will have wins, and you will have your good days and your bad days.
Over the last year I have been working on my startup to take it to the
next level, crossing the 40,000 a year gross line might seem small to
some, but when it is your own startup, being profitable and setting
performance targets is an important process. I was fortunate enough to
take six weeks to work on my startup directly. Over those six weeks I
had an opportunity to review where I started, what I want to do, and
some of the important lessons I learned over the last year as an
entrepreneur.
Over the last six weeks I have been heads down with my startup
working on a longer range strategy that will allow us to continue
strong growth, and start working with new suppliers and new avenues for
selling stuff. My startup sells physical goods on line, and here is
what I have learned over the last year of being an entrepreneur. Not
all lessons are equally important, but together they make a nice
listing of things you should be aware of as you traverse the
entrepreneurial process with your own company.
People and Customers are both the people you hired, and those you
interact with online and in person. People who work for you are
important, customers are equally important, and here are the biggest
lessons I have pulled out of the last year in relationship to people
and customers.
1. Customers know what they want, you either have it or you don’t.
Not all customers opinions though good for a mass commercial market of
products and services. If someone wants something that is of value to a
larger audience, you should do it. If someone wants something that can
never turn a profit, thank them, but don’t sweat it and don’t feel bad
if you don’t do it.
2. Uniqueness counts and in the online world is getting to be
mandatory – you have to be unique, what you are doing, what you are
selling, and in some cases your approaches to selling and customer
service. If you are the only one online with a product that is great,
you can charge what the market will bear. This is often well above the
cover cost of the item you are selling.
3. Know what the market will bear, try different pricing schemes
and see what sells at what level, not all prices online or in the store
are the best price, or the best value. If the price the market wants is
below the price you need to sell at to make a profit – then it probably
isn’t a good product line for you to be in. This works equally well
across many industries, and many companies have failed by not getting
this one.
4. People will buy on impulse and price, get both of those right
and you have a hot seller, get either of those points wrong, and the
product will take longer to sell.
5. People are always looking for a bargain regardless of the
economic climate, but rarely will they go out of their way for a
bargain. There are 300 million Americans, Shopzilla (a price comparison
web site) only get 6.5 million visitors a month. 65 million people
visit Amazon, 50 Million people visit EBay – people are not comparison
shopping enough giving people enough flexibility to try to comparison
shop on pricing in the walled gardens of ecommerce. Firefox and IE
addons are even less widely used.
6. Don’t rip off customers – they will get resentful and have
things to say about it online, in person, anywhere they can and they
will talk about it, often, in public. Negative publicity often results
in damage control.
Banking, Taxes and Finance are three lynch pins to your company,
you need a bank, and you need to finance what you are doing. While we
have moved over to cash and carry for my company, there are still
interesting things I have learned over the last year. While much of
this is driven by the economy, the long term effect on banks and their
relationships with small business are going to remain at a low ebb. As
many small businesses that are growing watched their credit lines
closed, and their banking fees increase exponentially, at some point
your company has to intersect with a bank.
1. Banks are not your friends; in 2009 the banks cut every line of
credit my company had. They will start offering you credit in 2011 and
2012 depending on your size and your monthly turn over for product. I
am so going to remember that the bank cut every line of credit for my
company in 2009 and I am going to enjoy telling the bank I don’t need
them right now, but I’ll keep them in mind later on. We learned to
operate on cash and carry rather than credit with a reasonable growth
management style, there is no reason to change that at this time, we
still need to make it through 2010 and 2011.
2. Banks are even more not your friends when fee’s become excessive
– watch what you are paying for fees. At one point with one bank we
were paying almost 10% of the account balance in fees, it was time to
close that account and move to another bank. Don’t negotiate with the
bank, there is no negotiation with the bank, move your account it is
the only way to cut down on excessive banking fees.
3. Credit cards are also not your friends and you need to read what
the interest rates are, if you can go cash and carry, if you cannot,
excessive credit card interest and fees can cripple your business. Some
business lines of credit carry interest rates as high as 32%, ask
yourself if it is really worth having a credit card that will eat into
32% of your gross. Never ever believe in 0% interest rates either –
they expire and you will find yourself servicing brutal debt with your
cards. Credit however is important; you need it, but be aware of what
you are carrying on the card, and what you are paying for the
privilege. If you can afford to pay it off monthly, expect the bank to
add other fees and charges because they can including membership fees.
