Last week I wrote about the startup of my most recent business (7 Steps To Build A Startup From Scratch With No Money) and it received a number of comments so I thought I would expand on Step 1 from the post and talk about 5 sure-fire ways to know if your business will work.
#1: You Love It
After I found out that I could make money online through advertising I went out looking for the highest paying keywords and tried to make different pages and mini-sites that targeted those words. I saw that keywords like “Arizona DUI lawyer” was going for $47.45 per click. $47.45 for every click!!!
I quickly got lost in the math – if I could get 10,000 people to that page per month and 10% click through on my ads and Google takes 50%… that’s $23,725 per month! Even if I only hit 25% of that it’s still almost $6,000 per month for one site! Now imagine if I could do the same thing for multiple keywords!
Unfortunately the buzz quickly wore off. It takes time to write content, build links, and promote your site. No matter how promising it seemed, I drained myself pretty quickly and abandoned the site. If you don’t truly love what you do then you won’t stick with it. Imagine it takes three years before you are successful. Would you be willing to write articles and build links every day on “Arizona DUI lawyer” for three years? Probably not. That’s why people are making more money selling their lists of the top paying keywords rather than trying to optimize their sites for those keywords themselves. So find something that will get you going every morning.
#2: There Is Money To Be Made
Yesterday I made $7.56 from one just click on an ad on my site. It’s not the $47.45 from “Arizona DUI lawyer” but it’s still pretty good. You need to make sure that there is a way to make money in the industry you’re targeting. If you’re going to be selling ad space online like I do then use Google’s tool to find out how much clicks are going for. I hear about people starting online businesses and making $0.05 per click. No matter how great a job you do on driving traffic to your site and optimizing your ad placements to maximize your click through rates (CTRs), you’re not going to be making a living from your website. It might be a great hobby but it’s not going to put food on the table.
Whatever industry you’re going into make sure to do your research and find out if there is money to be made. If it’s not an online business go out and talk to people who are in the industry and see how they’re doing. Are they hiring new staff and expanding or are they closing down their businesses? Figure out if your idea is actually a good business opportunity or just a hobby project to have some fun with.
#3: You Can Do All The Important Aspects Of The Business Yourself
I have a number of friends who are starting online businesses and don’t know anything about programming, web design, servers, content writing, search engine optimization, or link building. They think they can just outsource everything. If you’re a retail store and you’re selling some of your products online then I would say it’s ok to outsource. But if your entire business is online then you better know how to run the most important components yourself! There are going to be problems that come up that you are going to have to know how to fix yourself and, let’s face it, entrepreneurs are strapped for cash. Soon you’ll be settling with a substandard product because you can’t afford to bring in the pros to do it for you.
If you’re going to go into any business, make sure that you are the pro. You can hire pros around you as well as you grow but you need to know what you’re doing as the chief of the company. If you’re not a pro at what your business is selling then don’t go into that business until you can be the pro. Don’t start an online business if you don’t know anything about how to operate an online business.
#4: You Can Bootstrap It Yourself
I used to work in a venture capital company and helped entrepreneurs raise $500,000 to $15,000,000 for their businesses. That being said, I’ve never raised capital for any of my businesses. I believe the best way to go is always to bootstrap. Build around customers, reinvest your profits, and make sure you have something that people want. For every one company that hits it big with venture capital there are 10 who crash out because they were forced to grow too quickly and were on the wrong path. Raising money also becomes a full time job which takes you away from being able to run your business.
Think big but start small. Find a way to get your business started right away. That might mean doing a service instead of a product which is costly to get started. If you can bootstrap your business and get to the level where you can support yourself on a full time basis you have a much greater chance of success than taking someone else’s money, having them breathe down your neck, and running a negative balance every month hoping that you’ll cross into profitability before you run out of money.
#5: You Have Customers Lined Up
In one of my businesses I spent an entire summer writing a business plan around a particular customer that I thought was a sure-fire hit! Unfortunately after the summer ended I pitched the idea to them and they weren’t interested. Back to the drawing board for me and I lost three months of my life planning what I thought was the “perfect business.”
The best business you can build is one where you don’t produce anything until you have money from your customer in your bank account. This guarantees that you won’t run out of cash as you build your business. Being able to have customers lined up comes from knowing your industry and having some contacts in it before you get started. If you were to start today do you have someone who you could sell to immediately? The quicker you can get customers in the door the greater your chances are of success. Some of the most successful entrepreneurs I know started their companies by either working for a company and taking their clients with them or by reselling their services back to the company as a contractor instead of an employee. Having money come in from day one relieves a lot of the stresses of running a business. If you’re in month three and still haven’t made anything, panic starts to set in which causes poor decision making. Try to find a way to get a customer signed up before you even start your business.
