Inside Entrepreneurship: Tips to ID a healthy in-home startup

Inside Entrepreneurship: Tips to ID a healthy in-home startup

By SUSAN SCHRETER
SPECIAL TO THE P-I

Q: Am I crazy to consider taking a job in a startup that is operated out of someone's home? The job seems to be interesting and has some career upside if the company catches on. Still, I'm concerned. Is this a smart career move?

— Hannah L., Sacramento, Calif.

A: It's estimated that every 11 seconds, someone starts a home-based business. Some of these entrepreneurs are content to operate as permanent home-based businesses. They like the convenience, flexibility and potential for income-tax savings through home business deductions. They also avoid rush-hour commutes and don't have to put savings on the line by personally guaranteeing multiyear office leases.

Certainly starting a business with nominal overhead is not necessarily a sign of business weakness, but of managerial strength. Entrepreneurs have a choice to spend limited capital on office space or they can advance their companies in a meaningful way by investing in product development, advertising and talented employees.

Are you crazy for considering a job that takes you to a home rather than a traditional office? I wouldn't say so based on that factor alone. I know three guys who worked out of a Starbucks for 18 months before digging into their corporate bank accounts for office space. Paying themselves larger salaries was a higher priority than enriching a landlord.

The decision to join any company has to rest on your confidence in its leadership and growth potential, as well as the job itself. Here are some other factors relevant to home-based companies to consider:

  • Financial position. Unfortunately, I receive too many fuming letters from first recruits who claim they were snookered into joining near-bankrupt companies. These disgruntled employees found out the hard way that their new employer didn't really have adequate funding to cover salaries, health care and other ongoing business obligations. If a business is not yet generating revenues, ask detailed questions about the company's funding status, debt position and monthly expenses, or "burn rate." Also, be wary if the business owner says that funding from investors is all lined up, but not quite sitting in the company's bank account. It may never come.
  • Liability insurance. Any type of business that operates out of a home should have a separate small-business liability insurance policy. Homeowner's insurance is rarely enough to cover employee "trips and falls," product liability or professional service errors and omissions.
  • Employment taxes. Often cash-strapped companies avoid employee payroll taxes by paying first workers "under the table" or as consultants. The risk to bona fide employees is if the company goes out of business, then employees may have a hard time collecting unemployment benefits.
  • Business organization. You can learn a lot about business founders by their attention to administration. Take a few minutes to confirm that your potential employer is licensed to do business in your state.
  • Check out your work environment. Does the home-based setup provide for reasonable work space for you to accomplish your daily tasks? Do you have a phone to make business calls?
  • Business plan. Does the business owner have budgets and plans to serve as a road map for future growth? Have a candid conversation with the boss about the competition and other risk factors. My general rule is to avoid entrepreneurs who don't acknowledge startup peril and manage through rose-colored glasses. It's better to join a company where leadership anticipates and solves problems in a proactive way. That way, you may avoid some of the surprises you worry about today.
  • Susan Schreter writes about startup planning and small-business financing for the Seattle P-I. She has an investment banking and buyout background and serves as a coach to entrepreneurs and consultant to corporations. Find more Inside Entrepreneurship columns at seattlepi.com/venture. Send questions about small-business management or raising money for your business to susan@insideentrepreneurship.com or by mail to Inside Entrepreneurship, c/o Seattle P-I Business Section, 101 Elliott Ave. W., Seattle, WA 98119.

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