Entrepreneur is a French word literally translated as someone who “enters into an undertaking” into business for themselves.
- They must take legitimate risks to advance their organization.
- A small business requires the same amount of consistent, steady maintenance as a baby.
Outside of parenting, a small business is the largest personal sacrifice a person can ever make.
- The sacrifice will require at least four years of obsessive devotion, with the possibility of decades of retirement afterward.
Almost everyone is capable of being an entrepreneur, but not everyone has the personality that they’d enjoy it:
- Since they’ll likely have to do a little of all the business skills, they must have a high enough Openness to Experience to learn domains like taxes, researching regulations, and negotiating with a supplier.
- They must be Conscientious enough to make sacrifices, productively get work done before it must be done, and pay bills on time, but not so much that they’re a perfectionist.
- While it varies on the industry, they must be Extraverted enough to steadily, consistently connect with dozens to hundreds of strangers.
- They must be low-enough Agreeableness to both negotiate better prices and resist the conflicts they create from disregarding social fashions, especially against large-scale systems who will suppress their rise to power.
- Their Neuroticism must be high enough to make creative connections, but not enough that it interferes with their ability to get work done.
- It’s practically a requirement to adopt an abnormally high tolerance for social risks.
- They’ll need to constantly seek out guidance from mentors and associates.
- Typically, they’ll have a natural ability to see strengths where most people see weaknesses.
Most of them are inherently curious.
- They tend to ask probing and profound questions, even seemingly stupid ones, about absolutely everything.
- Typically, they’re trying to find creative ways to break existing norms.
However, unlike philosophers or educators, they’re also extremely practical.
- That practical approach means they’re typically antagonistic toward bureaucracy and large systems.
- They’re fixated more on currently available resources than building large-scale systems.
- Many of them will have a strange enjoyment out of finding ways to overcome, minimize or calculate risks.
Finally, they generally must be humble enough to accept what they don’t know.
- If they’re older, they’ll need to follow the trends that younger people adopt, meaning they’ll have to change their ways.
- If they’re younger, they’ll need to take the experience and wisdom of older generations.
- They’ll have to touch many specialized domains, so they’ll need to learn when they must simply trust professionals.
They’ll have to learn a wide variety of disciplines where they had had zero experience.
- While they can delegate some things (e.g., lawyer or accountant), the beginning stages of their business will require them to understand at least a general working concept of most parts of their organization.
While it’s not required, it’s a huge advantage if they know how to get along with others.
- Irrespective of their social skills, an entrepreneur will be preoccupied with how they can fulfill others’ needs.
- Many of them are also natural leaders, even if nobody follows them.
They’ll have to do almost everything themselves, at least at first.
- Paying others for what you can do yourself will impede your ability to make a profit.
- Building a business from the ground up requires a lot of toil, and is a dramatic exercise in self-improvement from all angles.
Some motivations can’t sustain an entrepreneur’s drive:
- If someone severely resents working for an employer, they’ll resent working with clients and will often alienate potential opportunities.
- The desire to simply become rich is ill-placed in entrepreneurship, since most entrepreneurs are paid less than employees who do mostly the same job.
- Wanting to please someone else won’t work, since starting a business is not an easy decision.
In general, self-employment is not as high-paying as an employee equivalent.
- When you work as an employee, you’re typically in a much more specialized role, meaning people are generally more inclined to pay you more for that work.
- You also don’t have to think about unrelated domains to your work (e.g., accounting, management, sales).
An entrepreneur must be driven by a self-determined purpose to achieve.
- They typically have plenty of confidence in their skills.
- They have to find meaning in their work, even when it’s completely unrelated to making money.
Entrepreneurs typically succeed when they want to build a community.
- To accomplish the wide variety of tasks they’ll need to do, they will need to foster community with other people.
- The prevalence of social interaction means they’ll have to find at least some meaning from working with others.
The disposition of an entrepreneur means they tend to have a few lifestyle elements in common:
- Loves sports, especially team or extreme sports.
- Loves traveling to original, exotic places.
- Typically self-taught, but often not much college education.
- Often obsessively focused on whatever task they’re performing.
- Spends their free time learning, absorbing information, or mastering a fun skill.
For several reasons, entrepreneurs are typically young.
- They have fewer commitments, and therefore less to risk to the unknown.
- They’re typically not bitter about most of society’s large systems.
- Their mind is more prone to entertaining silly things which may become a good business idea.
- They’ll have more enthusiasm toward a new idea from a general lack of awareness over future risks.
They typically won’t be inclined toward creature comforts and luxuries.
- They won’t be fixated on money as much as what more money can do for them.
- In the formative phases of a small organization, even small expenses can ruin its financial health.
Many disciplines parallel an entrepreneur’s, and most of them typically visit at least some of them:
- Creative performance fields like musicians and actors.
- Professional writers, especially fiction writers.
- Media professionals and public speakers.
- Leaders in nonprofit organizations or churches.
- Homeschooling parents.
Like most ideas in general, most business ideas aren’t worth acting on.
- The marketing environment might not be ready for the product.
- You may require much more money than you can gather.
- Other people or groups may have a decisive competitive advantage against you.
- The idea itself may be targeting the wrong culture.
Find a Vision
Since it will take time to build, take extra time to incubate your business idea.
- Look toward smaller projects you can potentially scale, not grand ambitions.
- If you enjoy entertaining the idea, even when you remove the possibility of becoming wealthy from it, you’ve likely found something you’re passionate about.
Don’t worry too much about making money.