What would you add to the list of “Sure-fire ways to know if your business will work or not”?
I would add that you need to involve the customer as early as possible in the development-process of the product. Especially if your product is complex and not easy to adjust.
And, if your business is product-based, that you can simplify the production process so that it becomes fool-proof and even your grandma can run the production. And keep it in-house.
I don’t think enough people know how to bootstrap. And I, personally, need to work on getting customers lined up.
I really dig the emphasis you put on self-sufficiency. If you don’t depend on anyone you can survive almost anything.
I also used to work in venture capital before starting my own business and the best thing that I learned there was to think about a business as a series of experiments.
Identify the unknown variables in the path of the business (ex. how will customers come to the site, how many of them will pay / clickthrough, how many will refer someone else, how will you be able to hire for the key roles, etc.) and find the cheapest and shortest way to test each unknown.
The VCs were always looking for companies that had already run many of the experiments and therefore reduced the uncertainty in the business, as well as strategizing about how much money it would take to test the variables that had not yet been tested.
But the “science experiment” approach is useful to the entrepreneur too. In isolating a variable and testing it, you might learn something that makes the business unviable, but it is more likely that the results of the experiment will stimulate another hypothesis that can be tested and substantially improve the business.
Therefore, I would add #6 – “You are willing to be flexible, adapting the business as you learn what works”.
#1 is the best reason to know if your business will work for you.
If I may add passion and unique selling proposition, or differentiation.
I have attempted to start multiple businesses but failed early on because I never visualized it in my mind till the end.
For a business to make it in the long run it has to have a scalable business model.
Will the business continue to grow or stay the same? Because what stays the same will not last the test of time.
Cheers,
Brian
Great list! As Tom said, I believe that #1 is the most important reason. You need to LOVE what you are doing otherwise it is impossible to succeed.
Ya, I think getting customer lined up is the hardest for me because who would want to line up for a no-name, no-brand, nobody?
Great tips..Looks like I’m learning to bring my starup into live and soon reach the goal…You are a master…
I think innovation is another key. If you are simply playing follow the leader, you will struggle to stay profitable. Find a niche, innovate in that niche, and work hard to keep that competitive edge.
I’ve started multiple service businesses. I found out that its important your businesses fulfills a need. Has a sufficient niche market appeal so you can sustain a certain lifestyle. Has at least a markup of over 200%.
If a business doesn’t meet those criteria, I won’t even bother looking further. After 5 years operating and managing small businesses, I’ve learned that time is valuable asset.
One of the best ways to remain in business in the face of competition, is to have a dedicated team totally focused towards providing top notch customer service.
Our motto is– ” we never sell, we satisfy”
i agree with Michael, innovation is really important. there is no thrill in making the same kind of basic curtains for instance the whole world does. Its important and good to be giving your customers something new!
well I agree about the customer..I did research for 4 an a half years on a specific subject.I focused my research on Gamestop’s customer base…and then it expanded from their…my research identified my business & its goals as well as everyday service.
Unfortunately, this needs money as it is a brick & mortar business…and investors are hard to find. But I keep looking and plugging biz…and I will never give up.
Im thinking about starting a new business with a product/service that is currently being sold at over a 500% mark-up. I would be the only employee with a moderately low start-up cost. The biggest thing I am worried about is figureing out the size and range of the market I would be looking to pursue, how seasonal it would be etc. Any suggestions?
could you please tell me some ideas to develop my business and i am actually running an english communication developing centre ill be very happy if you tell me the ways to develop it
I think number one is the utmost important…you will endure if you love what you are doing!
starting online business using baby steps, doing affiliate marketing and on stuff, learning from other people who are doing it successfully. Every one who is trying to start online business must try it first.
research is really important, unfortunately, it is also the most hated part–at least for me. lol.
great points you have there. really helpful for budding online entrepreneur.
I’m not sure how to get customers lining up. Is there a book or something out there? The business that I started in July of 2009 is in need of customers, but my overhead is only what I want it to be regarding advertising. I think I got lucky there.
My favorite is “#3: You Can Do All The Important Aspects Of The Business Yourself.” Many entrepreneurs are ambitious beyond their budgets. I know a couple of GREAT ladies who wanted to start a print magazine in the next year. None of the people on their team were graphic designers or print layout specialists. In addition, access to large scale printers would cost hundreds of thousands of dollars. However, they did have access to on-line magazine publication abilities. After looking at the costs, they decided to put print off for a while, or at least until they are fully educated on it. Rather than hire consultants, they will learn as they go. It’s not impossible to acquire new skills, just be sure you allow the time for the learning curve.