When you start a business, think about it like an experiment. You don’t have to commit and follow-through with something just because you started it, you can change your mind. Give yourself permission to stop doing things that aren’t working in your business. You must take the time to evaluate areas you can shift and change as part of the experimentation process.
One area where I see businesses making mistakes (and people do this in their personal lives too) is by letting expenses creep up unknowingly. They start a business and think they’ve got to have the latest gadgets or most glamorous office space, the best productivity software, and hire people right away. They don’t evaluate the return on productivity or the value (or lack of value) of spending that money. Slowly they add service after service with a recurring fee and eventually have to take out a loan to cover expenses. Before you know it, interest payments alone are eating up income, and years in, they’re still not making enough.
Here’s a secret. The most successful businesses I know spend the least amount of money, especially in their first years. This concept of “you have to spend money to make money” is false. If you control spending early on you’ll become profitable faster. You won’t have to beg for business to cover your expenses and you’ll buy yourself more options down the line to put the right people and services in place to maximize your business when the time is right.
How do you do it? By taking advantage of the share economy and the gig economy, of course. You don’t have to start a business with a full suite of people to take meetings and answer phones. You don’t have to buy a manufacturing facility, you can rent space in one that’s not being used all the time or is designed specifically to be shared by small business. You don’t have to hire full-time staff — you can probably find a part-time service that meets your needs until you’re ready to scale up to full-time staff. Never before has it been so easy to find short term help to work on a project, help with administrative tasks, or outsource marketing or accounting. These types of services make it much simpler, easier, and cost effective to start your own business today.
Of course, a decade ago many of these services didn’t exist and it was far less common to be a “location independent” entrepreneur. Now, in addition to being able to take a sales call half way across the globe, we can test out ideas and reach a mass audience through blogging, crowdfunding platforms and social media. We have more tools at our fingertips to talk to people and conduct valuable market research than ever before.
All this makes the idea of starting a business much more exciting and attainable because we don’t need to leverage our entire financial lives to get started. Startup costs tend to be much lower through the use of shared services and shared platforms. And as I mentioned, the lower you can get your costs, the more successful you’ll be. For these reasons, self-funding a business has become much more important today.
Becoming a business owner means that your personal and business finances are going to depend on one another. You want this business to ultimately help improve your personal financial situation. Controlling costs is an important side of the equation. Once you reach a certain level of income and you’re getting paid for the work that you do, you can consider ways to increase efficiency by adding products, services, or people to take on some of the work for you. At that point, as long as your costs don’t grow faster than your income growth, you’ll be doing ok. I have several methods of helping business owners think through these important decisions. I’ll also talk more about how to self-fund your business in an upcoming blog post.
If you’ve done the work upfront to make sure your business idea is right for you, you’ve market proven your idea, and avoided common business planning mistakes your chances of success increase exponentially.
Have you had success in keeping startup costs low for your business or cutting costs that had gotten out of control? Have you taken advantage of all the ways in which the gig economy or the share economy could help your business? Drop me a line and let me know!