Thinking of starting up a business sometime soon? Know these five words first.
According to the National Venture Capital Association 82% of startups are self-funded. And according to a Harvard Business School Study the average age of a founding team is between 35-44 and 63% have two or more founders. In a capitalistic society, companies require capital. And capital comes in two forms: money and time. And both are equally important. When I started my company back in 1994 I had about two years of cash in the bank to survive while I grew it. But I needed something more important than cash. I needed my wife's blessing. Without her commitment and support I would fail. When you start a business you will be married to it. It will suck up your time and put pressure and your relationships. Your significant other needs to be part of your decision and 100% behind you. Otherwise you'll either be forced to take time from the business or your relationship and as a result one of them will fail.
The same Harvard Business School study mentioned above concluded that 50% of startups fail in their five years and 75% never make it past 10 years. Why? According to research site Statistic Brain it's mostly due to incompetence. I know many successful business people. And they all share one thing in common: they know how to buy something for a dollar and sell it for three. Running a business is a skill set. It takes math and common sense. Do you have those skills? Be honest with yourself. If you don't, then bring in someone who does. Get a partner. Hire a financial person. Focus on what you do best and make sure you have a team of people to help you do the rest. Know your weaknesses and compensate for them. If that means sharing a piece of the pie then share it.
Incompetence is a big reason for failure. But in a 2014 study done by research firm CB Insights it was found that 42% of startups failed because there was "no market need." These were people with great ideas, except no one wanted what they made. When I started my business, I did it in parallel while I held down a full time job (see above for making sure that your spouse supports your efforts!). When I eventually quit my job I had a handful of customers in place to make sure I had enough cash flow so that my bills would be paid. You need customers immediately. That means that you'll be giving away product or services for a much lower price than you ultimately intend to charge, or even for free. And that's fine. They'll get a deal. And you'll get an education, while building up a list of references and gaining experience that will help you become profitable with other customers in the future. Start selling on day one. Don't be afraid to launch.
Back in the day it was expensive and risky to start a business. Today you can start your business in your basement and look like a Fortune 500 company to your customers with the technology available. Last week I mentioned five technologies that I consider the best for business in 2015. And for a startup, those services are merely the beginning. Of course, a good cloud based accounting and customer relationship management application is critical. But smart startups also take advantage of hosted phone systems like Grasshopper and Ooma, collaboration tools like Microsoft Office and Google Apps for Business, project management software such as Basecamp and Asana and incubators like WeWork that provide shared spaces and technologies for early stage firms. Today's inexpensive technologies and services will make the difference between the company that survives six months and one that goes for decades.
Starting a business is hard. Your friends, after congratulating you, will go back to their own lives and you will quickly learn how cold and lonely the real world is. People will lie to you. Others will not pay you. Employees will disappear. Partners will disappoint. And your vendors won't care about your cash flow challenges. I promise you will have some great days and some very, very dark moments. And through it all you will need one thing to keep you going: purpose. No, you don't have to be changing the world. We can't all be unicorns like Uber or AirBnb. You may not be providing sustainable, composting toilets (Toilets for People) or revolutionary refrigeration systems for developing countries (Evaptainers). It's OK. We all contribute in our own way. No matter what your company does, it's providing a service and help to your customers. It's providing a livelihood for your employees. And it's providing an income so you can raise a family. Every business has a purpose. Determine yours. And remember it on those dark days. It will sustain you and keep you moving forward just when you start thinking that you can't move forward anymore.
It's estimated that more than 100 million new businesses are created worldwide each year and a recent Kauffman study said that more than 500,000 businesses startup every month in the U.S. alone. You won't hear about 99% of them. That's because they're "boring" little companies like pizza shops and dry cleaners. But these are the companies that make this country the success that it is. And the successful ones always know the five words I've just discussed. Just ask them.