Planning to be rich is hard

Most of the richest people I know didn’t plan to be that way. They mostly fell into it.

Most of the time poor and stressed people I know plan to be rich. What gives?

One of the mistakes that many people make is being too literal in looking at how other people succeeded and then building their business plan around it.

The former head of the CSIRO used a great analogy to explain why success is hard to replicate.

His analogy was of an ant climbing a big tree. At every point of the climb, the ant is faced with decisions such as left, right, go around an obstacle, go back to find another path etc. At some point the ant is on a leaf high up in the tree.

When we find successful companies we think that if only we could replicate the path the ant followed then we too could succeed.

Yep, but it doesn’t work that way. Working backwards from the end point is only mapping a route which can never be taken again.

Sure, getting big is a good ideal, and investors like to hear how their investment will pay off. But the fact is that getting big is about hundreds of small steps, each of which may not appear to be bringing you growth, but as a whole make you big.

If you turn down sales because they don’t meet your objectives of getting rich, then you may have just turned down one of those incremental steps that help you. Not bringing in cash flow is not good business.

So I say follow your dreams, but don’t set them so high that they feel unachievable.

Opportunistic Serendipity

Luck plays a big part in the growth of any business.

Luck often brings opportunities. A casual comment at a dinner party, a phone call from an old friend, a newspaper article, etc. The size of the opportunity varies, but the opportunities come.

The hard part is recognising that luck and then acting on it. This is where experience and openness come into play.

Are you ready to gamble yet again? Spend another $5000 to $10000 to capture a big client, or opportunity?

Do your networks include the kind of people who can help you take advantage of an opportunity?

Are you prepared to share the prize in order to win?

Success comes when luck and preparation meet. I call this opportunistic serendipity.

Sell a stake in your product run, not your company

Raising capital is hard, especially if you are not running an exciting hi-tech company.

The property development industry often use an interesting model. They take a lot of the risks with setting up the business and getting approvals from government, but they minimise their financial risk on the construction by pre-selling, otherwise known as selling off the plan. Basically, they are raising equity funds to meet the requirements of their construction loan.

If you are selling software, you can pre-sell licences for a 3 year period, or for free updates. That way your foundation customers get something out of the deal.

For manufacturing industries your biggest upfront cost and risk is the finalisation of the design and the tooling costs for large runs. There are trends right now to sell a limited production run to cover those costs. For example, you could provide the first 100 customers with the product at cost, and their orders have effectively paid for the tooling costs, so that future production runs are cheap.

Anyway, that’s the principal. You will likely have to spend quite a bit of time and money on prototypes and functional websites, etc. however, this is a great way to grow that shares the risks and minimises your need to sell equity in your own company.

Sometimes you need to be an asshole

As much as I think Dale Carnegie had a lot of good ideas on how to get on with people and get the best out of relationships, sometimes you just need to be an asshole.

You are running a business, not a charity. If you always take a step back and let the other party get their way, then you are letting them improve their business, not yours.

You need to stick up for yourself and your business sometimes.

When you have been to 15 sales meetings and they still want more information, tell them that you have given them all the information that they need. The product is perfect for their needs, the price is good and all they need to do is actually buy.

Staff who give you lip and act like they own the place need to be reminded who is in charge.

When a customer asks for extra service without paying extra “Just as a favour” – learn to say, “sure, I’ll send you a variation notice for that as it is out of scope.”

When a customer tells you that they don’t like what you did and won’t pay remind them that you have a contract under the law and that you have delivered on exactly what they asked for and that you will be happy to pursue them in Small Claims Court.

The point is that humans are humans. We all try it on occasionally and we all need to be reminded how relationships work and how contracts work.

It’s not about actually being an asshole, but having those difficult conversations with people that need to happen. You may feel like an asshole, but it may help straighten things out.

Sometimes you need to scream

Almost every aspect of setting up your business is frustrating.

• Your customers seem to ignore the value you are offering.
• Advertising seems to have no correlation with sales.
• Your suppliers are slow to deliver and there are quality problems.
• Your business partner is more interested in everything else but the business.
• Your employees need so much help with decisions you sometimes wonder if they can even go to the bathroom without asking “When am I supposed to flush?”
• Then you have family asking you why you aren’t successful yet.
• Your server crashed for 2 days straight and you lost a lot of sales.
• One of your friends sets up a business on a seemingly trivial juvenile idea and they get rich in 6 months.

There’s a lot that can and does go wrong. Being frustrated by all this is only human.

Don’t bottle it, let it out.

