When you start a business, do you aim to be profitable from day one?
Most entrepreneurs don’t do even consider that is possible. When you aim to profitable at the very the start, then it helps you to focus on things that are truly important, like how to get customers.
Imagine if you already have customers before you do a single thing?
Most entrepreneurs know about ROI, return on investment. It is one key method to evaluate the efficiency of an investment. The higher your ROI, the faster you will get back your money.
If your ROI is 100% or 200%, how would that change things?
It is possible
A few years ago, I created my first digital product. The idea is a to sell a document online for around $30 to $80 depending on options. First I knew that in other countries, people are already doing it. The only unknown is will people in my country buy similar types of document online.
There were basically 2 ways to approach this. The expensive slow way would be to hire a web developer to create a Saas (software are a service) type of website. Asking around, gave a figure of anything between $500 to $4,000 for a full website. I could also go for a WordPress plugin, but that was not a cheaper option.
Since I wasn’t familiar dealing with web developers, I knew that costs could easily double if I didn’t spec the site correctly, or more features were required, or even if it is just maintenance. I didn’t want to dump money into a potential money pit, so I took the other option.
The other option is a very less sexy website can do myself without any involving any web developer. It involved some elbow grease that I had to hunt down some html code, do some basic pricing tables, but in the end, I have a functional site that can sell the document.
I had my first sale within days of launching. If I counted just out of pocket cost, it was profitable from my second sale onwards. After all, I just need a domain name, and web hosting.
If I were to consider that time cost, it would profitable by the 8th or 9th sale.
Granted it wasn’t profitable on day one, it was still a whole lot better than dumping say $1,000 into it, not knowing if customers will buy.
Lets say you want to get involved with e-commerce. There are 2 ways you can do this. One way is to spend days finding a suitable name, find a web designer, set up a nice website, fuss on a FB page, buy stock and then start selling when things are ready.
On the opposite end of the scale, you can get some samples, take pictures of products you want to sell, post them to your local Ebay, Craigslist, Facebook, or forums and start selling.
If you do the second method, you will learn a few things fast. First is, which products sell and which sites sell well.
So, instead of wasting time and money trying to figure out products, software, hosting, domain name, you are actually selling your products. What you want to is to know is, “are people willing to buy what you have to offer and at what prize”
Obviously you need to comply with local laws. In some countries, you need to have your products in hand before you can sell, business registration.
Leverage your existing skills and knowledge
You may be tempted to start something entirely different from your experience and skillset. That is one fast road to a long and winding journey.
It is much faster to leverage things you already know, fill in the gaps of things that are missing and go do it. the idea is to use the shortest path possible to place your offer in front of people.
Finding the ideal customer
The faster you can place product or service in front of people, the faster you can reach potential customers. You weed out people who are not potential customers too.
Often, you may have an idea of your ideal customer, your customer avatar. Unless and until customer starts buying and you have real data, you won’t know if what you think is what’s the truth.
For example, in one of my courses, I wanted to target business people. Over time, I found that I have a mix of business people, and also people who just want to learn video editing.
Build it later
My plan for the document selling website was that when I could afford it, I’d find a web developer to create a more sexy version. However, due to some circumstances, I had to shut down the site.
By doing the site the cheap unsexy way, it saved me a quite a bit of money.
As you start to get sales and customer, then you can build your website, logo, tagline etc. Now that you know who your majority of your customers are, your marketing can be tuned to such customers.
I have done this in the past to test product viability. Take some product photos, post them up. A few products that sold, I decided not to pursue further because the volume don’t not justify proceeding further.
If you give yourself a runway that is too long, then then tendency is to focus on things that don’t matter that much initially but cost time and money like a website, printing business cards, etc.
Those things will be needed eventually, but if your product don’t sell, you will probably lost a few hundred dollars, and probably a few weeks or months of your life.
Worst, it can distract you from the core things.
When you can be profitable from Day 1, then things like insufficient capital becomes less of an issue. A lot of businesses that can be successful run out of money. When you are profitable from day one, time is on your side rather than against you.
All you need to do is to sell more, and build up your capital for the next phase of your business. You have an infinite runway.
Even if you really need investors, it would be easier to tell them you have a product that is already selling, and is profitable rather than go to them with just an idea.
Rule number one. Never lose money ~ Warren Buffett
As Warren Buffett famous quote above, never lose money. The alternative is you could be depleting your bank account hoping that business comes in.
Although not all businesses can be profitable from day one, the idea is to be profitable as soon as possible. That may mean creating something smaller, cheaper, a cut down version that you can launch fast.