(Startup) Scalability: A top priority or maybe the wrong thing at the wrong time?

“Focus is good, provided you’re focused on the right thing.”

– Neil Patel

The holy grail… of business!

You hear the term “scalability” being thrown around QUITE A LOT these days.

And this should come as no surprise. After all, it seems that “everybody” today wants to build a scalable startup.

In case you are wondering what it is really about, according to Martin Zwilling, “it simply means that your business has the potential to multiply revenue with minimal incremental cost.”

But is that even possible?

Well, if you think that there are many companies already doing it (Google, Microsoft, Spotify, Facebook, YouTube just to name a few from the ‘big boys’), at least in theory, the answer is yes.

So, what is ‘the recipe’?

Even though the answer varies depending on who you ask, most experts agree that putting together a system that enables you to produce (and distribute) almost unlimited amount of products with a click of a button is a key ingredient!

Sounds too good to be true? Well, it probably is!

But before getting into that, let’s first go and see why the scalability advocates argue that it needs to be a top priority from the get-go.

When Should Startups Prepare for Scalability? NOW.

Continuing from where we left this off, the reason why ‘scalability first’ is a common refrain is because, in its advocates’ opinion, scalability must get build into the company’s DNA and that can only happen during the inception phase.

As they add, if you closely examine companies that have ‘been there, done that,’ you’ll see that pretty much all of them “share a number of formulaic elements in their respective business models that allow them to grow the way that they have (and continue to do).”

Take for example the afore listed mega-companies. Other than a great product, they also share some common characteristics:

a) Cloneable product

What does that mean? Put simply, they developed a product that can effortlessly be duplicated with a click of a button (e.g. drugs). 

b) Fully-automated experience

As the name suggests, the end-user can buy and “consume” the product in an automated fashion (e.g. digital music).

c) Serving new customers costs next to nothing

The secret sauce here is that they incur most of the costs at the product development phase, but once the product is up and running, it can serve thousands upon thousands people for almost no extra variable production cost (e.g. software).

So, time to make scalability our first priority?

Nope!

Startups, stop worrying about scaling

Why do I say that?

No guesses here, unless you have a proven business model that works (one that produces something people want at a price they are demonstrably willing to pay), anything else is just a distraction.

And if you ask me, especially when it comes to digital products, this conversation is partly irrelevant, because most have an innate scalability anyways.

But getting back to my original point, scaling (or building to scale) something that doesn’t work makes NO sense.

Just think for a moment… how many products come out on the market and are either fundamentally flawed (because there is no market) or simply don’t work as expected?

I know, A LOT. And what happens after that?

That’s right. Either the founders throw in the towel, try to fix it, move on with something else, or pivot to a new business model.

In any of those scenarios, having a scalable model makes ZERO difference. Yes zero.

That’s part of the reason why Paul Graham famously advised new entrepreneurs at the beginning to “do things that don’t scale.”

The first thing you build is never quite right

Let’s burn this into our brain…

Making a better mousetrap is not an atomic operation. Even if you start the way most successful startups have, by building something you yourself need, the first thing you build is never quite right.” – Paul Graham

Which, as we said before, makes spending time building scale a form of waste!

But this line of thinking doesn’t stop at the product – it also affects your business model on the whole.

Which in practical terms means before we think scale, we have to nail these 5 things first:

– Market problem

– Target group

– Product

– Marketing

– Selling

Done with this?

Good, now time to scale things up!

Or maybe not?

You don’t have to build a scalable business

There, I said it!

Building a highly-scalable business that will conquer the world is NOT the only path.

Yes my friends – there are more than plenty different types of businesses and you should not get caught up in this automation frenzy.

I’d like to close today’s post with our friend Jon Westenberg’ advice:

“There are only 3 things to consider before starting a business. Will I make money?  Will I be proud of what I’ve built? Will I enjoy the work? They sum up the only three reasons to get into a business in the first place. You want to turn a profit, you want to build an asset you’re proud of, and you want to enjoy yourself.”

Today’s Key Takeaways

When it comes to startups, sustainability always comes first.

– The first thing you build is never quite right.

– You don’t have to build a scalable business.

***

Ok guys, that’s all from me for today.

If you enjoyed today’s post, check out my kindle book, The Aspiring Entrepreneur Entry Strategy: A practical step-by-step guide for finding a validated, winning business idea that stays true to who you are, that is currently available at Amazon.

I hope to see you soon.

Best,

Andreas

“The right business to build isn’t the one everyone else wants”

– Jon Westenberg’

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Buying a franchise: An almost risk-free way to start a business or just plain stupid?