• Try talking to your wife/husband/partner. Just ask them to listen.
• Alcohol in moderation may help, but not too much.
• Hold a pillow to your face and just scream and curse until you let it out.
• Get a punching bag and use it.

If you don’t let it out you will end up in a very weird place which is one step away from insanity – and trust me when I say that others will see it.

Catch the fisherman, not the fish

Time is your most precious asset.

If you spend all your time tracking down potential leads and then trying to convert them to sales you will have no time left to do anything else.

Think of how you can get to a bigger audience.

• Blogs are okay – but you need to market a bit.
• Organize to be a guest speaker or offer continuing education to a professional society.
• Sponsor a conference, and get a trade booth and a speakers spot.
• Find a complementary business that works with your client base and ask for referrals with the proviso that you offer referrals to them for their kind of work.
• Meet successful businesspeople who may champion you in to their business.
• Get to senior management if you can as if they can understand the value proposition of your product then they will try to make sure the decision makers pay you attention.
• If you have government clients, go to conferences or events they run to hear their views, and then meet them to understand what they really need.

The list goes on – use your imagination and stick to the principle.

Make your own luck

One of the first things I learned when I got into business is the concept of making your luck.

You can have the best business idea in the world, but if nobody knows about it you can’t sell anything.

Location and timing are everything.

• A basic example for a consulting business is to have your office in the same place as most of your potential customer base. I can’t tell you how many jobs I have picked up by bumping into someone I knew on the street. It’s great when someone looks at you and says – “Do you have any time to help out at the moment?”
• Go to conferences and exhibitions – introduce yourself, ask questions, ask for referrals.
• Think of the other businesses that sell products and services into your customer base. Show them what you can do and see if they will promote you into the company.
• If you are offering new products or services that your clients won’t understand by explanation alone, give them sample units of technology or free trials of your web based service.
• Stay in touch with contacts on about a 90 day basis.
• Go to professional society meetings/lunches – they’ll often let non-members come for a fee.

Go find a way for luck to happen.

Stick to your knitting

There are always distractions.

• One of your main competitors just started offering prizes to customers.
• You read in Wired magazine about a new technology that could make all the difference to automating your business.
• You think that if only you could organize all the files better then everything would work better.
• You just saw a brilliant new business opportunity that you want to pursue.
• Business is slow, you get bored and start looking for new things to do.
• The latest trends in management say that you should eat an orange every morning and talk to small furry animals to boost your own morale.

Okay, so I am deliberately exaggerating on that last one to make the point here.

Stick to your knitting means to always ask the following question – What is that I should do today to help bring in my next sale, or deliver on what I should to my customers.

It’s both that simple and that hard.

Real entrepreneurs don’t go to business school

An entrepreneur friend who has a great web based business recently caught up with an old family friend. The conversation went something like this.

“So, your mum tells me you are running a business now.”

“Yes, we are going really well, we have some amazing big name customers who recognise that we fulfil a need they didn’t know how to service.”

“Who’s the MBA in your organisation?”

“Umm, we don’t have one.”

“Who’s the CEO?”

“I am.”

And it went downhill from there. The family friend was of course in the middle of studying an MBA.

There are a lot of great business schools. There are a lot of great people who eagerly learn how to run a business while doing their MBA.

However, I’d add another observation. Almost all of the most successful entrepreneurs I know of didn’t finish university, and many didn’t even finish high school.

Business is about identifying an opportunity and backing yourself to take the risk of doing it. You don’t need to understand all the nuances of ‘business administration’ – instead you can surround yourself by people who do.

So don’t put off starting for years while you study your MBA part time – jump in the deep end now. You will learn – I can guarantee it.

Stay at the front of the queue – working with suppliers

It all seems so easy at first. You find a supplier, you negotiate a contract and you get your goods.

A few weeks later when the delivery is due you hear nothing. Panic starts to set in as you promised a firm delivery date to your main customer.  The following week when you do hear from your supplier it is only to hear that they will take another week or two – and it is due to their suppliers running late.

Sound familiar?

Here are a few tips.