- If you’re willing to learn how, the right marketing angle can monetize most things.
Focus on where other people find value.
- Direct attention to what brings value to others much more than simply what you love.
- Examine how easy you can start into that market.
Your best entrepreneurial ideas will come from obsession over an unfulfilled need:
- Find something in society that everyone needs, but nobody is resolving sufficiently.
- Things people don’t like or simply hate doing.
- What people can’t do because they need specific information.
- Things people don’t have the time or energy to do.
- Think of creative ways it can be resolved.
- Of all those solutions, consider what people would pay to fix their problem, or how much people would want to donate toward the cause.
- If you can find something people will pay for, make a business. If you’ve found something people will donate to a cause over, make a not-for-profit organization.
Ask your friends and family what they think of the idea.
- You need feedback as soon as possible to see if it’s a viable option.
Expect feedback from people you know to be biased:
- Some people believe in you or want to stay your friend, meaning they’ll give more praise than criticism.
- Others will be jealous or have their own agenda, meaning they’ll give criticism that isn’t helpful.
- The best feedback comes from people who tell you what’s wrong, and why it’s wrong, and the theoretical way to get around it.
Finding a mentor can prevent the most common (and the most extreme) mistakes.
- The most important wisdom from mentors is what not to do.
- They’re typically the most qualified people to criticize what you’re doing, though they can sometimes be wrong.
- Many of them know how other people in the industry think, though their own successes may have been so long ago that it was a different culture at the time.
- If you desperately want that mentor, and they’re hesitant, offer them a minority share of the company.
Regularly network with others.
- Try to find a wide variety of mentors, investors, consultants, vendors, entrepreneurs, and various professionals.
- Most of the time, their specializations can round out your understanding of a concept or arrange for a new business arrangement.
Within the first 5 years, 90% of startups fail for the same predictable reasons:
- Not enough money to fund the business idea.
- Inadequate necessary skills to start or maintain the business.
- People simply don’t need or want the product (42% of failures).
- The owner doesn’t have enough vision to see where the business is going.
- The business owner may not have a sufficient social network to meet the business’ needs.
- Most of the time, they won’t detect or act on trends within the industry that may disrupt their organization.
Keep learning and researching as much as possible.
- As early as possible, develop habits toward constantly learning.
- Look for free online courses, since they’re ubiquitous and broadly cover everything you’d need to know.
- Find trade-specific whitepapers, since they usually give technical information that precisely describes what you’re looking for.
- If a paid class clearly gives the answer to a specific entrepreneurial question, the class is often worth the money saved on what you didn’t spend on that mistake.
- However, most broad entrepreneur advice is describing the precise luck that particular person had, and many of them share their stories for free.
Be careful with partnerships.
- The primary benefit of a business partner is that they can help carry the load and share in the experience.
- Everyone involved will work at differing levels, and on different things.
- Unless the boundaries are clearly established in a contract, it’s very easy for a harder-working partner to grow resentful.
- The partnership is for the purpose of making money, or for a shared cause, but is not permanent.
- Everyone should have the freedom to back out of the arrangement anytime they want.
- Choose partners carefully.
- That person is gaining an intimate knowledge of how you work, and when they leave they’ll understand most of your organization’s design.
- Establish yourself first and keep as much control of it, then seek out a partner when you want to start something later.
Distill the Idea
You must have an extremely precise vision of what you want.
- You’re guaranteed to have the most passion about your business, and you’ll have to influence others to adopt that passion.
- Until others start seeing results (which happens a long time after their input was necessary) they typically will be hard to convince.
If the idea is a bit hazy, change employment to an industry more related to your idea.
- You’re essentially getting paid to get hands-on market research.
- Look for roles that will give you plenty of free time and energy (typically from managerial incompetence).
- Since the roles won’t expect much from you, expect a low-paying role.
- If you can’t find a role in that industry, get one that gives time to think (e.g., truck driving) or lots of idle time, preferably in front of an internet-accessible computer (e.g., security guard).
Your vision must be driven by passion, but tethered to reality.
- You’re trying to find what others need that everyone else has been overlooking.
- Your primary competitive creative advantage is your prior experience.
Unless it’s an urgent business idea that’s relatively low-risk, either start freelancing or take more time to plan.
- More planning means less work and misery later, especially if you find new risks.
- Mind any time constraints, such as new technology that would change your business model.
- However, you can never plan for everything, so don’t overthink it.
Sometimes, your idea will be a dud.
- An ineffective plan is simply part of the creative process.
- It may be a worthwhile business idea later, or could adapt to becoming a different idea altogether.
If the idea is something some people love, it’ll go much farther than something that many people will simply like.
Prepare to Act
You should be able to sacrifice almost everything for that vision.
- For a long time, you will not have vacations or extra spending money.
- At least at first, your friends and family will likely not support that vision.
- You’ll have less time with family, friends, or recreation.
- There will always be something you need to do: networking, busywork, or time-sensitive tasks.
- If you’re aiming for a grandiose idea, you will need to sacrifice your entire life for that purpose.
Create an “us versus them” attitude about your new idea.
- Competitors are antagonists you will have to (preferably) avoid, convert or subdue.
- Your affiliates and business partners are (generally) on your side.
Expose your idea as soon as possible to public criticism.
- Your idea is not special, and at least 40 people have had that idea (even if they didn’t act on it).
- Exposing the idea to public criticism has a lead time before you see how people respond.
- The faster you show the idea in action, the faster you’ll get feedback.
A business plan is designed to clarify every part of a business.
