I can’t help but feel excited when I hear someone somewhere wants to open up their company.
I always visualise myself doing the jumping-up-and-down-excitement scream with them, while the rest of the movie theatre audience stares in utter shock, speechless. I digress.
Shortly after that, I remember all those mistakes I made during my early days setting up my business.
I feel like it’s my responsibility to sit new entrepreneurs down and father them through this journey we call entrepreneurship.
So I thought I’d write these down for you guys (in an effort to keep movie theatre audiences safe):
1. Focusing Solely on Design
Don’t get me wrong, I appreciate well designed sites as much as the next guy. I just realise now that a poorly designed site isn’t a deal breaker for customers.
I’ve seen so many entrepreneurs decide the first thing to do is work on their website.
Before even figuring out whether you have a viable product we go straight into the fun creative bit, spend money to create a website. (I am guilty of this too. Shame on me.)
Please please please put your money back in your pocket. Do not spend a dime on developers and designers, you don’t need them just yet!
Take a step back and start thinking about the business. Think about your business plan. I know it’s the most dreadful document to write, but it’s designed for investors to give you money.
If you cannot convince someone your business will be profitable, then you’re probably not going to be profitable.
If you’re reading this nodding your head but secretly know you will not write your business plan, focus on the next point at least.
2. Your Customers Cost Money
In the wonderful world of business, just because you have a website with a fancy logo doesn’t mean the Gods at Google have granted you your wish and are sending you all the traffic in the world. This is not the way it goes. You need to earn your way to the top of Google which takes months (even years).
What you can do is bring people in to your site by marketing. Even if you prefer to contact influencers and interact with them on social media, all of this still constitutes as marketing. And marketing my friends, comes at a price.
Every company is subject to the biggest predator in the entrepreneurship world: CAC.
Customer Acquisition Cost. Essentially the cost of acquiring new customers. Also known as the biggest start up killer.
This basically means if I want to sell my product I need to promote it. If promoting it costs £0.10 per person, if 10 people visit my site and 2 people buy – I paid £0.50 as my CAC.
Here’s how we got £0.50
Total spent: £1.00 (£0.10 x 10 people)
No. of purchases: 2
CAC = Total spent / No. of purchases (£1.00/2 = £0.50)
“That was simple, what’s so important about it?”
If you have a product you plan to sell for £5.00 and you are happy making 10% (£0.50), you have a problem. Mainly because your CAC per sale is £0.50 which wipes out your entire profit (£5.00 x 10% = £0.50). Problem? Indeed.
Now, this is a simplified version. The real statistics I see are 3% of people that land on your site buy your product. That means for every 100 people that come, 3 will purchase.
It’s essential you factor this into your business plan pricing or you can kiss you lovely start up goodbye!
3. Competitors, Who?
What? You mean to tell me my business idea isn’t unique?
Well, maybe not. Maybe just maybe one of the other 7 billion people on the planet may have had your idea previously and bartered with the Gods of Google.
Please do a competitor analysis before you embark on your project. The likelihood of something already existing is extremely high.
Don’t be discouraged though. You do not need an original idea to still make it.
Think Google, think Apple, think Bobble, think Dyson, think every make up trending brand today – they haven’t reinvented the wheel, they’ve just added something unique to existing products – a unique selling point (or as I prefer, a Unique Talking Point).
Study them, know what they are doing, know what they aren’t doing, read their product reviews, learn from them and improve your product. “Zig” when your competitors “Zag”. You need to be more unique or better. You can learn so much from them including figuring out your business plan pricing element.
4. Accounting, Accounting, Accounting
Some part of you, if not most of you, is doing this for the money.
So please, let’s at least learn the most basic of basics of accounting principles.
All I want you to understand is that your business expenses, revenue and costs go in 3 main boxes in the income statement (Profit/Loss Statement):
Cost of sales
Revenue – the Amount you receive (usually excluding tax)
Cost of sales – The amount you’ve spent to be able to sell that product (cost price of your product, shipping costs, I’d also add CAC in here personally).
Expenses – Rent, salaries, phone usage, utility bills, hosting cost, email cost – anything you expect to see in the months to come essentially.
Disclaimer: Accountants – I’m sorry, I know I have over simplified this, I apologise in advance!
I’ll recommend my readers hire a bunch of you to help them with the rest. 🙂
Basic calculations you should know
Gross Profit = Revenue – Cost of sales
Net Profit* = Gross Profit – Expenses (*before tax)
Important: Profit margin = Gross Profit / Revenue (x 100)
Please do not make the mistake of putting your gross profit over your cost. If you sell for £5 and you bought for £2, your margin is: Gross Profit (£5 – £2) / Revenue (£5)
Which for us is: £3/£5 (x 100) = 60%
Margin should always be less than 100%.
