They didn’t plan on starting a business this way. One day you had a paycheck, benefits, and a title. Next thing you know, you’re staring at the severance documents and wondering whether going self-employed is a smart move or a desperate move. Many people start a business after losing their job, not because they always wanted to, but because it suddenly feels necessary. This urgency changes decision-making, often in subtle ways that can quietly undermine what could have been a solid independent company.
methodology
To put together this guide, we reviewed essays, books, podcasts, and first-person case studies from professionals who began freelancing or consulting after layoffs, restructuring, or forced exits. We focused on documented mistakes they openly shared after the fact and compared those stories with advice from long-time independent operators, career change experts, and organizations like Freelancers Union that track post-employment self-employment patterns. The focus here is not on theory, but on lived experience and what kept going wrong in the first 6 to 18 months.
What this article covers
This article is about the most common mistakes people make when starting a business after losing their job. Plus, you’ll learn why these mistakes are understandable and how you can avoid them without relying on absolute clarity or unlimited runway.
Why starting a business is different after losing your job
Starting a business voluntarily and starting a business after a job loss look similar on paper, but feel very different emotionally. Job losses shorten timelines. There is financial pressure, identity shock, and a sense of urgency to “make something work.” These pressures often force people to make decisions that they would never make with greater stability, such as pricing too low, committing too much, or omitting fundamentals.
The goal at this stage is not to build the perfect business. It’s about avoiding making stress worse by making decisions that silently waste time, money and confidence. Most of the following mistakes do not result in immediate failure; They create slow leaks that make self-employment seem more difficult than it needs to be.
Mistake 1: Treat all income as good income
After a job loss, the instinct is to survive. When someone offers money, it feels risky to say no. Many newly self-employed people take on unsuitable work just to continue making money.
The problem is that poorly fit clients expend a disproportionate amount of energy. They lead to an expansion of the scope of benefits, payment stress and emotional fatigue. Experienced freelancers like Paul Jarvis have written that early desperation often delays long-term stability because it crowds out the time needed to build better opportunities.
The solution is not to be too picky too soon. It’s intentional. Before accepting an assignment, ask one question: Will this client or project make my situation calmer or more chaotic? If this increases chaos, it may not be worth it in the short term.
Mistake 2: Underpricing to feel safe
Many people who leave employment evaluate their services based on fear rather than math. They base their wages on their previous hourly wages, offer large discounts to win a job, or avoid wage increases because they fear that their income will be lost.
Jonathan Stark has long pointed out that undervaluation rarely buys safety. This usually buys resentment and burnout. Customers who hire based on price tend to be the most demanding and least loyal.
Instead, pricing should reflect sustainability. This means accounting for unpaid time, taxes, and gaps between projects. Even if the tariffs seem inconvenient at first, they must support the reality of self-employment. “Gratitude” for work should not be a substitute for responsible charging.
Mistake 3: Skipping a financial runway plan
One of the most damaging mistakes is taking off without having a clear picture of a personal runway. People often know the amount of their severance pay, but don’t know how long they can realistically live on it.
Freelancers Union has repeatedly emphasized that early financial stress is one of the biggest predictors of self-employment failure. Not because the business idea is bad, but because panic leads to reactive decisions.
Before you focus on growth, set a conservative monthly burn rate. Consider health insurance, taxes and irregular expenses. Knowing your runway doesn’t create pressure; it reduces it. It allows you to make decisions out of clarity rather than fear.
Mistake 4: Trying to replace a job instead of solving a problem
After losing a job, many people unconsciously try to regain disguised employment. They are looking for a “main customer”, expect fixed working hours and structure their work as if they still had a boss.
This often leads to dependency and vulnerability. When that single customer leaves, the emotional impact feels like another layoff.
Experienced consultants recommend focusing on problems, not replacements. What specific problem are you helping to solve, for whom and why is it important? Problem-focused companies adapt. Companies whose goal is to replace a job often fail when conditions change.
Mistake 5: Doing everything alone out of pride or fear
Losing a job can be accompanied by shame. Many people avoid asking for help because they want to prove that they are okay. Others isolate themselves because they don’t know who to talk to outside of the workplace.
This isolation slows down learning significantly. People who make transitions more successful often talk openly with peers, former colleagues, and other independent professionals. Not to ask for permission, but to check the rationality of decisions.
You don’t need a mastermind group. One or two trusting conversations can prevent months of missteps.
Mistake 6: Overbuilding before testing demand
Another common mistake is using the downtime after a job loss to perfect a website, brand, or offering before speaking to anyone. This feels productive and safe. It avoids rejection.
But many individual authors, including Blair Enns, have found that clarity comes through conversation, not preparation. Overbuilding delays feedback and keeps you in planning mode.
The safer move is an incomplete reach. Talk to people who are similar to your previous employer, industry contacts or colleagues. Ask for problems, not pitches. Demand emerges faster than trust.
Mistake 7: Ignoring identity change
Job loss is not just financial. It’s psychological. Titles disappear. External validation diminishes. Many new entrepreneurs underestimate how destabilizing this is.
If you don’t address identity change, you may find yourself chasing validation from customers, overextending yourself to prove yourself valuable, or avoiding visibility out of fear. Authors and career transition experts often emphasize that self-employment requires not only building income but also restoring self-confidence.
It helps to name this change. You are not unemployed. You are in transition. This wording alone can reduce the urge to rush into making bad decisions.
Mistake 8: Expecting linear progress
After layoffs, people crave predictability. They expect efforts to translate directly into results. Self-employment rarely works like that.
The early stages are uneven. Some weeks nothing happens. Then three things land at once. People who mistakenly interpret slow weeks as failure often turn around too quickly or abandon viable paths.
Experienced independents value patience over intensity. Consistent small actions outperform hectic overhauls.
Do it this week
- Calculate your actual monthly personal burn rate
- Write down how many months you actually have on the runway
- Identify a type of work that you should avoid, even if it is paid
- Rethink your pricing with sustainability in mind
- Talk to another self-employed person about their early mistakes
- List three problems that you are qualified to solve
- Reach out to two people for conversations, not sales
- Delay polishing your brand in favor of real feedback
- Set a limit that you won’t cross for money
- Name the identity shift you are experiencing
- Stop equating silence with failure
- Choose consistency over urgency
Final thoughts
Starting a business after a job loss is not a failure; it is a pivot point. It’s a high-pressure transition that requires patience and structure. Most mistakes made at this stage are due to fear, not incompetence. By avoiding reactive decisions and basing yourself on reality rather than urgency, you give yourself the best chance of building something that lasts. You don’t have to rush to prove something. You need to create a foundation that can actually support you.
Photo by Marten Björk; Unsplash