First – Cash is king
The world is full of good ideas that are unfunded. You need to put your
own money in, then aim to earn revenues as soon as you possibly can.
The costs of starting up and growing a business are more than you
realise, so be prepared to re-mortgage your house, max out your credit cards,
sell shares, pre-sell product, or whatever it takes to get up and running.
Running out of cash is the main reason companies fail. The worst part
is when you run out of cash before your product is ready for the market – you will
have nightmares about this for the rest of your life.
Spend your cash where it makes the most difference. For example, Google
advertisements are going to be a heck of a lot cheaper and more effective than
advertising on television, so why do some startups insist on spending the
$30,000 to $80,000 for a single 30 second advertising slot. Post your ad on
YouTube instead.
Speaking of spending your money wisely, you will be inundated with
offers of help from advisors, suppliers, etc. You will go bankrupt very quickly
if you pay for every bit of help you need. Fortunately the one thing you do
have is time – so spend your time reading up on issues and working your network
for answers.
The good news is that every single other business out there is in
exactly the same position, so get your game on and get competitive.
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Second – Business plans are fiction
Detailed business plans are really a reflection of how you want the
world to work and unless you have deep experience in your chosen industry you
will likely find that the market rejects your version of reality and imposes
its own.
A sensible business plan will state what industry you are in, how big
it is, who is doing what to whom and for how much, key target customers, key
competitors, likely startup and ongoing costs, staffing requirements, etc. This
could take up a few pages.
When you actually talk to customers, suppliers and potential employees
you will rapidly discover issues with your initial idea. You will then reinvent
and refocus your business.
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Third – Test your idea before you commit
You are about to quit your job and put your life savings on the line,
so it is only sensible that you test out your idea a bit. Fortunately it is
pretty cheap to test your idea, and you can do it before you quit your day job.
Registering a company, getting a logo, buying your domain names and
getting a website up should cost you a couple of grand in the USA, Canada or
Australia.
Go talk to potential customers and suppliers. Read up on industry
trends. Look at your potential competitors – sure they may look like dinosaurs
but they are making money so don’t be different for the sake of it. Talk to
people working in the industry. Talk to people in the same business in a
different city so you can test your ideas with someone who won’t compete. Talk
to family, friends and people in your network.
Do find reasons to talk to lots of people as most of them do not have
the drive or interest to steal your idea, and if you create a bit of a buzz
then that is a nice form of marketing too.
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Fourth – Passion is a buzzword
Watching the latest American Idol auditions again highlights the misuse
of the word ‘passion’ in modern society. It seems that when a contestant uses
the word passion they can’t actually sing.
I am passionate about movies, but I wouldn’t have a clue how to make a
movie or write a good script.
I wouldn’t be surprised to hear that venture capital firms and angel
investors screen out any companies that use the word passion in their pitch.
What I do like to know about are the following attributes: determination,
flexibility, resilience, curiousity, inventiveness, clarity of vision, frustration
with the status quo, interest in your investor’s interests as well as your own,
recognition of your limitations, etc.
Leave passion for lovemaking, not business.
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Fifth – Minimum Viable Product please
Perfectionism is your enemy. The whole point of business is to earn
enough money to cover your costs. See point one above about cash is king.
Unless you have a stupendous idea that investors love so much that they pour
money into your company then the carefully crafted path to final product will
remain on paper only.
The trick is to get something up and sell it as soon as possible. The current
catchphrase for this is minimum viable product.
When you get that product up then you will find out what the market
thinks of your product. You can make improvements based on feedback. You will
also likely find that the feedback you get leads you in a slightly different
direction than you thought you would take.
The really nice thing about making sales as soon as possible is that it
gives you the cash flow to pay for upgrades and improvements to your product.
This point cannot be emphasised enough.
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