“Don’t watch the clock; do what it does. Keep going.”

– Sam Levenson

Setting up a franchise vs. growing a business organically

Every once in a while, you get reminded by an ad that starting a business from scratch is not the only way to become an entrepreneur…

…because, as they say, there’s always the option of franchising!

The ‘good news’?

There are more than plenty of franchise opportunities available out there.

Famous examples include McDonald’s, 7 Eleven, Hertz, Carrefour, Papa John’s, Avis, Supercuts, Smoothie King, Taco Bell, etc.

So, how does franchising work?

Franchising In A Nutshell

On the one hand, you have the franchisor, typically, an established brand willing to license the right to use the firm’s business model and brand to a third party for a prescribed time-period. On the other hand, you have the franchisee, an individual or firm granted the license to run a business based on the franchisor’s ‘operating model.’

And yes since there is no such thing as a free lunch, the franchisor requires for granting this right to get paid:

a) An upfront fee (that could range anywhere between a $1,000 to $500,000 depending on the franchise brand name and track record)

b) A monthly commission cut (aka management service fees) based on the store’s gross revenue that can be as low as 3% or as high as 20%, also depending on the type of brand you’re dealing with

All clear so far?

Good!

Let’s now move on to the why behind many aspiring entrepreneurs’ decision to jump-start to entrepreneurship by becoming a franchisee.

4 Reasons why new entrepreneurs jump into franchising

So, what are the arguments for becoming a franchisee?

Well, according to the advocates of this business model, it mainly boils down to these 4 reasons:

a) You buy ‘a tried and tested’ format

And the assumption here is that since a franchisee practically is given the right to copy a debugged product/service (or at least that’s the claim) which has already proven to work elsewhere, the chances of making it are much better than setting up a completely new business from ground zero.

Also, a by-product of choosing a reputable franchise is that most prospective customers will already know and trust the brand so you won’t have to spend months upon months making a name for yourself and building credibility for your business.

b) You have ongoing help and support

On top of granting you the right to copy their business model in a new location (and passing you their business playbook – aka business manual – on how to operate the business for maximum impact), most franchisorsalso provide ongoing support through training, helplines, marketing, and much more.

c) You have easier access to funding

The reasoning here is that banks, in general, look more favorably a franchisee compared to a new, unknown startup, (because they think is a safer bet); and as a result, they are more willing to lend money.

d) You can take advantage of your franchisor’s economies of scale

This also doesn’t need a lot of explanation. When you’re on your own as a small business owner, you can’t get bulk discounts because you will naturally a) buy just a couple of units per time and b) have very little leverage over your vendors.

By becoming a franchisee, you can enjoy the benefits of the franchisor’s buying power, since the ‘big boys’ typically buy supplies, products, advertising etc. in big numbers and are able to negotiate much more favorable terms.

Ready to become a franchisee? Stop!

Yes, my friends, as you can see from the heading, I am definitely NOT a fan!

Why?

Here are 5 reasons to get you started…

Reason #1: It requires a sizeable financial investment from the get go

That’s right – even before getting a foot in the door it requires you to park a big chunk of cash as a lump sum.

What’s even worse is that the majority of franchisors not only demand a long-term commitment (yep, by making you sign a multi-year binding legal contract), but also on top of their royalty fees on turnover and NOT profit often require a franchisee to:

a) contribute to a national advertising fund         

b) buy many of the material they need to operate the business from them    

c) pay for marketing material sent to them for training purposes                

Talking about running a lean business…

Reason #2: It’s impossible to be your own boss

And if parking a lot of your hard-earned cash just in the hopes it will work out isn’t enough, wait until you hear this…

Since franchisors quite like the idea all their outlets to look and feel the same way, they dictate to you, wait for it… how you run the business.

You did read that correctly, DICTATE. No exceptions here. For the sake of uniformity, they regulate what you are allowed and not allowed to do. Yep. Every. Single. Aspect.

The “best part”?

Falling out of line with your franchisor’s wishes involves a hefty penalty or if you’re lucky… even termination of your contract!

As Sean Kelly brilliantly puts it “Franchising is similar in a lot of ways to joining the military in that you’re going to agree to follow orders, you’re going to wear the same uniform and you’re going to march up the hill together and try and accomplish the same mission. Buying a franchise in order to control your own destiny is akin to joining the marines in order to ‘do your own thing.”

In other words, THEY are the boss and you’re just the person following their rigid orders. Very entrepreneurial, right?

Reason #3: Other people’s actions directly affect your franchise

Why do I say that?

Quite simply because whether it’s the franchisor or other franchises, others can drag down your profits if they make a bad move that hits the brand’s reputation.