• First – a bit of humility is called for. Your supplier has an existing customer base they will service first.
• Go introduce yourself – this is the beginning of a relationship after all.
• Have a look at their facilities and see what else they are up to. You may be surprised what you will learn from them on how to do things better and cheaper.
• Do ask how to ensure better outcomes and prices for you.
• Ensure you know how to specify your needs up front, send a purchase order promptly and pay upfront fees quickly.
• Keep in mind that big discounts are given to reward loyalty so you’ll need to order more than once. Ask about this.
• Negotiation is important, but if you try to screw them down to the lowest price on the first transaction you are damaging the relationship unless it is a pure commodity type business. Remember, once the order is placed they have the power. In other words, leave something on the table for them.
• When talking about dates indicate that you need it soon, and ask when is the best you can realistically receive it.
• Allow for extra time for schedule slippage in your own business - but don't tell them that.
• Stay in touch, and be pleasant. That way they will feel that you are working with them.
• Recognise that many suppliers are only human. For example when one of their own suppliers is late they may respond passively and say that this is just the way it is. Try working with them constructively to solve the problem.
• Demanding outcomes may help first time round, but damages your chances of a timely and quality delivery second time round.
• If you are not hearing from them, give them a call. They are busy too and may just forget to call.
• Try multiple suppliers and split the order in two.

Even with all the above, some suppliers may not work out, but at least you gave them a chance.

Think like a customer

Pretend you are your own customer.

• How do I find you?
• What are your products?
• How do I buy your products (e.g. contract types, retail locations, etc)?
• How is the product delivered? (physically for products, or for services by location and resources)
• Are there any lead times I should be aware of?
• What are the prices?
• What are the options and how much do they cost?
• How do you compare to the competition?

When you look at your company this way then you can better prioritise and find ways to run your business better. 

Follow your own path to grow your business

When you look at your competitors you will quickly realise that there are a few basic business models. These business models survive because they have been shown to be profitable.

A question to always ask is whether or not they suit what you want for your business. Make up your own mind on where you want to go with your business.  Typical choices include: Small with lifestyle benefits , salary replacement, a few hundred thousand a year, rapid growth, global behemoth, and more.

Follow your own instincts. You can take the best from your own industry and add the good parts from others. 

You will find that you learn from your failures and you will have a clearer idea of the path to growing your business.

What I am trying to say here is:

• Do look at successful companies – work out what they are doing right and emulate them.
• Do look at your competitors – see what they are doing better and improve yourself.
• Do look at other industries – see what they do differently and is there anything you can learn from them.

The comfort of sticking to a proven business model makes life easier. However, if you really listen to your customers you may find ways to do things that your competitors haven’t thought of yet.

Give up control to gain an advantage

There are so many details to get right in your business and you are the only one who really cares.

When my house was getting built a few years ago my wife and I went through countless hours of choosing colours, tiles, bathroom fittings, kitchen bench, and so on. It seemed so important at the time. Then when we finally moved in there were a lot of small details in the finish that annoyed us.

Two weeks later we stopped noticing, and now a couple of years later I wouldn’t be able to tell you what the problem was.

Setting up your business is just like that. So many things are new and you are probably giving equal importance to all your decisions. Suppliers and staff may have opinions, but they don’t really get it – or do they.

Take a step back and look at what really is mission critical to your business. That is, what really makes a difference to you running your business and selling your product.

For all non-mission critical matters take a standard off the shelf solution or product. In other words stop trying to optimise the outcomes for inconsequential decisions.

Even for mission critical matters try asking others for their opinions and give them the option of coming up your answers.

When you free yourself up from all the trivia and give up some control, you give yourself more time to run the business.

Retaining full control of decisions will mean that you are the bottleneck for decisions and that everything will take longer than planned. Also the lack of trust you show people will affect long term relationships crucial to success. So give up the control habit where you can.

Good mentors make a difference

Having mentors definitely helps when you are starting up.

You probably already know how to do the fundamentals of the work required, but there are so many aspects to the business that are new to you.

For example you will be dealing with issues such as  pricing, contracts, locations, marketing, advertising, hiring and managing employees, dealing with landlords, IT support arrangements, branding,  and so on. You also need some help to learn you how to get through those days where it all seems overwhelming.

It makes good sense to shortcut the learning curve and learn from others.

Most business owners look forward to talking to other business owners. You are like minded after all.

Be creative. While your direct competitors will be reluctant to talk, think of similar businesses . For example, if you are a retail startup then find someone who has been successful in that. If you are going into consulting, then find a fellow consultant.

I have often found the Managing Directors of companies to be very helpful as they have been through the startup phase themselves and are only too happy to pass on their experience.

You may even find that you need  a few mentors to cover different aspects of your business.

The internet also opens up possibilities. You may find mentors in your exact business in a different city, or even a different country.

A good mentor will give you a combination of practical advice and also teach you new ways to think.

As a mentor myself I find my relationships with startups highly rewarding too. I am constantly learning and I make some great new friends.

