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Lost Over $200k Trying to Start a Business

This post on Reddit talks about how an entrepreneur lost over $200k trying to start a business brings up excellent things to consider when starting a business.

Every business is different, but some key lessons that apply to almost all businesses are numbers #3, #7, and #9.

Lesson #3: Don’t Build Everything At Once

As an entrepreneur, you are likely the CEO and janitor. In other words, you have a lot to juggle and little cash to spend. Getting the core product/service to market takes precedence over spending time and money adding bells and whistles.

Lesson #7: You Can Be Either Low Frequency or Low Price, but Not Both

In other words, you can make infrequent big sales or frequent small sales, but not both. Most businesses fail because of illiquidity (i.e. not enough cash). Expenses never stop and must be paid even in between sales, so make sure you are always generating sales. A SaaS/user-base business is slightly different because the revenue model is based on data and advertising, but a similar maxim still exists.

Lesson #9: A Founder’s #1 Job is Sales

Once the CEO is done with janitorial duties for the day, it’s back to the phones making calls. For example, one of the main jobs of a partner at a law firm is increasing yearly revenue. They might not be doing contract review or picking up trash, but they are rainmaking.

See the full Reddit post below:

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Emerging Young Entrepreneurs

Your Startup Guru Managing Director, Joon Hong, recently had the opportunity to advise the 2022 cohort in the Emerging Young Entrepreneurs (EYE) program on their pitch decks.

The National Minority Supplier Development Council’s Emerging Young Entrepreneurs (EYE) program is a year-long program uniquely designed to provide the next generation of minority entrepreneur participants ages 19-35 with support to enhance their growing business. Business owners will receive guidance from corporate sponsors, MBEs, and additional stakeholders. EYE will utilize an interactive pre and post-conference curriculum along with five days of hands-on training and practical application. Participants are provided the skills, tools, and strategies to start or grow their innovative businesses.

About NMSDC’s Emerging Young Entrepreneurs Program

Founded in 1972, the National Minority Supplier Development Council Inc.® (NMSDC®) is the longest-operating business growth engine for the broadest group of systematically excluded communities of color (Asian-Indian, Asian-Pacific, Black, Hispanic, and Native American)and our impact goes far beyond supply chain. It’s about upward mobility for the emerging majority of Americans, an equal shot at participating in the American experiment of free-market capitalism and entrepreneurship. Our work is about correcting the unequal access to wealth-building opportunities.

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Pitch decks are a fantastic document to raise capital for your business. Contact us today to get started on your pitch deck.

The Floppy Disk Business

Talk about being in a niche market! This fascinating article talks about Tom Persky the self-proclaimed “last man standing in the floppy disk business.”

See a Need, Fill a Need

Leveraging his experience outside of the floppy disk business as a tax attorney and software developer, Persky found opportunities to offer sales, recycling, and data transfer services.

Because we were a tax-oriented company and had specific tax filing deadlines, we only used our duplication equipment once every quarter. For 89 days in a row, the machines would be unused and then, on a single day, we would punch out thousands and thousands of floppy disks. At some point, I looked at the machines and how they were unused for so much of the time, and I had the idea to take in other people’s laundry.

Client Feedback

Persky had a business model in mind but shrewdly pivoted to include other service offerings at the request of his customers. Clearly a business should not listen to every whim of their customers. However, the service should be added if the cost-benefit analysis indicates a profitable expansion. Contact us for help with this analysis.

In the beginning, I figured we would do floppy disks, but never CDs. Eventually, we got into CDs and I said we’d never do DVDs. A couple of years went by and I started duplicating DVDs. Now I’m also duplicating USB drives. You can see from this conversation that I’m not exactly a person with great vision. I just follow what our customers want us to do. When people ask me: “Why are you into floppy disks today?” the answer is: “Because I forgot to get out of the business.” Everybody else in the world looked at the future and came to the conclusion that this was a dying industry.

Luck

Luck is ALWAYS a factor in business. However, it takes skill to be able to survive long enough for a chance for luck to come your way.

Over time, the total number of floppy users has gone down. However, the number of people who provided the product went down even faster. If you look at those two curves, you see that there is a growing market share for the last man standing in the business, and that man is me.