- Most startups fail, and startups which succeed are rarely the first attempt.
- By crafting a formalized business plan, you’re forced to find certainty on how you’ll perform business activities, even if you never need investors to review it.
At some point, you’ll need to convince others to give you money, and a business plan helps prove that to others.
- If you want a large-scale impact, you’ll need a large-scale approach.
- To make millions, a business must affect at least thousands, and will eventually need millions to do it.
Business plans always have the same generic sections each time, but they don’t need to be extensive.
- A simple business plan can be one page long.
- You’re basically writing out what you plan to do, and covering all the important aspects before they become urgent.
- Do not go farther on the business plan in any of the following sections if you have no need for it.
If you are seeking funding, you’re answering questions potential investors and lenders are indirectly wondering:
- Is the business idea sound and reasonable?
- Is this business idea timed correctly?
- Do you have sufficient talent, devotion, and skill to act on the business idea?
- Is the business model structured correctly to keep running indefinitely?
- Will the business operations be sufficiently funded until it can support itself?
After all your persistent research and ideation, capture every one of your relevant and valid thoughts into your business plan.
- Even if you’re thoroughly meticulous, you will forget something, so don’t aim for perfection.
1. Opening Content
Include a title, table of contents, and executive summary.
To market it well, the title should be memorable.
- Do not obsess about the title too much, since it will often need a rebrand later when you need to scale the business.
The executive summary comes last, after the rest of the business plan.
- It should be enthusiastic, professional, complete, and concise.
- It’s one paragraph that can wrap up a 5-minute presentation:
- Who are the owners?
- What will the product be?
- Who are the customers?
- How much money does it need?
- How will it use its money?
- What’s likely to happen to the business and industry in the future?
- If there’s a loan, how will the money make the business more profitable to ensure repayment?
2. Organization Description
An organization’s description indicates what the business will be and what it does.
Use a mission statement.
- Mission statements show the guiding philosophy and purpose for the business’ existence.
- Typically, it shouldn’t be longer than 30 words.
Indicate both the organization’s goals and objectives.
- Goals are what you want the business to be.
- Objectives are the progress markers toward attaining those goals.
Expand the mission statement’s philosophy in more detail.
- Briefly describe who the business’ marketed demographic.
Describe the industry in general.
- Is the industry growing?
- What changes are coming to the industry, both short-term and long-term?
- How will the organization be prepared to benefit from those changes?
Describe the organization’s most significant strengths and workers’ best talents.
- What factors will make the organization succeed?
- What strengths give the most competitive advantage?
- Describe the background experiences, skills, and strengths each worker brings to the organization.
Indicate its legal form of ownership, and why.
If you’re selling a variety of products, you should be intimately familiar with every single one of them.
- Look at the products as if you’re a new customer who is first learning about it.
- Consider how you look as you perform your services.
When you think you’ve tested your product, test it some more.
- You should test a product so heavily that you’ve discovered all the problems before the customers find out about them.
Describe in detail the demographics of each product’s customers.
- Identify the target customers, their characteristics, and geographic locations.
- Indicate whether distributors, wholesalers, or retailers will give the product to the end-user.
- For each type of customer, create a demographic profile:
- If the customers are businesses, they’ll have a different demographic profile:
- Industries involved, or the portions of involved industries
- Geographic location
- The organization’s size
- Preferences for quality, technology, and price
- Add any frequently tracked industry-specific demographics as well.
- If it’s a not-for-profit organization, indicate the projected demographics of both the donors and recipients.
Provide a detailed explanation of each product or service.
- Give as much detail as possible.
- Cite technical specifications, drawings, photos, sales brochures, and any other bulky items to Appendices at the back.
- Show pricing, fees or leasing structures for each product and service.
Bluntly indicate the competitive advantages and disadvantages of each product or service:
- Quality compared to competitors.
- Unique or proprietary features.
- Cost compared to competitors.
- Absolutely anything else which differentiates the product from the competition, both good and bad.
Share the product from the customers’ point of view.
- List every feature and benefit of each product and service.
- Features are built into the product to sell the benefits.
- Describe why the most significant features matter.
- Indicate how the features can help the customer see its benefits.
- You may think the product is perfect, but your clients won’t.
- Your opinion is too biased to have much value.
- Pay close attention to user feedback.
- Stay focused on the product’s core purpose, and constrain its design to it.
Indicate any additional post-sale products and services.
- Covering the logistical costs to deliver or install the product.
- The organization’s refund and return policy.
- Warranties and service contracts connected to the product.
- Technical support, both during and after the warranty period.
- Followup procedures to gauge the customer’s experience.
Aim for affordable-enough pricing.
- The cheaper something is, the more it can sell.
- You can sell something at a prestigious price, but you’ll be wasting your time with a very hard sell for each customer.
- If you must set the price higher, quickly clarify why and elaborate on it in the marketing plan.
- You want to set the price low enough that there’s always demand for it, but not so low that people will feel it’s cheap.
- Even if you can set the price at substantially lower than the competition, people will often presume you’re delivering an inferior product.
- Instead, focus on closing the margins in that situation toward higher product quality.
4. Marketing Plan
Marketing the product is absolutely critical, or nobody will know you’re selling it.
You don’t need a vast marketing plan, and can start simple with a simple list of places you plan to contact:
- Classified ads
- School and church bulletin boards
- Relevant social media
- Ask people via word-of-mouth where someone may need what you’re providing.
You’re trying to tailor your product to your customer, so consider how the product has been marketed:
- Traditional marketing approaches can very frequently work for traditional products.