In other words, one bad apple can ruin it for everyone. Plus as a bonus, if the franchise changes hands, it could change the rules of the game; and of course, you’ll need to comply because, don’t forget, you have no say on how the business operates.

Reason #4: Most reputable franchises are not up for grabs anyway

Ready to jump into McDonalds franchise scheme?

Don’t hold your breath!

If you think you can walk to any of the top franchisors listed earlier and just say: ok guys let’s do it, you’re just daydreaming.

Why?

Top franchisors are super selective. Just to be considered as a candidate (with the other hundreds waiting in the queue), you’ll need to have plenty of working experience (so yes no newbies welcomed), transferable managerial skills, and most importantly, quite a lot working capital in your bank account!

There I said it – no money, no honey!

But don’t take my word for it – just do a bit of research and see for yourself!

Reason #5: Franchising is still a VERY risky business

Yes, it’s risky, and yes, it also has minimal upside!

Even though franchisors love to tout left and right that franchise failure rates are only around 5%, empirical studies prove that is just A BIG FAT MYTH.

The most comprehensive study conducted so far on franchising survival rates by Timothy Bates puts this number at 61.3% (which comparing to normal SMEs is just slightly higher) and recent studies don’t look much better for our franchise friends.

So, as much as franchisors love to perpetuate their propaganda, it doesn’t change the fact that this business model is clearly not risk-free… not even close! In fact, they fail with roughly the same frequency as other businesses, excluding venture-backed startups.

Conclusion

To wrap things up, here is my take…

Franchising has nothing to do with real entrepreneurship. At least in my mind, it’s just a method of buying yourself a (super rigid) job!

And the worst part is that unlike jobs, not only is the salary not even guaranteed, but if you don’t like the deal, you can’t simply fire yourself (bidding contract with penalties, remember?) and just do something else.

So, to cut long story short, even though not all franchises are rotten deals (especially from reputable brands), personally I feel if you’re good enough to secure a franchise from companies of the likes of Taco Bell, Pizza Hut, or Avis, you have more than it takes to go on your own, take your chances, and build a real business YOUR way.

Today’s Key Takeaways

– Franchises, at large, are more of a trap than an opportunity.

– Unlike what franchisors claim, this business model doesn’t come without risk.

– Only con-job franchises accept everyone. The good ones are crazy selective.

– Franchising is a glamorous way to tell your friends that you bought yourself a job.

***

Ok guys, that’s all from me for today.

If you enjoyed today’s post, check out my kindle book, The Aspiring Entrepreneur Entry Strategy: A practical step-by-step guide for finding a validated, winning business idea that stays true to who you are, that is currently available at Amazon.

I hope to see you soon.

Best,

Andreas

“My dad taught me that when you borrow money it’s the worst day of your life.”                            

– Gary Vaynerchuk 

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Single Product Companies: Thing of the past or still here for a reason?

“A startup is not a smaller version of a large company.”

– Steve Blank

Single product vs. multiple product companies

Let’s start with a question…

Can you guess what Apple, Virgin, and Microsoft have in common?

Well, I bet the first thing that comes to mind is the obvious one: all are multi-billion dollar companies founded by iconic entrepreneurs.

However, what they also all share is the fact that they are multi-product companies. And yes, as the name suggests, multi-product companies are (business) entities that have a number of different products under their brand.

But at this point, some of you would probably say that Apple, Virgin and Microsoft are not the only organizations that have embraced this business model. In fact, if you pick any company that is doing relatively well these days, chances are, they will have an extended product line.

So, if that’s the case, the question really is: are single product companies a thing of the past or maybe still here for a reason?

And that’s what we’ll try to answer today!

The multi-product business advantages

Before answering that question, let’s first go and see what’s the why behind many entrepreneurs’ decision to have a wide range of products.

Reason #1: Higher customer lifetime value (aka CLV)

For those not familiar with this term, CLV is the amount of money expected (in terms of profit) from a given customer throughout the relationship with him/her.

And the assumption here is, that by strategically creating products that address multiple needs of a given customer group, you automatically raise the CLV.

If, for example, you have a company that sells vitamin supplements for healthy skin, and you realise that quite a lot of your customers also desire stronger nails, theoretically, you can increase your CLV by introducing a new supplement line for nails.

So, in simple words, the advocates of this business practice argue that is a great way to level up your turnover by selling more products to the same people.

Reason #2: Spread the risk through diversification

This refers to the long-held belief that you should never put all of your eggs in the same basket.

Why?

Because as they say, since as with life, in business sh*t happens, having a single point of failure is not only dangerous but in fact possibly reckless.

