Read Never Get a ”Real„ Job Online
Authors: Scott Gerber
Whatever your goals may be, don’t forget to keep your feet on the ground. Remember, irrational goals will lead to irrational decisions. Never let yourself say something as dumb as, “I’m starting a business to become a millionaire.”
KEEP IT SIMPLE, STUPID
If you were learning to juggle, you’d start with two balls in one hand until you master the technique and train your hand-eye coordination. After a few weeks of practice, the fundamentals would slowly get easier. Eventually, you could be ready to add your second hand and two new balls into the mix. With the time and dedication, you could learn to master a three- or four-ball routine. Perhaps one day you’d even be able to introduce bowling pins or flaming torches.
You should build your start-up the same way. But if you’re like most Gen Y entrepreneurs, you naively believe that you’re capable of juggling 2 flaming torches, 3 bowling pins, and 10 balls on day one without a single lesson. You might be thinking that starting with one ball is too easy, too simple, or too small. Well, guess what? This irrational logic is precisely the reason you’ll fail early, quit too soon, or go broke.
To build a business from the ground up, you must break your concept down into its simplest form so you can manage the processes yourself in the early stages. Though this exercise may sound deceptively simple, it should not be taken lightly. You may believe that your idea is as simplified as it can get—but I assure you, you’re totally off base.
Let’s say that you want to open a gourmet burger restaurant using a cool “Burger Boogie” brand and tasty secret sauce as the cornerstones for success—but unfortunately, you couldn’t afford to launch. You
insist
that not a single expense can be spared. You
need
the glossy menus and the full kitchen. And the great location is absolutely
essential
to making the concept work.
You’re right. You can’t afford a restaurant. However, that doesn’t mean you can’t own the greatest local burger joint ever. All you need to do is eliminate the restaurant and you’re all set!
Seems to me that you haven’t simplified the concept. In fact, you haven’t even considered exactly how complex it really is. Had you simplified, you’d be thinking more about how to sell Burger Boogie burgers featuring your original sauce recipe.
Was the word “restaurant” included in that idea? No. And it shouldn’t have been in there in the first place.
Rent would be cost-prohibitive; retrofitting a space would cost a fortune; and professional kitchen equipment is just a fantasy. Does this mean that you can’t follow your dream? Absolutely not. All you need is to figure out what you have to work with and start working with what you have.
Maybe your parents have a basement that you can use as the base for your operation. Perhaps you can start with a delivery-only late-night menu targeted at local college students. Rather than pour thousands of dollars into rent and equipment, you could take portable grills to tailgating events or retrofit one to the back of your “Burger Moped.” Instead of having customers experience your brand at a brick-and-mortar location, you can take your brand to them by wearing a cheesy “Burger Boogie” costume. The point is that many, if not all, of these suggestions would help you prove your concept on a shoestring budget, avoid infrastructure expenses, and afford you the opportunity to earn a living building a grassroots brand.
Your dream of owning a restaurant doesn’t have to be dead. But it surely isn’t step one. Your ego may be telling you differently, but unless your ego is hiding a few hundred thousand dollars, it would be best to tell your ego to shut the hell up.
Bottom line: You need to start somewhere or you’ll never start at all.
Even a powerhouse like Google started as a simple search engine. Had they tried to be a search engine provider with mobile phone services, Web browsers, and online applications from day one, we might be asking Jeeves for much more advice today. Simplify your idea to its core to find ways to remove as many obstacles from your path as possible. Concentrate on creating a simple, singular service that focuses on the needs of a narrowly defined customer base. Then, brainstorm as many plausible ways to sell
X
product or service to
Y
customers for
Z
profit before you decide on a course of action. Throw convention out the window to open a whole new world of options.
Don’t get caught up in your big picture; rather, give attention to the place where it can actually begin. After all, if you start with the flaming torches and bowling balls, you might find yourself in the emergency room with a broken foot, a singed scalp—and a massive medical bill to boot.
THE BOTTOMLESS MONEY PIT
Moneymaker or money pit? That is the
only
question.
Before you plan for your retirement, you first need to determine if your idea is based on passions, profits, or both. Just having a “great idea” doesn’t mean that it will translate into a viable business.
I know you’re convinced that people will chomp at the bit when they catch wind of your new Web site,
MyExpensiveSiteIsGoingtoBankruptMe.com
. You may have even tricked yourself into believing that your idea is so brilliant the money question will just figure itself out later.
Let’s get something straight: The correct answer for how your company will make money is not, “we’ll figure out how to generate revenue later.” Without a revenue model,
you do not have a business
. More importantly, without a revenue model neither you nor your business can survive. So if your first start-up’s financial success is based on being acquired for billions or licensing unproven intellectual property to lunchbox companies, the only checks you’ll be collecting are welfare.
Successful entrepreneurs work to generate money today, not tomorrow.
Wake up and smell the roses. If you’ve never made a dime with this idea before, there’s no way you can predict, entertain, or defend a business model based on guesstimates, assumptions, or potential future success. If you really want to quit or avoid a “real” job and still earn a living, your business needs to be able to generate money day one, not—maybe—year 10. It’s vital that you determine how, when, and if your idea can put money in your pocket; be it tomorrow, next month, or at all.
