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How to Start a Business

Don’t follow MBA, SBA or SCORE advice.

The SBA’s SCORE site had a “how to start a business” blog recently, but the traditional MBA-style advice is too “ivory tower” to work. It’s both much simpler and a little harder than they make it sound.

The SCORE blog post says figure out 1)what you’ll do 2)who your competition is 3)your overhead 4)how much money you can make 5)your potential profits, and 6)your funding. If you follow these six steps, you’re almost certainly going to fail.

It’s well-meaning advice, but doesn’t reflect how it really works. I’ve started and grown seven businesses, two that are international and made enough mistakes to figure out some basics. Here’s how I would start a business:

1) Take your product or service to market, put a high price on it (it’s always easier to come down than go up) and see if someone will buy it. If this doesn’t work, don’t do any of the other steps above – they are a waste of time if you aren’t already selling something. And if it does work, most of the other steps above will force themselves on you at the appropriate time.

Finding someone to buy your product or service is the first and only thing you should do before you do anything else. It should have been #1 on the SCORE list.

2) DON’T do a business plan (steps 1-6 in the SCORE blog) – they are nonsense and fortune-telling, and they keep you from going out and trying to sell your product to see if you have something viable. They also make you think you know what you’re doing, which keeps you from seeing great opportunities and obstacles. And they uncover 127 things that COULD go wrong (not WILL go wrong), which causes you to spend precious time and resources mitigating things that will never happen, and paralyzing you with all the bad things that might happen if you go into business.

The second worst thing you can do starting a business is to do a business plan. The absolute worst thing you can do is follow it. Check out the story of Webvan – a $2billion startup that is the classic case of a company that built an incredibly elegant business plan with brilliant management, then followed it right off the end of the earth (and they didn’t do #1 above until they were $1 billion in debt). Do a 2-Page Strategic Plan instead.

3) Figure out your profit margins. How? See #1 above – sell something at as high a price as you can – well above your minimum margin. Again, you can always come down. I worked with one client whose product cost $.35 all in (including marketing). They made a few of them, put it on the market for $8.50 and it didn’t sell. Over a period of a couple months they got the price down to two for $6.50 and they sold like hotcakes. Once they knew that their margins were huge, they had real data to determine their profitability. Do not determine your profitability in the ivory tower of a business plan – it’s voodoo.

4) Never take outside money unless there is no other way. 84% of the Fortune 500 companies never took VC or other early stage funding. It’s a myth that you need money to grow your business. VCs want you to believe it’s a must because they want to grow your business REALLY FAST so they can sell it out from under you and run off with cash. They’re building cash cows, not businesses.

5) Do NOT figure out your competition. You don’t have any competition except your own head. Do NOT look at what other people are doing to find out how to be successful. If you don’t have enough creativity and uniqueness to enter the market without looking at what others are doing, you shouldn’t be in business. See my blog titled Your Competition, Isn’t.

Doing it Wrong and Fixing the Process
I worked with a business owner recently who made the mistake of consulting with SCORE and doing everything they recommended. He had 80+ products defined and produced, a warehouse, financing, a great retail location, and $250,000 in inventory. When he finally started taking his products to market, the market wanted them packaged in entirely different ways and amounts and at different price points, and about 70 of his products were not selling.

We recommended he dump the warehouse, the retail shop and 75 of his products, and get on an airplane to major retailers, get their feedback, and learn his “business plan” in the trenches. With this approach his overhead is nearly gone, and he is now making money and profit. He would have been out of business in six months the other way. He can build all that other stuff after he makes some money.

How to Start a Business – redux; Sell Something.
Real businesses do not start with thinking, planning, researching, compiling, statistical analysis, building a “great” product in a lab, marketing, vetting your competition, estimating your overhead or finding a possible funding source.

Real businesses don’t start that way – not HP, Apple, Honest Tea, Google, 37Signals, Facebook, a plumber, or just about any other real business you can name. Read Bill Hewlett’s quote under HP’s Early Days here – he went and sold something (a few really stupid things) – this is how you start a business.

Go sell something. If it doesn’t sell, do what Hewlett and Packard did, sell something else. Don’t do anything else first. Once you have something that sells, your “business plan” will unfold in front of you in real time, in the real world. It’s counter-intuitive and doesn’t follow the mantra of the MBAs or the SBA/SCORE who think you should get it all figured out ahead of time, but it’s the way real businesses are successful.

Stop planning – get selling (quickly and inexpensively, on a very small scale).

New Year Planning? Do as little as possible.

