Editor’s note: This article was first published in March 2018. Google AdWords, mentioned in it, was renamed Google Ads in July 2018.
Some time ago we published 12 business lessons from Mark Cuban; this time, let’s look at the business lessons we can offer entrepreneurs who are planning to start their own business or who already have their company up and running.
I should say that this is not a filler article. I’d advise you to print it out and look over it so you can follow these lessons when you are mulling over a business idea or are about to start your company. These tips are a mix from several brilliant minds in the business world, which I have gathered over time from various business books, interviews with successful entrepreneurs and articles by business people.
7 business lessons
1. Believe in the business and in yourself
When you have a business idea, lots of people will tell you it won’t work. That is when you have to stand firm. But be careful: we’re not saying you should become blind to everything but your idea and ignore useful advice from others who can see things you might miss. Once you have studied the viability of your business idea and you believe, or are convinced, that you can make it big, it’s time to take the risk rather than be left wondering.
When that moment comes, remember that everyone will have advice to give you, and that many of the people who tell you it won’t work are not really talking about you and your future company, but about themselves. If they don’t see themselves as capable of getting a company off the ground, they will think you can’t either.
Everyone has advice, but not everyone has what it takes to start a company, grow it, make it profitable and scale it. Talk is easy and cheap, but taking action is what sets apart those who have a chance of succeeding.
See also: How to validate your business idea in 5 minutes with a pen and a napkin
2. Test your business model before taking significant risks
All too often, entrepreneurs risk everything they have to start a business. Some people quit their jobs or mortgage their homes to leap into the void, because they hold a conviction that has never been properly tested.
Sometimes this works, and if the entrepreneur succeeds we hold him up as an example and hundreds of articles get written along the lines of “Entrepreneur risks everything and wins: the power of believing in yourself”. But if he fails, nobody will talk about him, and to his family and friends he will be “the idiot who bet everything without having a clue”.
In business we need contingency plans so that, if everything goes wrong, we have planned for it in advance.
That said, and accepting that nothing in business is certain at the start, we can improve our odds of winning if we do things the right way. How can we increase our chances of success in business?
By testing the business model
A business model can be tested in many ways. The typical business plan won’t help you, because a business plan is just an act of faith that you lay out on paper in the hope that something like what you wrote will actually happen.
So we’re better off with some home-made ways of testing our business model.
If our business idea is a physical product, the best business plan there is, is to make the first 10, 20 or 50 units and work out a strategy to sell them. If we get rid of those first units quickly, we very likely have a business, so when it comes to risking money on investment, we are already playing on a field with a proven system. The risk is lower and the chances of success are higher.
You don’t even need to have a product
You can test your business idea without even having made the first units, by using Google AdWords or Facebook Ads and studying the analytics of the landing page. In other words, you act as if the product were already on sale and see whether people would actually be willing to buy it. You let the customer go through the whole buying process and, at the very end, take them to a screen saying “units are temporarily unavailable, please come back in a few months”.
Personally, I prefer the first option: spend some money on the first units, so that we are already up and running if they sell quickly. If they don’t sell, we cut our losses on the investment and move on to another business.
When Tim Ferriss gave advice on how to find a profitable product to sell, he told the story of how, when he asked a friend whether they would buy his product, the answer was almost always yes. But the moment he said, “As it happens, I’ve got a couple in the boot of my car. Do you want to buy one now?”, the excuses started. So test your business model or product thoroughly.
3. Know your numbers inside out
For the first-time entrepreneur, numbers are a headache. And sometimes it makes no difference whether you have studied business administration. You will find that theory is one thing and facing the numbers of a real business is quite another, with the added bias that the business in question is yours. Everything changes in that respect.
Fixed costs, variable costs, gross margins, cost of goods and so on are sometimes pieces we know, but once they are part of our own business, we struggle to picture the final image when we put all these pieces together so that they make sense.
If we don’t fully understand what these numbers mean and how they interact with one another, we probably won’t be able to react in time or make changes when they need to be made. To the eyes of a first-time entrepreneur there may be profits, there may be a profitable, growing business, but to the eyes of someone who understands certain numbers, there could be a snowball about to set off an avalanche that will bury us.
If you can’t measure it, you can’t manage it
It is also important to measure everything that can be measured. We cannot manage what we cannot measure. If I have learned anything in the business world, it is that you have to become paranoid about measuring, both in terms of the business’s financial management and in measuring the time we spend on certain clients and activities that don’t really produce that many results for us.
