Five Lessons Learned from Starting a Business
By: Mark Recker, Recker Financial
As a financial advisor, I spend a lot of time working with small business owners. I am a small business owner myself. I purchased a meat processing business with my family in May of 2017 and then started my financial planning firm in September of 2018. Here are five lessons I have learned over the past several years.
1. Have A Financial Runway
Starting a business is challenging. No matter how great your idea is or how great of a business plan you have, it still takes time to get your business up and running. Most businesses don’t fail because they run out of enthusiasm; they fail because they run out of cash. I view start-up financing like an airplane runway. The longer runway you have, the longer you can take before you have to takeoff. The more money you have available for your business, the longer you can afford not to be profitable. When starting out, you need either enough money saved (the best way), a part-time job, or secure enough financing to both run your business and afford your household expenses. Once the amount of cash flow you generate pays both your business and personal expenses, the business has reached a point where it truly is viable long term. I refer to this as being lifestyle breakeven. I would generally plan on your business generating zero positive cash flow for at least the first year. If you need your business to start turning positive cash flow within a few months, you are better off waiting to start until you are in a better position financially. This isn’t just important for being able to pay the bills; it also keeps you from taking shortcuts and allows you to implement strategies that will help your business long term. It can also prevent you from going into desperation mode trying to acquire customers. The last thing you want to portray to your customers is being someone who will do anything to make the sale. If your financial runway isn’t long enough, it can have damaging long-term effects on your business.
2. Spend More Time on Your Marketing Plan Than Your Business Plan
Your business plan is essential, and I am by no means suggesting you should not spend time crafting an excellent business plan. What I am saying is that a well-written business plan is less of a factor in success than a well-implemented marketing plan. Often, I see business plans that have properly outlined their operating costs, product costs, and their target market. The plan will have calculations like: if we had five customers a month, we will make X amount of profit, or if we can capture 1% of our target market, we will be wildly profitable. The numbers seem very reasonable and conservative, but there is only one problem; getting those five customers or capturing that small percentage is usually extremely hard. You have to remember when you are starting a business, no one knows who you are or what you offer. Getting five brand new people in the market for your services and away from your competitors won’t happen overnight. You have to prepare how you are going to attract customers. Things like search engine optimization and social media aren’t marketing plans. They are often vital pieces of a marketing plan, but they are still just pieces. Furthermore, just because you have a superior product that will benefit customers, does not mean that it will lead to sales. One story that has stuck with me throughout my career that illustrates this was from “Rich Dad, Poor Dad” author Robert Kiyosaki. He was speaking to a group of people about the importance of marketing for the success of their business. Some people in the room thought that an idea or product that is superior would sell itself. He asked the people in the room how many of them thought they could cook a hamburger that tasted better than McDonald’s. Everyone in the room raised their hand. He then asked how many of them could build a business around selling their fantastic hamburger better than the business McDonald’s had. No one raised their hand. The takeaway is, anyone can create a better burger than McDonald’s, but very few can match their level of marketing. Spending time on ways to improve marketing your product or service will always be time well spent.
3. Don’t Try to do Everything Yourself.
As an entrepreneur, trying not to do everything yourself can be extremely difficult. To be an entrepreneur, you have to be extremely motivated and have a distinct vision. It can be uncomfortable to delegate specific tasks to people who couldn’t possibly be as motivated as you for your business to succeed. With that being said, if you try to do everything yourself, you can find yourself being extremely inefficient and waste a lot of money. While it may seem like a good idea to edit your marketing videos or create a website yourself, often you won’t have the tools or expertise to do it effectively. Before you know it, you have spent several hours with a website that only has stock photos with links that won’t work and a video that has generic music playing in the background over a slideshow of pictures from your phone. As the old business saying goes, do what you do best and hire out the rest. However, this doesn’t mean you shouldn’t educate yourself about certain aspects of your business. You should learn as much as you can to identify who you should hire for specific tasks, how much you should pay them, and then get out of their way.
4. Have Realistic Expectations
It is ok to think big and set lofty long term goals, however you need to be realistic especially in the short term. The US Small Business Administration notes that 50% of all businesses fail in the first year, and 95% of businesses fail within the first five. Anyone who has ever thought about starting a business has probably heard that stat. The odds are truly stacked against entrepreneurs. With that being said, don’t make it harder on yourself by having even more demanding standards. It’s ok if you don’t create the next Microsoft within your first year. Having your doors still open after a year is something only 50% of people who have tried to start a business can say. That isn’t even taking into consideration all the people who will never attempt to start a business. You are probably going to struggle to get customers at the start. There will be times you are unsure if starting a business was a good idea, and you will probably have at least one friend, customer, or family member tell you that they don’t like your business. All of this is normal, but make sure you are comfortable with that going in. If you are expecting customers to beat down your door and money to start rolling in, you may not be able to handle the let down when it doesn’t happen. There is a chance your idea is unique, and you will be wildly successful right away, but odds are you won’t be. Don’t look at that as a failure but as another step in the process.
5. Get in a Co-Working Space if Possible.
A co-working space or shared office space can be a big boost for entrepreneurs. Some people can work from their home; however, I am not one of those people. Working from home can create all sorts of distractions that can keep you from being productive, but it can also make it difficult to unplug from work. I think it is good to have a separate office space. You can go the route of getting your own office space, but that too can have its set of problems, not the least of which is the price. When you get your own office space, you start to realize how expensive running an office is. Yes, the rent payment is one thing, but when you start to add things like parking, internet, utilities, and office supplies, it can get pricey. When you have your own office space, you have to supply everything. I will never forget my first day in my office space when I went to staple two pieces of paper together and realized I didn’t own a stapler. Once I returned from Office Max after buying one, I went to throw the packaging away and realized I didn’t have a trash can either. All of these little things always keep happening when you have to build your office from scratch. Shared office space can help with a lot of those issues and allow you to focus more on running your business as opposed to figuring out what is the most ink efficient printer you can buy that doesn’t cost an arm and a leg. Another benefit of a shared office space is that you are surrounded by other entrepreneurs who can relate to your struggles. It’s nice not to feel isolated and share some experiences, so you don’t feel alone. Chances are someone in the group who might have an idea or can provide you some insight you wouldn’t be able to get working in your own space. As an entrepreneur, there are many people that help you along the way, and more often than not, those people aren’t on your payroll.