- If it’s a new type of product, however, every bit of design can dramatically improve your impact.
- Unless you’re trying to make a living in marketing, pay close attention to how much marketing you’re doing relative to the product you’re actually producing and selling.
- If you like marketing itself, consider dropping the product altogether and working in a marketing role instead.
Make a standardized script for contacting leads.
- Use the Golden Circle to communicate the concept:
- WHY you do and believe
- HOW you do it
- WHAT product you make
- Keep refining the speech until you have a few versions:
- A 10-second summary of what you’re selling.
- A one-minute summary for anyone who is interested.
- A written source of more information on the product (e.g., a website or printout).
For anything more significant, your marketing plan should show the results of your marketing research.
- That research should answer any uncertainties and prove as consistent data.
- Specify as much as possible with numbers, statistics and citations.
- Your marketing plan will be the source for your sales projections later.
Give the industry’s economic facts:
- The current market demand along with total market size.
- Show market trends like growth, consumer preference shifts, and product developments.
- If you’re making a non-profit organization, make a separate category altogether for trend analysis.
- Show the growth potential and maximum opportunity for an organization your size.
- If a business will be a significant competitor in the market, indicate the percentage they’ll dominate it.
- Give the scope of the marketing content and how customers will see it.
Specify each barrier to entering the market and how to overcome each of them:
- Starting a business full-time typically needs a significant amount of starting capital:
- Production costs
- Equipment and supplies
- Consumers have some resistance to a new brand, and won’t immediately recognize it.
- Also, if the brand doesn’t succeed in being distinctive, the product or service will be seen as a commodity.
- Many new organizations require specializations from before the business plan was drafted:
- The political environment also affects a business.
List every major competitor in the industry:
- Indicate their names and addresses.
- Will they compete everywhere with you, or just for certain products/customers/locations?
- Will you have any significant indirect competitors, such as from a different industry?
- If you need to, break out a chart that indicates the market share and customer satisfaction:
- Niche: low market share and low satisfaction
- High Performers: low market share and high satisfaction
- Contenders: high market share and low satisfaction
- Leaders: high market share and high satisfaction
- Place your company’s projected placement on that chart.
Compare the two most significant competitors side-by-side with yours on a table:
- Use as many variables as you can qualify:
- Service offered
- Product quality
- Range of features
- Style and design
- Ease of use
- Customer support
- Warranties offered
- Rank each value from 1 to 5 as an ideal relative to the customer.
- If you’re being legitimately honest, you should see multiple 1’s on yours compared to competitors (since you’re starting into the industry).
Indicate how changes in social trends and society will affect the organization:
- Will it take advantage of new technology, or will that technology be a risk to the business model?
- Are there any government regulations which may affect business operations?
- Will the economy or industry shift enough to change how the business model can survive?
Describe in a paragraph the specific corner of the market the company will pursue.
Explain how you’ll promote the product:
- How will you get the message out to customers?
- What advertising media, why, and how often? Why not other alternatives?
- Beyond paid advertising, will you use any other marketing methods?
- Are there any low-cost advertising methods you can take advantage of?
- What image do you want to project and how do you want customers to see you?
- What are your plans for maintaining brand management with graphic images?
- What promotional budget do you have?
- You’ll have an initial cost, and then ongoing costs afterward.
It typically makes sense to go back and redesign the product to reflect the marketing strategy.
- Good marketing will reflect back into the product itself.
- Display the product’s most interesting qualities openly.
- Hide complexities about the product that may make customers uncomfortable.
Indicate the product’s pricing or pricing models:
- Explain the reasoning behind the prices.
- Under-charging is not sustainable.
- Your startup will need a high profit margin to manage unknown risks.
- Any idiot competitor can under-bid your price.
- Focus on quality, expertise, and the niche’s preferences much more than the price.
- Share how the price compares with the competition, and describe its relevance to the target market.
- Clarify any customer service or credit policies.
Specify a proposed location:
- The location is a reference for the marketing plan, but will be more detailed in the operational plan.
- Many startups can successfully start in your own home.
- Show how the location is marketable as a venue:
- How is the site important, if at all, to consumers?
- How convenient will people feel the building is?
- How is its parking?
- What do its interior spaces look like?
- Is the location consistent with the business’ desired image and what customers want or expect?
Clarify its distribution channel:
- The customer’s lifestyle will closely connect with the product, so explicitly indicate how the business will advertise and distribute it.
Give data-minded sales forecasts to predict how well the company will perform.
- Make a well-estimated projection that aligns with the rest of the information.
- As a backup, give a worst-case scenario sales projection you’re absolutely confident you’ll reach.
5. Operational Plan
Describe the daily activities involved with producing or acquiring products or services:
- Quality control (i.e., maintaining a good-quality product)
- Customer service and the scope of company policy regarding defective products
- Inventory control (i.e., preventing theft and protecting against destroyed merchandise/equipment)
- Product development (i.e., improvements to the product)
Clarify the location’s needs:
- If it’s relevant, provide a drawing or layout (which is critical for manufacturers).
- Physical requirements:
- The necessary amount of space
- The type of building needed and its required zoning
- Essential utilities with any minimum specifications (e.g., electricity, water)
- Required conveniences for carriers or suppliers
- Whether it needs easy walk-in access
- Parking requirements
- Necessary proximity to other locations (e.g., highway, airport, rail station, shopping centers)
- Hours it will be open to the public
- The building’s construction (if applicable):
- Most startups shouldn’t construct a building.
