why many people don't do it, or do it and fail. Cons of building your own "money
making machine" is that when you haven't tried it before, you will probably fail and
lose your money and energy. If you learn from that experience, you will at least not
lose your time that was spent on building your first business. You can use that
experience to start your second business.
Next con which most of your employees will not understand is that you are
"married" to your business and for a businessman there is nothing but work from nine
till five. You will have 24 hours responsibility, you will have to get the work done by
yourself if your employees quit or are on a sick leave. There is high probability that
you will end with less money after a year than if you had not started your own
business. That is why a safe solution is to start your business part-time at the same
time with your day job. This is the path I recommend – full-time job and part-time
business.
Pros of running your own business are invaluable - you will get lots of
knowledge and experience and you will learn more about yourself. You will have
more freedom if successful and potential financial profit is higher than when staying
in a job. When you work for someone else, once you stop working (due to accident or
illness) your income gets lower or stops. You are limited in your job as you can't copy
yourself and have three or four full-time jobs. If your business is working for you as it
should, you don't have to work anymore.
Two ways how to minimize your loss in your own business is to use a
franchise model, where you will pay for proven business system or to use multi-level
marketing company. We will cover building your own business in more detail later.
If you don’t have big capital to invest and you do not have great idea that can
be transformed into intellectual property asset, doing business can be the fastest way
to get rich. It is also most difficult way for most of people if you are not natural born
talent for doing business and it is not in your blood. If it is in your blood, it will be
easier.
What really helps is when your parents are doing business too, because you
probably learned the right attitude toward business from them. If you want to be an
entrepreneur and build your business from scratch, you have to know the basics of
every business aspect. When your company is profitable, while you will know only the
basics of its operations, it will be even more profitable when operated by experts.
Why is starting a business so hard? You will have multiple jobs in the
beginning. You will have to become a sales person, learn to say no to deals that are
not profitable for you and learn how to ask for more, and you have to become your
own manager and manager of other people. You have to make goals to plan your
cash flow and place your expenditures in a time frame according to planned income,
etc.
Starting a part-time business at home allows you to get experience in practical
business skills, which are usually missing in academic learning process:
- Sales skills
- Negotiation and deal making skills
- Management skills
- Cash management skills
- Practical tax and business law basics
- Basics of accounting
- Pressure handling experience
People who have finished business school have an advantage in the first six
skills. Handling pressure can be learned only by experience, and pressure that is too
high is very often the reason why a person quits their own business. Being under
high pressure allows you to learn more about yourself. You can find out that your bad
feelings caused by the stress running a business is not enough to cover the benefits
of running a business. There will be nobody you can ask what to do or to give
responsibility to. This is probably the most difficult part for former employees.
Complete freedom and complete responsibility.
When you decide to start a business, prepare yourself that your loved ones
will try to persuade you not to do it by giving you a list of reasons why it will not work.
Be prepared for hard criticism. They don't do it because they want to destroy your
dream, but because they want to protect you from failure. And they usually want you
to have secure income.
Sportsmen are in a very good psychological and emotional position to start a
business. They are trained to work hard; they usually take a simple approach to
planning and doing, are used to winning, and handle the pressure of loss. Usually
when they fail, it gives them energy to fight back and work harder next time.
Sales and marketing skills
You do not have to be the first business in your industry to be successful. Most
people are afraid of competition and they start business in an industry where there is
no competition. This usually leads to the start of a “great” monopoly where there are
no customers actually. Creating a new market takes time and lot of money.
Do not be afraid of competition. If they can do it profitably, you can do it. Of course you have to
do your homework first and calculate if you really will be profitable. If it is not
profitable even on paper, you will not be profitable in reality. Usually your costs will be
30 % higher than your worst case budget as there will be some costs you did not
include in your estimation and your sales will be 30 % lower. And your time schedule
will be few weeks to months behind because of not fulfilled promises of your
suppliers. Welcome to real life!
When starting a business or when you invest, you will have to learn how to
sell. Be careful in thinking that potential customers will like to buy what you personally
like to buy or what your potential customers said they would like to buy. Don't trust
various professional polls that tell what potential customers would like to buy. People
in polls tell/write down what they think you want them to tell/write down most of time.
Even if they think they would like to buy something you offer, when the time for
purchase comes, they won't. Why? Because it costs them nothing to state in the poll
that they will buy, but the actual payment costs them some pain.
