When you start a business, do you aim to be profitable from day one?

Most entrepreneurs do not consider this is possible. Granted, not all business can be profitable from day one, some can.

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 2 ways to approach this potential business.

The expensive slow way would be to hire a web developer to create a web application or Saas (software are a service) type of website if you will. I ask and received quotes ranging between $500 to $4,000 for a full website. The reason I wanted to know a figure is if the business takes off, then I know at what point I can have a nice fancy web application.

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 second option is a website I cobbled together with off the shelf software without 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 I can start selling my product.

I had my first sale within days of launching which surprised me. In fact I almost did not launch the site. After weeks of work, I almost killed the project at the last minute because of doubt.

Not long after that, I had my second sale and the business was profitable after that. After all, I  just need a domain name, and web hosting.

If I were to add in my 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 several hundred to thousands into it, not knowing if customers will buy.

Another example

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 around a FB page, buy stock and then start selling when things are ready.

A faster approach would be to get or buy 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 also 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, like business registration, and the like.

The key is to minimize the steps required to put a product or service in front of potential customers.

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 initially thought that my target market is business people. Over time, I found that I have an equal mix of entrepreneurs and also people who just want learn a skill for leisure.

Make it nice later

As I mentioned above, my plan for the website was that when I have sufficient regular sales, I’d pay a web developer to create a more refined sexy version. However, due to some circumstances, I had to shut down the site not long after launch.

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.

Don’t get me wrong. Those things will be needed eventually, but if your product don’t sell, it doesn’t matter how nice or how much you spent on those things.

By starting fast, at the most you will probably lost a few hundred dollars, and probably a few weeks or months of your life.

Infinite runway

When you are profitable from day one, 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.

Look, I understand not all businesses can be profitable from day one. Some types of business can take years before they become profitable.

If you can access the funds and the investor for such business, more power to you. If however you are not in the category of having a huge bank account to back you, then I’d like you to consider being profitable as soon as possible.

That may mean creating something smaller, cheaper, a cut down version that you can launch fast. So that you can focus on acquiring customers.

Ideas

If you need some ideas, I suggest you check out this book, $100 Startups by Chris Guillebeau. The book has many examples of businesses that started small, and grew to million dollar businesses. It is a quick easy read.

PS – If you are an entrepreneur or have been thinking of starting a business, then I welcome you to email me to let me know what you are working on. Perhaps we can connect and help each other in some ways.

 

 


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