If you can measure it, you can manage it. The good news is that all numbers can be measured, and therefore we can manage anything. It’s not a bad idea to hire an outside accountant to handle the more complicated matters for us, but we should at least know the basics so that the accountant or adviser can’t fool us.
4. Trust is vital to success in any field
We’re talking about trust in every sense. First of all, a customer will buy your product because they trust you, your company and your product. Make sure everything is designed to inspire trust. Sometimes it is better to sacrifice a little of your profit margin if that makes the customer trust you even more. The example of giving up profits in favour of trust is, without a doubt, Jeff Bezos of Amazon.
But we’re talking about the most necessary kind of trust, which is:
Confidence in ourselves
If you don’t believe in yourself, you’re lost. And I understand that many doubts arise and many fears appear, especially if you feel you have never done anything big in your life. It’s hard to be confident before you have achieved results, but the truth is that it’s even harder to achieve results if you don’t have that confidence.
5. Work-life balance is a utopia for entrepreneurs
If you get into business thinking you’ll be able to combine the business with your family life, frankly, I don’t think you know what you’re getting into. There are exceptions, but as a rule, at the start of the venture the business will absorb practically your whole life, and you have to be prepared for that. Your work will become 24/7 for months, and probably for the first and second year.
The second time there is no balance between family life and work is when your business is in trouble, which is perfectly possible and very likely to happen. Sometimes, before a business gets better, it tends to get more complicated.
A business is like a hungry puppy
Some business people have described a company as a hungry puppy. When it needs to eat, it needs to eat, full stop. It doesn’t understand family problems, work-life balance and so on; it demands your attention regardless of what is going on in your personal life. You must be absolutely clear about this, because this is the point at which many people realise they are not cut out for business.
That’s why, when I hear some motivational speakers selling entrepreneurship as “freedom from a life devoted to work: work whenever you like”, I can’t help feeling sad about the message. Of course, one day you may run your business from a hammock on some exotic island, between one massage and the next, between one mojito and the next, but you will have to sweat a lot, put in many hours and go through what we call “the master of pain”. And this master is the one that weeds out the most candidates for success in business.
6. Ask for help and delegate
Pride can kill an entrepreneur. I would venture to say that every single one of the business people on the Forbes list of the world’s richest has asked for help at some point. As the saying goes, nobody succeeds on their own.
On the other hand, one of the main mistakes of entrepreneurs who don’t end well is not knowing how to delegate. Many tasks take up a large part of our time without producing results in proportion to the time we invest in them. Learn to delegate so that you can focus on the few activities that really do require your attention and core skills. Believe me, for most of the tasks your business needs, there are thousands of people just around the corner who will do them better than you.
And success in business comes precisely when we work with people who are better than us
Also, if your business reaches the point where it needs money from private investors, we could say that entrepreneurs who see investment as the end goal for continuing to grow tend not to do as well as those who see investment as the beginning of a partnership.
What I mean is that it can be very tempting to take money from the first investor or group of investors (especially if we really need it), but one of the least-heeded pieces of advice is not to take money from just anyone. Make sure that an investor who comes into your business intending to take a share of its profits also has something to contribute to your company’s growth, not just money.
7. Be negative for a moment
What on earth are you saying?! This advice may sound counterintuitive, but the reality is that in business, things tend to get worse, and once they have got worse, they tend to get a bit worse still.
When you start out, you should always assume, and I repeat, ALWAYS, that the costs you planned will be higher, and the profits you expected will be lower. And the time you thought it would take to become a profitable company will always end up being longer than you calculated.
So be prepared for this and plan ahead, and you will avoid surprises. We could list a thousand reasons why businesses fail, but the truth is that the main reason is usually that they run out of money.
That’s why we insist once again on the need for a plan B.
And those, basically, are the business lessons I consider vitally important and that you should never forget. I don’t think we need to fall back today on the usual advice about preparing for a marathon rather than a sprint, being patient and persistent, building resilience and so on. We’ll assume you all know that kind of advice already.
An ideal complement to this article is another one I wrote on the business lessons that successful business people gave to some entrepreneurs.
Featured image: Julia de Boer / The Next Web, CC BY-SA 2.0, via Wikimedia Commons.
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