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Posted by on Jun 20, 2013 in Entrepreneurship, Featured, Food For Thought | 0 comments

Meet and Beat The Biggest Obstacle To Starting Your Business

Meet and Beat The Biggest Obstacle To Starting Your Business

 

A lot of obstacles pop up as you start a business and work to make it successful. Some are environmental (competitors, required capital, etc) while others are self-limiting habits & beliefs. All of them can be overcome. However, there is one obstacle that is the toughest of all. It will stop you from starting your business and cloud your judgment when you do. It can also sink your business (insert dramatic music…).

 

And The Culprit is…

That obstacle is… Your burn rate… Your financial commitments… Your fixed costs… Your obligations… Your ongoing expenses… Your expenditures… The hole in your pockets… Your cash outflows… you get the idea.

Two Problems…

Your bills and commitments will weigh you down in two ways:

1- Risk: The more commitments you have, the heavier the risk you take by dropping everything (e.g. quitting your job) to focus on your company. For example, you might be willing to risk everything when you are young and single, but when you have a family to provide for that risk is a tougher one to take.

2- Leeway: The more weight you have, the less time you can tolerate until “success” is achieved. So lets say you have $60,000 saved up. If your monthly expenses are $5,000 this means you will run out of cash in one year (assuming you focus exclusively on the company and have no other income). So if you can get the company to succeed before the end of the year you’re clear. However, if your monthly expenses are $10,000 per month then you have only six months of leeway. That makes it harder to take the leap.

Seth Godin talked about “The Dip” that we face in the early stages of a venture. During that period, your company will be spending to build your products with no or little revenues. It takes effort, time and resources to learn what customers want and get past the dip. Once you get past the dip, you experience steep growth and get your head out of the water. Investors call that zone “Death Valley” because so many companies run out of cash before they can get past it. The more reserves and less burn rate you have, the better your chances are to trek past death valley.

You Will Miss Out…

Your weight limits your options. You will skip riskier opportunities. You will also skip small opportunities that might take longer to mature and fulfill their potential. A lot of successful businesses start very small (think Facebook or Google… none of them knew their companies would grow that big).

Examples Of People Who Started Light:

Here are some of successful people who started out very lean:

Mark Cuban: Billionaire who sold Broadcast.com to Yahoo for $5.9 billion in 1999. When he was starting out, he lived in an apartment with five guys. He initially financed his first business (Microsolutions) through customer pre-orders. He eventually sold that business for $6 million.

 

 

Steve Jobs and Steve Wozniac founded Apple Inc in their garage. Don’t really need to say much more here.

 

 

 

 

Robert Harjevac: popular angel investor on the shows Shark Tank and Dragon’s Den, worked as waiter while he started his company (BRAK Systems) in his basement. He eventually sold the company to AT&T Canada for CDN $30.2 million  in 2000.

 

 

Jeff Bezos is famous for assembling “door desks” in Amazon’s early days to keep costs low. His logic is that he would rather invest money into the business than buy expensive furniture. They still some of the door desks around their offices.

 

Corbett Barr started a lifestyle business and became an A-list blogger and is still growing his business. He works out of Mexico for a good part of the year where his expenses are lower. He shares his experience on his blog ThinkTraffic.

 

How to Beat It…

So, here are tips to be ready to jump on opportunities as they show up.

1- Live Below Your Means:

– Cut Unnecessary Expenses: When you really think about it, you really don’t need much to live on. You might decide to go the minimalist route (Leo Babauta shares great ideas at zenhabits) or just cut out unnecessary spending. A rule of thumb is to get your expenses to be at or below 90% of your income. That way, you have 10%+ of your income saved up to get ready for your opportunity. The added advantage is that you will be extending your leeway by reducing your costs.

– Pay Off Your Debts: Specially credit card debts cost you a lot in interest rates. Paying them off quickly frees up a lot of unnecessary spending on high interest rates.

– Drop Cash-Draining Assets: Some assets you own cost you more money to own them (e.g. bigger house or car that consume more energy) while other assets generate revenues for you (e.g. property you rent out or business that generates cash)

You can get a lot of great tips by Man Vs Debt‘s Adam Baker and Courtney Baker.

2- Start Now: A lot of times, you can start the business very small while keeping your day job. The sooner you start, the more you will learn and improve on to get through the dip. If you keep your job (and income), you have the leeway to experiment, learn and develop the idea until it gets some traction. It might be slower than going all out, but its better than waiting until the time is right to launch big.

3- Keep It Simple: One of the assumptions people have towards startups is that “you have to start big” to make it. That might have been true many years ago and might be more the case for some industries than others. Eric Ries introduced The Lean Start up method, which showed us that you can start with a Minimal Viable Product and build it as you progress with your company. That gives better results than launching big with a lot of assumptions on what will and won’t work. A lot of today’s superstar companies started with a very simple offering.

– Take for example DropBox that was started by Drew Houston at home because he kept forgetting his USB. He eventually joined Paul Graham’s accelerator program Y Combinator and grew the business into major player in its industry with an expected valuation of $1 billion or more.

– Derek Sivers started his business CDBaby to sell his music. He learned how to code himself and built his site from home. He started adding other artists to the site as they approached him. He actually intentionally wanted to keep the business small, which worked great for him. He eventually sold the business for $22 million.

4- Focus Focus Focus: Say no to distractions. Don’t spread yourself too thin by working on multiple projects at the same time and doing other too many things. Starting a business will need time and effort. Make sure you give it enough to survive.

5- Commit: When you decide to start your business, make sure you are committed to it. Even if you choose to pull the plug on the idea later on because it didn’t work. Think of it like a light switch. If you choose to start the company and turn the lights on, you’re flicking the switch. There is no in-between.

6- Get A Partner: When you get a partner adds more juice into the company which extends your leeway and minimizes the risk. It also improves your chances of success since partners can bring into the business what you can’t (skills, experience, connections, etc).

7- Get A Mentor: A mentor who has been through the startup experience before can help you bypass many of the common mistakes along the way. That reduces the distance you have to travel to get past the dip. That’s the main reason accelerators like Y-Combinator and TechStars help many businesses succeed. The mentors provide an incredible amount of help for the entrepreneurs in guidance. In addition to giving them some seed money and facilities, many of these companies can have a product ready in three months.

 

Do you know someone who can benefit from this? go ahead and share it with him/her… I don’t mind 🙂

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