This is a guest article by Patrick Jobin.
“I have a 40 page business plan. Now I need a bank loan.” These words are a sure sign that the business is going to fail. Unless you’re getting into the real-estate business, debt financing should only be sought as a last resort.
Instead, you should simplify your product or service down to its most basic elements, and look for ways to launch with little or no money.
Instead of paying $2000 to a web designer, get a $20 WordPress template and a $20 logo.
Instead of paying for advertising, pull a wacky publicity stunt and write about it to newspapers and blogs. Here are some simple ideas:
- Deliver your services in a chicken costume
- Record a 5 minute documentary that tells an interesting story about your company
- Hold a contest where your product is a prize
- Auction your services for charity
- Record an audio-course and give it away for free
- Make a bizarre YouTube video
- Align your business with a controversial political or social point of view
These are all simple, inexpensive things that you can do to get your first few customers. But there’s more to “parsimonious” business than just guerrilla marketing. You should also squeeze all of the waste from your product development process, eliminating anything but the absolute bare minimum features required to go to market.
Pride and enthusiasm are strong emotions that make entrepreneurs want to re-invent the wheel. There’s no shame in taking something that already exists, and modifying it to suit your market. But instead, our egos tell us that everything has to be”custom-built in-house”… and it must have all of the features that the customer could ever want.
Otherwise, if it isn’t perfect, it can’t go out the door.
Although this detail-oriented approach is a smart way to run an established company, there are a few problems when you try to apply this mentality to a start-up. Here are just a few examples of why you want to keep your start-up costs to a bare minimum:
#1: Time to market
In order to become profitable quickly, to need to lower your expenses by minimizing product development costs. In other words, getting out the door as quickly as possible will minimize your business risk.
Let’s say that you want to invent a new type of soda. There’s no shame in asking Pepsi to manufacture it for you using their machinery. Your profits per can might be lower, but you’ll end up improving your chances of success and profiting much faster.
If the market rejects your idea, you’ve minimized your losses by outsourcing. But if the market embraces your offering, that’s when you can start talking about investing in production facilities.
#2: You don’t know what your customers want
When Kleenex tissues first launched, they’d spent a lot of money on advertising to position themselves as a “make-up remover.” But their customers didn’t want a make-up remover. They wanted something to wipe their noses.
The company ended up having to completely re-design their branding and packaging to better suit this purpose.
If your product has too many features when you first launch, you might end up wasting 90% of your development costs. And what’s worse, all of those unwanted features might actually make your product harder to use for your customers.
You have no control over whether your customers will decided to use the product in a different way than you had first intended. By minimizing your features, you also minimize both – cost and risk.
#3: Access to expertise
One of the great things about outsourcing, bartering and partnering as a way of minimizing costs – is that you also get to team up with experienced people who understand your market and have a financial incentive to see you become successful.
This is especially true with many reseller programs that offer co-branded marketing collateral and on-call experts. As a result, these services are often made available for a fraction of what you’d have to pay elsewhere.
And, because they understand the market, they’ll help you avoid a lot of beginner mistakes.
#4: Free up your credit
The #1 reason most business fail is that they run out of money. Before you borrow a penny from your bank, always ask yourself”How can I get someone else to pay for this?”
Take a look at how department stores operate their businesses.
- They don’t buy buildings. They rent them.
- They don’t buy shelves… they lease them, and rent out the shelf space to manufacturers in order to pay for the leasing, stocking and facing costs.
- They don’t pay for product up front. They pay the suppliers in 90 days… AFTER the product has already sold.
- They don’t pay to print and deliver flyers. They charge money for manufacturers to advertise their products in the flyers, and use THAT money to cover printing and distribution costs.
- They don’t pay employees right away. They pay every 2 weeks. AFTER they’ve generated enough revenue to cover their salaries.
Remember: Up-front cost = Business risk.
The more of it you can eliminate, the more you increase your chances of success. This is especially true for online businesses like membership web sites, online backup, web hosting, etc…
15 years ago, every internet company needed large teams of developers and millions of dollars in venture financing. Today, with cloud computing, there are tons of APIs and third-party services available. If you want to start a company, it’s a very simple matter to take something that already exists and modify it for your purposes.
And if anything bad should happen while you’re running your company, you’ll be glad that you still have that safety net of yet-untouched bank credit that you can fall back on.
So if you want to start a business, just remember to keep your business plan simple & fluid, keep your start-up costs low, and use other people’s money whenever possible. It’s a simple formula for success that has proven itself over and over.
About The Author: Storagepipe Solutions is a provider of server backup services that also offers an online backup reseller program which provides full white-label branding with sales and marketing support to get your business off the ground quickly and inexpensively.