This information is vital. You should learn about healthy ratios to maintain here and how both cashflow statements and balance sheets are important with the income statement. These three reports together paint a fairly accurate picture of what went on in your company.
Again, this is something investors want to see you have thought through, even if you aren’t planning on seeking investment, your bank will want these.
5. Your Pricing Needs “You”
I’ve seen people construct the most basic Income statement and forget to price the most important piece to the puzzle. Themselves!
Please remember you are a cost. If you had to leave your business today we would want to replace you immediately so put in how much a person with your skills would cost.
Search for annual salaries for someone of your calibre and see what comes up. Or, if you are really confident, put the amount of money you want to make in a year in the expenses and see if you can make it work!
6. Sales Funnels
Your business will only succeed if you have constant sales. Every part of any business relies on sales. Understanding the basic mechanics of a sales funnel is essential. It doesn’t mean “Yes let me launch and ask my cousins to buy, I’ll make instant money”.
You will yes, you won’t sustain it very long though.
Understand there are four main stages. Awareness, leads, prospects and customers.
A sales funnel teaches you way more than just what’s going on, it shows you average order value, customer lifetime value, time to convert, conversion rates – all of which are crucial to really get your pricing and profitability right.
7. The Seller Syndrome
You are a sceptical buyer and it’s hard for you to be persuaded by the nonsense the internet holds. You don’t buy easily, you watch loads of cheap selling attempts, rarely does something inspire to a point you’re ready to purchase.
That same you, for some reason when they are selling a product is completely convinced they can sell it to every single person they know. You feel that 900 million people will buy it without you even pushing them to. It’s almost as if just because you’re selling it, it’s now officially awesome.
I don’t know how to explain this, but I always see this happen. I’m calling it the seller syndrome.
Please take your seller hat off and put your buyer hat on, tell me honestly if you would buy it. If not, work on understanding your audience – people buy on emotion, not logic so focus on how your product will make you feel, which brings me to my next point.
8. Understanding & Listening to Your Customer
Your customer should be your focus, always.
I always identify my audience first and then then find a product for them. I want to help them solve a problem and I really put myself in there shoes to understand their pain points so I can speak their language.
You wouldn’t want a car salesman showing you sports cars if you came in for a minivan, he hasn’t understood your needs and you’ll eventually walk away.
For example, if I’m selling headphones for kids, I analyse the buyers – parents.
When do parents want peace and quiet – I thought it would be in the car. Put the kids on an iPad with headphones so you can enjoy your journey in peace and quiet.
By understanding this, all my messaging, all my banners, everything is focused towards the emotion they feel. Peace and pleasantly enjoying their music while the children are quiet in the back seat.
Along side understand my audience, I always ensure I have listen to them too. I recommend implementing a great feedback loop. I always include an easy method for customers to contact us, be it live chat, incentivised product surveys, easy email forms, internal product review requests, I’ve even called customers myself to find out how they got on – keep a feedback loop coming in so you can constantly improve your product.
9. Parting Ways with Your Product
This one is very hard to do. But essentially it’s what we call pivoting in the entrepreneur world.
I did this myself and doing it brought me my most successful organisation. I was completely reluctant to do it at first but my business partner persuaded me we had nothing to lose. And he was right.
Doing it allowed us to recover all of our investment in under 3 months so believe me, really listen to what the market wants from you and if it means tweaking your services or products, do it.
Remember the most important thing to do is begin. Do not shy away from starting your business just because it seems challenging. It is challenging but I promise you it’s loads of fun too. The day you open your tiny office you feel fantastic, the day your first sale comes in that feeling is soooo rewarding! And the day you hire your first employee – amazing.
Please please please reach out to any entrepreneur should you hit a road block or seek some advice. Every single successful entrepreneur knows exactly where you are, they’ve been there.
The greatest people I know are ones you recognise when to ask for help – be one of those people.
Don’t worry about constantly asking people for guidance, when you succeed you will aid the next lot of entrepreneurs who will need your help and alas, the debt to the universe shall be repaid.
If this guide is a little overwhelming and you’re not able to keep up, don’t worry. Begin your entrepreneurship journey anyway. You will find people along the way to help you. Email Oprah, ask a colleague, post on a forum – believe me someone will be there to help.
Reach out to me! Believe me I want to jump up and down and celebrate with you too!!
(Just of course, no cinemas.)