5 Crucial Lessons I Learned by Starting My Own Business

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Couple operating small business in garage
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When I was young, I had no aspirations to be a business owner or entrepreneur. I was a baseball card collector investing way too much money in Jose Canseco baseball cards. That probably ranks as one of the worst investments I've ever made, but, hey, I was just a kid.

Going into college, I still didn't know what I wanted to do. I studied finance because my dad thought it would be a good major, and I kind of liked numbers. After graduation, I was attracted to the financial services industry, because I felt that the income potential was unlimited. I put in my time doing cold-calling seminars -- and anything else I needed to do to get clients. All went well for the first five years -- or so it seemed. Along the way, I had two revelations:

  • Robert Kiyosaki's "Rich Dad Poor Dad" changed my whole outlook, and got me to thinking seriously about becoming an entrepreneur.
  • Even though my earnings potential was high, I was still a W-2 employee. That didn't exactly fit with the message of "Rich Dad Poor Dad," but it had certain advantages. After all, I didn't have to worry about who was paying the rent, how much the phone bill was or what happened if my computer became outdated. My employer took care of all that. It felt safe and cozy.

But that arrangement wasn't as safe as it seemed. My brokerage firm was bought out, creating one of those moments that almost forces you to change direction, and that's what I did. Three co-workers and I took a leap of faith and started our own financial services firm.

It was exciting and scary. I knew how to make cold calls, get clients and schmooze with the best of them. But I had never been taught about running a business, and had no experience at it.

It's been six years since I made that move, and things have worked out like you wouldn't believe -- well enough that the only question in my mind about the choice I made is "Why didn't I start my own business sooner?" Here's what I've learned along the way. Maybe these lessons will help you to start your own venture.

1. Running a Small Business Means You Wear a Lot of Hats

I think I first became aware of this from Michael Gerber's "The E-Myth." Gerber talks about how running a business goes way beyond just being good at what you do. For example, let's say that you're a great plumber. What do you know about marketing your business, pricing your services, ordering equipment and managing employees? That's where most business owners fail.

When we started our business, we had to find a suitable place to rent, buy office equipment at affordable prices and hire and train staff. We had to learn to market ourselves -- no small feat for a new company. And we had to do all of this while serving our existing clients in a way that would make the transition smooth and painless.

Every business is different, including the initial roll-out. But the point is that self-employment requires wearing a lot of hats and taking on a lot of tasks that you don't need to concern yourself with when you're on someone else's payroll. To succeed, you need to conquer all of them.

2. Overhead Can Kill You

My old brokerage firm had impressive infrastructure, like premium office space, high-end furniture, expensive pictures on the walls and a streaming live quote system that could show what 100-plus stocks were doing at any time of the day. All that stuff costs money, and when you start a new business, money's in short supply, which makes frugality a virtue. You have to find less expensive ways to do everything -- and sometimes do without. Your basic business service matters most. Clients and potential clients may not even notice other stuff. Let me exemplify.

That streaming stock quote system cost $300 a month. But the same information was free on Yahoo (YHOO) Finance. We didn't sign up for the system.

We needed a sign for our building. We found a perfect one with flashing LED lights -- for $30,000. That was not gonna happen. We settled on a less flashy $3,400 sign. In the end, it didn't matter all that much. People aren't buying your sign -- they're buying your service.

The lack of a positive cash flow kills more businesses than anything else. The sooner your business starts generating that positive cash flow, the greater your chance of business success. You can give yourself a big, fat advantage by determining from the get-go that you won't spend money on stuff you don't absolutely need.

3. Select Your Partners Carefully

We went into our business as a partnership, and that presents challenges. My partners were three financial advisers who all knew each another on a professional basis. We agreed on how the partnership would be run in advance, including that any major business decisions would require a unanimous voting process.

These weren't necessarily people I would hang out with after work, but I could trust them all on a professional level. It is, after all, a business, so the reasons for having these people as partners was more about business concerns than social factors.

We committed our partnership agreement to writing. Partnerships don't always work out, so you have to have written procedures on how to run the business, settle disputes and -- if necessary -- handle the departure of one of the partners.

If you're a sole proprietor, the partnership issue won't apply directly. But anytime you start a business, you will be involved in all kinds of informal partnerships with people you rely on. They can be suppliers, vendors, contractors or even major clients. Choose them all wisely, understanding that a bad relationship has the potential to sabotage your business.

4. Become Efficient by Streamlining Processes

The biggest key to running virtually any business successfully is your ability to concentrate most of your time and effort on activities that will bring in the most money. That means that you have to minimize the time spent on routine functions.

This is especially true for any service-related industry. We had to come up with processes in our office that would minimize paperwork and streamline repetitious tasks.

Personally, I hate doing that kind of work, so we had to create a flow that would make these as simple as possible. Some functions include accepting client checks, making bank deposits, opening new accounts and conducting annual reviews with existing clients.

