Yes, it may sound a bit crazy. And yes, it comes with risk. But so does everything worth doing. And then there’s this fact to consider: Some of the most successful companies in the U.S. started in the Great Depression or other recessions, including Disney (1929), Hewlett-Packard (1937), Hyatt Hotels (1957), Federal Express (1971), Microsoft (1973), Mailchimp (2001), Uber (2009), Airbnb (2009), Slack (2009), Warby Parker (2009), and Venmo (2009).
For employees working from home in an unfulfilling role—or, worse, furloughed or laid off—now may be the right time to turn hardship into opportunity. That is, it may be time to make a pivot in your career or in your company’s current business model.
Of course, even those who are taking a leap of faith should strive to do so in a smart fashion that minimizes legal risk. So here are five things to consider when you’re ready to branch out:
Review existing employment contracts—your own, if you are currently employed; your business partners’, if you have any in your contemplated new venture; and those of any would-be employees. This is necessary to ensure that the new venture does not violate existing noncompete, non-solicitation, or nondisclosure agreements. The existing employment agreements will define the parameters you can operate within.
Develop a business plan. Draft a plan as to how your business will grow over the next three to five years. This plan will assist you when you are faltering, keep you focused as you check off goals, and eventually may help you secure a loan or other funding.
Organize as an entity. For many new businesses, organizing as an LLC is appropriate. In addition to the state organization, you will need a Tax ID, and operating agreement, especially if your new venture involves partners. The operating agreement should document the arrangement between the partners, reflect actual contributions, and provide for a buy-sell mechanism.
Don’t burn bridges on your way out. Many companies are downsizing, struggling financially, and may welcome your departure. Unless you are directly competing with your current company, be honest about your plans and why you are leaving. You may be pleasantly surprised that your company supports your initiative, or may even want to keep you on in some independent contractor role (that you may welcome, too, if you need the income), or even open doors or find a way to work with you in the future.
Segment your new line of business through its own legal entity. This tip applies if the business itself is pivoting (and, in particular, if it is conducting its legacy business while dabbling in a new one). Be clear about what operations are staying with the old entity, and which are being handled by the new one. In addition to organizing a separate legal entity, creating a clear distinction will call for the selection of a separate board, and the drafting of contracts between the two entities for shared services or employees. This will be especially important if one business takes off more than the other.
If you need assistance with any of the above steps, please do not hesitate to contact me at [email protected].