It's a big leap from a cushy corporate role to self-employed consultant, but plenty are taking the plunge. Jane Cherrington reports.
"One minute you're thinking about business strategy, the next you might be washing coffee cups. You can't afford to be too proud," says Brian Walker, describing the first days of a small start-up business.
Walker chose to leave the comfort and security of a senior executive post 12 months ago to run his own consultancy, The Retail Doctor.
With a solid corporate career behind him - The Athlete's Foot, Woolworths, KFC and Optus - Walker says he didn't want to "die wondering" whether he could survive on his own.
"It's not that I didn't enjoy corporate life - I may go back to it - it's just that I wanted to see if I could control my destiny a little more," he says.
Escaping the restraints of employment is a common theme for the self-employed. Cath King, a superannuation tax specialist and former employee of PricewaterhouseCoopers, says the reason she set up her own consultancy two years ago was to achieve more control over her work "and be fairly compensated for it".
"As a director in a professional partnership, you're not taking all the risks but you're not getting all the spoils either." She was also frustrated that more and more of her time was being spent managing conflict of interest issues, brought about by the size and structure of the firm, leaving less time for her client work.
Growing numbers of executives from the big end of town are marching out the doors of their corner offices to test life on the outside. The movement, underpinned by the continuing waves of redundancies, the trend to early retirement and the outsourcing boom, has resulted in a decade or so of explosive growth in the numbers of small businesses.
On average, more than 120 small businesses are created in Australia everyday, according to data available from the Australian Bureau of Statistics (ABS) for the 2002 financial year. The number of small businesses (less than 20 workers) grew by 2.7 per cent in the three years to 2001. There were more than 750,000 small business employers operating in Australia at June 2004, representing 90 per cent of the total number of employers. A further 1.7 million businesses operate without employees, including structures such as sole traders, family partnerships and proprietary limited.
From the ground up
Building a start-up means learning valuable lessons about business. Even former senior executives with long and successful careers behind them admit to astonishment at how much they didn't know.
Robert Rigby was surprised "beyond belief" at the administrative requirements for establishing and running a business when he set up Ambition, the Brisbane-based marketing agency, five years ago.
Rigby, formerly Managing Director of Warner Music Australia , points out that senior executives in large companies are often quarantined from the nuts and bolts of business administration "because the systems and people are all in place. You just pass everything down to the next level".
"But when you start your own business you have to be general manager and be prepared to put the garbage out. Tax issues are challenging; being responsible for staff superannuation, their tax, and managing holidays is all very challenging.
"I've been through a very steep learning curve, but it's been good," Rigby says.
Walker has a theory that small business experience would benefit executives in larger companies.
"If I went back into corporate life and was looking for a mid- to senior-level manager, one of the things that I'd be interested in was if they'd run their own business for a while," he says. "Those lessons are really invaluable."
Despite his long career as a senior executive and a degree and postgraduate qualifications in business, Walker says he's learnt more about issues such as company structures, trusts, intellectual property and cashflow in the past 12 months than he ever did in the corporate world.
Becoming an employer
As small businesses grow, staffing and management issues loom large as business risks and challenges.
There are many stories of successful small business employers who choose to walk away rather than deal with the legal, personal and moral responsibilities of managing staff.
One, who asked not to be named, says she and her business partner didn't hesitate "for a second" when made an offer on the business they'd built over five years that had become a thriving financial services sector consultancy with nine staff. Being an employer was stressful, she says, largely because of the pressure of always ensuring there would be enough in the bank to cover salaries and ongoing remuneration and benefits for staff. "And, in a small business, any mistakes made at the recruitment stage have a far greater effect both financially and on morale," she says.
Rigby agrees. "It's such a relief in a way when you hear of people having difficulty with staffing issues. I totally understand, it is a pain. You hear of people who have opted out of their businesses to work on their own and they feel more content with that. But I've got ambitious plans," he says.
With his marketing agency now employing 10 staff, Rigby says he's "had a number of issues". He's chosen to tackle his biggest problem, retention, head on with an employee share scheme. "The advertising and marketing world is a bit fickle, and staff move around a lot between agencies," he says. Rigby's hoping that his share scheme will allow him to reduce staff turnover "because I can't see that I can build the business to where I want it to be without them staying."
