Venture Launch - Collaborate, Create, Succeed

How to Choose the Ideal Business to Start

  • January 28, 2010 2:27 am

The other day I met with Matt, Mike and Peter, three great friends and business owners. We’re all serial entrepreneurs and neither of us had started a new company in the last year, so we decided to start a new business together.

We talked for a good hour or so about what kind of business we wanted to start. We discovered that our definition of “the perfect business” was very different from those you can find in most business books. These are the criteria our “perfect business” had to meet:

We Should Be Able to Launch The Business in One Month
We don’t like planning for years and then opening our doors and hoping for the best. We like getting started right away so we don’t lose momentum.

We Should Be Able to Start the Business with Less than $2,000
This is why we decided to start with a very small investment:

  1. We want to test the market to make sure there is demand for our product.
  2. When you have little money, you’re desperate to make sales. That’s a good thing! When you have money, you feel like you can sit around and “wait for the business to take off”.
  3. When you have little money, you become very efficient. You negotiate more, look around for better deals and decide against expenses that won’t help your business grow.

We Don’t Want Investors
What’s the first thing business books tell you to do? To write a business plan and look for investors. We don’t like having investors for these reasons:

  • We want to be able to make fast decisions without having to seek for approval for everything we do.
  • We want to focus on creating value for our clients instead of making our investors their money back as fast as possible.
  • Too much money makes people lazy. They stop caring about small costs, they pay more for stuff they can get for less and they’re not as desperate to find clients as they should be.

I’m not saying that having investors is a bad thing; I’m just saying that I don’t want to have investors for MY businesses.

We Want a Business That Provides Cashflow from Day 1
You’ve read it before: start a business, work your butt off and sell it in 5 years for millions of dollars. Although some people try this and make it, the great majority of those who go this route fail miserably. I like instant gratification. I want to make money from day 1. I want to make money every month, not just once in 5 years.

We Want a Business That Generates Recurring Income
The beautiful thing about a business that provides you with recurring revenue is that:

  • You can afford to break even or even lose money to acquire a new client.
  • You don’t need to get new clients all the time in order to keep your business profitable.

Think about it: you give money to your cable and cell phone companies every month. All they had to do to get you to hire their services was to offer you a great deal for the first 3 months. Not a bad business model, huh?

We Want a Business that Allows Us to Charge Our Customers Before We Have to Pay Our Vendors
The hardest part of a business to manage is cashflow. When you have to pay for something before you can charge for it, you can get in trouble. Let me explain: let’s say you start a business with $10,000 and you sell $1,000 widgets that you pay $500 for. If you sell 20 widgets in the first month, all your money will go towards buying inventory and it’ll take a few days for you to get the money from your clients (because of shipping times, the money clearing your merchant account and getting deposited in your bank account, etc.)

You’ll run out of money and when someone orders another widget you won’t have any money to buy inventory. Also, you won’t have money for marketing and unexpected expenses. And, your customers will be upset that you can’t fulfill their orders.

Now, compare the scenario above with these ones:

  • You create your product ONCE and you can sell as many of them as you want without any additional costs (e.g. informational products, software, etc.)
  • You pay you supplier AFTER you collect the money. You collect $1,000 for every widget you sell and you pay your supplier $500 AFTER the sale is made.
  • You sell your supplier’s product and they give you a PERCENTAGE of each sale. This could be in the form of affiliate marketing or drop-shipping and out of these three options this is my least favorite.

The 3 scenarios described above are a lot less risky than buying inventory upfront and then trying to sell it.

We Want a Business We Can Automate
Some businesses are extremely complex and require a lot of time. We don’t like those. We like businesses that we can automate or delegate easily. We like processes that we can break down into smaller tasks and train high school students to do them. This doesn’t mean that we always hire high school students, but it’s a great way to think about it.

We Want to Do Something that Makes Us Happy
This is the most important criteria of all. To me, 40% of the happiness a business brings me depends on who I work with. I like working with smart people I can have fun with and share my way of doing business (mention “business plan” around me and I’ll run away from you as fast as I can).

The other 60% depends on doing something with meaning. I want to know that not only I’m making money but I’m also making the world a better place. I’m not talking about alternative energy or fighting poverty (although I’ll make a contribution to those fields some time soon); I’m talking about creating tools to make processes more effective, save people money, help them make more money, be happier, etc.

When you believe in what you do and get hundreds of nice emails from customers, it feels really, really good.