- If you do plan to build, a large portion of the operational plan will consist of building costs and specifications.
- Approximate fixed expenses:
- Initial remodeling costs and routine maintenance requirements
Indicate the legal environment and requirements for operation:
- Licensing and bonding requirements
- Necessary government permits
- Relevant health, workplace, or environmental laws
- Any industry-specific or profession-specific laws
- Zoning or building code requirements
- Essential and elected insurance coverage
- Pending, existing, or purchased trademarks, copyrights, and patents
If it’s more than yourself, describe the employees who’ll work there and what they’ll do:
- The number of employees, detailed job descriptions, and their pay structures
- The types of labor (skilled, unskilled, professional)
- The qualities of the current staff who will be assigned to it
- Where and how the organization finds employees, how they will train them, and their requirements
- Whether the organization will use contract workers or professionals alongside employees
- Tasks assigned to each worker and how their responsibilities will change over time
- Schedules and written procedures for managing employees
Describe the work site’s inventory:
- The types of inventory kept (raw materials, supplies, finished goods)
- Average value of the initial inventory stock investment
- The amount of time from ordering to delivery
- The inventory turnover rate and how it compares to the industry average
- How seasonal inventory builds up, and how overflow is stored
Identify key suppliers:
- Their names, addresses, history, and reliability
- Many suppliers take advantage of small business owners, so have backup plans in place
- Indicate suppliers’ credit and delivery policies
- The type and amount of inventory the supplier will provide
- Risks to the supply chain
- Whether the business may experience supply shortages or short-term delivery issues, and how they’d withstand it
- The stability of supply costs and how the business will manage natural cost fluctuations
- Whether supplies can come from an unpredictable and unconventional source
Describe the organization’s credit policy:
- Accounts receivable (money others owe to the organization)
- Plans to sell on credit and whether the consumers need it
- Policies for issuing credit and how much
- How to check new applicants’ credit
- When credit is due
- If the consumers find it customary, discounts for prompt payment
- Costs of extending credit and how it builds into product prices
- Show a sample accounts receivable chart with aging
- Describe when slow-paying customers will receive a letter, phone call or attorney threat
- Accounts payable (money the organization owes to others)
- Describe whether vendors offer prompt payment discounts
- Show a sample accounts payable chart with aging
6. Management Structure
Specify who will manage the business:
- Show how their experience brings value to the business.
- Clarify unique or distinctive talents and abilities.
- Identify whether the business can keep functioning if someone were to stop working.
Create an organizational chart:
- Indicate the management hierarchy, position descriptions, and who is responsible for critical tasks
- Include owners’ and key employees’ resumes if investors or lenders will review the plan
If multiple people will run the organization, clarify the board of directors.
Beyond the board, clarify your management advisory board:
- A management advisory board is 3-5 outside consultants with no financial interest in the organization.
- Advisory boards give measurable, distinctive value to the organization, but only if it has the right people:
- Objective, honest, effective communicators and problem solvers
- Skilled in different vocations than the owners
- Respected and knowledgeable in their fields
- Genuinely interested in the organization’s success
- Diverse skills, work, and life backgrounds
- Well-connected with networks the owners may need
- When forming a management advisory board:
- Require non-compete and non-disclosure agreements.
- Make sure everyone commits to a meeting, and adhere to an agenda.
- Specify how each member will assist.
- Always express gratitude for their time.
- If the group is ongoing, rotate board members.
Indicate any other outside consultants, including mentors or key advisors to the company.
7. Draft Financial Statements
Give draft statements to estimate the organization’s future status.
- Show all the assets, liabilities, and applicable net worth of everyone involved.
- Include personal financial statements for each stakeholder.
Even when you have a few months’ worth, businesses typically take 5 years before turning a profit.
- Before diving in, your individual line of credit should be solid enough to get a business loan for over a year’s worth of personal income.
Give reports of the startup’s initial expenses:
- Be as honest as possible.
- Explain the amount and reason for every expense.
To discover your minimum viable product (MVP), find the break-even point:
- Every organization has fixed costs necessary to keep existing (e.g., rent, legal filing fees).
- Each additional unit incurs a proportional cost increase.
- The break-even point is where you make just enough money to keep the organization open.
- (Income Per Unit – Variable Cost Per Unit) = Contribution Margin
- Fixed Expenses / Contribution Margin = Break-Even Point
- e.g., ($5/unit income – $2/unit cost) = $3 contribution margin, and a fixed expense of $3,000 means having to sell 1,000 units.
- Anything after that becomes a surplus to take care of other needs or expand operations.
Make room for error:
- You could give extra padding to each item in the budget, but it will make the entire plan inaccurate.
- Instead, add a separate budget item called “Contingencies” to plan for unexpected costs.
- Use the basis from other entrepreneurs’ experiences in the same industry.
- In general, make contingencies about 20% of the rest of the startup expenses.
Give them most common accounting reports for the first business year:
- 12-month Profit & Loss Projection
- 4-year Profit Projection (optional, if you can even estimate it)
- Projected Cash Flow
- Opening Day Balance Sheet
- Break-Even Analysis in different scenarios (determines when the organization becomes sustainable)
- This is simply speculative, but the numbers are marketing to potential investors.
8. Industry-Specific Sections
Add anything else you can think of that may be applicable to the industry.
- Indicate significant milestones that show business success.
- While the milestones usually involve money, it can be anything measurable:
- Market exposure
- Number of users
- Items produced
There are advantages to starting small:
- You can start work there, then scale upward.
