up a full-time job at a time like this (“In this economy?!”). But the truth is… the job kind of made me want to put my head through a wall. I needed a change. And, more importantly, I had been working towards self-employment for years using the Comfortable Cushion Strategy.

Despite living in sunny (and pricey) Southern California, I manage to keep my expenses low. I spend a little under $2,000/month, most of which goes to rent. Even with a fair but unremarkable income (roughly $70,000 a year), that translates to a savings rate of over 50%.

Because I kept such a high percentage of my earnings, I started to build up meaningful savings very quickly. Earlier this year, I realized that I had enough to go without income for 5 whole years if I needed to. That cushion gave me the confidence to strike out on my own.

Start Your Own Business Carefully

Starting your own business is a long-term goal, and rushing into it can have catastrophic consequences. Instead of risking your livelihood with one big swing, take the time to prepare your finances for a period of lower income and transition into self-employment incrementally.

Whichever strategy you want to employ, don’t put it off any longer. You can start your own business safely, but it takes time, so get started today!