This is How you Start a Business in the New Era

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Throughout human history, it has never been easier to start your own business and make the leap to the world of entrepreneurship.

Due to the incredible advancements in technology and the advent of internet, the playbook of business has been rewritten.

Long gone is the era when you had to reserve a huge amount of capital to launch your concept, go out and lease some expensive office space, develop a costly physical product, hire expensive sales representatives and finally test your idea while you might have forked out a bank loan in the process (perhaps using your house as collateral).

In the brave new era we are living, you can test and validate business ideas and launch business concepts in a much more efficient, effective and rapid way, while spending only small amounts of money.

In this article, I will lay out the framework to use in order to start your business in this new era.

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Pre-Game

The first thing to acknowledge is that it rarely makes sense for a newbie entrepreneur to try launching something different than an online business.

The online world provides much better opportunities, not only to get started but also to scale your business and revenues to figures that traditional Brick and Mortar companies could only dream about. Take the path of the least resistance!

There are several reasons why it is so cheap and efficient to get started online, but also scale afterwards:

  • Open source and/or free and/or cheap tools that help you automate stuff and boost your productivity.
  • Cheap hosting solutions for the early steps and affordable cloud computing solutions for when you are scaling up.
  • Laser-targeted and granular advertising via online platforms instead of expensive traditional advertisements (billboards, television, radio etc.).
  • Vast online platforms (social media) to leverage for your lead generation and content distribution.
  • App stores for efficient global distribution of your mobile apps.

Building blocks

Let’s see what the building blocks of the business would be.

Founding Team

The first thing to consider is whether to start something on your own or with a partner (or more). This is a critical decision that is going to affect every aspect of your business in the future.

Both approaches are valid and there are advantages and disadvantages in each side.

Starting with one or more partners obviously creates a more powerful and solid team, especially if each one brings complementary skills to the game. It is also useful to have each founder support the other when times get tough, because times will get tough.

Be careful though. He or she should be someone you trust, you know you can work with and someone that brings equal value to the table. Perhaps more importantly, you need to assess whether or not you share the same vision about the business and your future, and whether or not you hold the same values.

For example, if you wish to build a massive business that will dominate the industry and bring in tons of cashflow, while he wants to create a more laid back, casual business that just provides a nice, stable living, then you are going to face major friction and frustration in the future.

On the other hand, starting on your own allows you to have full control of your destiny, for better or for worse. You retain 100% of the equity, which is a major thing as Felix Dennis would attest to.

Additionally, you will be certain that as you grow and develop yourself, your business is going to grow along, without having anything or anyone to hold it back.

If there are multiple founders, make sure to have one with a technical background. While it is doable to succeed without a technical founder, life is going to be much easier if you have one in the team.

Idea / Concept

The next step would be to think about an idea. On their own, ideas are not worth much. Execution is all that really matters.

Having said that, there are stupid ideas, so make sure to do some solid research and also gather some feedback from people with experience in business and in the specific industry.

An idea should be based upon a real problem that the market faces, and your product and service should be a clear solution to that problem. Nothing more, nothing less.

After finalizing the idea, you would contemplate about the concept and how it would work. This would act as a bridge between the abstract idea and the concrete product.

Product / Service

The next step would be to manifest your solution with a solid product or service, depending on the case. You would spend a few months developing the product, not quarters or years. Think agile, not waterfall.

You would crank out a functional Minimum Viable Product (MVP) and ship it as soon as possible so that you are able to gather feedback from real users. Time is definitely not on your side.

Based on feedback you would iterate on the product. If things would not work out, maybe it would be time for a pivot.

When you would get some positive indicators from the use of the product, and most importantly, paid customers, then you would know you are onto something.

Funding

So far, the business costs should have been negligible. You would either have bankrolled the venture on your own (e.g. savings or day job) or you would have gotten some help from the Bank of Mom and Dad. Both valid approaches.

However, as the business starts growing, you would need to address the issue of funding its operations. The best to achieve this is via its own revenue generating capabilities.

By bootstrapping the business, not only you retain all the equity for yourself (and your partners), but you also retain the full control of it.

In some cases, like launching a B2B company with a long sales cycle or when trying to grow quickly to fend off the competition, it would make sense to raise money. Most of the time though, you would be better growing the company organically and perhaps raising some venture debt (not equity) in order to fund growth.

Traction

In the early days of a company, you want to blast through the Valley of Death.

You would focus on generating revenue from your operations, providing a decent product to the market and delivering excellent customer service. You would be super frugal and keep costs low. No fancy offices, no “startup swag”, no ridiculous Silicon Valley perks. You are not Google.

You would think in terms of milestones. Some good milestones to aim for are: $1,000/m, $10,000/m, $50,000/m, $83,000/m (~$1M/year).

When you get to a $1M annual run rate, you will be seeing the world differently!

At the same time, you would be monitoring both your cashflow and your actual cash levels. Never get close to running out of cash.

After hitting some solid revenue figures, you would start thinking about bringing in people to help you. Up to that, you and the rest of the founders (if any) would practically do everything yourselves.

Do not make the mistake of hiring too many people. Labor is by far the highest cost for a company (and it is practically a fixed one).

Make sure that you get a ratio of at least $200,000 annual revenue per employee (assuming fat, “online style” gross margins of 50+%), and never fall beyond $100,000. Each founder should be considered an “employee” in this exercise. That means that if there are 2 founders, it would make sense to bring in a new person only after generating at least $20,000 per month on a consistent basis.

Scale

One of the most dangerous stages of your company has been successfully surpassed.

After hitting $1M in annual sales, you would start thinking about scaling your business. That involves hiring more people, restructuring the internal team, solidifying the operational processes and pouring more capital to marketing and sales.

Scaling up a company is a whole different beast and should be an article (or book) on each own. Make the effort to pass by the early stage and there great resources online for scaling up.

Conclusion

The rules for starting a business have changed. No more cumbersome and rigid brick and mortar concepts. Agility and nimbleness are the new trends.

In this post, I laid out a framework on how to think about launching your own business, leading it through the early stage and getting it to the point where the real scale, and the real money, come.

Remember: The journey of a thousand miles begins with one step. Take it today!

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