Zeke Camusio
http://www.theoutsourcingcompany.com/blog/

Rags To Riches…Anecdotally Speaking

  • January 22, 2010 2:29 pm

I love listening to a good story…especially ones about entrepreneurs and their path to eventual success. The woman or man who turned nothing into something, who did it quickly, and without the help of others, AKA the “rags to riches” story.

I think there is a yearning in every entrepreneur who hears these stories to identify with the subject and imagine how it could happen to them. Like there is some magic formula to success, and if we could just do this one or two things…our business would take off, our work load would ease up and we would start living the good life we deserve.

There is a video on YouTube of famed story teller Ira Glass, host of This American Life, explaining what makes a good story. According to Glass the first characteristic is (paraphrasing here) an anecdotal storyline; a sequence of events that leads to a destination, creating questions and suspense along the way. The second characteristic is a moment of reflection or “ah ha” moment.

This formula, or at least the first characteristic is used in most “rags to riches” story. The second characteristic is usually more illusive. For example, in the August issue of Inc. Magazine the cover story proclaims “Think Rich and Never Give Up” subtitled “How Joe Cirulli turned his last 12 cents into a $17 million company”.

Clearly this cover blurb is targeted at selling magazines. But, one could imagine an enterprising entrepreneur walking by a newsstand, catching a glimpse of the title accompanied by a cover shot of an average looking Joe Cirulli and thinking: “Hey! I can do that…I have 12 cents in my pocket and I certainly know how to think rich. Where do I sign up?”

Unfortunately, unless you are at Barnes & Noble where freeloaders religiously read books and other publications free of charge in the store, you may have to spend you last 12 cents and beg for another $4.87 to find out. But I digress…the article entitled “The Believer“, also points to the books “The Power of Positive Thinking” by Norman Vincent Peale and “Think and Grow Rich” by Napoleon Hill as a contributing factor of his success.

As it turns out, (and as you might suspect) the 12 cents and the books were inconsequential to the success of Joe Cirulli and his Gainesville fitness center. According to the article, it was a few years after he was down to his last 12 cents that he happened upon on opportunity to purchase a local health club, who’s alcoholic owner was getting divorced and facing bankruptcy. Then, only through the power of persuasion he convinced gun shy bankers not to foreclose on the business (and I guess assume the loan being foreclosed on although it is not expressly stated in the article), finds a new location on a deadline, begs people for personal loans, only partially completes fit-up on a property that fails inspection, opens anyway and finishes it over the next six months without incident or interference from the local city inspector. Once up and running, his passion for fitness and customer service grows the business into a successful operation…over years.

But I guess the subtitle “How Joe Cirulli used perseverance and persuasion to build a $17 Million Company over several years” doesn’t sound as captivating because it sounds like work. My hunch is if you asked Joe…hard work would be on the top of his list of what made him and his company’s successful.

I am not picking on Inc magazine. They are no better or worse in this regard than any other publication on entrepreneurship. In fact, just months before I remember reading an article on the true costs of building a multi-million dollar company, like lack of social life, free time, not seeing your kids grow up, poor marital relationships, etc. etc.

I am, however picking on entrepreneurs who are looking for something for nothing. So, lately I have been wondering: Do anecdotes help others become successful? Or, are they just entertainment and should be taken as such? Are they good for people or do they build false hope? I would like to know your thoughts.

In the mean time I have another anecdote for you: A local entrepreneur has a great idea for a new business she is passionate about. After learning the bank won’t lend her the money to get it started, she cashes out her retirement and hits up friends and family for money. Starting the business on a shoe string she runs out of cash after about 12 months. Because she has not received a paycheck to date, her personal credit suffers but she scrapes it together and pays bills when she can (mostly out of the business account). After two years she scratches out a living that when calculated per hour amounts to slightly over minimum wage. After five years that living grows to a comfortable level. She never makes millions but she is proud of having built a business that provides for her family and puts equity on her personal balance sheet.

Donovan Wadholm

What to do when your business is running out of money.

  • January 21, 2010 12:46 am

Excerpted from www.unchained-entrepreneur.com

We spend a lot of time here at the Unchained Entrepreneur focusing on how to start and grow companies, as well as strategies for achieving person success. There is a dark underbelly to growing a company, however. The life of an entrepreneur is not always one of joy and unbounded enthusiasm. Today let’s examine what to do about one of the most dreadful entrepreneurial situations – burning through cash reserves.