Simple vs. Complex

Annual planning, the way we’ve been taught, is largely fortune telling and a waste of time. Plan more effectively by doing less of it.

What We Were Taught
– Go away for 2-3 days in January to plan the year.
– Plan everything in as much detail as you can; growth strategies, budget, purchases, hires, leases, etc., etc.
– Follow the plan – don’t deviate – people who deviate won’t be successful.
– Wait until next January to do it again.
– Put it on a shelf with your “shelf-help” books – it’s only real value is to help your shelf look good.

If strategic planning was important for the new year, you would do it in December, not in January. And we wouldn’t wait 12 months to do it again. If you let your “strategy” degrade to the point that you only have one day of “strategy” left when you get back to it next January, it’s not a strategy, just an exercise you go through.

And following it faithfully is just a dumb idea. During one of my short stints at trying to be an employee I wrote the CEO an email in October requesting 10 new workstations and 20 employees (double-shifts) to handle growth. The next day he wrote back and said he had checked the annual plan I submitted in January, and that I had not requested those capital expenditures in the “plan”. Request denied.

They went bankrupt three years later, slavishly following their silly annual plans and rearranging the deck chairs in the business all the way down.

It’s Counter-Intuitive
Giant Corporation, Inc. taught us that we should try to capture everything in an annual plan – the more detail we go into, the more likely we are to be successful. I did enough of those to know it’s nonsense (and surveyed a few thousand business owners who say the same thing).

Only sweat the big stuff – the 12-3-1 Plan
All you need to capture is the four-to-ten big things that you need to do this coming year. That’s it. Write them down. I guarantee you that if you capture the very few, very important things you need to accomplish this year, you are MUCH more likely to actually get them done than if you attempt to capture EVERYTHING that needs to be done this year.

Once you have these, develop what we call a 12-3-1 Strategic Plan. 12-months, 3-months and 1-month, a third of a page for each. You don’t need anything more than this.

12-Month Objectives
Put your four-to-ten 12-month Objectives for next year on the top 1/3 of a page (spreadsheet, word doc, doesn’t matter), That’s typewritten in an 11 pt. font, with lots of spacing. Don’t cheat. The more you capture, the less you will do. Simple beats complex every time.

3-Month Action Plan
Take each one of these 4-10 Objectives and decide what you have to do in the next quarter to get them done in a year. Put them on the middle third of the page – keep it short!!

Don’t wait until next November to get started. That’s why both diets and business plans don’t work. Tomorrow never comes. Cut the elephant into smaller bites and get a sense of urgency.

1-Month Action Plan
Take each quarterly action plan/objective and divide it once again into what you need to do in January to accomplish the first quarter’s objectives. These take up the bottom third of your page. Don’t cheat – if you can’t fit it comfortably on one page, you have too much detail.

Don’t wait until March. Annual and quarterly objectives can be daunting, but picking away month-by-month will make them doable.

Strategic Only!
Don’t put anything in your 12-3-1 Plan that helps you make money this month; just things that will help you build a business that creates more time and money next year.

“Buy a copier”, “Replace retiring employee”, “Sign contract w/ xxx, Inc.” – none of these belong on your plan.

“Move to new location”, “Hire/train someone to replace a piece of me”, “Increase revenues by xx%”, “Go from 60 hrs/wk to 30hrs/wk while increasing profits” – these are great annual planning objectives.

Monday
Every Monday morning look at the bottom 1/3 of the page and decide what you need to do that week to accomplish that month’s action plan. Block the time that week to get it done. If you do this every week, you will knock out the monthly action plan. If you knock out each month, you will accomplish the quarterly objective, and if you do that four quarters in a row, you will have had a great year.

Details? We don’t need no stinkin’ details!
If you keep it simple, you will only have to work out real details in a real world each week/month. If you try to capture all the details for the year when you put together the plan, you will be solving ivory tower problems – most of which will never happen. And you will miss half the problems you will actually face. So don’t solve problems/details until they are real. They are never real in January when you did your planning (see above request for 10 workstations).

Quarterly 12-3-1 Plan
This is the big key. Don’t do an annual plan anymore. Do a quarterly one. Every quarter your 12-month plan will have deteriorated to only 9 months. April 1, push it back out to 12 months on the top 1/3 of the page, then use that to re-populate the 3-month (middle third) and the 1-month (bottom third), and then get after it again each Monday.

Simple beats complex every time. If you capture everything, you’ll do nothing. If you capture the few big things, you might actually do some of them.

You can buy our Strategic Plan template along with our Lifetime Goals and Process Mapping templates and detailed instructions for each on our book site – Making Money Is Killing Your Business .

