Before we jump in:
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If you're just starting out, your hypothesis that there is an opportunity in the market for you is still an educated guess until you go out there and prove it!
A business = sales. If you aren't selling something and making money, you don't have a business. Period.
This is why you need to start lean and stay lean.
The goal is to get profitable, fast!
Here are a few rules to follow when starting your first business:
1. Cast a wide net, then specialize
As your business grows you will specialize. BUT, you can only do this after you've made some money. At the beginning, you need to take on any client who will pay you their hard earned money for what you are offering.
This involves casting a wide net at first and seeing what the market wants and needs. You are collecting data.
When the data points to high margins on certain aspects of your service focus on specializing in those.
When the data points to headaches, refunds, and low margins on other services, ignore them or cut them out all together if possible.
2. Keep your expenses as low and as variable as possible
Things change quickly. So if things slow down, you want to be able to cut your costs drastically on your command.
That means keeping costs low and variable and reducing overhead. You can’t change your mind and stop paying on a 5 year office lease.
You can’t change your mind and turn in your leased vehicle. You can’t change your mind and recoup your costs on the brand new equipment you just financed.
There are two people you can’t get out of paying every single month: The bank and your landlord. In the early days don’t deal with either of them until you have predictable cashflow coming in the door.
When you hire employees, be upfront that if things get slow, hours will be cut back.
Avoid recurring costs that aren’t flexible.
Don’t make long term commitments or sign long contracts.
3. Ask the million dollar question for each significant investment.
Is there a way for me to spend less money on this purchase and still get the same return?
Will a $15K cargo van accomplish the same thing as $45K cargo van?
Will a used pressure washer for $2,500 accomplish the job the same way as a $5,000 new one? Great, now you have $2,500 to put towards marketing.
Will a new lawn mower for $12,000 make me $6,000 more dollars than the $6,000 used mower? It sure won’t!
It will only increase my overhead and I’ll have to eat more depreciation if I’m forced to sell.
The math almost always points to buying equipment used.
4. Don’t buy into the image fallacy
You don’t need a nice car to get clients.
You don’t need a $2k suit to get respect.
You don’t need a shiny new Mercedes sprinter van to gain trust from customers.
You don’t need an office with high ceilings to land deals.
Customers don't care about that. They are after value. They are after speed. They are after professionalism and fairness.
They don’t care what your monthly payment is on the truck that shows up to the job.
Don't fall into the image trap of being a wantrepreneur who looks the part, without being an entrepreneur who makes money in their business.
5. Once you have cashflow, outsource your weaknesses
“Someone who practices a thousand kicks once is nowhere near as scary as someone who practices one kick a thousand times.” – Bruce Lee
If it isn’t in your wheelhouse then don’t focus your energy or take on overhead to get it done.
Get really really good at what you do best as a business and focus your energy there.
as soon as you have the resources, outsource the billing. Outsource the payroll services. Outsource the admin work. Outsource as many non essential business tasks as possible.
That said, don’t hire a full time employee to do something a freelancer can do on a month-to-month contract.
Month to month contracts are flexible. You can terminate them and take it on yourself if things get slow.
If you hire an employee on the other hand that is payroll that you will need to cover on a monthly basis no matter how things are going.
There are some things you shouldn’t be in the dark about even if you outsource.
As a business owner you need to be competent and knowledgable about your accounting/projections, tax planning and marketing.
You need to analyze data within your business to calculate profitability of each service you offer. You need to be a great delegator and communicator to your employees.
You need to be driving and managing the training programs and overseeing the customer service. You need to be organized. You need to have a positive attitude and continue to do quadrant 2 work.
6. Market like a guerrilla
Adwords and social media marketing can have a great ROI but a lot of new companies don’t have the budget or the ability to analyze the returns.
Get creative and get in front of your customers physically.
Flyers, yard signs, sidewalk chalk and even door to door marketing can work great.
Network with individuals who often recommend your services to other people they know (realtors for home services for example).
7. Lean out your life
Yes I know I know life is meant to be enjoyed. I’m not asking you to live with a painstakingly frugal mentality forever. I love a nice restaurant just as much as the next person.
If you are exactly where you want to be in life this section isn’t for you.
If you have already designed your life exactly how you want it then by all means do what you want to do with your personal finances.
But if you are working towards a future goal and building a business its time to lean out your personal life.
There is no business ROI on lifestyle expenses. There is no future profit on the nice car. There is no future profit on overspending on nice meals or clothes. Its all overhead. It's all money that is gone that you will never see again.
You are tied to your job right now because of the money you need to finance your lifestyle. If you are serious about leaving your job as soon as possible its time to get serious.
Remember this is only in the near term.
You are delaying gratification now so you can build the life you want and buck your 9-5 and do what you want to do on a daily basis.
Every dollar invested in your business will become 2 or 3 dollars in the future. Every dollar invested in everything else will either be gone or worth pennies. Free up your capital so it can work for you!
And if you have a business now with some momentum and some profit, don’t fall victim to lifestyle creep.
As your income rises keep your expenses steady so you have more funds to invest when opportunities present themselves. Don’t finance the new Audi or BMW after a few profitable months.
Don’t buy the house with the extra bedroom you don’t need.
When you see an opportunity or things get hard it will put a ton of pressure on your business when the money is flying out the window in your personal life.
If you stay lean a few amazing things will happen
You will avoid unnecessary financial stress. Your quality of life will improve drastically. You will have the peace of mind that comes with being able to ride out tough times or uncertainty and limit losses if they occur.
If you aren’t strapped for cash you aren’t forced to make bad decisions.
You can play the marshmallow game and delay profits and gratification.
You can make more investments in growth and marketing.
When you find a marketing channel that turns $1 into $1.50 you can double up your marketing spend without being worries about making payroll.
Instead of having that money tied up in a depreciating vehicle or a big office you can have it ready to invest and ignite your growth..
Risk is also managed and reduced drastically
Business is all about risk and reward. Nothing is risk free. You are always risking something. Maybe time. Maybe money. Often both.
Running a lean business drastically reduces your risk. It makes your business more likely to survive. It limits financial losses if your business fails.
When the next recession happens and 50% of the businesses in your sector fail, you will survive.
You will be able to ride out the storm. You’ll be poised and ready to ride the next boom and capitalize on the opportunity.
When things change – your business must be able to change
If you are lean and your expenses are flexible you are ready to change course at the drop of a hat.
You are ready and able to chase opportunities. You are able to specialize and turn down more customers than you accept.
Entrepreneurship is fluid. Nothing is certain. New competitors arise. Technology changes. Government regulation changes. Markets change. Your path will change.
So stay lean so you can capitalize and build a healthy company that can survive the journey. Be frugal where it doesn’t matter so you can invest where it actually does.
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A few tweets from this week.
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Onward and upward,
Nick Huber
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