Circling back to seeing a need and listening to customers. Opportunities will present themselves when you keep your eyes and ears open.

Another thing that happened organically was the start of our floppy disk recycling service. We give people the opportunity to send us floppy disks and we recycle them, rather than put them into a landfill. The sheer volume of floppy disks we get in has really surprised me, it’s sometimes a 1,000 disks a day.

Know Your Market

Persky knows his market. A.K.A. customers. Your market (customers) are not only those that you’ve identified but also those you did not know use your (or your competitor’s) product. Knowing your market takes a lot of research and asking questions.

Take the airline industry for example. Probably half of the air fleet in the world today is more than 20 years old and still uses floppy disks in some of the avionics. That’s a huge consumer. There’s also medical equipment, which requires floppy disks to get the information in and out of medical devices. The biggest customer of all is probably the embroidery business though. Thousands and thousands of machines that use floppy disks were made for this, and they still use these.

Tom Persky truly fell into the floppy disk business but made smart decisions to capitalize on the opportunities that came up. Part of it is luck, but part of it is also making the right decisions long enough to be lucky.

See our posts: Importance of Niche-ing, See a Need, Fill a Need, and Product Life Cycle for more related information.

The Case for Small Businesses

The case for small businesses is a strong one. From job creation to patents filed, small businesses are a major driving force in the economy.

Small Businesses are an Engine for Job Creation

Despite losing 9.1 million jobs in the first two quarters of 2020, small businesses’ job growth rebounded swiftly following the COVID-19 recession. In the four quarters following, small businesses have gained 5.5 million jobs, making up for 60 percent of the decline during the early pandemic. Small businesses have generated 12.9 million net new jobs over the past 25 years, accounting for two out of every three jobs added to the economy. Source.

Small Businesses are Drivers of Innovation

Experts often use patenting activity as a proxy for innovation. Data from the National Science Foundation show that small businesses that engage in R&D generate more patents per employee than larger businesses that engage in R&D. However, small business patenting activity fell significantly following 2010.

The decline is now reversing. Small businesses recovered to two-thirds of peak patent application levels from 2015 to 2018 and recovered to half of peak patents received levels in the same timeframe. Source.

Small Businesses Need Support

Unfortunately, more than 90,000 restaurants that have closed across the U.S. in the past two years. Restaurant industry sales in 2021 were down $65 billion from 2019’s pre-pandemic levels. A touching article in High Country News tells the touching story of the last day at DeDe’s, a mom-and-pop restaurant in St. George, UT.

She suffered a stroke a year ago and hadn’t been able to visit. “When DeDe found out, she made my mom’s favorite meal — a ham, mushroom, and spinach omelet with Swiss cheese and a slice of cantaloupe — and delivered it to the care facility,” Feesago said. “It’s more than food. DeDe made us feel like family.”

This type of value-added service without an exorbitant surcharge would be unheard of in a corporate restaurant scenario. The personal touch is also gone. Optimizing for profit results in diminished customer experiences. The typical story of a small company that grows until it catches the eye of a larger firm is common. The value and brand that the small company created are gutted to make room for shareholder value creation. The original loyal customers eventually leave because the magic is gone. This is done over and over again until Main Streets throughout the US begin to look exactly the same with the same 15 corporations.

The tragic irony in all this is that corporations spend a considerable amount of resources trying to recreate a “we treat you like family” environment that customers want. Unfortunately, it is just marketing, and the user experience is not genuine. The corporations would do better as a holding company that lets the small business operate with minimal interference. The parent company could provide occasional funding for expansions, hiring, and process improvements.

Small improvements can lead to significant benefits. Our blog post Competitive Advantage and Coffee talks about how a simple gesture such as remembering regular customers’ names can result in higher coffee sales. Another example is DK’s Donuts a small independent donut store in Santa Monica, CA that has been in business since 1983. Even when mega-chain Dunkin’ Donuts opened a block away, business did not suffer because the user experience, customer service in other words, was not there at Dunkin’ Donuts.

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Brazilian Jiujitsu Financial Projections

Brazilian jiujitsu academy Carlson Gracie South Bay requested financial projections to help plan for an upcoming expansion.

