Within America, a change has occurred within the last decade with the venture capitalists, angel investors, startup accelerators, and bootcamps which serve the startup communities in Silicon Valley in California or at TechStars in Boulder, Colorado. They’re converting from the advice to “write a business plan” to the Business Model Generation (BMG) model when discussing starting a new business. This change to BMG in reality is about going back to our “tried and true” roots soon after our adoption of the Constitution and Bill of Rights and then the 1824 Supreme Court decision of Gibbons v. Ogden. This court decision wasn’t to give the federal government more power over the states, but “clipped the wings” of various state legislators who were granting exclusive monopolies to businesses. In advocating for a free market, it broke open entrepreneurship in America and accelerated our economic growth to bypass Europe in most industries within 100 years of our founding (See a FREE copy of Andrew Carnegie’s 1886 book Triumphant Democracy: Fifty years’ march of the republic from archive.org ).
1. Business Model Generation
One of the first myths and most common advice given to people who are considering starting a business is to write a business plan. Don’t waste your time, effort, or money on this advice. A business plan is mainly for investors, but under the Business Model Generation (BMG) model principles, produce a presentable, versus a perfect, product or service and begin selling it. If you can’t sell it to 10 customers, you’ll have a tough time selling it to 10,000. As an entrepreneur, it’s your job to figure out what’s not working. The BMG focus is to get your product or service out of your garage or spare bedroom “office” ASAP and in front of your ideal or targeted clients. Your purpose is to sell it to make a profit or get feedback on why they won’t buy it. You continue to adjust things so it does sell, or pivot your business or product to what the market is looking for.
2. Profit first, not others first
A second myth that is perpetuated among businesses is, “You need to spend money in order to make money.” It has a strong indication that you’re to be a “starving artist or business person” until your business “takes off” and “you’ve made it.” Nothing could be further from the truth. In realty, this issue is one of poor business accounting. What truly made my business pivot for the better was to move to the concept in the book Profit First by Mike Michalowicz. Instead of the traditional profit formula of revenue – expenses = profit, which means you make sales and spend your money and have little to no take home pay. Instead, you reverse the formula, revenue – profit = expenses. The difference is you “pay yourself first” before you spend money on business expenses on unnecessary things that do not add value to starting your business. You decided to go into your business to earn extra money, not give your hard earned money to others.
3. Lead with revenue
The third myth which is similar to the last myth is that you need to go into debt in order to grow or scale your company. The phrase that you’re to follow is that you’re to “lead with revenue,” which translates that if you’re not making enough sales, do not go into debt to pay for things until you examine why you’re not making sales or a profit. And if you want to buy something for your business, then go sell more product or services to earn it. If you have trouble selling, using credit cards may not help your business, so ask the tough questions and dig into why you’re not making the sales or the profit.
4. Your ideal business first, then get clients
“Follow your passion” is another myth. The problem with this myth is your passion is not your talents or abilities. Just ask those that are “passionate” about singing on American Idol and who can’t carry a tune in a wet paper bag (lack talents and skills), then put them on a stage in front of 1,000 people booing them because they can’t sing. What happens? Stress! Which their health deteriorates and affects those around them, too!! Operating in your strengths/talents (See Strength Finder 2.0 by Tom Rath), you’re much more likely to “power through” difficulties because you’re positively motivated. Find your many God-given talents, your strengths, first. Then, find someone that needs your help, i.e. they can’t understand how it soooo easy for you to do it and they find it difficult. Now you have found your market niche and profitability.
5. Know your business numbers and accounting right and now
The last myth is that accounting is about math, in reality accounting is about putting the right colored jelly beans (money) in the right colored bucket (categories/accounts) and most of us seem to be colorblind. Talking recently with an accountant (Bachelors and Masters in Accounting) regarding businesses and her comment was telling: “I’m so T-I-R-E-D of fixing business accounting problems!” So why is this a part of your business shoestring issue? Because setting up a good business accounting foundation prevents H-U-G-E costly problems (taxes, fines, interest, and penalties) in the future. Learn your business numbers and your accounting so as to understand how you are profitable.
The above five steps are designed to save you time and money based on my personal experience and coaching others when finding their business niche. If the shoe fits, wear it, and make sure you tie your laces.
Kevin Cullis is Chief Business Geek of Startups On Main Street.com and author of How to Start a Business: Mac Version and HWJDB How Would Jesus Do Business? who coaches individual looking to start their business with their God-given talents.