This is why you should sell what is proven that people really do buy. Not just
what they would like to buy when you ask them, but what they actually already
bought. For example what they already bought from your competition. Purchase that
data from your competitor’s employees. With marketing and sales skills you can
persuade potential customers that what you are selling is exactly what they want to
buy. An easier way is to look to the past and see what has been really sold. Then you
can prepare your products based on past data. That's the surest way how to sell, by
simply looking at what has been sold so far.
Marketing can be very expensive if you allow your employees to make it
expensive. It is easier for them to throw out money and pray it will bring higher sales
then to sell themselves. And don’t forget that there is risk of mentioned “kickback”
when they pay for advertising with your money.
When you start selling a product that has not been sold so far, you have to test
the sales. Set a period of time for testing, take notes of your marketing activities,
measure the sales, and then make decision if it is worth it to continue.
The marketing. Correct marketing is not about having shiny website or a nice
business card. Marketing can be based on word of mouth too. Wrong marketing is
expensive. You have to measure response from your marketing activities and if they
don't bring profitable revenues, stop it and find other marketing activities that will
bring you profits.
I will repeat myself, because this is what many marketers do wrong
– marketing is not about having a known brand that you can be proud of, and
successful marketing is not measured by recognition percentage of your brand in
some poll. Successful marketing is measured by profitable sales brought to the bank
account of your company.
For example, you can take a look at Ferrari vs. Toyota. If you will make a poll,
more people would like to have the Ferrari and we can agree the Ferrari brand is
much more recognized than Toyota. However, statistics show us that Toyota sells
more cars with higher total profit than Ferrari. In a poll question, “What car would you
purchase if you were purchasing a car?”, the same person who would check Ferrari
instead of, e.g. Toyota, can go the next day and purchase the Toyota.
Polls are not that important. The SALES and the money coming to your account are important.
Good marketing is about sales, not branding. Brand is important of course, but if you
have to decide if you will spend your money on activities that increase the prestige of
your brand or activity that will increase your sales, which would you chose?
You can do branding for free and pay only for advertisements which bring sales.
Important activities connected with marketing and sales are testing and
measurement. You have to measure costs and results of your marketing and sales
activities to know which are bringing you cash and profits and which are not.
Branding activities are sometimes the usual money eater with no significant impact
on increased sales. Marketers like branding and creativity. It is cool to win awards for
creativity, but this is not what you need. What you need is profitable sales.
The only way how to know if you have profitable sales is to measure them and measure cost
spent on activities leading to sales. Always find ways to keep marketing costs low and increase profits. Profits can be increased by a) optimization of conversion rate with your current marketing
activities, b) increasing sale amount by using up sales and cross sales, c) increasing
repetitive purchasing by your customer, d) increasing price by increasing perceived
product value by the customer or at least find ways to keep your prices adding the
low-cost or no-cost extras and any kind of free gift. e) decreasing costs by their
optimization.
Training rejection by dating women
One of the sales skills you need to practice is to learn how to accept and
handle rejection and adversity without bad feelings. It is a natural part of living. Get
used to it.
If you don’t want to test on your potential customers, there is a way to learn to
handle rejection is by asking unknown women for a date. You will learn how to handle
rejection and you will learn more about women. This is a good example of reaching
more goals with one activity. Always use those opportunities to do more tasks at the
same time. Life is short, use your time well.
One of my friend’s friends named Julo asked me how to approach a potential
girlfriend. I said, ”It is simple. You will go to a disco and ask girl for a dance. She will
refuse, so you will ask another and she will refuse too. Then you will try another and
another until you try it at least ten times.” Julo asked “And then ... will the tenth agree
to dance with me?” I quickly replied “No! But you will get used to it!”
Actually dating is little more complicated, but basically it is as I wrote. If you
want to learn more about proven formulas how to successfully date women, ask my
publisher to push me to write a manual on how to date women.
Negotiation and deal making skills
There are many good books on negotiation and deal making. You should read
some, but you also have to experience the negotiation process personally. We will
cover just the basics. Try to understand your partner and try to find win-win deals. If
the deal is not good for you, let it be. You don’t have to make a deal with every
partner. Have a set of rules to guide you towards a good deal. Never accept the deal
immediately without having the option to think it through and change or cancel the
deal. You can always say that you have to consult the terms of the deal with your
other partner.
If you don’t have the power to make your partner fulfill his part of the deal, you
take the risk that he will not do it. Put your conditions of terminating the deal if it is not
profitable for you into the contract. Get the best possible conditions for you and don’t
pity your partner.
Taxes can cost you a lot. In my second business I wanted to do everything by
the book and I ended up paying 3x more in taxes than what I have earned. Tax
optimization is crucial. Taxed money is money thrown into a black hole of corruption
and, by paying more than you have to, you are helping the crime connected to the
government to thrive. Protect your business from taxes or you may end up bankrupt.