- You’re able to test what works and what doesn’t, with minimal risk.
- If you can do it part-time, it’s much easier to finance your activities.
If it’s side work, you don’t need to scale upward.
- Sometimes, the market is sparse enough that you can’t scale upward.
- However, if you’re willing to move, there’s often a culture somewhere on the planet where you could work full-time in that capacity.
You also won’t need to subject yourself to as rigorous a requirement to break even.
- Low costs give the freedom to experiment with simple, little ideas.
- It also gives very little pressure to over-invest into an idea that may or may not work.
- If you lose money on some of them, you’re fine as long as you do other tasks that pay the bills.
- Like investing, small one-off jobs and ideas will diversify your income streams.
However, for many industries, you will need to invest a certain amount of money and time.
- To offset the money you’ll need, budget and save for the business as much as possible before you start into it.
As you work on a small-scale, you’ll be able to adapt your long-term plans to conform with constraints as they arrive.
If you’re trying to make a living off a hobby, you will very likely not succeed if that hobby is:
- Whatever people do anyway for fun (e.g., video games, reading stories).
- However, you can still make a living on the tedious experience of making things that are fun.
- Easy to do (e.g., writing articles about movies, giving lectures on a video).
- If you want to make a living at easy things, do something that’s very hard with them.
- Abstract enough to be impractical (e.g., philosophy, art appreciation).
- You can make a living at it if you can find a practical use for the abstract idea.
- Low-demand (e.g., medieval-period armor fabrication, VR headset consultation).
- The idea may be sound, but premature.
Unless it’s a hobby you enjoy, your side hustle is only worth your time relative to other things you could do:
- Track how much time per week you spend on that hobby.
- Count the income you make every week.
- Figure out how much you’re “paid” per hour.
- Compare that number to a low-wage job (e.g., fast food) or extra time at your day job.
If you’re a artistic creator and want to sell your work, spend at least as much time on supporting and promoting the art as you are on building it.
- If you don’t, you’re trusting someone else to do it for you, and they often are not qualified to see your vision like you do.
Side Hustle Ideas
Low-skill labor that’s quick to start:
- Custodial (especially window cleaning)
- Manual labor
- Trench digging
- Pet sitting, grooming or walking
Low-skill odd jobs that only need a car or computer:
- A wide variety of freelancing jobs
- Ride-sharing and delivery service through an app
- Proofreading or data entry
- Work on cars
- Repair electronics
- Fix computers
- Clothing alterations and tailoring
- Brew or distill beer/liquor
- Travel consultant or tour guide
- Trades like plumbing, welding, painting, roofing, or HVAC
- Tax preparation
- Notary public
- Become a teacher
- Teach high-demand trade skills
- Do private tutoring, which typically avoids most legal requirements
- Teach English in another country
- Healthcare roles like caregiver, nurse’s aide, and medical assistant
- Commercial driver’s license (CDL)
Artistic and creative skills:
- Performance arts:
- Busking (playing a musical instrument in a public place)
- If you’re performing publicly, keep at least a few dollars in your jar/case and store the rest.
- Create and sell drawings, designs, and crafts
- Sell stock photography
- Teach with web videos, podcast or blog.
- Sell a subscription service for paying members.
- Build an app.
Rent a room in your home or secondary property:
- If you hire a management company to rent it out, be careful who you hire and what their contract stipulates.
- Alternately, you can rent them out as temporary vacation lodging.
Some things won’t necessarily make much money, but can add a small amount of income:
- Look for tax-favored improvements and tax rebates for various lifestyle decisions.
- Cash in your company’s paid vacation days in at the end of the year instead of using them.
- Read the terms and conditions of many of your contracts, since some include a $1000 prize for anyone who notices.
Sell things you never use, don’t need, or can find affordably:
- Routinely look through consumer goods you haven’t used in at least a year:
- Clothing and seasonal wear
- Books, movies, video games
- Electronics and computer equipment
- Specialized tools
- Calculate the cost and time to replace or reacquire it.
- Determine the item’s sale value:
- Unless it somehow became more collectible, you will not get the retail price for it.
- You might be able to quickly sell it if it’s commonly sold as like new or rarely used.
- If your item is usually sold used but is still new, you may have trouble selling it unless you dramatically lower your price.
- Use other similar items for sale to determine where to sell it:
- Community sale, garage sale, flea market, swap meet – observe which days more customers show up.
- E-tailer site, classified ads – be prepared to haggle and lower your price.
- Auction – you have zero control over the final sales price except for a minimum bid, whether online or in-person.
- Estate sale – the best approach when you have many high-value items.
- Add features to give more appeal to your product:
- Only give things away when you can’t sell them or you know someone who legitimately needs them:
- Unless it’s something someone specifically wants, donating money is usually far more meaningful and useful than valuable possessions.
- Most charities will sell that item instead of you, so you’re simply giving them more work than giving them cash.
If you’re launching a product or project, get everything as much as possible before the launch date.
- Expect constant chaos.
- Planning makes life easier, but it’s never easy.
- There are simply too many unforeseeable things that may go wrong.
- Instead of fighting against the chaos, learn to channel it to your benefit.
- Order all relevant marketing materials beforehand, early enough to review them and reorder if they weren’t sufficient or accurate.
- Create a fully-functioning website, then have an email that directly uses that website’s URL.
- Make an extensive list of possible marketing and lead generation avenues.
At the onset, your job will involve ~20 small part-time jobs.
- Most small business work is solitary or with strangers:
- Eventually, you’ll be able to specialize more into what you like (or at least don’t mind), but you’ll do a little of everything at the beginning.
