America’s entrepreneurial spirit seems to be regaining momentum. And thank God for that, because our economy depends on it. So for those considering the transition from dream to reality, here are my four keys to success for your startup operation:
ONE: Provide a service or product that enough consumers are willing to pay for.
I just heard a collective, “Duh” from the readership. But trust me, this is a frequently overlooked essential. Most cool ideas do not become successful operations because the demand does not meet the preconceived supply. And to progress from avocation to vocation, there must be enough revenue to cover operating costs plus risk plus profit. Let’s talk about each of those.
Operating costs include the entrepreneur’s salary as a fixed cost. Engaging in a part-time home business is admirable. But the true entrepreneur generates enough revenue to cover every ongoing cost. And while he typically survives on what remains in the checking account after paying every other expense, the smart entrepreneur figures his full salary into the budget before determining the price of his product or service.
Entrepreneurs think efficiency at all times. There is little waste with resources; time, materials, equipment, printer ink, utilities and employee energies. Variable costs will follow the volume of customer orders. And as heartless as it may sound, employees are variable costs. Do not sacrifice the company in order to save employees.
Risk is a measurable percentage of the customer engagement. This could be from 5% to 15% of revenue to cover things like unexpected expenses, product returns, and insurance. The less you know about a project or customer, the higher the risk. Deliberately figure this margin of error into your pricing.
Profit is the money that you and your fellow investors get to keep as a reward for taking the chance on the business venture. Where there is no profit, there is no reason to avoid simply working for someone else who already owns a going concern. And while the shortsighted statists foist shame on the concept, profit is a beautiful phenomenon. And consider this; Only profitable ventures can afford to be charitable.
Two: Effectively outsource those areas not essential to your product/service.