Monday, November 7, 2011

Return to India - The economics

Quitting a safe paying job and jumping into entrepreneurship was a big one. I had talked to many people who gave me a variety of perspectives from  advising that it's never too early to quit' to getting your venture off to a successful start before quitting. What I concluded at the end my little survey is that the timing of when to quit depends on your appetite for risk. That said, entrepreneurship is all about taking risks, so playing it too safe might mean you don’t have the tolerance for risk and perhaps venturing off on your own. At the same time all risks need to be hedged and every one's situation is different in the way and means this can be done. While there are many factors to be considered in this decision, one cannot ignore the economic one -- earnings and runway to stay afloat. My decision was based heavily on this economics given where I was  at  my point in my career. 
 Some quick math and extrapolation of my potential earnings made me realize that my salary was growing at roughly 9% annually while my consulting business (which I had started with a modest sum in 2005) would grow at 50%. At this rate, it would take my business another two years to catch up with my salary at this rate. Had I made this decision three years ago, I would already be there!
Now - I have to mention that had I been on a super-star trajectory at MSFT, I suppose the story would have been different as a 50% annual growth would be a reality. While I knew some at MSFT who were on this trajectory - I also knew that I wasn't one of them. Here were some specifics:
 The earnings table looked something like this:

In a graph the above looks like this:

Basically I was betting on the fact that the economics of entrepreneurship would catch up with my salaried job.

The next decision was one of sustenance – would my finances allow a decent standard of living for two years?  My calculations and estimates revealed that the cost of living in Bangalore is about $2,500/mo. Granted this was on the higher side compared to what some others might consider a 'decent' standard of living. However - this was also based on the fact that there were so many changes going on - the last thing we wanted was squeezing on our lifestyle and making this adjustment a lot harder.
In the worst case of no profitability for two years, it would mean a burn of $60,000 into my savings. In the best case, I need not dip into my savings – the existing consulting business would sustain the transition. Armed with this information I knew I had nothing to fear! At the end of two years, if my little experiment failed, I believed I would get a similar job in either India or the US. What would be more important would be the thought that I had at least failed trying. 
ps: At the time of writing - I've broken into a net positive cash flow on my machine vision business (Qualitas Technologies) in India. My Software consultancy business has a modest growth rate.
Once I was convinced, it was on to the next most important thing… convincing your wife!

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