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Today’s episode is a continuation of the series, “Top 10 Things to Consider Before Starting Your Business,” which was initiated by one of the show’s listeners, Kathy. She is making the shift from the corporate world to entrepreneurship, and is in the works of starting her first business; she asks, “What do you suggest that I consider and avoid before taking the leap of faith?” Tom discusses the sixth thing to remember before starting your business.
Key Takeaways
Tom provides 5 tips on how to start your business with a mindset of profitability on today’s episode. Constructing and stress testing your company will determine a solid idea of how your business is going to be profitable in the long run.
Tip 1: Don’t be like everyone else
When many people start a business, they are excited about the concept and the notion of taking the plunge, but most fail to temper their emotions, take a step back, and think through how their business will become profitable. It’s essential to keep at it until you can see it because it’s likely won’t work out without a clear vision and an understanding of what it will take to become profitable. Learn from others by studying other business models to see how they do it; there aren’t a ton of revenue models out there, so it will be manageable. Testing your assumption against what you study can allow you the opportunity to pivot and change directions. Remember, don’t force it if it’s not there, and it’s alright to admit that you don’t understand. Profits are just your sales minus your expenses. Don’t overcomplicate it.
Tip 2: Sell the shizz out of your stuff!
Control your own destiny by selling like your business depends on it–it does! Understand that sales equals cash flow, the lifeblood of any business. You must continually drive sales and understand that if you do not add to the pipeline today, you’ll have no sales and no cash tomorrow. Be sure to listen to episode (019) about driving revenue through sales to learn more about it. Don’t spend a ton of money; be conservative with your selling expenses. You might have to travel a bit but in this day and age, there are many opportunities to sell without being face-to-face—take advantage of web conferencing technology like skype and others.
Tip 3: Bootstrap for as long as possible
Pinching your pennies as long as you can will benefit you more than you think. Creativity in how you utilize your resources without spending a bunch of money will allow you to focus your most important financial investments on your core assets such as your secret sauce, your products and services, key employees, and partners. Entrepreneurs tend to want to move quickly, and they end up overspending on the wrong things. As a rule of thumb in the beginning, overspend on your core assets and skimp on things like office space and unneeded and employees.
Tip 4: Forecast and verify your performance often
Forecast and verify your performance early and often. To generate and manage your data and business activity, create a foundation with a basic predictive financial model. This will give you a greater visibility to see where your sales and cash flow are will come from. Nothing too fancy is needed to start; it can even be a manual system. Base it on reality and not hopes and dreams. Be sure to use your good but never better or best case scenarios. Create a budgeted model and come back with actual performance data. How close were you to your projection? Then you can refine the model as needed. This will allow you to see trouble on the horizon earlier than you previously would have without a solid performance model.
Tip 5: Don’t base your business strategy on homeruns
Power hitters in baseball are exciting, but many also have a high strikeout percentage. The more valuable hitters are the dependable, consistent hitter and the same is true for businesses. Be realistic with yourself. If your strategy is to close 10,000 accounts in the next year but you don’t have active sales today, that’s a home run strategy that has almost no chance of succeeding. Make sure your business plan can survive on the singles and double runs.
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If you’re a first-time listener, Tom Ryan’s Success in Business Podcast is a weekday show that provides how-to advice for entrepreneurs and small business owners. Thanks for listening.