Or just grab a sheet of paper and get it done.

By the way, it shouldn’t take you more than 2-4 hours to do it, because you get to tweak it every week, every month, and every quarter.

Relax. Just get moving on the big stuff and the rest of it will unfold as you move.

Have a great year! (one week at a time)

 

Always release your product before it is ready.

Movement, not Planning.

Want to be successful? Get your product or service out there now, not after you’ve refined it and made it good. The MBA programs are wrong. Get moving.

Facebook sucked when it first went live and changed almost daily.

Google was a bare bones search engine called BackRub in 1996 and was still simplistic when it became Google in September 1998.

The Denver “T-Rex” redo of the entire highway system was 25% completed and open for traffic before the design was even completed.

The only way to learn how to run a four-minute mile is to first run something much slower, in public.

To learn to ride a bike, first, fall off.

Committed Movement – It’s never how good your plan is that counts, but how committed you are to moving on the bad plan you’ve got.

Purposeful Direction – We don’t need to know HOW we’re getting to our objective, we just need to know what our objective is, and the next few steps in the right direction to get there. Purposeful Direction is not about having things figured out first, but simply knowing with utter clarity where you want to end up.

Committed Movement In a Purposeful Direction is more critical to success than anything else.

There is a fundamental lesson about life and business in the above statement, and how we take that lesson on board makes us either very successful, very average, or a real shipwreck.

Successful people understand that planning is like a rudder; it’s useless without movement. Highly successful people have a very clear, transformational understanding of the relationship between movement and the rudder.

If you get your relationship right between these two, it will transform your life and your business as well. If you don’t, you’ll stay grounded on your sandbar and wonder why your life never had the impact you’ve always known it can.

The idea of massive pre-planning before you start seems to be a very sound practice, but only in concept and in business school. The problem is it just doesn’t match up with the reality of what actually makes for a successful business.

In the last three years I have watched four different companies go through the whole focus group/product development/perfect rollout process that most MBA programs and books about success would tout as the right way to do things. They all failed. I’ve seen others become successful by just getting moving in a small way like Facebook, Google, eBay, the sticky note, the television, the car, the internet, the steam engine, and all parents, all of which had a better chance of success by releasing the product before it was ready then by perfecting it first.

A controlled experiment in the real world
The key is to do it with very few customers who love you and want to work with you to make it what it will someday become. Reality is a much better laboratory for business than the laboratory. Customers are a much better focus group than a focus group. And a small rollout to the faithful is much less expensive and more informative then the balloons and parade approach.

We went through many iterations of paid workshops and mastermind concepts for three and half years before we arrived at 3to5 Clubs, which are now spreading on four continents. But we did it in small groups where perfection wasn’t necessary and everyone of the faithful were served with our existing but under-developed product.

Speed, not Planning
Success is much more closely related to Speed of Execution than to in-depth planning, because most planning is done in a vacuum prior to actually producing anything. Only after the plan hits the real world do we find out that it doesn’t work in that real world.

In the face of that reality and all the evidence we have that massive pre-planning is a waste of time, we keep trying. We can’t help ourselves. Hope springs eternal. In the meantime the Facbooks, Googles, and T-Rexs of the world are in their boats running flat out and heading for open water while we’re still trying to decide how to build the rudder.

Man has yet to devise a great way to plan in the absence of movement. The painstaking detailed analysis we are all taught to do before we move is almost always of little value because it never works out the way we had hoped. And as a result it never saves us the time and money it was supposed to. Instead it usually costs us precious time getting started, puts us behind someone else who has decided to get moving, and creates soaring costs down the road.

Practice, not Perfection
Always roll out your product or service long before it is ready, before your website is done (we only had a holding page for the first 18+ months). Just do it in a controlled but very real and “live” environment where the feedback you get is from real live bullets – people deciding to pay with real money and giving you feedback on how to get better.

Get out of the lab and into the real world. Tom Watson, founder of IBM said, “Test fast. Fail Fast. Adjust Fast.” I would say get out into the real world and just keep practicing to get better all the time.

Building a Business is Really Simple

Get out of the garage.

My friend Alan Wyngarden has done some adventure travel and says: “The hardest thing about climbing a mountain is just getting out of the garage.” Huh? Actually, it’s pure genius.

A year ago I shared a business concept with Alan around building intimate assisted living homes that I had heard about.

I didn’t have the inclination to do anything with it but wanted to see if others I knew might benefit from running with it. I shared it with a number of people who loved the idea, but only Alan gave birth to it.

