- 9% of the population owns a business.
- 7 out of 10 business start-ups never reach their year 2 anniversary.
- 51% of the remaining 3 will still be in business after 5 years.
- 5% of the remaining 1.5% have annual revenue more than $1,000,000
How do you become .08% of business start-ups that can fetch more than $1,000,000 purchase price in the end?
Get the right information right from the start!!! Don’t just ask those people that you know who are in business for advice with your business start-up. Most of them are struggling with their own challenges and don’t really know how they got to where they are right now!
As a business start-up, or at any other stage of business growth, there is only one question that you need to ask for business success…
What do I need to do so that my business will run without me?
That is, how do I create business self-sustainability! That is the mission of DE, Inc. and this blog to teach you what you need to do to make sure that your start-up business is able to run without you so that you can have the independence and financial freedom that you seek.
Here are some articles you may find helpful which are specific to business start-up and the first stage of the business growth cycle.
Posts for Business Start-ups
Get monthly cash flow to the point of consistent breakeven.Getting cash flow to breakeven is critical. If you can’t do that you’re business becomes another of the millions that fail in the first 5 years of existence. In the selling for startups is all about mechanics – getting to breakeven as fast as you can. So, you need to understand exactly what it takes to get to breakeven and forget about all the “bells and whistles.” You can look at the sexy side of sales after your business is on solid ground!
Selling for Startups Means-How Many Sales Does It Take to Breakeven?The first thing you need to know is how many sales do you need to make to breakeven? It’s just a simple calculation, but you’d be surprised at how many small business owners, even ones that are beyond the foundation stage, even understand that number. First, figure out how much money you need to pay all the bills for your business for a month. This includes all the materials and labor for your service or product. Next, divide this by the AVERAGE price for one unit of your product or service.
Monthly Breakeven $ / Average Price per Product/Service = Number of Sales/MonthFor example, a handyman needs to bring in $7,000 to pay all his bills, loans, and salary. He bills an average of $350 for a service call. Selling for startup in this case is as follows:
$7,000 / $350 = 20 service calls
Where Will They Come From?When selling for startups the next question is to get focused on your target market. Who buys what you sell? Are there more than one group? If so, does one group want something different than the other? The whole point of this step of selling for startups is to begin refining where you will spend your time. Too often startup companies are all over the board trying to be everything to everyone. This is a bad formula. You have limited time and money. So, you need to spend it where it will give you the best payoff. If we go back to our example, who can he sell his services to?
- rental property owners,
- property management companies,
How Do You Reach Your Customers?Now that you know who you want to speak to, where do they look to buy your type of product or service? Internet, friends, colleagues, store, directories, etc. This tells you where you need to engage with them so that you can get their attention. Part of selling for startups is engaging prospective customers in a conversation. This is really more marketing than sales at this point, but you need to understand where you will find the opportunity to sell so that you can build the appropriate sales & marketing plan. From our previous example, property management companies while the biggest bang for the buck may be too big for him as he gets started. So, he will target rental property owners. He may find these people by talking to realtors or by contacting areas where larger groups of rental properties exist. Again, this approach is much different than trying to find individual homeowners and might require a lot of advertising.
Do It!Selling for startups begins by answering these 3 basic questions. Once you have all the information you can create a solid sales plan. Build a targeted list and begin connecting so you can tell your story and create interest in your product or service. Once you get here you’ll find that sales are well within view! One reason you want to build your plan this way is because you can document what you did and how you did it. Once you know it works and is creating breakeven consistently you want to pass it on to someone else. This is a sales specific example of what we describe in our eBook The Startup Guide to Small Business Growth and may help you understand how to apply this approach to other aspects of your fledgling business. Additionally, if you need help determining what to do I recommend taking a look at our online training course Calculating Your Revenue Engine’s Horsepower. It will help you organize the thing necessary to put your overall plan together.