One of the most stressful times in the life of an entrepreneur is when your company begins to run out of funds. Perhaps you overestimated how quickly your product would come to market? Or maybe a key supplier/manufacturer overpromised on delivery times? Perhaps the general economic malaise played havoc with your plans? Whatever the reason, many of us have been in the circumstances where our business was threatened due to the steady drain of capital.

There’s no magic bullet for this situation, and I’m not going to pretend that a blog can possibly solve your particular circumstances. Instead, I want to focus on strategies that you can employ that can keep your emotional state healthy and may also keep your business afloat. If stress becomes overwhelming, you won’t be in any shape to search for solutions. Thus, you can use some or all of the following tips to keep yourself on an even keel, allowing you to continue the battle for business survival and success.

Don’t Lose Track of Success

Just because your business has run into difficulties doesn’t mean it’s a failure. Take some time and review all the successes that you and the company have achieved since startup. Actually sit down and make a list of these accomplishments. Have you launched a product? Garnered any awards? Raised initial angel or VC funds? The list of milestones could be much larger than you think.

About ten years ago, a company I co-founded (Sneakers.com) ran into some financing difficulties. I sat down and made a list of milestones that had been achieved – securing the Vice Chairman of the North Face for our Board of Directors, hiring the former Chief Merchandising Officer of the Sports Authority as President of the company, raising several million dollars of initial angel funding and launching a super designed and functional website were on that list. As I reviewed these, I realized how much the company had already accomplished. Lack of financing was just another obstacle – and we’d already overcome a number of obstacles to get to where we were.

By the way, this list can prove to be an effective tool beyond your own state of mind. Share this with employees, vendors or suppliers that express concern about your circumstances (see below). You may find that it gives them comfort. Additionally, you should be using this as a tool in any attempt to raise additional capital.

Control what you can.

Read the rest at Unchained-Entrepreneur.com

Entrepreneurs, to Build a Successful Start-up Company You Must Create Value Everyday

  • January 15, 2010 7:16 pm

Entrepreneurs need to necessarily focus on creating value for their start-up company.  From an initial “idea” or “concept”, entrepreneurs need to continually focus on moving their start-up company forward to the next step in its development. This is accomplished by creating value for your start-up company and focusing on those items that necessarily make a difference to both your targeted customers and to your investors.  As an entrepreneur, you are not in the business of developing technology for technology sake or the “cool” factor.  You are in business to acquire paying customers.  To do this, you must create attractive value that facilities customers’ desire to buy your technology, product or service offering.  From the initial concept, to identifying your business proposition, to developing and delivering your first prototype, to acquiring your first paying customers, entrepreneurs need to focus on value added activities that move their start-up company forward from inception, through funding, to a functional, cash flow positive functioning entity.  This article focuses on the necessity to create value everyday to facilitate both the short term and long term success of your start-up company.

Think About Your Start-up Company 24/7

As the entrepreneur of a start-up company you will have a lot of challenges along the way.  With both short term problems to address, as well as long term corporate objectives, you need to focus on your start-up company 24/7.  Why is this focus necessary?  Because as you try to successfully guide your start-up company through the maze of daily problems and opportunities, you are trying to identify the proper and best path forward that servers your near term objectives and at the same time does not necessarily cause issues that may hurt your start-up company in the long run.  Near term problems may turn out to be significant long term opportunities, and your initial long term objectives may not necessarily be right for your start-up company as it evolves and develops from instantiation to a functioning and profitable company. In addition, what was an obvious decision yesterday may be a total miss-step tomorrow.  Therefore, you need to constantly think about your start-up company from bottom to top, 24/7.  This type focus will allow you to mull over changes in the market and at the same time provide you with the necessary insight to continually create the value that moves your start-up company successfully forward not only addressing day-to-day activities, but over the long term.  So, as a budding entrepreneur, you need to think about your start-up company 24/7.  This will provide you with the necessary focus to guide your company through the trials of a successful start-up company.

Identify Your Start-up Company’s Value Proposition

One of the key items that differentiates a successful start-up company is the ability to succinctly define its underlying value proposition that targets the needs of its customer base.  By identifying a significant value added proposition for your target customer base, you are in essence solving an unmet need or problem in the market.  In addition, by identifying your value proposition early, this will allow your start-up company to create and develop a differentiated product offering in the market.  It will also allow you as an entrepreneur to succinctly define your start-up company and its technology, product or service offering to your potential investors.  This is necessary, as investors need to quickly discern how what problem or need you are solving in the market and how you are differentiated, long term from your competitors’ product offerings.  In addition, by identifying your value proposition early, you will necessarily provide a path forward for your start-up company.  This does not mean that your value proposition will not evolve or change as you engage with your customers and continue to define your technology, product or service offering.  It is okay to refine and enhance your value proposition as you engage your customers and the market. This will necessarily allow you to create additional value to your targeted customers and enhance your long-term success in the market.