Yesterday I attended the open house for his first home. It is gorgeous and Alan has the best people in the industry working for him, creating a unique, honoring and beautiful environment for those who need a little assistance at an advanced age. It even has raiaed gardens for them to plant without bending over – great stuff.

I chatted with Alan about this last summer and within a week he was moving on the idea, with the full dream realized yesterday, only a few months later. The others who thought it was a great idea never moved on it. Alan is thinking he’ll have five of these homes up and serving the elderly in the next year or so.

Building a business is really very simple. You just need to get out of the garage. As with climbing a mountain, the training isn’t the problem. It’s leaving the garage to DO the training that hangs us up. GETTING STARTED stops us more than any other thing in business. If we would just get started the rest of it would fall together for us.

But we wait. We research, we talk, we think, we plan, we collect data. We believe we need to get it all figured out before we move. But neither life nor business works that way.

Planning never creates movement, but movement can create a great plan.

Alan had no experience in the industry when he started moving. He just got out of the garage and started looking for a property, then started sniffing around to find those who might be able to help him build an expert team.

By the accounts of others who have been in the industry for years and who own many of these types of homes, he’s hit a home run with both his facility and his team. He didn’t get there by reading. He got out of his garage. And that movement created a marvelous plan.

Building a business is really quite simple. We just need to get out of the garage.

Speed of Execution is so important to success. What great idea are you sitting on that you just need to get out of your garage and get started?

Business Diseases of the Industrial Age

Great Toys. Bad Karma.

The Industrial Age lasted a very short 150-200-ish years in the ten thousand years of recorded human history. It brought us a lot of cool toys and a cushy life, but we’ve been afflicted with a lot of Business Diseases that came from the Industrial Age. Here’s just a few of them:

Big Disease
I’m addicted to big. I can’t help it. Giant Corporation, Inc., giant government, giant megalopolises, giant houses, giant movie stars, giant cars, giant malls, giant markets – it’s all so very alluring. I know my ancestors use to live in small, committed communities, but I’ve got a garage door to hide behind.

Employee Mindset Disease
It’s not my job. Tell me what to do. I leave “me” at home. I don’t think at work. I work at work, I play somewhere else. It’s not my fault. I’m a victim.

Employee Contribution Disease
I’m not significant. I believe what the Industrial Age taught me – Shut up. Sit down. Live invisibly. Go out quietly.

Retirement Disease
I’ll wait until I’m 65 to live significantly. I’ll go through the motions for the first 65 so I can get there. Until then I’m just marking time.

Scarcity Disease
I live in a world of scarcity. You either live in a world of scarcity or a world of abundance, and whichever one you choose affects every decision you make. Industrial Age scarcity rules. Abundance doesn’t exist – it’s woo-woo crap.

Competitor Disease (symptoms are similar to Scarcity Disease)
Everything is finite and I need to get mine before I help someone else. If someone gets the work and I don’t, then I “lose”, because there is only so much to go around.

Me First Disease (just another name for Competitor Disease)

Complexity Disease
The more complex things are, the more impressive they are. Surely they must be better, too. Just because the profound things are always simple doesn’t mean I should embrace them. Complexity is good.

Planning Disease
I don’t move unless the entire route is planned out. I’m waiting for all the lights to turn green between Chicago and New York, then I’ll start moving.

Cognition Disease
I’m a thinker. My 3rd grade teacher applauded me for it. So did my college professor. I’m really good at it. I’ve heard that committed people make history and thinkers write about them later, but that’s just crazy talk by committed people. I’ve thought about this a lot, and I can come up with 100 reasons why they’re wrong.

Safety, Security, Stability Disease
My mother told me to put my mental galoshes on before leaving kindergarten. I’ve had them on ever since. It may not ensure I’m safe, and it does ensure I’ll never do anything remarkable, but she has to be right and Maslowe was wrong – safety, security and stability are the pinnacle of human experience.

Money Disease
You give me money and I’ll give you the best 50 hours of my week and the best 40 years of my life. I’ve heard that time is the new money, but I’m not buying it. I’ll retire on cue at 65, then live significantly if I have any time or energy left.

The Cure
The cultural carnage of the Industrial Age was broad. It will take us a few decades to fully recover. But identifying the diseases will help us get there faster.

What Industrial Age diseases have you been afflicted with? Add yours.

Business is Full of Beaver Dams

Struggle is Good. Embrace The Dams.

Traditional business plan thinking tells you that if you plan well enough, you’ll avoid all the “problems”. But usually it’s those “problems” that lead you to the best plan.