Identifying and streamlining repetitious functions is particularly important when starting your business, because building a cash flow has to be your top priority. You have to create a workflow that maximizes your efficiency.

5. Make Sure You Have Some Paying Customers First

I get dozens of emails from financial advisers across the country who want to start their own practice, probably from reading my posts on how I started my own financial planning practice. But many of these advisers might not realize that I was in the business for five years before I decided to go out on my own.

Could I have accomplished it sooner? Perhaps -- but having an established client base was huge. Before you start a business, you might want to treat it like a side hustle. Keep your day job and see if your business idea has roots. Test a home-based business with your network, family and friends. Find out if you have something that people are going to pay money for on an ongoing basis.

If you can do that, then at least 51 percent of the risk will be removed from your business. Not only will you have a cash flow going in, but you'll also have the benefit of having the confidence that comes from knowing you have it. That may be the single best piece of advice I can give.

Are you considering starting a business but scared it's not the right business for you? This free worksheet will save you hours of frustration from chasing the wrong business.

Jeff Rose is a certified financial planner professional, founder of Alliance Wealth Management and GoodFinancialCents.com and editor of LifeInsurancebyJeff.com.


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9 Comments

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teatoxtime.com

All of your points are very true!! In the beginning, don't expect success from day 1. Many businesses may take months before one sale! and twitter replies are not meant to be used to paste your website to Lol..!!
In my industry, there is sooo much competition. In the beginning I looked for cost cutting options, I built the website myself, I bought run of the mill tea that the manufacturer made standard. Then after months of a ghost town, I reinvented myself and the company.
I contracted two Professional Herbalists, I payed a web designer to build my website, and I changed my whole attitude on getting flow through my website. Because as I said my market was saturated with Teas, I knew that I would not get someone looking for quantity, rather I am aiming at customers who are looking for quality. After a while customers came back or were referred to my products because even though it costs more than your supermarket shelf, the ingredients worked, and made an actual difference to mind and body. I found that if you use quality that no-one else has and don't undercut yourself, and hard work promoting your product whether it would start off as a letterbox drop of paying someone to do your SEO, people will come, people will find out even if they go to your competition, that you have a quality product that makes a difference. My package presentation isn't flash, but my ingredients and taste speak for themselves.
I started out with Slimming Tea, Now I have a new Slimming tea with my own researched ingredients, along with teas for sex & anxiety - all of which are my own ingredients and the best green tea which is like a micro-nutrient as it is only newly sprouted shoots. I even wrote a book prior to starting this all up and give the 52page book on health and the body to customers for free. You must always do that little bit extra.
Bottom line is; Put in the time and effort no matter how long it takes. Don't expect your river of expectations to be more than a trickle for the first few months.

August 26 2014 at 12:37 AM Report abuse rate up rate down Reply
crimeslawyer

The most important thing is to stay at least one step ahead of the competition.

July 26 2014 at 11:05 AM Report abuse -1 rate up rate down Reply
hecd.ag

Davey, before I go, I set up a quick photo bucket account. Figured I'd share a couple pics of the new ride.

http://s1369.photobucket.com/user/HecDag/slideshow/

Enjoy.

July 25 2014 at 8:39 PM Report abuse rate up rate down Reply
1 reply to hecd.ag's comment
Bill Johnston

That's a beautiful car. Is it a '14 or '15 model? I love the A6, and those tires are amazing.

Nice purchase.

July 26 2014 at 12:09 PM Report abuse -1 rate up rate down Reply
1 reply to Bill Johnston's comment
hecd.ag

Thanks. It's a 2015. And yeah, it's pretty nice.

July 26 2014 at 4:59 PM Report abuse -2 rate up rate down
hecd.ag

Alright Davey. I'd love to stay and laugh at you some more, but my girlfriend and I are heading out to meet up with some friends.

You have fun ranting to an empty board, ya sad, old, lonely guy.

July 25 2014 at 8:28 PM Report abuse -1 rate up rate down Reply
hecd.ag

Looks like the child from Vero is in a VERY bad mood.

LOL

Good.

July 25 2014 at 8:16 PM Report abuse -1 rate up rate down Reply
alfredschrader

I can save you a lot of heart ache and trouble right here. For example, you like tacos so you get the idea to someday open a taco place.
Lemme tell you what it takes to succeed in business. Just having a new business idea is the easy part. You put in 80 hour weeks. Forget about spending time with family and friends. You'll get 3 days off a year maybe.
You don't decide what products to sell, your customers tell you what they want.
If you get the flu or twist your ankle, you still have to work.
If you don't stay on top of it every minute it will crumble like a card house.

July 25 2014 at 4:14 PM Report abuse -2 rate up rate down Reply
tmlbtb

Lesson no. 6. Open your business in a city that is growing, not shrinking.

July 25 2014 at 11:28 AM Report abuse +2 rate up rate down Reply
democrap2

Perhaps our elected officials should run a small business, maybe then they would have what it takes to run our nation.

July 25 2014 at 8:46 AM Report abuse rate up rate down Reply