Focus on Significant Value Added Activities

As an entrepreneur of a start-up company you need to focus on significant value added activities to constantly move your company forward.  This is very important, as it is often too easy to get caught up in insignificant day-to-day activities that do not add value to your start-up company.  Significant value added activities can include:

  • Calling your customers to validate the necessary features, functions and capabilities or your initial product offering and your long term product roadmap,
  • Focusing on securing the necessary strategic partners to complete your product offering,
  • Streamlining your business and financial models to ensure success in the market,
  • Minimizing time-to-money and focusing on early revenue sources, and
  • Securing initial customer commitments.

By focusing on significant value added activities, you are creating the necessary value that will get investors attention and at the same time raise your start-up company’s valuation.  It addition, you are creating a path to success in the market.  Therefore, as an entrepreneur, you need to focus on value added activities that are significant and will create long term success for your start-up company.  By doing so, you will help create a smooth path forward and at the same time enhance your probability of securing funding and success in the market. 

As an entrepreneur, to create a successful start-up company, you need to focus on creating value every day. This is necessary, as the road from inception to funding, and ultimately a successful functioning and profitable company is often difficult and treacherous.  Bad near term decisions, can often have significant consequences on the long-term success of your start-up company.  To continually add value every day, as an entrepreneur, you need to think about your start-up 24/7, identify your start-up company’s value added proposition, and continually focus on significant value added activities.   By doing so, you will enhance your ability to create and fund your start-up company and ultimately be successful in the market.

This information was taken from Robert’s new book: “Business Planning, Business Plans and Venture Funding – A Definitive Reference Guide for Start-up Companies”.  Available at http://www.amazon.com/.  For more information on the book go to www.carlsbadpublishing.com.

View Robert Ochtel’s Blog

Start-up Triplets from OnStartups.com

  • January 9, 2010 5:20 pm

Startup Triplets:  Startup Advice In Exactly Three Words

1.  Watch your cash. [tweet]

2.  Pick founders carefully. [tweet]

3.  Hire generalists early. [tweet]

4.  Hire specialists later. [tweet]

5. Invest in culture. [tweet]

6. Avoid tempting distractions. [tweet]

7.  Support customers maniacally. [tweet]

8.  Avoid business plans. [tweet]

9.  Write a blog. [tweet]

10. Never fudge numbers. [tweet]

11. Encourage diverse thinking. [tweet]

12. Guard your time. [tweet]

13.  Defer renting space. [tweet]

14. Get enough sleep. [tweet]

15.  Delay raising capital. [tweet]

16.  Persist through downturns. [tweet]

17.  Decide with data. [tweet]

18.  Improve product daily. [tweet]

19. Recognize revenue consistently. [tweet]

20. Start charging early. [tweet]

21. Reward early adopters. [tweet]

22. Sell something today. [tweet]

23. Say “NO” often. [tweet]

24. Accept imperfect data. [tweet]

25.  Recruit with zest. [tweet]

26. Nurture your best. [tweet]

27.  Treat vendors well. [tweet]

28. Believe in yourself. [tweet]

29. Respect your competitors. [tweet]

30. Try something new. [tweet]

31. Build a brand. [tweet]

32. Focus, focus, focus. [tweet]

33. Iterate more often. [tweet]

34. Use your product. [tweet]

35. Live your vision. [tweet]

36. Encourage rational debate. [tweet]

37. Make decisions swiftly. [tweet]

38. Face harsh realities. [tweet]

39. Don’t break laws. [tweet]

40. Protect your health. [tweet]

41. Celebrate your successes. [tweet]

42. Cancel unnecessary meetings. [tweet]

43. Improve emloyee’s resumes. [tweet]

44. Beware big bullies. [tweet]

45. Share the experience. [tweet]

46. Maintain your relationships. [tweet]

47. Keep it fun. [tweet]

Update:  Guy Kawasaki (yes, the Guy Kawasaki) was kind enough to post some of his own triplets. Here are some:

48. Sales fixes everything.

49. Ship then test.

50. Do not partner.

You can see his full list here: Guy Kawasaki’s Startup Triplets.

 

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