- To avoid burnout, try to separate personal and work activities.
- When you relax, you should enjoy your small bouts of time off and not think about work.
- Further, if you’re not financing, you must keep a day job until you can make enough to live on without harming operating activities.
Keep testing and using your own product.
- You can only stay in touch with the product as it develops if you use it yourself.
- Further, you can only sell your product well if you’re constantly becoming more familiar with it.
Watch for warning signs of being “busy” more than productive:
- Holding multiple meetings to decide what to do.
- Multiple people assigned to tasks one person can do.
- Focusing too much attention on irrelevant numbers (e.g., how many people contacted, how many checklist items completed).
- Frequently attending networking events with zero leads from the visit.
Avoid short-term thinking.
- It’s very easy to chase after heavy profit right now that sabotages long-term profit later.
Pay very close attention to where you’re getting all the attention and income.
- Treat every setback as an opportunity to change.
Sometimes you’ll have to redesign the business.
- Learn to capitalize on unexpected, small successes.
- Pivot everything to whatever creates the greatest returns.
For every product you provide, create a standardized contract for clients with the following:
- Warranty and return policy.
- If it’s connected to software at all, have a privileged user agreement.
- If you provide private information, have a non-disclosure agreement.
Unless you’re a substantially-sized organization, trying to sue for damages against suppliers is usually not worth the cost and time.
- Even for small claims, the work associated with civil cases is generally unpleasant, over a long period of time, and never guarantees remediation.
- A lawsuit threat may lead to negotiating a fair settlement, but it severs any future relationship with the supplier.
- If you do succeed at a lawsuit, you’ll have a reputation for suing against suppliers, and future suppliers will potentially be more distrusting of you.
Always keep multiple payment options available, along with multiple payment processors.
- Even if you need extra fees for processing, always offer cash and card payments.
- If your business is at all modern, use phone-based payment options (e.g., cryptocurrency, Cash App).
- You’re losing money every day a client can’t pay.
- Try to use a less-popular payment processor, since large-scale payment managers (e.g., PayPal, Stripe) will not prioritize you if something goes wrong on their end.
- If you’re charged different fees for different payment processors, consider adding the cost directly into the product itself.
Smaller companies can often make more profit than large companies.
- The only advantage a large company has over a small one is that it can do things at scale.
- The founder is typically involved in a far greater percentage of customer interactions, meaning better customer service.
- The founder gets to closely and quickly choose all the decisions for the organization.
- Changing the business model is comparatively easier.
- The founder isn’t wrestling endlessly with management concerns.
Smaller also means more freedom for the founder.
- They can tell the truth on their blog without much fear of public backlash.
- The founder is typically outsourcing boring and low-impact things (e.g., manufacturing, logistics, billing).
However, there are downsides.
- Smaller organizations rely very heavily on other organizations for their needs, so they’re not as safe.
- Larger company management can typically create small-scale units inside their larger conglomerate to compete with you (with the comparatively endless ability to scale).
- If you want to retire or build something that lasts beyond yourself, you must keep scaling.
As soon as possible, legally separate and protect yourself from the business and associates.
- Open a small business bank account.
- Get business licenses, government permits, and applicable insurance policies.
- To limit liability to yourself, file for an LLC or file your articles of organization/incorporation.
- Get an Employee Identification Number (EIN) or Tax ID.
- If you’re forming a partnership, enter a buy/sell agreement.
- You may get along well right now, but money tends to corrupt people.
- Irrespective of how well you know someone, you don’t know when they’ll want to retire or leave.
- If applicable, pick employee and owner retirement and health insurance plans.
Needing to Scale
At some point, your small organization will eventually travel down several possible paths:
- Its core market will be taken over by people more competent than you and your business will eventually fail.
- You’ll scale upward to compete with the changing conditions and the need to safely manage your resources against a growing market.
- You’ll sell the organization, and probably start again with another idea.
Even if you want to work alone, a successful business needs other professionals’ help.
To get the business plan as perfect as possible for prospective investors, revise the business plan a few dozen times.
Fundraising is easier when the business model is simple.
- More complexities in your business model will make most investors skeptical over whether it’ll succeed.
- More elaborate or untested plans are more likely to fail.
- The only people you can successfully win over with a complex business model are typically terrible people to deal with when your returns don’t satisfy them.
When securing a loan, try to only use the organization’s assets as collateral.
- A loan in your name can outlast the business.
- If you need, move more assets over to the organization before asking for a loan.
Use investors and lenders you’re familiar with.
- Borrowing and not paying back the wrong person or the wrong bank can destroy your reputation for years.
- Unless you know for sure you’ll be able to pay them back, do not borrow from family members or friends.
- As a general rule, be careful about borrowing proportionally to how close you are to them.
Not all investors are the same.
- People who fund startups (“angels”) aren’t that hard to find, but it can be challenging to convince them to invest in your idea.
- Conventional banks are highly reputable, but you’ll likely need to collateralize assets.
Search outside your present network for investors who have already invested in your type of business:
- Startup incubators (e.g., for universities/MBAs, technology startups)
- Your region’s Chamber of Commerce
- Crowdfunding platforms
- Trade-specific startup groups and networking events
- Investing platforms like Republic or Open VC
Be careful with private loans.
- Many loans with investors are not regulated by any government authority, which makes them more flexible but also more dangerous if you don’t read the contract.
- Loan terms can often change arbitrarily, so stay informed on any changes to a contract.
