· 3 min read
Should I Start a Business?
Learn what makes a successful business. Do you have what it takes?
This week in Portland there was an awards ceremony celebrating entrepreneurs who had made a difference to the region. It was sold out. As a sponsor, I was invited to attend. I met several would-be entrepreneurs who were there to think about whether they too should start a business. They had an idea, but didn’t know whether it could lead to a successful business. When I introduced myself as a Fractional CFO, they wanted to pick my brain. One person had an innovative dairy product. Another had a new type of skiing equipment. A third had a type of technology to allow cold-weather starts for the trucking industry.
In the first blog article, I wrote about the basic elements of success. Let’s simplify it even more. There are three basic things you absolutely need:
A product that people want. 85% of new businesses fail. Half of those fail because the product is not needed or wanted by the market. Spend time discussing the product with potential retailers. Would they carry the product? What do they see it competing with? What should the price be?
Do not argue with the retailer and try to convince them that you are creating a new category. You aren’t. The only thing you are doing is proving that you don’t understand consumers.
If retailers think there is a need for the product and give you a price that they think it would sell for, you can move to step 2.
Can you make a profit Here’s a simple rule of thumb. Can you produce the product for an eighth of the shelf price? Coca-Cola sells cans of Coke in grocery stores for 40 cents. Their cost of production is 5 cents. This allows for the retailer and distributor to make a profit. It allows for promotions, and it leaves profit left over for Coca-Cola.
You do not want to go into business if your shelf price is twice the competition, and you still aren’t making any money and can’t do promotions. Most CPG companies try to do this. It is hazardous to your health and the investors.
Are you a killer? Business is tough. It is a life and death struggle to make money. Even if you have a good product and can produce it cheaply, the company will still fail without driven leadership. Look yourself in the mirror and ask
Can you devote 100% of your time to this? You will be competing against larger companies. They have more resources, lower production costs, bigger sales forces, more money and a lot of talent. You have you.
Are you willing to continually question whether you have a desirable product at an attractive price? If not, you will be out-innovated by someone who is hungrier.
Are you willing to continually search for better production relationships to lower your cost of goods? The reason Coke’s price per can is 5 cents is because they have spent the last 140 years waking up every day and trying to lower their cost of goods.
Entrepreneurs are born, not made. Most successful entrepreneurs never stop no matter what. The drive is important, as is the basic economics of the product offering.
The entire wealth of a town is built on successful businesses. It is what brings in the money. Doing this correctly is important. It’s why the awards ceremony was sold out.
