Where we are today
In a world where the business of motivation has gained widespread currency in entrepreneurship circles, one would be forgiven for believing that entrepreneurship was the Magic Elixir for all of life’s problems, big and small.
However, as anyone who has taken this “Magic Elixir” will tell you; the dream is free and the hustle IS sold separately.
Simply put; it’s bloody hard! Much harder than being stuck in a junior management role, reporting to an a**hole.
And then the bad news…
It costs a lot of money too!
While It is understandable why there is a rush to encourage people to start businesses with what they have, it does however, set people up for failure.
To illustrate my point, think of your body as your business and money as your oxygen.
Now imagine you were locked in a room with “limited oxygen supply” (your start-up capital) and you were asked to go about your professional duties, as you normally would at work. As the day goes by and your oxygen supply continues to drop (because you are using up the oxygen in the room) your performance and the quality of your work gradually start to decline. Eventually, your body will buckle under the pressure of trying to keep you functioning at your best under these strenuous circumstances. In this event, you will notice that you will start developing symptoms associated with oxygen deprivation, Confusion Coughing, a Fast heart rate, Rapid breathing, Shortness of breath, Slow heart rate, Sweating, Wheezing. In the case of your business, these would be cash flow problems I.e. you don’t have enough money for stock and/or day-to-day operations, whatever those may be.
Now, imagine that as you get to the late afternoon, you start to develop more severe “oxygen deprivation” symptoms; you get very dizzy and no matter how much you try, you just can’t seem to inhale enough. In the case of your business, this would be; you are not making enough money to pay your lease, you can’t pay all your staff salaries, your stock runs out so you can’t fill all customer orders and you start to lose customers, and by extension, you start to lose money.
At this stage, your eventual, proverbial death is not only a matter of time, its guaranteed.
A different frame of reference…
Let’s frame this point differently; The reason altitude (height above sea level) is an important factor in sports is because oxygen availability affects the performance of athletes. The lower the oxygen, the worse their performance. Likewise, capital/money availability affects the performance of your business. It isn’t a mistake that franchises have specific capital/money, location, and market requirements. It sis because they know exactly how much “oxygen” is needed and what kinds of “environments” offer this “oxygen”.
You are not the exception, you are the rule!
Inevitably, there are those people who will stand up and say; “I’ve done it, so can you”. These people are usually very influential, “against all odds” successful entrepreneurs, whose success stories make the news, but there are two problems with listening to them.
- Successful entrepreneurs are generally very good story tellers which means they often leave out those bits of their stories that prevent them from selling the dream.
- The reason these people’s successes make the news or are even news worthy, is because they are the “exception” and not the rule. That is, they are that one person in a million who succeeded against all odds.
This, ironically makes them the ideal person to listen to for motivation and the last person to listen to for start-up advice.
Rather, listen to someone who has successfully built a business by overcoming odds that are similar to yours. Yes, this means that there will be different people for different circumstances, this is why mentorship comes highly recommended because a mentor can help you navigate challenges specific to your business.
At this point, It is also important to point out, generally, we don’t track how much they spend on operating their business in the first 1-3 years of their business’ life, before they start turning a profit. What we will track, is the lumpsum we invested upfront.
Often times, once the business becomes operational, we spend even more money keeping our doors open. Since this money I spent in smaller amounts than the lumpsum invested, we don’t notice it. Reality hits when we are completely broke and we realize that the initial lumpsum invested was nearly enough to cover the expenses of operating a business, day to day, to profitability
Those damned kids…
Furthermore, for Parents & Breadwinners who are entrepreneurs, there is “the demand on revenue” factor; day-to-day financial obligations you have to meet, especially if your business is your only source of income. These obligations will weaken your business and prolong the time it will take you to reach profitability.
In relation to our “oxygen” example above, imagine two more people were added to the same oxygen-deprived room you are in. The increase in the demand and consumption of oxygen (money) would simply guarantee a speedier death, for all of you.
The take-home message
When someone says to you: Start with what you have, they are not giving you Actionable Advice, they are simply encouraging you to get started. Therefore, it is important that you separate motivation from actionable advice.
Starting a business without enough money to get you through your first year or tide you over until profitability is simply suicide.
If you are thinking about starting a business or a side hustle, you need to not only figure out how much money you will need to get you started in business. You also need to know much money you will have to invest in keeping your doors open until your business is making enough money to run itself.
To learn more about how to Calculate the Cost of Starting & Running a Business, see chapters 8-12 of The 10 Minute Guide to Starting a Business, available here as an ebook.