Seven Reasons to Rethink Your Business Idea
Not all business ideas are created equal—or profitable. To get out of the 9-to-5, you must start a company that’s capable of producing immediate revenue to support your life burn rate. There are certain types of businesses that will not generate enough revenue to allow you to ditch your “real” job; as a result, these must be avoided entirely. This doesn’t mean that you can’t eventually pursue one of these types of businesses in the future—but go back to the drawing board if any of these seven characteristics reminds you of your idea.
1.
Based on a hypothetical exit strategy
. Your business will never have the chance to get acquired or go public if you go broke before you can get it off the ground. The end game isn’t possible without a solid short game—and the short game requires you to make a living so that you can keep your business moving forward. I can’t say it enough: Your start-up must produce immediate revenue, not be based on hypothetical paydays that will probably never happen. Get into a business because it can make money, not because a similar company you heard about in a magazine was acquired for eight figures.2.
Major traction needed
. Traction-based businesses are typically Web-based subscription sites or Web sites supported by advertisements that take a lot of time and energy for little, if any, payoff nowadays. Massive traction does not just happen because you’ve got a great URL and good content. In fact, it usually never happens. Most Web sites today need to attract tens of thousands of unique visitors and clicks-per-page just to make a few dollars. You don’t have time to wait and see if your business can attract a following. You need to be able to sell someone something and generate immediate income as a result.3.
Based on small margins
. Low-profit margin companies that earn you two cents on the dollar won’t support your life burn rate. You need to concentrate your efforts on building a business with initial profit margins of 30 to 80 percent of the gross proceeds. As you scale your business in the future, your profit margin may decrease. However, being able to do a lot of work yourself in the beginning and being more successful as a result will be the reason you’re able to make more money with smaller margins in the first place.4.
Based on licensing unproven intellectual property
. Get real: Disney will not be busting down your door to license an unproven, untested animated character for TV shows and lunch boxes. Licensing is not a start-up business, it’s a complex one with big players with big dollars at stake, and rarely does it ever favor start-up entrepreneurs. Don’t base your primary revenue stream on a one-in-a-million dream shot. Work hard to build a great brand with a successful, repeatable business model—and maybe you’ll be able to consider licensing or franchising the proven concept later on down the road.5.
Target market is too limited
. If your business has to target behemoth corporations or the super rich—or there are only five applicable clients in the whole world—then just stop right now. You can’t expect your company to only hit home runs—because it won’t. Nor can it start with a severely limited pool of potential prospects to sell into. Instead, you need to develop a well-balanced offering, capable of generating cash flow from a wide niche marketplace that supports clients big and small.6.
Cost-prohibitive start-ups
. If you need big money to get in the game or big inventory to set up shop, scale it down, and simplify it—or drop it and move on. If you don’t have it, you won’t get it—and as I’ve said several times already, you’ll go broke trying.7.
Businesses you know nothing about
. Being a start-up that competes against established companies in your market already puts you at a disadvantage. What makes you think you can start a new company blind and expect to kill it in sales? You already have a learning curve when it comes to starting and operating a business; don’t overcomplicate matters further by not having a clue about the product or service you plan to provide.
Defer to business models that rely on business-to-business sales, service fees, or other such models where sales are not based on circumstances that are entirely out of your control. In the longer term, you can always experiment or expand your business model to include ancillary, secondary, and longer-term revenue sources—but without immediate revenue, you’ll go broke before you even have the chance to get ranked by a search engine.
CAN YOUR SWOT TEAM DO CPR?
“Can your SWOT team do CPR?” is a mnemonic device I turn to whenever I need to evaluate the merits, viability, and growth potential of a start-up. This memory aid will help you to scrutinize each aspect of your simple service or product—from concept to execution to distribution—and determine whether your idea holds water. Both of these exercises will help you fully evaluate an idea before you decide to open for business.
The first component of the mnemonic device is the acronym SWOT—Strengths, Weaknesses, Opportunities, and Threats. Not to suddenly go all MBA on you, but conducting a SWOT analysis will help you to analyze internal and external factors that will either positively or negatively affect your business.
Strengths
. Identify strengths to help you validate your idea’s intrinsic competitive advantages, and forecast how it will stand up against competition. Does your niche offering allow you to be a big fish in a small pond? Will your family name carry significant weight in your community? Will your small size help you to deliver your service to customers faster and more efficiently than larger competitors? Does your company offer something proprietary that competitors can’t offer? Can you defend your turf with exclusivity agreements with key distributors?
Weaknesses
. Uncover weaknesses to expose inherent problems with your concept and help you decide whether the idea is amendable or a lost cause. Does your idea suffer from a lack of competitive differentiation? Will the life span of your product’s usefulness run out? Is it overhead-heavy or inventory-intensive? Will the lack of a brand name hurt you? Are there a large number of gatekeepers, licenses, permits, or barriers to entry standing in your way? Can larger competitors stomp you like a bug by outspending you? Will competitors be able to easily undercut your price point without breaking a sweat? Do you lack access to key distributors or necessary resources?