One of the primary reasons businesses go under is lack of capital. In some cases, the cause is poor planning. In other cases, it's due to inflated expectations of sales or minimized calculations of expenses. In still other cases, it's due to economic conditions surrounding the start up.
If this latest economic mess has taught us anything it's that you have to take small, calculated risks rather than monumental leaps in order to maintain control of your start up. Yes, you can take gigantic risks and there may well be a payoff down the road - but you'd better be prepared to capitalize that risk with your own money and you certainly want to have some sense that you're in the right business at the right time.
The television show that has start ups going before investors to pitch their companies should be required viewing for any would-be entrepreneur. Don't get me wrong - the show is built from the ground up to be entertaining and adversarial so it does not reflect reality in that aspect. But in looking at some of the business ideas people have and how much they've put into it, one has to ask why? Some of these ideas are great part-time, home-based businesses at best - and yet people are talking about dumping their life savings and more into them. I cringe (as do these TV investors) at the notion that these folks are selling their future for a flimsy dream.
Here's the reality in today's market - we are no longer in the dot com boom. Money is not flowing like water at the fountain. OK, well maybe it is if you're a bank taking government handouts, but we're talking about start ups here so stay with me.
If you're looking to start up a business today, think small, think incremental. Assume your revenue will be less than you project, your expenses higher than you think and your time to profitability longer than you've calculated. In other words, play it safe for now.
Take consolation in planning for a scenario in which you're wrong - in which sales do spike, profitability hits early. But don't convince yourself that's the likely road to success.
As someone in my youth always used to say - hope for the best, prepare for the worst and you'll never be surprised. Wise advise in today's start up environment.
If you're looking to start up a business and need some sound advice, check out virtualteam.com. But before you do that, ask your friends and family for some straight talk and run your idea by them. Tell them you don't want them to shine you on or please you by agreeing - see what they think of your idea. Then take small steps to make it real.
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