Monday, April 20, 2015

Uncomfortable fact #1: Starting a business is about MAKING money not spending it

UPDATE: On reflection I have also seen that the great successes in business have required big cahones and believing in yourself. So, many businesses do succeed on raw energy and cahones. I probably just don't have the stones.

I don't wanna overstate my credentials here. For sure I've been running Cullen Habel as a business for the last four years and I've managed to keep the mortgage paid and food on the table plus a few other luxuries. I'm blessed with a wife who manages money well and earns quite a bit too. Sure I've had to take some crappy jobs but mostly I've been lucky - it's essentially teaching and market research - and my clients have behaved well. And I've stayed in pretty safe business areas. Very lucky to be able to do that.

I'm not making my living from $200 invoices - they're a lot larger - but the bookkeeping has become a little more complex and I thought I might need to evolve from my spreadsheets to some software. My sister's advice was pretty straightforward - run for as long as you can with your simple systems because even the most basic accounting package is gonna cost you $$ - and then you've gotta learn how to use it. I think my sister knows what she's talking about.

Business startups that never stood a chance

And then my thoughts wandered to start up businesses I've seen that had a good idea but never had a chance as a long term plan. Because of the owner's mindset. To my thinking the biggest load of crap in a startup is:

"You have to spend money to make money"

Pffft. That misconception has buried more promising ideas than it has built. Sure, if your idea is a food truck the you have to get - well - a food truck. Yep, you have to spend that money. Stock, licenses, insurance, plant and equipment. Price of entry. But spending money is not the action that makes your business work - that comes from producing product and selling it for more than it cost you to make.

But back to my own example. I send about 60 invoices a year, I have very few raw materials or finished goods, no real manufacturing processes and I pay very few subcontractors. If I buy MYOB for that then - sure - I'm feeling like I'm getting real but really I'm just blowing $1000 on a feeling. Strangely enough - the food truck probably does need MYOB - for them it's more than a feeling.

The Beef Jerky example

My most stark example of this came from when I was selling packaging. A couple of families pulled together (I guess) about $50k of working capital and bought a tiny beef jerky business. They would've got a brand name, a dehydrator and some leftover packaging for about $15k. Then they called me, the packaging guy.

I thought something was up when I was asked to visit them at the "New Playford" - apparently that was a newly established luxury hotel in Adelaide - because they were on a "strategy retreat". Riiiight.

To set up new packaging was about $10k in Negatives and Plates and a first order on packaging would cost them $20k (due to minimum run sizes). Or they could put a high quality label over their existing packaging they had bought with the business. I didn't care either way. They went with the new art approach so promptly went off and started speaking to design companies before the business had returned them a cent. I understand how important good branding is, but in the beef jerky category? A mature market where the main volume is sold through supermarkets and the route trade is highly fragmented? That was always gonna be a hiding to nothing.

I'm the last person to criticise another for having a go - just that some actions are smarter than others. It's not how I would've done it.

But the dominant uncomfortable fact seems to remain. Don't spend money to feel like you're a businessperson. Starting a business is about MAKING money not spending it - that's what a business does.

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