Accurate financial projections allow an academy to know how much they can spend on rent, service pricing, headcount break-even points, budget for their operating expenses such as marketing and payroll, and much more.

About Carlson Gracie South Bay

Brazilian jiujitsu academy Carlson Gracie South Bay offers classes throughout the week, one class in the morning and one class in the evening,so you can easily fit your training into your schedule. The student will learn techniques and principles that made Brazilian jiujitsu the most efficient and effective fighting art in the world. 

Carlson Gracie South Bay students compete in the highest level tournaments and hold numerous titles at the World, Pan American and Open Championships at IBJJF, NABJJF, JJWL, Abu Dhabi, BJJ PRO and NAGA federations. They also have students competing at UFC and EBI tournaments.

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Contact us today to get financial projections for your Brazilian jiujitsu academy.

New Product Development Flowchart

This new product development flowchart provides a general macro view of a complex and variable process. Each decision and process step is an entire field of study in itself, with significant details and nuances beyond the scope of this flowchart. Please note that every decision and process step may require significant costs and expenses.

Flowchart of new product development process - Your Startup Guru
A general macro flowchart of the new product development process

This process is applicable to new product development in a wide range of industries. For example, in 1920, candy store owner Christian Kent Nelson invented an ice cream brick with a chocolate coating. Because he did not have the know-how or means to mass-produce his invention, he secured an agreement with local chocolate producer Russell C. Stover of Russell Stover Candies to mass-produce them under the new trademarked name “Eskimo Pie.” The dessert was rebranded to Edy’s Pie in 2021 because the original name contained a derogatory term.

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Lipstick on a pig and recession-proof businesses

Lipstick on a pig and recession-proof businesses - Your Startup Guru
Lipstick on a pig and recession-proof businesses – Your Startup Guru

Welp, there’s no need to put lipstick on a pig. Today’s GDP data released by the US Bureau of Economic Analysis showed that real gross domestic product (GDP) decreased at an annual rate of 32.9 percent in the second quarter of 2020, according to the “advance” estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP decreased 5.0 percent.

Chart showing Real GDP: Percent change from preceding quarter

This is really bad news which means figuring out how to mitigate damage and making all adjustments by bootstrapping. Many businesses such as bookstores, farms, and clothing manufacturers pivoted their business models to adapt to the impact of COVID-19.

One thing I learned while working with my client KiloNiner several years ago is that pet products were largely recession-proof during the 2007-2009 recession. This is because people view their pets as family members so cutting back was avoided. There are many other businesses are that recession-proof as long as adjustments are made to accommodate social-distancing requirements:

  • Repair/maintenance services: People will still need their plumbing to work, their lights to turn on, and their car engines to run
  • Dry cleaning/laundry: Laundered clothing and materials will always be needed as long as people wear clothes and don’t have in-house machines. Dry cleaning for clothing might decline as formal wear is reduced but will not go away as people still wear jackets, etc. on occasion.
  • Professional services: Accountants, lawyers, and other administrative professionals are still needed for the economy to run.
  • Funeral/Memorial services: A natural consequence of life is death. Particularly with the unsettlingly high mortality numbers associated with COVID-19, demand will likely be high for a very long time.

There are many more industries and even sectors/value-chain-links within floundering industries that are somewhat insulated from recessions. Your Startup Guru provides industry/market research as well as a wide range of other services for businesses to help navigate this turbulent economic climate.

Contact us and let’s figure out a plan for you.

Adaptability is the most powerful trait

You have probably noticed the deluge of advertising that is targeted to the new reality of being at home. This is obviously a response to the global pandemic we are all being affected by. The following is a breakdown of what is happening and how your business can harness the post powerful trait: adaptability.

Adapt Through Marketing Strategy Marketing

Aired prior to the COVID-19 crisis but replayed recently Campbell’s realized that people are stockpiling canned food. Set to a wholesome and nostalgic soundtrack without pandering to panic buying, they capitalized on an opportunity to remind customers of a classic pairing. On a side note, the music choice was oddly relevant — Thank You For Being a Friend was the theme song to the ’80s sitcom The Golden Girls and the elderly are among the most vulnerable to COVID-19.