Take Michael Roddy, for example. Michael is the owner of a small business that specializes in motion picture lighting for low-budget TV movies, music videos, and industrial commercials.

Why is his story relevant?

A couple of months ago, his truck was stolen*. Inside was all of his lighting and grip equipment, which he’d worked for years to accumulate. Yep, he lost his entire business overnight, due to the fact that everything was on that truck.

How do you prevent such catastrophes?

Well, according to ‘the experts,’ you simply have to spread your eggs around and diversify pretty much everything.

As Gyutae Park puts it: “Diversifying helps you to manage your risk and create a more stable business model regardless of whether you’re in the finance industry or in Internet marketing. If one thing goes down, you have a whole arsenal of other options to keep you alive. It’s never a good thing to rely on just one thing to be successful.”

Their point in a nutshell?

Unless you want to become the new Kodak, don’t overthink it and start diversifying your (business) eggs.

Reason #3: The insider opportunities factor

The argument here is that by immersing yourself in a field/industry, along the way many new (insider) opportunities will naturally come your way and some will be simply too big to ignore.

A famous such example is Microsoft’s recent decision to enter the healthcare business for good.

Nonetheless, it’s worth noting that unlike Microsoft’s case, these types of opportunities are typically in fields closely related to a company’s core business, but the point is still the same. As Richard Branson said once: “Business opportunities are like buses, there’s always another one.”

So, what do you think: are multiple-product firms superior by nature?

Wait for it…

NO.

Why do I say that?

Find the pattern

Before answering, allow me to open a small parenthesis and share with you a couple super brands that all have an extended product portfolio; BUT before “acquiring” their current status, all followed the same pathway.

1. The Coca-Cola Company

Current status: Multinational beverage corporation and manufacturer, retailer, and marketer of nonalcoholic beverage concentrates and syrups.

Current product range: Coca-Cola, Sprite, Fanta, Diet Coke, Coca-Cola Zero, Mello Yello, Ciel, Del Valle, Simply Orange, Powerade… and many others.

How Coca-Cola started: The Coca-Cola Company started as a single-product company selling just Coca-Cola (and stayed that way for decades).

2. Crocs

Current status: A world leader in innovative casual footwear for men, women, and children with more than $1 billion in annual revenue.

Current product range: Crocs sells a wide range of shoes from clogs, slippers, sneakers, and loafers to boots, sandals, flats, heels, and wedges.

How Crocs started: Crocs started as a single-product company selling just Crocs (and stayed that way for decades).

3. The Economist Group

Current status: The Economist is one of the most widely-recognised and well-read current affairs publications with a growing global circulation of around 1.5m readers.

Current product range: The Economist brand encompasses The Economist, The Economist Intelligence Unit, EuroFinance, CQ Roll Call, TVC, and Ideas People Media.

How The Economist started: No guessing here, The Economist started as a single-product company publishing just one publication (and stayed that way for decades).

4. Michelin

Current status: Michelin is one of the three largest tire manufacturers in the world, offering tire solutions for every type of vehicle. It also offers digital mobility support services and publishes travel guides, hotel and restaurant guides, and maps and road atlases.

Current product range: In addition to the Michelin brand, it owns the BFGoodrich, Kleber, Tigar, Riken, Kormoran, and Uniroyal tire brands and is also well-known for its Red and Green travel guides, its roadmaps, and the Michelin stars that the Red Guide awards to restaurants for their cooking.

How Michelin started: Michelin, yes, started as a single-product company selling just car tires (and stayed that way for decades).

5. Duracell

Current status: Duracell Inc. is an American manufacturing company owned by Berkshire Hathaway that produces batteries and smart power systems.

Current product range: Duracell manufactures alkaline batteries and speciality batteries and also entered into a brand licensing agreement with Dane-Elec for a new line of products that includes memory cards, hard drives, and USB flash drives.

How Duracell started: Duracell, as you can imagine, also started as a single-product company selling just alkaline batteries (and stayed that way for decades).

Win the Battles you are in before you take on new battles

You got it, all the aforementioned companies ‘went singular’ and only moved onto the next battle when they absolutely nailed that first one.

Why?

Because as Mark Cuban reminds us in one of his classic posts; “You do not have unlimited time and/or attention. You may work 24 hours a day, but those 24 hours spent winning your core business will pay offer far more. It might cost you some longer term upside, but it will allow you to be the best business you can be…. [So] win the battles you are in first, then worry about expansion into new businesses.”

But what about diversification?