A good mentor can really help – go find one.

Being trendy can cost

Fashions come and go in a matter of months, sometimes years, but mostly shorter.

Gearing up to deliver goods and services to match a trend costs money, and you are always taking risks that it might not work out.

Let’s look at the example of retail products.

First you have to identify the trend. If it is coming from an overseas market then if you watch that market you might have advanced warning – but you are still taking a bet that it will come to your shores.

Second – you need to identify suppliers – this can take a while, and because others are looking at the same trend you can have a period of negotiation. This is a case of first in best dressed.

Third – there is a lead time for manufacture and delivery, don’t forget clearance with customs too. The goods need to meet your country’s standards to be saleable in the first place.

Fourth – you need to market and get the goods out in time to be sold.

A few companies do this well – for example Zara out of Spain which can release a new line of clothes into stores in almost no time. They compete well against cheaper Asian clothing because they are more timely. However, it has taken many years and a large economies of scale for this to work out for them.

For everyone else, my advice would be to limit the risk you are taking always selling the latest and greatest. 

Remember that the trick is to sell people what they want and not what you think they want – this can take a lifetime to learn and you will make mistakes.

If you decided to follow the trends and it doesn’t work out too well, at best you will fill your storage space and your garage at home with unsold inventory (my wife often reminds me of the value of unsold goods I am storing) and at worst you will have interesting cash flow problems.

The answer’s simple – are you prepared to act on it?

Often the course of action you need to take is simple. The only problem is that the outcomes are uncertain and you will have to spend time and money to make it happen.

If you have a university or college degree then the odds are that it will take you longer to make key decisions. This has been shown in study after study, and is partly to do with the way we are educated to analyse issues.

If you have multiple business partners with different objectives to you, then decisions can take a long time, and may not even happen.

All your friends and advisors tell you to act – but you are taking all the risks. Failure can mean loss of money and at worst bankruptcy.

So here is my simple advice.

First – Start now

Second - break all big issues into smaller issues

Third– identify the main answers to your problems and then select the one that takes the least amount of time and effort. Remember, your time is worth something too, so look at existing solutions rather than inventing your own.

Fourth – look at ways of minimising the financial risks for any decision.

At the end of all this you will have incrementally taken a lot of small steps that bring you to the outcome you wanted.

Think of it as like doing a jigsaw puzzle. You take care of one piece at a time while keeping your eye on the big picture.

Successful people are direct

Over the course of your career you are taught how to be professional, how to cooperate with others and how to persuade people to follow your recommendations.  These skills are always useful – however, if you work in a normal large company then you will also be shielded from making the kinds of decisions that will materially affect the company.

College and university also teaches us to be circumspect.

I have yet to meet many senior managers or business owners who are shy about what they want. They are usually easy to get on with – just remember to say what you mean and mean what you say.

When you start your own company it is you taking the risks of poor performance, so you will quickly learn to say exactly what you want.

Customers pay late, suppliers deliver late, employees need to know what they are supposed to be doing, potential customers need to know what they are buying and so on.

This isn’t about being rude or arrogant, this is about communicating expectations clearly.

So my advice is to be clear, be consistent , ask lots of questions – and most of all, be direct.

Cash is your friend

You have a great idea, you get some friends together and put together a business plan, you find a VC to back you  then you spend the next year putting together your product and then you take on the world with your groundbreaking new product, then your company grows and you are a millionaire.

Sounds great doesn’t it. Unfortunately for 99.999% of startup companies this is simply not true.

Most businesses are based on services, retail, wholesale, etc. and are not hi-tech startups.

Even those companies who are hi-tech startups need a lot of money to even get to a stage to attract VC funding. A lot of great ideas fail because of lack of seed funding.

The upshot is that you need cash – cash is your friend. Without cash you can’t do anything. All the dreams in the world mean nothing without the means to make them happen.

So, keep your day job while you establish your business. If you need to see if you can negotiate a four day week or job sharing to free up some time.

Work at nights and on the weekend.

See if you can give away equity instead of paying.

Can you swap your time or services for something rather than pay cash.

Use smaller companies for your own needs as they may offer a better price.

Get a part-time job at nights or on weekends to save some more.

Never allow your partner to work full time in your own startup – they should be bringing in money from the outside rather than you squandering your precious cash on them instead of the business.

The harsh reality is that you are probably the only one who really cares about your business, so it is up to you to provide funds.  The good news is that once you get steady cash flow the stress levels do decrease a bit.

