When it comes to starting a business, experience is the best teacher. There are too many lessons to learn than can be taught in a book. I happen to really enjoy creating new companies. My shortest lasted a few months, and my oldest has now been running for over 12 years. Regardless of whether each business was successful, they each taught me at least one valuable lesson. Here are 5 of my top pieces of advice for anyone looking to start their own company.
Pick Your Partners Wisely
Who you choose to go into business with can be a lifelong decision. Don’t be quick to bring anyone into an equity stake of your business. Take your time even if they’re exactly who you need on your team, and it seems like a no brainer. I recommend talking to at least 3 different people who have worked with them in the past, before making a decision.
Hire Slow, Fire Fast
Making a quick decision to hire someone, because you need their skills immediately can SIGNIFICANTLY set your company back, especially when your company still has less than 5 employees. Then if they turn out to be the wrong fit, not only can they cause missed deadlines, they can also drag down moral with your other hires.
With that in mind, if you see someone not working out, move quickly to replace them. Many people hang on to trouble or under-performing employees, because they think they are “good enough for now.” Don’t. You’re showing the rest of your team that these are the standards that are acceptable.
Be Ready To Switch Directions Quickly
Did you know many investors aren’t investing in businesses? Their investing in the team. Most plans don’t survive exposure to real-world conditions, but by backing a good team, they are hoping they’re good enough to find the right path to success. If you’re starting to gain traction in a new area of the business, don’t be afraid to dive in. There are a lot of famous companies that owe their success to their pivot.
Don’t Get Stuck in a SLB
What does SLB stand for? Shitty Little Business. An SLB is a business that barely produces enough money to cover the salary of the owner who is working in the business. I’ve seen many owners who went into business without a solid plan of growth, and because it doesn’t produce enough revenue, the owner is stuck putting in grueling hours just to keep it afloat. A business is only going to grow if the owner can spend time working ON the business, which means he or she can’t constantly be working IN the business.
Create a Financial Plan
How do you avoid getting stuck in a SLB? A good financial plan. I can’t tell you how many times I thought I had a great idea to improve the profitability of a business to only find it didn’t make sense once I ran the numbers. I like to build really complex financial plans before investing much of my money into a business, but that isn’t even necessary to quickly understand if an idea has merit. You can always do some quick “back of a napkin” calculations.
Example: I want to start a car detailing business, and I want to make at least $100,000 per year in profit. Ok, so I’ll start with one employee.
An employee could detail 3 cars per day, and I can charge $150 per detail.
Ok, so that brings in $450 a day x 5 days a week = $2250.
Assuming 50 weeks of working with 2 week vacation, that means the company could bring in $112,500 of revenue per year.
For expenses, I have to pay the employee $50,000 per year, an estimated $10 per car in supplies x 750 cars = $7500, $1000 per month in rent = $12,000, $15,000 in annual marketing, and $10,000 in extra buffer expenses for a total of $94,500 in expenses.
$225,000 in revenue – $94,500 in expenses = $18,000 in profit.
Now I know that was some quick math, and there are going to be some other built in costs and issues such as only have one employee handling all the work – what happens when they quit – or the small probability I could get 3 cars every single day to come through, but that’s not the point of the exercise. It’s simply to quickly see if the numbers even make sense, and they don’t
If we repeated the same example but instead of detailing cars we decided to detail private jets at $500 a piece and only did two per week day, we’d now be looking at $250,000 in revenue, which could make it work.
I hope these lessons can help you avoid many of the mistakes I’ve made, I couldn’t fit all the lessons I learned in one article, so I’ll be following up with another next week.