Also, more people are telecommuting and are realizing their home computers might not be suitable for work so Dell aired a commercial for one of their newest laptops. Peloton, home office chairs, etc. are all advertising the benefits of being healthy and productive at home. Also, mental health app Talkspace, Delta Airlines offering free flights for medical volunteers, online education, bidets, and more are using this opportunity to advertise their products and services.

Adapt by Seizing the Opportunity

Adaptability Charles Darwin - Your Startup Guru
Attribution-NoDerivs 2.0 Generic (CC BY-ND 2.0)

When disruptions happen, it is important to consider alternatives in order to adapt to the new environment. I have advised a new restaurant client to pivot their business model from a brick and mortar location to a commercial kitchen or food truck and adjusted their ad hoc financial projection model to reflect the pivot. Of course, depending on the stage of a business pivoting to a commercial kitchen or truck is not an option; which is why I always provide tailored consultations to each client.

Many people have a lot of downtime now with not having to go into work. It is a good time to take a break from watching the news and start mapping out the idea that you’ve been mulling. Who is your target market? Where will you be located? What are your startup costs? These are all questions you should know the answers to or be actively seeking if you are serious about taking the next step. If you do not know the answers or want a second opinion on, I always provide free consultation so send me an email. Afterwards, those pushup challenges on social media are also a good healthy distraction too from all the dire news.

These are better practices than gouging prices like that hand sanitizer guy.

sanitizer price gouging guy

See a need, fill a need

See a need fill a need - bigweld robots

Entrepreneurs often see a need through their own personal experiences and fill that need with their business idea.  This is a great strategy but sometimes doesn’t tap into a market large enough.

In episode #850 of Planet Money, The Fake Review Hunter, the host interviews Tommy Noonan, creator of SupplementReviews.com.  SupplementReviews.com is a highly popular website that provides unbiased user reviews of health supplements.  However, Tommy soon found that there were suspiciously positive reviews.  Because Tommy’s entire website was based on authentic user reviews, fake reviews became an existential threat.  After a lot of research, he found that some of these reviews were written by supplement companies.  He uncovered so many fake reviews that he started noticing a pattern, almost like a modus operandi.  They were often single product/brand reviews, used fake pictures, had lots of reviews in a short period of time, and/or only had one review.  Sometimes the “reviewer” would give positive reviews for one brand and negative ones to competing brands.

This is when Tommy had his a-ha moment.  If his website had fake reviews, others would also probably have them.  So he created another business that aligned with one of the juggernauts of the internet, Amazon.  Tommy’s site, which uncovers fake reviews, is called ReviewMeta.com.

How to find a need

As mentioned at the top of the post, most rely only on their personal experiences or that within their network.  Sometimes the need is obvious.  For example, at a 7-Eleven in Shirley, New York, one 7-Eleven sells more coffees than any other franchise in the US, all because of one store manager who knows virtually every customer’s name and greats them.  No special location mojo or customer flow algorithm, just old-fashioned customer service. You can read more about it in my post Competitive Advantage and Coffee.

Other times it is not that obvious.  In that case, you have to hustle differently.   How do you do more “work” when you’re already working to the bone?  Find efficiencies:  know your customers, know your competitors, and lower your expenses by working on learning more doing more research in episode #700 of Planet Money, Peanuts, and Cracker Jack.  In Boston’s Fenway Park, Jose Magrass is the top seller.  One year, on opening day, he sold 500 hot dogs, $2750 worth of hot dogs in a single game.  In fact, Jose has been the top seller for over five years.  Part of his secret?  He has a spreadsheet where he analyzes many factors beyond just the weather, such as what his competing vendors are selling and what fans are likely to purchase depending on the price of their seats.  For example, behind home plate diet coke sold better because possibly that is where the “vain people” sit.  That kind of analysis is impressive.

The Importance of Planning

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Excess inventory, cost management, and other issues are a reality for most businesses.  When uncontrolled, a business can face inadequate cash reserves and even bankruptcy.

To mitigate these issues, proper industry and market research coupled with financial planning for contingencies is crucial for any business.  Whether you’re in the ideation phase or are already up and running, knowing how much to allocate to the various activities a business engages in is difficult so contact me and let’s create a strategy that works for your business.

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