Editor’s note: This article was first published in July 2014; its opening reference to the high unemployment in Spain and to four years of collecting business tips reflects the situation at that time.
After four years of gathering a considerable number of tips about business and entrepreneurs, we’re going to try to sum up the ones I consider most important for anyone thinking of starting their own business, whether they’re going into business by choice or out of necessity.
A brief comment: “It’s true that with the lack of jobs and high unemployment, many people have no alternative but to create their own job. And it’s true that we’re sending many people on a suicide mission, because they lack the drive, the knowledge or the interest for business. But it’s even truer that this is probably the only way out these people have, so the only thing we can do is advise you so you stay as far away as possible from the many pitfalls others have fallen into.”
And yes, failure is an option, but it’s not the only option. A highly recommended companion to this article is “The 11 most common mistakes first-time entrepreneurs make.”
1. Start the business little by little.
Obviously this doesn’t apply to every type of business: if what you have in mind is opening a café, you won’t be able to do it little by little. For the businesses where it does apply, nowadays you can start from home with nothing more than a computer and a mobile phone, because what you need to get started is called a “customer,” and at the beginning you have to go out and find that customer.
Don’t fall into the trap of overspending. Invest as little as possible at first. Follow the steps we gave in how to start your business with no money. Remember that a high percentage of businesses never quite take off, and to some extent that’s because they run up too many expenses before earning their first euro. The office, the cleaner, the personal assistant and the chauffeur can wait.
(Read: 15 questions to assess a business idea)
2. This will be your business plan.
We live in the age of the “business plan” and other buzzwords imported from the Americans. Forget all that for now, because we’re going to give you a more effective business plan.
Your strategy at the start is to find a first customer. Once you have one, do it again. Now look for two more customers, and repeat, but this time looking for five more. That’s the most effective business plan at the beginning. Once your company has grown considerably and you need 100 million to expand, here’s how a business plan is structured.
3. Partners aren’t advisable at the start.
This point is very relative. Looking for a partner should be about creating synergies between the two of you that make you more competitive… or about a financial partner (which I’d think long and hard about, and it would be my last resort). The thing is, for some time now I’ve been seeing a lot of new entrepreneurs who look for a partner because they’re scared witless. In other words, they’re so afraid of starting their own business that they look for a partner to share their fear. (Read: 10 tips to keep in mind when choosing a partner for your business.)
Remember that the type of partner you choose doesn’t matter if the business fails quickly. But you may regret it for the rest of your life if your business turns into a big company.
4. Cash flow.
Remember that a business lives on cash flow and dies of negative cash flow. Although we can start a business without much of the knowledge experts say we need, the truth is that you must understand cash flow perfectly. You need to make your own estimates of costs and sales. And those estimates should be very pessimistic. Forget Paulo Coelho while you’re doing these calculations, because sales always turn out lower than forecast and expenses higher than calculated.
Once you’ve made your first investments, make sure your business can survive for at least six months on somewhat less than the income projected in your calculations. But pay close attention to the next point.
5. Keep business finances separate from personal finances.
As I said in a previous article, mixing personal and business finances is the main mistake I keep seeing among small business owners. Bear in mind that our personal monthly repayments can ruin a very profitable company if we aren’t able to keep the two accounts apart.
6. Sales.
Every company is built on customers. No company can exist without customers. Sales are the great gold mine for entrepreneurs, and unfortunately, until you have the money to hire good salespeople, you’re going to have to be the salesperson.
And to sell, you need to know your real market, your potential customers. You’ll need to know the strengths and weaknesses of your competitors’ products compared with yours, and have the skill to meet the customer’s need with your product, putting it ahead of the competition. Don’t underestimate sales: a good salesperson doesn’t just make sales, they also make loyal customers.
7. A marketing plan.
Most new companies think they don’t need a marketing plan. In fact, they think they can have a great product and excellent service and sell it even though nobody knows the company exists. And that isn’t going to happen. As someone once said: “Not having a marketing plan is planning to fail.” Have you thought about how you’ll make your business known so that it works before you run out of money for lack of sales and income?
8. Reduce risks.
Once again, forget Coelho. We already know that an entrepreneur has to take a lot of risks and that only those who take risks win, but let me see how I can put this elegantly… “only an idiot would take the risk of crossing a lake full of crocodiles when they could walk around it.”
Entrepreneurs are already taking risks the day they decide to start their business, so once they’re on the way, they also need to control the outcome. Very often it’s better to take a little longer and do it safely than to take a risk we can’t control in order to make a quicker profit. You’ll have plenty of time, and plenty of need, to take big risks later. Remember this:
In professional tennis, 80% of points are won, whereas in amateur tennis, 80% of points are lost. Whether we’re talking about chess, wrestling, investing or business, beginners should focus on avoiding mistakes, while experts should focus on the big moves.
9. Look to fail fast.
Although this advice is usually aimed at tech business ideas, it applies just as well to every other kind of business.
Businesses that are started little by little are started as a test. “Insist, insist and persist…” sounds great in Facebook quotes. Insisting and persisting may be the secret to winning a girl’s heart, but it’s also behaviour that has led to plenty of harassment complaints.
If the business doesn’t work, forget it. Don’t keep pushing. It’s a different matter if a company that was working runs into trouble and you have to make an effort to pull it through. Then I would tell you to put your heart and soul into the company, but if you’ve been losing money in the business for a year, stop piling up debt and close it immediately. (Recommended: If you’re going to fail, this is the way to do it.)
Remember:
“You can lose money, but you can get it back. You can lose a girl’s love, but you can find love with another girl. But the time you’ve lost, you can never get back.”
(Read: One of the best pieces of business advice I’ve ever received)
10. Know the ugly side of business.
70% of new businesses fail, and 10% of companies become zombie companies. A high percentage of self-employed people end up earning less than any employee, even while working long hours.
Succeeding won’t be easy. The statistics are against you. Before you get to know the beauty of entrepreneurship, you’ll have to get to know the entrepreneur’s hell. It’s neither good nor bad, but you need to be fully aware of the possible scenarios you’ll go through so they don’t catch you by surprise along the way. Required reading: The secret price of starting your own business.
If you think you can handle it, if you think you can overcome every obstacle without falling apart, go ahead and good luck, because now it really is fitting to say it: “Success belongs only to those who take risks.”
Further reading
- How much a business needs to grow each year to be profitable
- The 4 stages of a revolutionary business idea
- 7 steps to define your market once you have the idea
- How to validate your business idea in 5 minutes
- How to find the perfect product to sell in your online business
Featured image: Akiwumi, CC BY-SA 3.0, via Wikimedia Commons.