Life after start-up
Setting up as a consultant might feel a bit like taking on two jobs - the client service role and the business administration function - and that means more work.
Walker says while he worked hard as an employee "I don't think I've worked harder than I have for the last year". He regularly puts in six or seven days a week.
King says she needs to be careful to limit the hours she works. Away from the demands of working in a large organisation "I have a bad habit of going for 12 or 13 hours straight, because I can focus".
Finding the time and courage to take a holiday is also tricky. When Management Today caught up with King she was on seven weeks leave in the UK, her first holiday in two years. But it wasn't a complete break from work. She admitted to rising at 6am everyday to check emails and make phone calls to her clients.
Without the working-day structure, small business owners can find productivity an issue.
"It's very easy to almost lose time," says King. "You think, I'll get around to doing this task but time passes and you get easily distracted. So you need to carry the same level of discipline as you would apply to your job if you were working for a big organisation."
Rigby says being his own boss has made him tougher on himself. "I realised that if you want to be successful you just can't lay back.
"I'm not by nature a disciplined person but I've gradually become very much so," he says.
Meanwhile, Cindy Tonkin, the author of the book, The Australian Consultant's Guide , has put together her 10 commandments to help new consultants stay focused. They are:
- Know your outcome - are you in it for the money, for lifestyle, for fun?
- Look at all sides of the idea - not just the good side - some people romanticise consulting. It is magnificent fun and very challenging, and it can be a real bore. Be realistic.
- Charge enough. Remember to factor in the costs of everything, including 20 per cent of your time (at least) looking for working and marketing, plus admin, accountant and legal fees.
- Factor in your availability, affability and ability - it's not just who you know, it's what they say about you (for more information, read Consulting Mastery, the Ability Myth by Cindy Tonkin)
- Get advisers and supporters.
- Remember you're running a business.
- Get out of the house or office. Work doesn't knock on your door.
- Let your history help you. Make sure everyone you have ever known knows that you're consulting, and what you do.
- Keep learning. All you sell is what you know.
- Maintain your assets (you!). Eat, sleep well, exercise.
Back to work
While Rigby and Walker don't rule out the possibility of returning to the corporate world one day, King is adamant she's staying put. "I don't even have to think about that. I like being able to control what I'm doing. Stress is often the result of feeling out of control. Self employment gives me the opportunity and flexibility to determine my work/life balance."
But surely there are things to miss - perhaps the corporate expense account? "Absolutely!" laughs Walker. "One day you're jetting off somewhere feeling very important and the next, you're wondering if you can afford a ream of paper for the copier - it's one extreme to the other."
Australia's biggest employer
The small business sector is quick to point out its importance to the economy. A lobby group, the Council of Small Business Organisations of Australia (COSBOA) claims that around 30 per cent of Australia 's economic activity is generated by the sector and that it is Australia 's largest employer, generating 3.3 million jobs or 47 per cent of private sector, non-agricultural employment.
Nonetheless it's a sector of mixed fortunes. It is well known that a five-year business anniversary is an unattainable goal for many, although data from the Australian Bureau of Statistics shows the alarming failure rate has been slowly improving. Undercapitalisation is the most common reason for failure, but the cost and complexity of laws and regulations don't help, say many.
Red tape is a big disincentive to investment according to COSBOA's frequent public statements over the years. The introduction of the goods and services tax in 2000, the requirement to lodge Business Activity Statements with the Australian Tax Office, the superannuation guarantee legislation and the more recent super choice rules are all cited by small business owners as major stressors. But the sector was tossed a bone by the Howard Government earlier this year with the introduction of WorkChoices, the new industrial relations agenda aimed at improving business flexibility. The exemption for businesses employing less than 100 staff from unfair dismissal laws was particularly welcomed.
There was more good news to come. This year's Federal Budget gave small business owners "significant amounts of money allowing for future growth, more employment and further investment," according to a statement released by COSBOA head Tony Steven after the budget was delivered in May.
As a result, support for the Federal Government "improved exceptionally on the back of strong support" for its workplace relations reform agenda, according to the Sensis Small Business Index (May 2006). But the Index showed that business confidence declined sharply during the quarter as the effects of higher fuel prices and the skills shortage begin to bite.