4 Lessons From First-Time Entrepreneurs
We are on the verge of getting through the first 18 months in business and it looks like we are one of the 2 out of 10 businesses who succeeded (according to Bloomberg, 8 out of 10 entrepreneurs fail in that time). Our lessons are not comparable to those of serial entrepreneurs nor Inc., WIRED or Forbes. But they are still very fresh and maybe easier to relate to if you are a first-time entrepreneur as well.
1. Use the business plan to prepare for the worst-case scenario
Business plans are important even if you can secure all the funding needed from friends and relatives (like we did). Beyond helping you review all the pillars of your business and discover their connections (your value proposition, marketing assumptions, operations plan, financial plan and staffing plan) a business plan signals professionalism and helps when wanting to rent space, entering relationships with suppliers and hiring people.
But don’t expect your business plan to be accurate. You will most certainly spend more than you had budgeted and earn less than you had planned. The most important aspect of the business plan for us has been to know how long we could sustain in the worst-case scenario (that is with 0 earnings) and to be prepared to make the tough decisions at the right time. We have had to make two such tough decisions, the first one was letting go of the brick and mortar store and the second having to part with our first employee. The reason why we had those options was that we had discussed them when making the business plan and we had negotiated our lease accordingly and also been transparent with our employee.
Make sure to be prepared for the worst-case scenario and keep your options open so that though decisions do not mean the and of your business.
2. Balance risks and involvement of your loved ones
One of the decisions to make is if and when to quit your day job. Usually you are warned to not quit your job too quickly, however we have also seen friends and entrepreneurs we have met along the way who’s businesses have never taken off because they never made that bold step. What we decided is that my partner was going to quit is day job and work full-time for his business, while I have kept my day job. This way he can dedicate himself fully to the new venture, while we mitigate the financial risk. That of course has also an impact on the involvement I can have in the business and the role I play. We have decided that I limit myself to the role of an investor and adviser. My partner is the sole owner of the business.
Beyond mitigating the financial risk, this decision has helped set priorities straight inside and outside. I can fully focus on my job, without having to constantly worry about the business and my partner can work more than 100% on the business without having to earn money on the side. And while of course we are not planning for it, this arrangement does also solve questions of ownership in the case we might separate. This arrangement works for us, it might be different for you, but make sure to set priorities and roles straight and mitigate risks, while still being able to focus enough on your business to achieve results.
3. Connections matter, PR is overrated
It was clear for us from the beginning that we needed to market our store and brand, what we didn’t anticipate is how long it takes for certain marketing efforts to convert and how large the investment is that you have to make. While this is something that you can hardly change and depends on the product and industry, the important thing we learned is that, at least for the short term, PR is overrated. Unless you are famous or lucky, when you start a business and have no track record to boast you will not get any PR. And even if you do, PR does not convert into customers buying your product because the call to action is too far away.
The shortest lead conversion happens with personal connections. And yes I know this does not scale beyond a certain point, but when you start and need to generate revenue you don’t have the luxury to wait for expensive marketing campaigns to convert, because when they do you will be out of business. And those connections are easiest to make close to home. When we realized that with events, fairs and social media campaigns we couldn’t get enough people in our store we went out and toured door-to-door (targeting re-sellers and partners) and that brought in revenue almost immediately. Surprisingly we didn’t generate most revenue in the city where our store is (which we targeted because of the bigger market and opportunities) but in our home state. This is why, after giving up the store, we consider to move the base back there.
So for the first 18 months consider to leverage connections close to home and invest in marketing activities that have short lead conversion.
4. Get out there selling directly and seek honest feedback
The learning from the direct selling we did was so valuable that I would recommend it to everyone even if your business model does not foresee it. First of all you get face-to-face access to customers and that by itself is already benefit enough. You also get candid feedback on your product and your venture, not the one you receive from your friends, family and first brand enthusiasts. You don’t have to literally knock on every door, we made a targeted list of re-sellers and professionals (interior designers and architects) and spent a month knocking on the door of each and everyone of them. The exercise helped refine our pitch, better define our target customer segment and also better understand the business we are in. And as mentioned above, you have the shortest lead conversion time, so it also helps generating that much needed cash stream that is vital to survive.
If you are a first-time entrepreneur as well, please share your learning and experience with us!