You can give equity to investors instead of acquiring a loan, but be careful with whom.
- Someone who has equity in the company has control over the company’s decisions, but a lienholder only has control over the organization’s assets.
A company can lose money many times, but it only runs out of money once.
- It’s absolutely impossible to recover from operations if you can’t pay your workers.
- To buy time to adapt, always keep 2-3 months’ worth of operating costs in an emergency fund along with an untouched line of credit.
As you scale, shift from focusing on profit to focusing on ROI (rate of investment).
- Once you’ve adjusted for risk and long-term costs, the highest returns on the organization’s efforts aren’t always generating the most profit.
At some point, you’ll reach a workload critical mass.
- Workload critical mass comes from being too busy to fix how busy you are.
- It’s a precariously dangerous place to be, since any increase in work (e.g., extra project needs, more work required than expected, contract renegotiation) can push you into a cascade of failing to fulfill obligations.
- Before that point, you will need to hire a new employee or draw boundaries and say “no” to some things.
- However, saying “no” to your customers is a quick way to lose them.
Employees are, by far, the most expensive increase to costs in a startup.
- The hourly rate can be absurdly high relative to just about everything else.
- e.g., a nice $45 hand tool is the same as 3 hours at $15/hour, meaning a week’s pay at that rate can cover a fully loaded toolset.
- Further, that hourly rate requires extra considerations:
- To that end, hire very slowly, and only the right people for the role.
Your first employees, like you, will have many small tasks.
- Preferably, look for someone skilled in a variety of small things you’re not good at.
- If you sincerely value that person and want a long-term relationship with them, consider giving them partial equity in the company.
- While your spouse can be a vital co-creator in the organization, do not require them to do more than they’re comfortable with.
- Establish boundaries by clarifying job definitions and working conditions beforehand.
- You should both agree on their commitment to the work.
- Leave work away from personal time.
- Consistently, constantly thank them.
- Consistently review whether your shared work together is working out.
If you don’t want to hire employees (or at least not yet), consider narrowing your specialization.
- Your marketing will have to shift, but you’ll be able to more intimately focus on specific needs of clientele you’ve already had experience with.
Once you expect you’ll need employees, start writing an employee handbook.
- The handbook clearly distinguishes proper conduct, and can be enforceable in civil cases.
- Be very careful with the wording, since a few misstated words can make the handbook diverge from reality.
- Use software or download forms.
- Do not simply edit another company’s handbook, or you may be forced to do something against your will later.
- Stay legal, but flexible.
- Clarify employee behavior expectations.
- Do not specify any disciplinary action in the employee handbook, since it may obligate you to perform or refrain from performing something later.
- Always include a few key legal issues:
- Harassment and discrimination
- Wage and hour issues
- Hours of the workweek and rules for breaks and meals
- Safety policy that complies with state and federal regulations
As you scale upward, you’ll assume increasing levels of managerial responsibility over others.
- The scrappy personality that got you here may or may not work in a manager capacity.
- Closely observe the shifts, and leave as soon as you feel uncomfortable with the new role.
After you’ve started seeing a profit, you should start considering how you plan to leave the organization.
- Beyond the business plan, have a long-term goal if you want anything beyond simply yourself (or possibly your family).
- When you start getting bored with the business, you should sell it.
If you have a good-enough business idea and promising-looking financial statements, you can still sell the company even when you haven’t turned a profit yet!
- You’re almost guaranteed to have a marketable business that loses money if you own high-demand intellectual property tied to the company.
Logically, there are only several possible ways you can go:
- Sell the business outright and leave with a significant amount of wealth.
- Develop better management skills and scale it to a very large organization.
- Give the business to your children when they’re old enough to run it.
Learn when to stop.
- Most business ideas do not take off, and that’s okay.
- Avoid going deeper into debt and wasting more of your life than you need to.
- Create a fixed, measurable limit on how much you’ll go until you stop (e.g., no more than $10,000 of savings into the business).
Selling is generally a better idea than scaling, mostly because large-scale organization management is an entirely different skillset.
- Further, you have the opportunity to diversify the wealth you’ve acquired through building your business to that point.
If you wish to sell the business, you have several options:
- Propose a merger with another similarly-sized company.
- Sell the company to a larger company as an acquisition.
- Take the company public and sell it on a stock exchange.
- Sell the company internally as an Employee Stock Ownership Plan (ESOP).
Try to sell before you have to.
- Buyers want to feel “blue sky potential” and get excited about the growth they expect to see.
- If it’s already at its peak, it won’t inspire as much excitement.
- You have built a reputation, and the premium over the equity value of the company is the direct market price of your company’s name’s reputation.
- Most buyers are asking what financial gain your reputation will have on the future, then discount it over that window of time.
- e.g., if they expect to gain $10 million from your company’s brand within 3 years, they may propose buying it for $3 million but be willing to haggle up to $5 million for it.
Mergers & Acquisitions
Bear in mind what mergers and acquisitions will do to your organization:
- When you’re in a merger, you’re officially partners with whoever runs the other organization.
- When in an acquisition, staying on with the organization makes that company’s leadership your boss.
If you plan to interest a company in an acquisition, contact the CEOs who were interviewed in a major publication (e.g., Forbes).
- Generally, CEOs who have had their ego stroked publicly will pay a premium of 4.8% more for every major article they’ve had.
Most mergers and acquisitions (83%) do not boost the value of the company.
- Only do it if you want to be completely rid of the company.
- Be careful, though, since you might be selling it to a very unhinged person.
Do not retire.