Over the course of the summer I’ve spoken with several different groups about how to start and grow a business. While it’s been inspiring to meet so many small business owners in the Denver and Boulder communities, I’ve been surprised by the number of myths and mistruths I’ve heard mentioned in the discussions I’ve led.
So I wanted to set the record straight.
Below are some of the most interesting things I heard. Some of these bad ideas probably seem like common sense when you’re starting a business…but it’s my experience that they will just get in your way in the end.
Myth #1: You need to have a written business plan and for a 3-year financial analysis before starting a business.
Hilarious. You do not need to have a written business plan. You certainly don’t need to do a three-year financial plan. These are things you would do if you were chasing startup capital to convince a bank or a venture capital firm to “bless” you with cash.
Having an idea about how you will run a successful business is important. Here’s the short version of your business plan:
A) Do you have an idea, a service or product that people want?
B) Can you personally provide this service or product?
C) Are there people or businesses willing to pay enough for this service to cover its costs?
Once you have an idea for your product, spend the time you would waste on a written business plan to go find some customers (or prospective customers) and listen to what they have to say.
But how will you keep your business afloat? Just use some common sense in terms of spending. Don’t buy anything you can’t afford in cash, and don’t float your company on your credit card or a home equity loan. Spend within your means – and save enough to pay your taxes.
Which brings us to…
Myth #2: You need money to start a business (Angel Investors, Venture Capital, etc)
You do not need to raise money to start your business. Period.
To be successful, your business needs five things: opportunity, resourcefulness, creativity, selflessness…and sheer willpower. Money early on will not help you develop any of these key traits. In fact, chasing after money will do nothing but distract you when you should be listening to your customers and developing your product or service.
(Yes, this does mean that you will not have a sky-rise office with 20 employees – all with Director titles – in your first year.)
You should still be working a day job as you get your business started during your weekends, vacation time and evenings. This will let you pay the bills, hedge your risk and give you the modest resources you’ll need to get going with your business.
This is not just academic advice. SurveyGizmo is now a multi-million dollar business with 46 employees and hundreds of thousands of customers. We started our company out of my checking account, spending $79 a month for our first server – and we were profitable from our very first year (…only 14 dollars in profit, but honest profit)!
How? Both Scott and I worked our regular jobs and built SurveyGizmo at the same time for the first 2 years. When it came time that we could afford salaries – we didn’t take them. We hired our very first employee and kept working those day jobs!
The lessons we learned from growing within our means have had a dramatic impact on how we look at business and growth. Looking back, we believe taking on venture capital would have ruined our business and long-term viability.
Myth #3: Believe in your product and don’t let anyone sway you form your path.
As entrepreneurs we think of our products as our children: we love them and we think we know what’s best for them.
We really don’t.
Our customers know what’s best – or at very least, what they are willing to pay for. This is one of the hardest lessons for product-based startups to learn:
Your business is a partnership between your great ideas and the needs of your customer base.
I highly recommend you involve your customers in the development of your product from the very beginning. Not only will this tune you in to exactly what your customers want; it will also create a sense of ownership and evangelism among your first customers. This evangelism is the best free marketing you could ask for – actually it’s the better than paid marketing too.
Again, I am speaking from experience. The first company I started in 2000 was a marketing automation tool. It was revolutionary, it was ahead of its time – and it failed. Not because of the dot-com bubble; instead it was the way I went about developing the business.
I spent all my time developing a product that would be “perfect” and didn’t listen to my would-be customers. In the end, I had a good product – but I had no customers. (The product was also too far ahead of its time.) If I had listened, I would have launched a simpler product with several dozen customers behind it, then developed it into what is now a booming industry.
Myth #4: You need a business degree to start a business.
I am a huge advocate for education and continuing your education. That does not necessarily mean going to school for a degree for business.
No business degree will teach you everything you need to know to start and run a business. With or without experience or educational resources you’re going to do a lot of learning on the fly. If you are resourceful and confident you can do just fine without it.
Remember, many successful businesses were started by entrepreneurs without a business degree. They were just people with good ideas, great instincts, opportunity, resourcefulness and incredible drive.
Now, there are a few things that a formal degree would teach you that are good for everyone to know. The most important are basic accounting and basic marketing skills – luckily, these are easily learned by experience and online. Just remember to keep it simple in both cases when you get started.
Business structure and business legal matters are also taught in these courses – but again, you can learn quite a bit online and by talking to other business owners. “Tax” and “Legal” are frightening words, but don’t let them concern you too much at the start.
Quite frankly, you need to grow a bit as a business and employer before those concerns really start to get sticky. At that point, you’d need to hire an expert with more than a business degree anyway!
There are several great books and online resources to help keep you from making egregious mistakes.
Learn a bit every day, and spend some time researching what you need for tomorrow. If you make a proactive choice and make the commitment to learn, you’ll do just fine.
Myth #5: You need an exit strategy.
Oh boy! You’re just starting a business and you’re already looking for the door? Maybe you should ask yourself why you are starting a company and if it will make you happy.
Are you doing it for fame, ego or recognition? You have a better chance making it in Hollywood – and at least there you are only risking yourself. Starting a business is not the best way to become famous (or even well-known), and think about it – how does this goal lead to a successful company?
Start a business to run a business. Not just to get rich. If growing a business is not your goal, you’ll likely be unsatisfied and make poor decisions based on it.
Most of all, I think everyone who wants to start a business should know that it’s one of the most rewarding and wonderful experiences you can have. Like all things rewarding, it’s not easy and it’s occasionally very frustrating. Just keep at it and if your first business or two doesn’t do as well as you’d like – dust yourself off, rest up in a regular job for a bit and try it again!