- assure enough cash to meet financial needs
- prove a market exists by getting enough customers to survive
- provide service well enough to be create customer loyalty
- complete the necessary proper legal structure for the company
Assure enough cashThis objective a profitable business would seem to be self-explanatory, but if it is then why do so many companies go under because of lack of cash? It’s because many people starting in business don’t understand the concept of cash flow. Cash flow means money “in hand to pay bills. A signed contract or an invoice out the door doesn’t qualify. Depending on how long it takes you to deliver what was contracted and the terms and conditions of your order it could take you months before you see your money. Do you have enough cash from when you started to carry you through this timeframe? What if your plan doesn’t go exactly as you think it will, then what. That’s why it is important to always look at a best case and a worst case scenario. While the worst case may not happen at least you know the range of possibilities and can plan accordingly financially.
Get enough customers to surviveWhile this objective for a profitable business also would seem quite obvious, do you really understand this objective well enough? How many customers do you need to break even every month? That is, how many customers do you need to keep the doors to your business open? If you don’t know this number then you are “flying blind” and your success is left to chance. Remember the last objective – “get enough cash.” Once you know that target, then you must understand how many sales you need to make each month to hit that target. Your picture becomes clearer now and you know how much work it will take to keep the doors open. Add in what you want to make in profit and voila you have your goal to make it to the survival stage of the small business growth model.
Create customer loyaltyNow that you are getting customers you need to do whatever it takes to keep these customers coming back and bring other customers to you. This objective for a profitable business is your operational focus at the foundation stage. What does it take to make people say “wow, I want some more please!” When you get your business to this point you don’t have to find new customers every month. Either they’ll come back for more or send others to you. Now, you get some part of your last objective accomplished without working at it. That doesn’t mean slow down your sales and marketing. It means the same amount of sales and marketing effort actual allows your company to grow and that growth mean moving to the next stage of the small business growth model.
Proper legal structureFinally, we get to the administrative objective. A proper legal structure is more important than for just taxes and legal purposes. It also demonstrates that you are a real business that is serious about what you do. Many companies check a business’ status before they will place an order or even spend time talking with them. If you are serious about your business make sure you demonstrate all the traits of a serious business that means putting the proper legal structure in place. Additionally, there are tax and legal obligations that come with doing business. Not having the proper legal structure creates risk and exposure to you and your family. The tax and legal obligations will eventually catch up with you. Understand what they are up front so you can plan appropriately. If you don’t they can kill your business later or at least slow down your growth for a time.
So, are you focused on having a profitable business?If you do not have your eye on any one of these 4 key objectives then you are leaving your company’s success to chance. I am not saying you won’t be successful, just that the chance are less and that it may take you much longer to realize that success. By having a lack of attention to these 4 key objectives you lower your chance of having a profitable business. I’d like to hear from those of you who have not been focused on one of these objectives for a period and then when you did focus on the objective how everything started clicking for your business. Share your story. Others are in a similar situation and your guidance could put them on the path to success.
- A detailed understanding of what it takes to breakeven
- Complete your installation/delivery SOP’s (quality assurance)
- Establish a customer service policy and framework to support it
- Provide market feedback for product/service improvement
Understanding BreakevenThis first objective is focused on the primary goal of the foundation stage – breakeven. Many small business owners don’t even know this number, much less have a plan to get there! My assignment for all clients at the foundation stage is to build a detailed plan of what needs to happen to consistently breakeven every month. Here is why! If you do build a system for breakeven you can delegate this responsibility to someone in the company and not have to worry about it day-to-day any more. This frees you up to focus on more critical aspects of the business, like beginning to focus on profitability and how to get there consistently.
Consistently Assuring QualityAny time I ask a new client about outsourcing to build capacity they grimace in agony. More small business owners fail at outsourcing than should. The reason is they don’t show their vendors what a delivered product or service should look! They leave too much to chance and then are surprised by the result they get. If you have a product that you manufacture quality assurance comes in the form of a specification. It’s a plan the product is built to and that the delivered product’s quality is measured against. For a service this is an operating procedure as to how a service technician or rep would deliver what you sell. Now you can evaluate what was delivered as can the customer. If it matches with what your marketing materials and contract state, you can cover yourself from unexpected complaints.