Rent your systems– don’t build from scratch

One of the great aspects of starting up is that you can save yourself a lot of money and time by doing things yourself – a phenomenon known as ‘sweat equity’

However, there are limits, and I would particularly point out the follies of developing all your software, databases and other systems from scratch.

It feels great to program your own software, and for basics such as website layout, simple databases, etc. this is fine.

However, when it comes to more complicated systems like customer relationship management renting a commercial system will likely end up being better than just cost effective when you look at the costs of renting your own server and paying for IT support.

Also, if you are stitching together a great website if you use supplied products then not only will it speed up the time you have to focus on your core business, but it also means that you can get updates in the future as the company that makes it is paid a subscription by many thousands of users worldwide.

Examples include the ecommerce capabilities you can rent from Amazon, Crystal Reports to provide users with reports from your databases, and so on.

If you are providing a new service and you are worried your competitors will simply copy you, all I can say is do better and do it faster. If you don’t speed things up by using existing systems you are damaging your business.

Focus your sweat equity where it counts – providing a good product and finding your customers.

Relationship marketing versus hard sell

The two polar opposite approaches to marketing can be best summarises as the hard sell and relationship marketing.

Hard sell is about helping you to make the decision to buy now. It is about giving you the confidence to make a decision now. The benefits are too good to pass up. This is a once in a lifetime opportunity. Think of your children. Think of what everyone will say when they see you … and, so on.

Relationship marketing respects the buyer’s right to make up their mind when they are ready. It is about establishing a relationship, building rapport, educating potential customers about your products and the benefits of them. At best you can make the customer aware of what you are selling and if they choose then they can buy. You will stay in touch with them on a regular basis and you will try to understand their business.

While relationship based marketing is generally considered to be better for long term business, saying that one is better than the other is not easy because they both have their place.

For larger and more complicated services and products then it makes a lot of sense to establish relationships with your clients.

For one off purchases such as in retail, cars or real estate then hard sell makes sense too.

There are also times where you will need to help a relationship based client move to a decision, and where you may need to build a relationship with a large buyer.

All in all, think about your customer base and the need for relationships or not before you tailor your approach.

Manufacturing questions

Let’s cut to the chase. If you want to manufacture something then seek professional engineering and manufacturing advice as soon as you can.

If you ask a contract manufacturer to do something they will do it, and do it well. The question is, what do you want them to do.

In the transition from prototype to batches to mass manufacture ask yourselves questions like the following.

• Given the likely sale price, what amount can be used for manufacturing?
• How many steps are in the manufacturing process – can this be reduced?
• What alternate manufacturing techniques can you use?
• If you are looking at manufacturing overseas to save costs, how do you plan to protect your IP?
• What surface finish do you require? Eg. Think of not only the look, but the durability – how will it look in a couple of years.
• What characteristics are required of your products. E.g. do your plastics need to be UV resistant?
• Do materials used achieve legal requirements? (e.g. flammability, resistance to shattering, child safe, release of volatile organic compounds, etc.)
• What is the life cycle of your product?
• Are all your components sub-millimetre accurate?
• Do all your components fit when assembled.
• How easy is it for someone to assemble your product?
• How easy is it for someone to access the innards and maintain your product?
• What are the tooling costs for a process and how many units do you need to produce to achieve your desired unit costs?
• What are the lead times for the manufacture of various components?
• What guarantees of on-time delivery does the manufacturer offer?
• What quality control do they put in place? Do you need independent testing and verification?

Contract manufacturers do a great job. It is up to you to make sure that you know what it is you want to do first and specify that. Your manufacturer may help you through the decision making process, but don’t rely on it.             

Failure is normal

Three months to design and make the product. One month to put together the customer list for a direct marketing approach. Another month to design and print brochures, creation of PDF based forms for orders, write letters and then send out sample products.  Guess what – I didn’t sell a single piece of that product – and I have no regrets.

Think of everything you do as an experiment. If things work out – great. If not, then what did you learn.

Whatever happens, the market is right. You can complain about customers not understanding the design or the great value for money or your great service, however, if they aren’t buying it is because you need to sell them something else.

The trick is to limit the cost of your failures. Don’t bet the whole company on a new product, hedge your bets a bit. Dip your toes in the water, learn how things work, see what customers really want and then sell it to them.

Even big companies hedge their bets. For example major mining or oil and gas companies form joint ventures with other major companies. The reason they do this is that some projects are so big that failure would bankrupt the company.

Think about trialling your products and limit your exposure to what you can afford. But remember the old saying that if you aren’t failing every now and then you aren’t trying hard enough.