In this article, I’ll explain why and what you need to do to get through this grueling phase in the corporate lifecycle.
Why do so many businesses fail?
While there are many reasons a business may fail to get traction, I believe that these are symptoms and that every one of these symptoms points back to one and only one singular root cause.
What are the symptoms? Maybe the location was wrong, or maybe the product wasn’t that great. Maybe it was the crazy idea altogether. Maybe the Visionary wasn’t extroverted enough. Maybe it was just the wrong timing.
ALL of these have been the demise of some business at some time. However, none of them has been the demise of all businesses at any time. More importantly, many businesses have been wildly successful even with bad locations, lousy products, lame ideas, raging introverts, or awful timing.
Every single new startup has to deal with these issues or similar ones virtually every single day. In many ways, the world seems to conspire against new businesses. If you’re starting a new business, it is going to be difficult, at least for a time. This difficulty is no excuse. Whatever you’re up against, I believe there is a way to fight through if you’re willing.
So, if every business has problems and some succeed, but most don’t, we must stop and ask ourselves what separates the two groups. I believe it is this:Businesses that fail lose the race against time and run out of cash before they can establish a profitable and sustainable market. Click To Tweet
How can you succeed?
This definition gives us three critical insights into how to succeed as a startup and beat the odds.
To start a business, you need cash. A lot of it. For a ballpark figure, think of whatever you might expect it to be, then multiply that by 3. Then, you’ll probably need to add some more. It’s expensive to get started. Everything costs money or time, and both seriously limit you. Before you start, you need to gather as much cash as possible. Here are a few ways you can make sure you have enough money to make your business a success.
- Keep your current job while working on your new venture in nights and evenings
- Save, save save. Before you start, save up as much money as you can. Remember, it is probably going to take longer than you think to replace your income. If you’re going to save up, give yourself as much padding as you can.
- Invite investors. You don’t need to rush to give away your business, but there is something to be said about investors. This is less true in personal service businesses. You may consider looking for investors who can also serve as partners, giving you access to contacts or other resources in the process.
- Go to the bank. Please be careful with debt. Your business has an 80% chance of failure, but you’ll have a 100% chance of having to pay back the loan(s) or declare bankruptcy. I’m not of the school that all debt is bad, but I do believe debt is an accelerator for better or worse.
- Watch what you spend money on. Only spend money on those things that move you toward a profitable, sustainable market. Do whatever you can to avoid every other expense.
Ruthlessly pursue profitability
If you can’t make a profit on ten sales, you probably won’t make a profit on 100. Don’t overvalue “economies of scale.” Instead, work ruthlessly to become profitable on every sale as soon as possible. In my experience, profit begets profit. If you start with a loss and then scale it, all you’ll do is make the problem bigger.
Keep your overhead as low as possible (remember, don’t spend money unless it gets you closer to a profitable, sustainable market), and watch your variable costs, inventory, and payroll. Don’t be stingy with your customers (or your team), but don’t be frivolous either. Cheap and cheerful is usually just about right.
Don’t stop until its sustainable
What happens when you don’t get to a profitable offering, or you’re barely breaking even? You’re left with little or nothing to grow the business.
In the beginning, you may not have to advertise. You can rely on your friends and family and a few referrals. However, to find a sustainable market, I can almost guarantee it is going to require to spend extra time and on money marketing. This doesn’t mean you’ll have to start buying billboard space or even running online ads, but you will need to do something to keep the new business coming in. That something is going to cost something, and you need to have the time and/or money to meet that cost.
To reach sustainability, you must be profitable while you are consistently bringing in new customers.
Wrapping it up
To get out of Early Struggle, you need to focus all of your energy on finding your profitable, sustainable market, building your sales and marketing muscle, and delivering on every promise you make