How to Start a Business

It’s easy to start a business. Anybody can do it. Having a profitable business? That’s harder! Plus: When to hire. Where start up capital comes from.

My answer to a question by Brent Russell

Anybody can start a business. It’s pretty easy. Having a profitable business? That’s harder!

First, have something that someone else wants to buy.
Sell it to them for more than it costs you.
Sell enough of it so that the surplus between cost and revenue (i.e., the Gross Profit) is enough to:
— cover your other business costs, like marketing and admin, and
— make you a living.

After you’re sure you’ve got this part down, then start the business officially. Get your business license, tax ID, insurance, rent an office, etc. But spend no overhead before you have to.

When to hire help. To justify hiring, the employee must help the business bring in enough additional revenue so that his/her wages (including payroll taxes) are covered by the Gross Profit from the additional sales. Your employee can do this in several ways:
— Sell more of your products or services
— Do billable work for your customers
— Free you up from admin stuff so that you can sell more
— Bring an essential skill to the team so that everybody’s productivity is raised

Where to get start up or growth capital. First, where you won’t get it from: VCs, bank loan, the government.

Most small business start up capital comes from
— your savings
— personal loan, or 2nd mortgage
— family or friends (very risky)
— initial contract that pays some money up front (very savvy if possible)
— charge it on your credit card (very stupid)

Where your initial sales come from. Knowing you have potential sales out there is the reason to start a business. So if you don’t know the answer to this question, you shouldn’t be starting a business.

 

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