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The following is a guest post by Darrow Kirkpatrick, a software engineer, author, and investor who achieved financial independence and retired early at age 50. Darrow now writes regularly on saving, investing, and retiring sooner at Can I Retire Yet?
7
Business Startup Lessons
Starting
your own new business, or getting in on the ground floor of one, is a proven
path to building wealth. Why? Because owning a business eliminates the
middlemen between you and profits, gives you numerous tax deductions and
credits, and allows you to leverage other people's time and money.
But, owning
a business, though a proven and potentially fast track to wealth, is far from
risk free. According to the U.S. Small Business Administration, over 50% of
small businesses will fail in their first five years! But, what if you could
learn from somebody else's mistakes to substantially reduce your own startup
risk? Well, you can begin right now….
I started
or participated in 5 different small businesses over my 25-year career in
software engineering, and I learned from a lot of mistakes! But, ultimately, I
was successful: I became financially independent and retired early. Now, I do
whatever I want each day, without worrying about a paycheck.
I'd like to
share with you here some of my business startup lessons learned, so you can
fast-track your own success. I hope you can learn from my mistakes, so you
don't have to repeat them:
1. Make
sure there's a market.
Do everything possible at the start of your business to ensure there is a
market for what you are selling, whether it be information, services, or
widgets. This is why competition is generally a good thing. It assures
you that customers exist. If your concept is totally new, or substantially
different from the competition, then put some effort into quick, cheap tests to
prove your idea has appeal. One of the best ways to test is to offer a small,
streamlined, or prototype version for cheap or free. Sites like eBay,
Craigslist, and Fiverr.com make this easy. Keep testing different ideas until
you find the one that people will spend a few dollars on, or at least trade for
their email address.
2.
Focus
on customers, not technology.
It's fun and exciting to learn the latest tools, and be a part of the latest
technology buzz. But, trust me, that's a backwards way to build a business.
(Unless your business involves selling to other technologists!) Your customers
don't care much about technology. They have real-world problems to solve and
want practical solutions. Whether those solutions are built with the latest
bleeding edge, something tried and true, or even aging legacy technology, is
largely unimportant to them, as long as it works and the price is right!
Technology might be important to you. It might impact your job
satisfaction, your ability to attract employees, and your profits in the long
run. But, at startup, it's mostly your customers and their problems that
matter.
3.
Avoid
infrastructure and build only the core of your business. The most critical question is this:
Can I deliver something compelling to customers who will pay more for it
than it costs me? Do whatever it takes to answer that question as quickly
as you can, and you will find a viable business. Avoid at all costs any
overhead or infrastructure that gets in the way of answering that question.
And, yes, I mean you should skip, at the start, everything from writing a
formal business plan, to incorporating, to printing business cards, to buying
office equipment, setting up bank accounts, designing logos, and joining
professional organizations. All that stuff that business "experts"
say you need. Most of it, in most situations, will simply cost you time and
money without bringing you any closer to the goal of getting customers and
making money!
4.
Be
realistic about your skills.
Starting a business is hard. Many fail. Before jumping into a new venture, and
especially before quitting your day job, ask yourself what gives you an edge?
Why will you succeed? Just wanting to set your own hours or be wealthy someday
is great. It's good to be motivated. But you need more fuel than that. Focus on
two areas: (1) your business domain skills, and (2) your networking and
marketing skills. Do you know an in-demand business product or service so well
that you can produce it very competitively with just a fraction of your
available time (say 25%)? Good, because you'll need to do that. You won't have
the luxury of spending most of your time actually doing the work.
Instead you'll be running and marketing your business. Next ask yourself, what
gives you an edge in marketing? How will you get the word out, cheaply, so
enough people take notice? Do you have a record of doing this well, or can you
partner with somebody who has? This is essential if paying customers are to
find out about your business.
5.
Know
when to do it yourself, and when to get help. This is the next step after realistically assessing
your business idea, and yourself. Ask, "what is lacking?" Strongly
prefer businesses where you already have all the necessary skills for the
initial launch. Because you, yourself, can do everything that's required,
cheaply, and on time. But, if you don't have all the skills, network with
friends and colleagues to complement your available skill set. Barter for tasks
if possible. If necessary, pay for small freelance tasks through sources like
99designs.com or odesk.com. Partner, or hire employees, only as a last resort,
because then you are starting to add infrastructure, before you even know if
you have a viable business. It's much better to commit to such lasting
relationships only as part of scaling out an already proven idea.
6.
Do
something so good that it can't be ignored. The last time you encountered a mediocre, boring, or
overpriced new product or service, did you buy it? Exactly. We're not
talking about commodities here, but something new and compelling. Don't expect
to get sales, or even much interest, without that 'wow' factor. At least one
dimension -- quality, novelty, or price -- and preferably more than one --
should impress your customers. Otherwise they just won't notice you in today's
sea of competing ideas. How do you get that 'wow' factor? Sometimes new technology,
or stunning presentation, or breakthrough pricing can deliver the knockout
punch. But behind those elements is always a more traditional factor: hard
work. That's right, at least at the start, you've got to sweat the details,
go the extra mile, and pour additional value into your offering -- so your
customers don't have to.
7.
Diversify
your revenue sources.
Ok, so you've followed all the steps up to this point. Do you have a viable
business yet? Possibly. One last element to consider, before you take it to the
bank, is this: how diverse is your customer base? Are you a consultant with
just a couple customers? A retail operation with spotty traffic? A web site
that appeals only to frugal students? Even if it looks like a business, even if
it is currently making a profit, it may not be viable in the long run. Some
lost customers, a shift in fashion or demographics, could snuff you out. Don't
rest until you have a diverse revenue stream -- only then do you have a truly
viable business.
So that's
it, 7 mistakes and 7 lessons I learned the hard way, that you don't have to!
This is by no means everything needed to start a successful business, but it is
essential knowledge that will give you an edge in the early stages. Ensure
there is a market, focus on customers, avoid infrastructure, be realistic, do
as much as you can yourself, do it all well, then diversify your revenue. And
you'll be well on the way to a successful business that can take you to
financial independence!
Share your experiences by commenting below!