4. Taxes matter on both the local and national stage. Washington
State where I have my company just increased taxes on many items that
people sell. Everyone from the Federal Government, to the State to the
County to the City you are operating your business out of will charge
you taxes. Right now the effective tax rate on my company is around
26%, you must work this into your pricing model. Not figuring this out
now means fines and penalties later, or finding out that your pricing
model isn’t adequate to cover costs. You will want an excellent tax
accountant to help you out. Tax law is too complex, hiring an awesome
tax accountant is vital to the growth and welfare of your company.
5. Politics matter on both the local and national stage; every time
a law is passed there will be an influence on your company. It does not
matter who is in office, it does not matter what political party they
belong to, it is important to know what is happening at all levels of
government so you can manage your business appropriately. Some laws are
better than others, but in the end your company is going to be involved
in most of the legislation that is passed by government.
Distribution and Sales of your product, let’s face it, free does
not pay the bills, and while it is possible to do things for free, at
some point you have to make enough money to pay the bills. This means
you need to work on distribution and sales of your product. Part of
this list overlaps with customers so you might want to check out that
section as well.
1. Multiple Distribution Channels are a must – as a seller you have
to find more than one place to sell your stuff, and it does not matter
what your “stuff is”. Back in August 2009 we had a scare as one of our
primary distribution channels suspended our selling account and we were
stuck with 10’s of thousands of dollars in inventory that we had no
clue what to do with. We were able to quickly reestablish our account
with our primary – but object lesson learned – never trust one
distribution channel ever. We have spent the last six weeks building
out two new distribution channels that are being very productive. We
are getting sales we would have otherwise not had, which is having a
positive influence on our growth rates.
2. Take advantage of physical presence when you can – we also spent
a good part of the last six weeks at two primary conventions in the
Seattle area that catered to our specific product audience. While we
were complete neophytes this year, we learned a lot and this will allow
us to approach those same conventions next year with a better idea of
what we need to do when we get there. Over the six days worth of
convention we brought in an extra month’s worth of income – money we
would not have otherwise had. It also brought in more opportunity to
interact with the public directly – giving us great ideas for our
online store, which is a further opportunity to grow.
Negative feedback and positive feedback are the bad news good news
of any retailing. People will get on the internet and they will talk
about your company. Some people can never be made happy, and depending
on what they say in other people’s systems, it might be good news or
bad news for you. Honestly though, let the good and bad comments stand,
it is more representative of your company because sane people know you
cannot make everyone happy all the time. The insane think that they
should be happy all the time, you do not want them as customers because
they will be your most expensive customers ever.
1. High volume is not the only business model out there, know which
business model suits you best, it is easier to lower prices than it is
to raise them later on.
2. Damage control is costly both in terms of time and money, but
you should also know when to cut your losses, some customers delight in
drama and chaos. They will make it their personal mission to try to get
you shut down including carpet bombing comments wherever they can.
3. International sales are a must – when domestic sales slowdown –
there is someone in the world with an internet connection that wants
what you are selling. If you are not selling internationally you are
missing out on a great market, almost 20% of our sales are
international. Without those sales a very strong source of revenue
would not be there and our growth rates would be much slower than they
are today.
4. If you sell things internationally be culturally aware, not
everyone thinks and behaves like each other, this is something to
remember.
5. If you buy things internationally be culturally aware, not
everyone thinks and behaves like each other, this is also something to
keep in mind.
6. People who buy things lie, they lie a lot, they will lie about
things that are not true and it might cost you business. This is just
like calling your baby ugly and it hurts, but never ever give into the
temptation to slam them back. Often times your supporters drown out the
person who is lying and your consistency with great service will always
shine above the person who lied. Sometimes your supporters will rally
around your company and take on the liar directly on the internet which
makes for an interesting day, and an argument you should stay out of.
7. People who sell things lie, they lie a lot, they are willing to
lie about things that are not true and might cost you business.
Suppliers are just as erratic as anyone else, and often those “street
dates” are a figment of the imagination rather than a hard date. If you
are purchasing to be the first kid on the block with something hot plan
on the supplier being late. This seems to be a general trend –
suppliers are also caught up with their suppliers failing to hit target
dates for delivery. Maybe this is an outcome of lean manufacturing;
maybe this is an outcome of complex manufacturing, either way the
retailer is stuck in the middle with sometimes lost sales because of
it, or worst yet, product that will not sell because the cost points
are too high for strapped consumers.
