What makes Starting your own Business so hard?
By: Darren Matthews
Tags: Leadership, Business Strategy, Startup Lessons, Business, Startup

1. Having the right idea for your start-up

Too many people start their business with what they know or have learnt from a previous profession. Moreover, their belief is that the skill they have can be applied in the same way, just in a different business name.

That belief normally ends in one of two outcomes. Firstly, that the start-up joins other businesses and competes for the same customers. With limited differences between businesses, the battle to get the customer comes down to price. Thus, the only ‘winner’ (and I use that term loosely) is the customer.

Economists call this perfect competition, and it might suit the consumer, but it rarely makes the business profitable.

The second outcome is even worse yet more typical for a start-up, the business can’t compete on price and goes bust.

How does a start-up avoid those traps?

The key is to come up with a business idea that can operate in the opposite space of perfect competition. A monopoly.

Monopoly Thinking

Photo by Paweł Czerwiński on Unsplash

If you build a monopoly business you escape the pressures of competition, and competition erodes margins and profits. Look at the difference between a company like Google, and the U.S airline industry. Google retained a 21% profit on $50 billion in sales, whereas the profit margin found in the U.S. airline industry was.20%.

A monopoly business is one that often takes a contrarian view and is driven by first principle thinking. Peter Thiel in his book, Zero to One starts with his favourite question, what important truth do very few people agree with you on? Put that question into a business perspective and the question becomes what valuable business is no one building?

Now, I accept these are difficult questions to answer, but that’s what makes starting your own business so hard. Moreover, if you want to escape being stuck in perfect competition, then they need answering.

2. Think cash-flow today, value tomorrow

There is a naïve perception that you can get away with starting your own business with little or no money. Additionally, from day one it will generate sales and make money, fulfilling your business dream.

Sorry, but that’s just plain naïve thinking.

Let’s step back to monopoly businesses for a second. Google, Facebook, Twitter and Tesla were businesses that consumed high levels of expenditure before they started to make money. How did they stay afloat? Investment.

Investors invest in a business when they can see what it’s worth, not today, but in the future. For example, Facebook started without any idea of how to make money. It took 3 years for Facebook to introduce Facebook adverts, so for 3 years, the business had no income. Investors started investing in 2005, keeping the business afloat until it could find ways to monetize its users. Twelve years later Facebook is worth over $600 billion.

You may well be able to start a business and keep it afloat without investors but consider the differences. When you don’t have money from investors every sale becomes more about keeping the business going. That isn’t the way to grow a sustainable business.

Either invest yourself (if you have the funds) or find outside backers for funding that start-up period.

3. Collaborate, it’s the only way

Photo by Priscilla Du Preez on Unsplash

It’s staggering how many one-man businesses there are, just one person against the world. And that is exactly the battle each one-man business must overcome, with the likely outcome being mediocrity.

It’s worse than that though because the problem with one-man business operations is that overheads become lost. A one-man business rarely pays himself a proper wage, rather money is drawn when there’s a surplus. Overheads get lost on the ‘work from home’ fog, so no-one knows what the true operational costs are.

Sadly, that’s not the end of the bad news. Pretty much every one-man business is putting a cap on their ability to evolve and out think others.

Starting your own business with a co-founder and even better a team gives you the capacity to collaborate. The instant you share your ideas and thoughts with others, you open the door to feedback. Feedback creates further discussion and thoughts that can’t be achieved in a one-man business.

In a one-man business, any thoughts taking place are going to be blinded by confirmation bias, a definite path to mediocrity.

4. Timing and Time

Photo by Andrik Langfield on Unsplash

Time and timing are two things that get confused in the start-up world. It is often thought that they are the same thing, but they are not.

Timing is the element that you need for your business to be successful, and it’s impossible to control. You must prepare yourself for the reality that your visionary idea is too early, or too late. We rarely hear about failures due to timing, because they never become something. That makes it very hard to learn from them.

One way around this could to reverse engineer a successful start-up business and look at the role timing played. How could you learn from that?

Time, on the other hand, is one that you can leverage some level of control over it. Equally, you can easily lose control of it as well.

Unsurprisingly, getting the points made in the previous chapters right will certainly give a start-up more control over the time available. When it comes to starting your own business having a monopoly idea, investors and collaborative approach will give you time.

As I alluded to though, not having these elements on hand will be just as damaging. Losing control of the time you have creates pressure. Working under pressure isn’t entirely a bad thing, but it often depends on what’s driving it. If the clock is ticking and you need to buy sales to stay afloat then the dynamics at play change.

So, avoid that pressure and buy time by starting your own business with the right elements in place.

5. Planning, Strategy and Tactics

A business plan is the fabled document of every business, laying out the future for the business. It’s a standard requirement if you’re starting your own business to have a business plan. To put one together takes a lot of time and effort. Sadly, once it’s been written it normally ends up in the bottom drawer, gathering dust and curled corners.

Planning is a hyper-critical component of a successful business and the business plan is the roadmap that will be followed. Following a roadmap, you can see what’s happening when it should be happening and how it should happen.

Every start-up has an element of the unknown to it, any business owner that says overwise is likely to end up on the road to failure or mediocrity. To overcome this it’s essential that there is capacity for experimentation and iteration within the business plan. A way to work out what works and what doesn’t. Too many start-up’s starts with a preconceived idea that’s fixed in place. When it doesn’t work, and often they don’t, iteration becomes a way out of the roadblock.

A good business plan has a strategy that encompasses this, including tactics to enable the business to evolve.

Having a working business plan that you can refer to will be sure fire way to make starting your own business much easier.