Even great companies like Google are optimizing taxes and move cash offshore to
evade predatory taxation. It is always better to invest the money than have it taxed.
Many companies choose to have cash over showing profit in accounting. They even
show loss and ask government for subsidies to create or to keep the jobs. You can be profitable and still go bankrupt, because your customers will not pay you on time
and your sales (which are taxed) will not transform to cash on your bank account.
You are dealing with people when doing business and real business is far from
what you learned about business in school. Promises and deals are not fulfilled
always as they should be, or not at all. You can go to the court for a lawsuit, but let's
be realistic, your righteous claims enforcement by court is long, costly and, in the
end, usually not profitable. Think then about a lawsuit with not an American, but a
Chinese company. You would have to be a really big corporation to get results in the
foreign court. The only person who will get rich on your lawsuit will be your lawyer.
Lawsuits are not good for business. Remember, if you have a good deal, you have a
promise that the other part of the deal will do what they agreed on. Do not consider
the promise to be fulfilled automatically.
Expect that people do not keep their promises – usually people who are in business are flexible with their promises (they could get angry if we use the word liar, they like being called a flexible person much, much more). It is not right, but we are not in an ideal world and not everyone is able
to keep their word. Not everyone who breaks their promise does this because they
want to. They sometimes really want to keep the agreement, but it is not possible for
them at that particular time.
You will learn how to handle pressure only by being under pressure. Do
research and find out what is the worst that can happen to you in your situation. This
will allow you to see the facts and can lower your fear and the pressure. If you are not
going to jail or nobody wants to kill you, it is not such a big deal as you may think.
When you would like to start a new business, but you don't know which to choose,
ask yourself, “How can I change problems and something negative into business
opportunities?” Where are problems, there are the opportunities. Where are
opportunities, there is money. This is the hardest way with the possible highest
profits.
It would be Easier to look around you and search for businessmen that are rich, and
start the same business as they do. You don't have to start doing something that
nobody else is doing. You can copy someone’s business if it is not intellectual
property. Look for opportunities how can you do the same as they do, but faster,
more convenient for the customer, with added value, with better service, etc. Look at
telecommunication, software and internet companies as generally the best choice.
Or you can find a suitable franchise for yourself and pay for the system
already created.
Management skills
In business you have to manage yourself and also your employees or
suppliers. Spend your time on planning and management. Don't just work, work, and
work on every task that needs to be done. There is so much that needs to be done,
that one person can't do it all by himself. Divide tasks according to priority and
deadlines. Erase tasks that are time consuming and bring low or no profit. Spend
time on thinking and learning how can you make your business more profitable.
You, as a business owner, have to focus on your primary task – creating a
system for your company that gets sustainable results even if you are not working for
your company yourself. Ask yourself – How can your company work without your
interference? Can you copy your company system a hundred times to new companies without you being there?
Cash flow management skills
Cash flow is the blood of your business. Ask for an advance payment or for a
deposit from your future customer, if possible. Pay your supplier after you have the
money from your customer. These options are based on your negotiation skills,
because most customers and suppliers will refuse to do that with a new company.
Try to find someone reputable to make a guarantee for you. Of course you should refuse
credits to your new customers and should ask your supplier for extended credit. Just
be realistic and expect they will refuse. It sounds so nice and easy in all those cash
flow advices and tips, but it is not that easy in reality in all the markets. Always add
“Late payments can be penalized with xx% for each day of late payment.”
Using “can” is better than “will”, because it leaves you space for negotiation and if you are
willing to solve the payment problem with your customer, you are not obliged to
demand the percentage from customer.
Good customers are important. Bad customers should be sent to your
competition. Remember that a customer is someone who pays for your services. If he
does not pay, he is still a prospect, not a customer.
Have some reserves for unexpected problems. For example, I paid a 30%
deposit to our Chinese supplier to produce pillows for us and deliver them in January.
However, because of his problems, the pillows were delivered 6 months later. By the
time we received them, the product life cycle of the pillows was at the end. This can
happen. When budgeting, I recommend that you to overestimate expenses and
underestimate revenues.
When planning cash flow, always underestimate sales and overestimate costs.
A good rule of thumb is to use 30% for both underestimates and overestimates.
When your business looks profitable even after this change, you will be better off if
something unexpected happens. Most of the companies use debt for their growth
financing. When you grow, expect that when your revenues grow arithmetically, your
costs will grow exponentially.
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