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The Start-Up Letters: Starting

Everyone has an idea, a desire to do something different, not just with a product or service, but with their life. You have your talents, experience, initial clients, and most importantly — a desire to create your own start-up. So like our American forefathers, you break free. But instead of pioneering the western plains, you discover what it means to be an entrepreneur.

Shortly into your journey you realize that all your experience ‘arm-chair-quarterbacking’ stands for nothing now that you’re ‘under center’. When you’re the one signing the checks, directing a company’s future, selling, developing, networking, creating, and doing everything but sleeping, failure’s not an option. But how are you going to succeed?

A Rough & Rewarding Journey

Welcome to The Start-Up Letters. A diary addressing the lessons and practice of creating a thriving start-up rather than the theory of it. If you’re like me, you’re sick of someone telling you the secret formula to start-up success, because there isn’t one — but there’s life changing advice out there, and I’m going to share it with you.

Being an ‘entrepreneur’ doesn’t require a type A personality anymore, and maybe it never has. It’s not about fitting into a specific personality profile, you just need to be a starter. Jason Fried captures this idea in his best selling ‘manifesto’, Rework.

These notes on Rework by Doug Neill do a great job of exposing just a few of the nuggets that liter this must read by Jason Fried.

These notes on Rework by Doug Neill do a great job of exposing just a few of the nuggets that liter this must read by Jason Fried.

“There’s a new group of people out there starting businesses. They’re turning profits yet never think of themselves as entrepreneurs. A lot of them don’t even think of themselves as business owners. They are just doing what they love on their own terms and getting paid for it … Instead of entrepreneurs, let’s just call them starters. Anyone who creates a new business is a starter. You don’t need an MBA, a certificate, a fancy suit, a briefcase, or an above-average tolerance for risk. You just need an idea, a touch of confidence, and a push to get started.” — Jason Fried, Rework

So in the spirit of Mr. Fried and all the wildly successful people at 37 Signals: let’s get started.

Stats: Starting Small & Stacking Up

543,000 start-ups are launched every month in the US. 45% of them won’t make it past 6 months, those who are able to make it to month 9 are much more likely to survive. The majority of starters forecast their first break even point sometime in months 3-12 of their first year, however 22% didn’t even have a guess as to when they would become self sufficient.

Start small, only 20% of start-ups have more than 2 people and the majority of companies are able to keep their recurring expenses below $500. 85% of start-ups are able to fund themselves initially through their own savings and/or freelance work. Funding is a huge issue and how you decide to handle your initial capital set-up will determine who controls your company.

Investors can be a blessing or a nightmare, they can impose unbelievable stress and unrealistic expectations on your first year. In my experience, calculating a realistic break even point and reducing the amount of initial capital you need will create the best situation for your sanity.

In my first business, we promised payback in too short a time table, which forced us to payout large sums of money before we were able handle the setback with our other expenses. In my second business, we partnered with the investor, which made them much more interested in the longevity of our company. My recommendations when it comes to investors is to be making real money already, have at least 5 sources of revenue you’re working toward, and set realistic expectations for payback.

The economy is too risky and an investor’s liquid capital is too valuable to be wasted — so make sure you have a real opportunity before you start asking for real money.

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Rule #1: I Can’t, Never Could

Some people want simple guides or ‘5 Step Solutions’ to creating a successful start-up. Anyone who’s ever started their own business will quickly tell you that launching a profitable business is anything but simple. Sure, there are a few core necessities, but start-ups, by nature, are going to expose your weaknesses. Please don’t take this as ‘doom-and-gloom’, these points of pain reveal opportunities for growth, in you as a professional and in your start-up.

The human body is built to improve at things it does more often. Exercises that used to be difficult become routine, 60 hour weeks seem commonplace, and an introverted craftsman can develop a taste for networking once he/she has to. You will always have your core competencies — the skills that allowed you to launch your start-up in the first place. But starting a business will demand you to improve your accounting, communicating, negotiating, and janitorial skills as well. In my experience, removing ‘I can’t‘ from your vocabulary is one of the best things a starter can ever do.

Manage Your Cash Flows

I started my first business in 2009 when I was half way through my MBA. I sat down with Derek Podobas, a professor that taught more from experience than text books, hoping to get his feedback on my business plan. I expected some lessons about reading market trends and being able to predict the future based on sophisticated financial derivations.

After Professor Podobas carefully reviewed my document, he cut his eyes at me and offered just one piece of advice: “This looks great, but it’s all worthless if you can’t manage your cash flows.” That lesson, although seemingly basic, has proven itself useful everyday since. I’ve had to learn the hard way why Professor Pobodas warned me about this one area, and I’ll tell you more about that later.

You need a lot less than you think and chances are you can cut 10% off of your expenses today just by doing something yourself or reviewing your monthly statement. I’ve also learned the hard way that asking an investor for more than you need only gives them more control of your business … and sanity. Your spending is the only thing you truly have control over in your business, so grab your budget by the throat and free your mind up to focus on being creative.

Just Getting Started

Based on what we’ve learned, we’re going to continue learning for the rest of our careers exactly what it takes to launch the perfect business. Learning from the past allows us to improve our future, and the same goes for you. Each letter will address a crucial aspect of operating a company, in no particular order, because they’re all crucial aspects. Stay tuned, because The Start-Up Letters are just getting started.

  • Brian Martin

    Good read!!

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