Vijay Anand | The Startup Guy.

Ask Vijay: From Employee to Entrepreneur. How?

Posted on: August 7, 2008

Question: I am interested in starting my own venture and have been doing the groundwork for it. I currently work for a company, but would like to do the pilot run while still holding my day job and as the venture stabilizes, take the plunge fulltime. What would you suggest?

Dear X,

There are a couple of ways to do this and a few things to keep in mind.

1. Usually all job offers have this clause that you have to solely focused on the job you are hired for at your primary workplace. Hence usually taking up another offer or even a consultancy (even if the employer may never find out) is done by getting a letter of permission allowing the employee to be involved with other things.

a) Though this is not required, it gets you a lot of brownie points with your employer, just for the sheer honesty. As much as Proto.in does not interfere with any of the activities of what I do here in the incubation centre – but only enhances it – I still wrote a mail asking for permission and to let folks know that i am involved in something. They go easy on me whenever proto.in is around the corner.

The point: Keep everyone informed so that they can give their support in whatever manner that they could.

2. If you are going to do this as a proprietary thing, then even step 1 wont help, cause its assumed that you are fulltime with the venture – when you are the 100% shareholder and the guy running operations. So what some folks do is register the company in the name of the spouse – if she is not employed, or if her employment contract is not so stringent.

3. One thing to keep in mind is something called the corporate veil. When a company becomes a ‘corporation’ it becomes an entity by itself, that even the founder is nothing more than an employee in it. Because of that structure, if the company goes down under, it still doesnt take the founders along with it – nor their assets, since they were just employees. But there are cases when they consider the corporate veil to be broken, which would be when the personal assets of the founder are mixed up with the assets of the company and in such cases, the founder can be sued – if in the future the venture gets funded and things go awry.

I don’t mean to scare you, but just giving you a heads up on all the things involved.

I would suggest:

1. Go ahead and register the company – if you are sure you want to do this venture.
2. This would be the time to bring onboard some advisors and get them involved in the venture – since there has to be a minimum of two directors to incorporate the firm
3. Get the permission from your current job to be involved.
4. Keep going with that setup, till you are comfortable making the flip – hopefully which wont be too far away.
5. During the process of step 4, at some point your venture will possibly take enough time out of you as your day job. Do talk to the management to perhaps transition into a part-time role if possible. Its good to stay clear with your conscience.

I hope that helps.

Vijay

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11 Responses to "Ask Vijay: From Employee to Entrepreneur. How?"

Nice post. I can relate to it very much.

1. What are the benefits of registering a company?
2. I want to learn different kinds of registration. If I register my company I want to be like an employee, so that in case the company goes down I am not sued πŸ™‚

Well I have 0 knowledge in this domain and really need some help.

Excelent blog you have here. Informative and useful.

@Ravi: Thanks.

Go ahead and incorporate the company. If you find an auditor he should be able to advise you on all the legalities. Its quite straightforward.

I would suggest to people to delay forming the company to a point where u need a legal entity to deal with people,employees,contracts etc… If you’re jsut building a product/service, i’m sure u can run for about the first 5-6months without the hassles of a registered company. It’s easy to get one up, but difficult to bring it down here in India. It usually takes about 1-1.5yrs to close a company here in India.

I would suggest to budding entrepreneurs to build the product first, get it in the market, and then when ur sure of the path you’re heading on, take a plunge and register yourself as a legal entity.

@Shivaas,

What you are saying makes sense, but not in the context of someone working on something when they are also employed elsewhere. According to most contracts, anything that you are working on during your employment period also belongs to the company that you are working for. Having a seperate legal entity “own” the product and service, and creating that bifurcation is important.

What if it takes 1.5 years to shut it down. Get the process done and let an auditor handle it – move on with other things. And that’s the worst case scenario.

I don’t know how feasible this is but if you work for a large firm and you’re a highly rated employee it might just be possible for you to negotiate a sabbatical (unpaid leave for 3-6 months), perhaps even a year. This will give you the chance to really plunge into your idea full time. At the end of the unpaid leave you’d (hopefully) be in a better position to decide whether your project is really worth quitting your day job for…

Gautam Kshatriya
gautam.kshatriya@moneyvidya.com
http://www.moneyvidya.com/blog

@Vijay: Where can I find an auditor who can guide me? Do you know anyone who would help me?

Thanks for your suggestions.

@moneyvidya: Leaving current job is not a good option for those who are financially depended on their jobs.

interesting thread… and here are my views:

1. if you are sure of starting or doing this venture, then go ahead and open a pvt. ltd company. it will help you to get the name you wanted for your venture quickly and also then by the time, you will develop your product, you can parallely promote that company.

2. Parallel to it also book a domain name on web for your company and make it related to your product/Service.

The idea is to go step by step, First thing first.

3. If you are working on your day job and parallel working on something which you want to pursue as entrepreneur, then ensure that your current job and your venture should not be in direct competition. If it is, then don’t ask for permission. If its not then discuss with the senior person in the organization whom you can trust and he/she is close to management and can guide you on how to go about it. Share your dream and vision with them and then take the project forward. In this entire process, if company allows you to pursue your dreams parallelly, then they will also keep a close eye on you and your productivity, which might hamper your future growth plans with the organization for a longer term.

4. I suggest keep everything under tight wraps and go on with all process, planning, development and once ready for beta testing, do it in some other name.

5. Bottom line is don’t leave your job until you are ready with the launch or get first few small customers to validate your idea.

Many VC’s say they support people who quit their jobs and venture into something… thats all crap. They fund only those ventures where they are confident that they will be able to sell the same to someone else in 3-5 years and exit by making money, else they don’t invest.

All the best!

Rajat

[…] This was one post I really could relate to. […]

Very sound advice. And nice new blog theme. Are you going to be writing here more frequently? πŸ™‚

Thanks Snigdha. As for the blog frequency, am hoping to – but also dont want to write unless there is something solid to talk about. There is too much noise in the blogosphere these days πŸ™‚

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