Customer ServiceWhy do you need customer services at this stage of the game? Because if you are not thinking this way from the beginning, you will create problems before you even start. A customer service policy is actually a critical part of defining the “persona of your business! It tell potential customers exactly how you will treat them. If you say you provide superior service in your literature, you’d better deliver on that promise or you will have an even a bigger problem – a bad reputation in the market!!! Internally it tells your employees what is expected of them and sets the tone for their performance evaluations. This is what allows you to hire better employees by showing the expectation upfront and giving you a set of criteria from which to evaluate new hires. There is nothing worse than get bad hires from the start. It can take months if not years to recover from a bad decision here.
Market FeedbackYou made some assumptions when you got started. As you begin to close business listen to the feedback during delivery. This is good feedback on how you can provide more of what the market wants. In the past post title “Listening – The Best Marketing Skill in the Foundation Stage” I talked about the importance of listening to the market. This is a good way to get that feedback without spending more money to get it. Your installers or service reps are engaging with the customer. Don’t be afraid to ask them what they think! If you are, then you’ll miss out on an opportunity to grow faster. Good feedback at this point will allow you to adjust as you move into the survival stage. The more ready you are at this point the faster you can move through this stage. This is often the difference between getting to self-sustainability stage in 3 years instead of 5. So, how fast do you want to be there?
Putting It All TogetherNow, a lot of people will say, “Dino, this is way too soon for this stuff.” But, I disagree. If you wait until later you will not have time to think about this stuff or will have to stop forward progress to deal with it. Also, you will develop bad habits within the employees that are much more difficult to break once they are established. Growing a business is a defined process, but it’s not the path frequently taken. That’s why so many businesses fail. If you are just getting started or struggling in the foundation stage, I would recommend that you read our eBook title The Startup Guide to Business Success. In it you will discover some of the less know things that can be the difference between success and failure in a business. Don’t leave your business to chance. Learn what you need to have the success you seek!
The Importance of inventor vs entrepreneurWhy is inventor vs entrepreneur so important you may ask? Because an inventor will have one of two paths from which to choose. First, they can grow the business themselves. Or second, they can find a business person to build it for them. In either case, the inventor must communicate with an entrepreneurial mindset. This is very different than that of the inventor. Let me give you an idea of what I mean. Have you ever talked with an inventor? What do they want to talk about? Their product. How cool it is. How it saves money. How it does something faster, easier, or better than some other thing out there. But, why is this a problem? Because investors and entrepreneurs evaluate the product using an entirely different set of criteria. I found very simple to understand explanation written by Robert Kiyosaki’s in his concept of the Cash Flow Quadrant . In this book Kiyosaki developed the B&I Triangle. The diagram below clearly display the disconnect when it come to inventor vs entrepreneur. Look at the product. It is the smallest part of the diagram! Entrepreneurs understand it's all the other stuff, NOT the product, that gives a business value! So, how do you make the inventor vs entrepreneur transition? Personal change! But, that requires introspection and self-awareness. If an inventor isn’t ready for personal change then their hobby drags on and on forever. Here's a BGS tool that can help you with the soul searching. It's our Personal & Business Goal Assessment which is meant to help you understand what you want from life.This way you can tie your action to your life's purpose making it easier to make that shift you need in your mindset . Do you know someone that’s been working on an invention or idea for years? Well, now you know why. It’s because they are unwilling to do that self-examination to understand the things that they need to let go of and change within themselves to make the personal transition necessary to turn their vision into a reality! Find out more about what might be missing in the transition to entrepreneur in our e-book The Missing Component to Successful Entrepreneurship. Just complete the form below to get your FREE copy.
Before You Begin Low Cost Marketing
- What is you vision 3 – 5 years into the future?
- How do you plan to exit your business? (Just close it down, sell it to a buyer or employee, leave it to your children, etc.)
- What do you want to accomplish this year to begin the journey? (This is an annual goal with a revenue target)
- What key factors must you accomplish to meet that goal?