Wealth Building Lessons

One of the three pillars to Financial Independance is having your own business. The other two are having hard assets like Real Estate, and paper-based assets like stocks and mutual funds. The business provides the cash-flow, the real estate provides leveraged returns and tax shelters and the paper assets provide liquidity.

But starting a business takes both perseverance and guts. You are venturing into uncharted territory and the road ahead will be bumpy and filled with challenges. Having said this, it can also be extremely rewarding and put you on the path to living the “American dream”.

The first thing you have to do before venturing out on your own (apart from coming up with the actual business idea) is to do your homework and understand the challenges that lie ahead. Most people are so excited about the sheer thought of being your own boss that they give little to no thoughts to conducting market research or objectively analyzing the industry, competition, competitive differentiators, financing and other things that will ultimately dictate your level of success.

With this you also have to do some soul searching to understand if you are actually willing to do the work required and take the risks that comes with it. Evaluating your strengths and weaknesses as a potential owner and manager of a small business is probably one of the hardest and most over-looked aspects of starting a business. Some questions you should ask yourself include:

1. Are you a self-starter?
2. How well do you plan and organize?
3. Is your drive to succeed strong enough?
4. How well do you get along with different personalities?
5. How good are you at making decisions?
6. Are you willing to make the necessary sacrifices (e.g., family, friends, leisure)?
7. Are you willing to take the risks?

Most people are very risk adverse and are not willing to take any additional risks outside of their ordinary lives. But not the entrepreneur! What you have to understand is that starting a small business is always risky, and the chance of success is slim. According to the U.S. Small Business Administration, roughly 50% of small businesses fail within the first five years. The reasons why so many business ventures fail vary widely but some factors include lack of experience, insufficient capital, poor management/execution, competition, inferior product/service, poor location, etc.

Once the research has been done, it’s time to lay out a plan of how to execute your strategy based on your findings and analysis. This will constitute the roadmap that you will need to stick to for better or worse. That’s not to say that you can’t modify the roadmap, in fact you probably should and will need to in order to adapt and survive, but the point being that you shouldn’t stray from the original plan without justifying a viable cause for doing so. If you continuously change direction you will loose focus as well as momentum. Focus is probably THE most important and challenging aspect of starting a business. Without focus you will feel like you are doing the job of ten accomplishing the work of one.

The most common way of memorializing your strategy is via a business plan. The purpose of the business plan is to map out how you intend on operating your business and how you expect to get from A to Z. You can liken it to a blueprint and communication tool for your business. The essence of writing a good business plan lies in strategic planning, which basically involves identifying and matching the strengths of your business to available opportunities. To do this effectively, you need to collect, screen, and analyze the information you collected about the business environment during the research phase. You also need to have a clear understanding of your business including its strengths and weaknesses and develop a clear mission with accompanying goals, and objectives.

Once the mission and goals have been put on paper and you have a clear vision of how you intend on achieving success, it’s time to get down to business.

If your business requires significant upfront capital and you’re not one of the lucky few that inherited large sums of money you will probably need to get an outside investor. There are a few ways to go about this including raising funds from friends and family, private (angel) investors or venture capitalists (VCs). The latter option should only be used in case the first two options are not viable as they will most certainly retain both control and most of the equity. This is what you should try to avoid as you will no longer have control over your own destiny (and your upside potential is significantly reduced). But one of the most common reasons that businesses fail is due to their being underfunded right from the beginning. If you have to split your profits with someone, its better than going broke!

Additional action items may include picking a name, forming a corporation, protecting your ideas (via patenting), pick a location, hire personnel, purchase equipment, obtain licenses, and more. The deeper you get into it the faster you realize your action item list is starting to grow out of control.

Sometimes it’s easy to be overwhelmed at the amount of work that lie ahead but during those times it’s best once again to focus on the immediate future and take small steps. Simplify things by choosing one task from your list. Focusing on one task at a time continues to channel your energy in a single direction. You can even take it one step further by breaking down your task into a series of 10-minute actions. This will essentially allow you to create steps so simple, there’s no room for procrastination. You may not have time to design your entire website at once, but you can sit down and identify five ways to drive traffic to your site.

Once you are under way and your business is in operations, there are a few things you need to remember. Most importantly, don’t give up. Remember perseverance? This is one of the most important traits as it transcends across all spokes of life, be it to become a professional ball player, graduating top of your college class, starting a new business or even raising a family. It also helps to take small steps. For example, identify a time interval in which you think you will realistically be able to see some progress. Then do everything in your power to stay in motion during that time frame. This will generate momentum and create a domino effect. One action produces a result that leads to another and another. Before you know it, you’ve jumped three steps, or five or six, ahead of where you thought you’d be. Action triggers the unpredictable and unexpected and can lead to people presenting themselves, opportunities showing up, resources finding you, etc.

Another important consideration is expectation management. When conducting your initial analysis especially pertaining to timelines and budgets, always double what you originally calculated so as to set reasonable expectations. This is especially important when dealing with outside investors. As with most things in life, nothing comes easy and this is especially true when building a business. Make sure you set the right expectations from the get-go and don’t be too hard on yourself when targets are not met.

Inevitably, there will be times when the only thing you feel like doing is throwing in the towel. Any successful entrepreneur will tell you that starting a business isn’t always a smooth ride. Doors close. People object. Stuff happens. During those periods it’s always good to take a step back, calm yourself down and take a bird’s view and reflect over the situation. This is easier said than done but going for a walk or maybe hitting the gym to clear your mind typically works wonders. Then try to remind yourself of what you’re creating and why and generate a list of all the positives. This tends to jump-start your motivation because you’re now reminding yourself why you started this venture in the first place. Then determine if you need assistance. Perhaps it’s time to solicit input from an outside person who can help evaluate the situation, answer your questions or guide you in finding the right solution.

Going down the entrepreneurial path is not for everyone. It requires a tremendous amount of commitment, perseverance and fortitude to go after one’s dream. But for those that make it the appreciation and joy is so much greater. Know your end goal, take action, and keep going, no matter how bumpy the ride gets. At the end of the day, it’s people that make businesses run.

Recommended Reading:

1. The 100 Best Businesses to Start When You Don’t Want to Work Hard Anymore

2. Start Your Own Business

3. The Small Business Bible: Everything You Need To Know To Succeed In Your Small Business

4. INCORPORATE NOW for only $139

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