I’m not saying don’t plan, but I am saying don’t do very much of it in a vacuum, and don’t expect that it will keep you from hitting beaver dams on your way down the stream.

In fact, it’s the beaver dams that are much more likely to lead you to the things that will produce time and money for you than any amount of planning you do.

The average business goes through five to 15 iterations of lame products or services before they land on the thing that puts them on cruise control. And the only good way to find that groove is to go through all those bad attempts, not by planning.

One of Hewlett Packard’s first products in the late 1930’s was an automated bowling lane aisle violator. That lame product led them to a harmonic tuner, and after that beaver dam they decided to do an automated toilet flusher. Traditional business planners would have applied all of their collective “wisdom” to kindly putting HP out of its misery. But it’s those dumb products, and an unwavering commitment to finding good ones, that led HP to make such great contributions to modern technology.

Bill Hewlett understood that it wasn’t about how good their plan was, but how committed they were to the bad plan they had. Business is full of beaver dams and it’s those beaver dams that will cause us to turn right or left and find the best way downhill. Don’t create a highly detailed plan and slavishly follow it – you might miss the beaver dams that could take you to the promised land.

Instead figure out what your end goal is as a company (Hewlett said that for them it was “to make a contribution to society”), then be fundamentally committed to getting there. And use the beaver dams of business to help you figure it out.

We’re taught to avoid struggle of any kind, which is a really bad idea. Struggle helps us run a four minute mile, write a symphony, build a road and learn our ABCs. People who expend all their energy planning to avoid struggle miss all the opportunities to grow personally or build a great business.

Don’t go looking for beaver dams but don’t avoid them when you run into them. Embrace them, learn from them, figure out whether you have to go left, right, over, under or through them and use them to get to your ocean.

Expend all your energy avoiding them and you’ll hate them because they stood in the way of your great plan. Learn from them and they’ll be fond memories in the rear view mirror that pushed you in the right direction.

Embrace the beaver dams. Struggle is good if you use it to get where you want to go. It’s your choice.

Planning won’t even get you a good plan, let alone success.

Stop thinking. Get moving.

Planning does not create success or even the best plan. It also doesn’t create action. Most planning just creates paper, spreadsheets, complexity, doubt, paralysis, and dream-dampening. There are two things that create a far better plan than planning itself.

If you believe that meticulous and detailed planning of every possible contingency is the best way to create success you won’t like this post. To make matters worse, I’m probably going to accuse you of living in a dream world.

How many SUCCESSFUL businesses were started from a highly developed business plan? Next to none. And of the very, very few I’ve found that were started from a business plan, when asked how that worked out for them, most laughed but none said that reality had followed their excel spreadsheet plan.

Yet we keep slavishly promoting an antique practice that has almost never done anything for anyone except get someone an “A” in an MBA class on how to build a business plan. Oh, and it will get you into debt, because banks are still requiring business plans so they have a teddy bear to hold while they give you money. None of those work out either, but most banks haven’t figured out there is a much better way to see if someone is going to be successful.

This isn’t a blog on the attributes of success (maybe I’ll do that one next week), but creating a 30-page business plan isn’t one of them. To the contrary, the simpler the initial plan, the better, because it’s going to change anyway.

I advocate a 2-Page Strategic Plan (never do another classic Business Plan unless you have an antique bank asking for one). A simple 2-page Strategic Plan is set up to change, adapt, and be clarified every one to three months – you know, sort of like life.

It shouldn’t take more than a few hours to do it because, again, like life, it’s going to change very quickly. The only part that is likely to not change is the objective – what do we want to see as a result? The rest of it is up for grabs – anything that gets us to that result will be added and anything that isn’t will be removed.

Once you’ve got a simple plan, the two keys to making it into a great plan are:

  1. Commitment (to the objective, not a plan)
  2. Movement (in a purposeful directions toward the objective, not “activity” based on a plan)

It is NEVER how good your plan is that creates success, but how committed you are to the bad plan you’ve got and how willing you are to get moving on it NOW. As you move with absolute commitment in a clear direction toward the objective – that commitment and that movement will work together to make your so-so plan into a world class one.

Commitment and movement create success, not a tortured 30-page document. And a simple 2-page plan will become brilliant over time if there is enough commitment to the objective and enough movement to inform you what to keep doing and what to keep changing.

Stop thinking, get a clear objective and get moving with abandoned commitment toward that goal. Use the movement to make the plan better all the time. You’ll make more money in less time by committed movement than you will by sitting around trying to figure out what might go wrong.