Quitting your job to start a business can be both tempting and extremely risky. Make sure you have a safety net before taking the leap, says billionaire entrepreneur and investor Mark Cuban.
"Save your money first. Don't just leave [your job] unless you know what the hell you're doing," Cuban told Wired last month in a video Q&A. His rationale: Despite many inspiring success stories, most people who leave corporate America to pursue their own idea either struggle or fall completely flat.
"We hear all of these stories about all of these people who quit their jobs, started a company and made all of this money," Cuban said. "What you don't hear are the stories of the people who quit their jobs, started a company and failed miserably, and are now working at a job they hate."
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Roughly half of Gen Z workers aspire to start their own businesses, according to a recent survey from Samsung and Morning Consult. Not all of them will succeed — roughly 20% of new businesses fail within their first year, and more than half don't make it five years, according to data from the U.S. Bureau of Labor Statistics.
Do some thorough research before quitting your job, experts insist. Write out a detailed business plan and determine how much savings you'll need to survive if the business doesn't take off right away.
Some financial planners recommend saving enough money to cover 12 months of both living and business expenses. At a bare minimum, you need enough for "at least six months" of living costs, Cuban said.
Why planning ahead, especially financially, is so important
Cuban is one of the success stories: After being fired from a sales job in his 20s, he started software business MicroSolutions and then sold it for $6 million in 1990. Five years later, he joined the company that would become Broadcast.com as a co-founder, later selling it to Yahoo for $5.7 billion in 1999.
But even Cuban's path came with major bumps in the road, like nearly going broke after his former secretary stole $82,000 from MicroSolutions and almost wiped out the company's account balance. Every new business faces challenges, and you need those savings to ensure you can survive the inevitable rough patches.
Even then, you're still not guaranteed to succeed, said Cuban. He often advises aspiring entrepreneurs to only start a company if "your heart is in it" and if you "know your s--- better than anyone else in the room."
"Before you quit, be prepared, know what you're doing, save your money, have at least six months to live off, if you can," Cuban told Wired. "And, then, maybe you're ready to start your business."
Disclosure: CNBC owns the exclusive off-network cable rights to "Shark Tank," which features Mark Cuban as a panelist.
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