8. We are still in the middle of a recession meaning business is
going to be slow, if you plan now for what sales should look like
though 2011 and 2012 – you will be positioned much better to service
what is going to be a lot of pent up consumer demand. So many people
have walked away from their debts, house mortgages, car loans, student
loans, and other debt that the long term consequences are still
unknown. But my honest belief is that we are going to have a pile of
middle to high earners that are going to get secured credit cards or
low limit credit cards, have no debt, and will start consuming again.
Of course those that are paying off debt now will also have pent up
consumer demand, along with everyone else who cut back over the last
two years. A good percentage of these folks will be debt free or close
to debt free that even in a hard credit market, bankruptcy is not going
to stop these people from getting credit and shopping online. Debit
cards are just going to make this easier for retailers as people spend
the cash they have buying stuff, all you have to do is make sure you
have the stuff they want to purchase.
9. Today is a good time to start looking at higher dollar amount
items to sell, many retailers went to smaller dollar amount items to
sell, and the right range to start looking at is 15 to 30 dollar items
right now up from the 4 to 8 dollar items we have been selling for the
last two years.
10. It is very possible to grow your company in a recession, you
should start your company today because if you wait until 2011 you will
be in a rapidly crowded market place all doing what you are trying to
do. You ideally should have started your company in 2009 and take
advantage of all the companies going out of business freeing up
competition space. 2009 was also the best time to pick up liquidation
stock from those companies going out of business for pennies on the
dollar.
General Miscellaneous Observations, these are simple general
observations that I have made over the last six weeks that may or may
not be applicable to your own startup experience.
1. Your business should be fun, if it your company you should want
to work on it, it should never be a “job”. It should be something you
want to devote your heart and soul to, as much like kids, much like a
marriage, it will be with you for a very long time regardless of how
successful it is, or if it fails. The founder of a company should be
its own champion and be a true believer in what it is doing or what it
is selling. If the owner is not their own true believer or it is no
longer being fun, it is time to sell or close the company.
2. Oh yes, you will work long hours and perform miracles, if you
are not ready to work long hours or perform miracles, then it is time
to close the company.
3. Social networking is great if you can keep up with it. A half
assed incomplete social media social networking campaign is worst than
not even starting one. It is much better to keep up with your social
media campaign than leave your “facebook fans” hanging wondering where
you went. If you can’t commit the hours that social media needs to be
successful, don’t do it until you can devote the time to it.
4. Search engines are great, but don’t rely on them to sell your
stuff, you still have to offer something unique, something that no one
else has, or be seriously competitively priced to sell your product.
5. People will not flock to you; you have to go find the right people who want your stuff.
6. Sometimes the right people are those in your organization –
promote when possible, trust when earned, but don’t be afraid to take
people to task for missing or sliding critical deadlines.
7. Hire rock stars but make sure they are social at the same time;
there is nothing worse than a rock star who cannot communicate
effectively.
8. One rock star might be worth 5 regular employees, but a true
believer who is loyal is worth more than a rock star – it is a tough
decision to make, but reward your true believers often.
9. Margins matter, make sure if you are buying product to sell
online that you account for everything in the sales food chain. If you
cannot sell for a profit in a particular product line, or cannot find a
supplier that provides a reasonable discount, don’t do it. Too much
competition in some categories along with automatic repricing software
has trashed any actual value in many products from books to toys to
games to DVD’s. A seller on any platform not owned by them has to be
aware of the costs involved otherwise it is a great way to lose money
and go out of business.
10. This one from the “what were you thinking department’; do not
contact other sellers of major platforms telling them that they should
stop undercutting other sellers. Pricing is a sport, a violent bloody
sport and you either get this or you don’t. If there are 100 copies of
something for a penny, that is the value of the item. If you cannot
compete with a penny or essentially free products it is time to get out
of that market or that item.
11. Test new product lines carefully – if you dive in and it is a
bust or you cannot compete in that market effectively you will be stuck
with a bunch of product you cannot sell even at break even point.
Sometimes you might need to take a loss, but too much of that makes
your business non viable in the longer run. This works equally well for
a technology company as it does for any other company. Sometimes it is
ok to be cautious, sometimes caution is mandatory.
12. Do not neglect your own web site
13. Be careful of your hosting company, they tend to go down right
when you were counting on your web site for a big product or service
launch (right before one of our conventions, our site went down for 36
hours because of a hosting company outage).
These are just my own general experience, yours will vary, and they
should vary as each business is as unique as its own founder. What
lessons have you learned from your startup that are not represented
here?
(Cross-posted @ IT Toolbox )