Well, even though I tend to agree with Warren Buffett who states that “diversification is protection against ignorance,” I would just say this: if you play your cards right and go after an evergreen market problem, at least for the first years of your operations, it shouldn’t be an issue.

Empirically, most startups fail NOT because they didn’t diversify enough but instead because they solved an imaginary market problem or failed big time on the execution side of things.

The moral of the story?

If we’re ever going to make it, we need to leave the corporate playbook aside, stop pretending/acting like a big business, and keep this in mind: startups, in general, win with focus and not by going nuclear and spreading themselves crazy thin.

Today’s Key Takeaways

– When starting out, less is more.

– Quite a lot of today’s business icons started as single-product companies.

– Win the battles you are in before you take on new battles.

– You’re just a startup; now act like one.

***

Ok guys, that’s all from me for today.

If you enjoyed today’s post, check out my kindle book, The Aspiring Entrepreneur Entry Strategy: A practical step-by-step guide for finding a validated, winning business idea that stays true to who you are, that is currently available at Amazon.

I hope to see you soon.

Best,

Andreas

“Success demands singleness of purpose”

– Vince Lombardi

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Thinking of Raising Capital? Stop!

“If you are going to ask yourself life-changing questions, be sure to do something with the answers.”

– Bo Bennet

The obsession…

Ask any aspiring entrepreneur aged 19-30 what the #1 thing someone should do after coming up with a business idea, and I bet at least a 1/3 of them would say…

Raising capital!

Boom – the holy grail of startup finance…

Yeah, that’s what today’s generation has been trained to believe.

Finding an idea – game changing I’d add, spending a couple weeks crafting a winning business plan, and then starting the quest to find a “rich uncle” (in the typical places*) to infuse the much-needed pile of cash.

* Startup pitching events, conferences, hackathons, government schemes, accelerators, incubators, etc.

After all, everyone seems to be doing it for a reason, right?

Definitely, but not necessarily a good one!

Without any further delay, let’s go and see what’s the catch with getting, in a form of investment, other people’s money.

Oops, missed the fine print!

As they say, there is no such thing as a free lunch.

And here is why!

Drawback #1: You lose control

This won’t come as a surprise to anyone who has being involved in a startup that raised capital.

By the minute you get someone’s money, you give up at least some control. In practical terms, that mean for any major decision you are about to make, you have to first consult your investors.

At first glance, this might not sound that bad. After all, these people are much more experienced than you at running a business.

However, in reality bringing outsiders on board will inevitably slow down your decision-making process (which is of utmost importance when starting out) and at worst a) limit your company’s options just because some pathways don’t sound right to them and b) micromanage you by constantly requiring that you justify your actions.

Drawback #2: You end up wasting (a lot of) time on stuff that is NOT related to the bottom-line

You know what I am talking about; rather than spending your limited time building, testing, iterating, and marketing your product, you end up chasing investors.

And as you probably know, fundraising does NOT happen overnight. In fact, it can be a multi-month process that sucks most of your time.

The end-result?

Putting your startup’s future in jeopardy. At this sensitive, very-early  stage, every minute spent on investor-related activities is a minute not spent on moving the needle towards building a viable business.

Yes, my friends, the time available for figuring things out and turning an idea into a cash-generating machine is, unfortunately, not infinite.

Drawback #3: It comes at a VERY high price tag

Let me start with a question…

How would you describe an 80% annual interest rate?

Reasonable, high, or just ridiculous?

Probably the latter, right?

Well, if you raise capital at an early stage, that’s what would you end up paying if your company ever makes it!

Why do I say that?

Simple – if you assume that most early-stage investors don’t give money out of the kindness of their hearts but expect at least 5x return on their investment in a 5 years horizon,  if you do the math that what will cost you!

I know some of you will say that even if that’s the case, it’s worth it because a proper investor a) brings much more than cash (experience, industry connections, contacts,  credibility to your brand, etc.) and b) gets rewarded only if you win. However, from personal experience, it simply isn’t worth it – mainly because of the reason below!

Drawback #4: You lose the go niche advantage

For me, this is by far the biggest weakness.

As we established before, investing is not charity work but a method to put your money to work for you in order to get much more back in return (or at least that’s the hope).

Hence, if you’re a startup shooting for an investor, unless you go after a market big enough to justify that multiple return on investment, it will simply not happen.

As Jon Yongfook rightly points out in his post hereIf you’ve taken funding your investors will want to see exponential growth. Your company growing “nicely” will not deliver them the return they expect. In the worst case scenario even if your numbers are respectable for any normal business, your investors will encourage you to figure out a model with higher growth/risk even if that means changing what is currently working well for you.

Yep, the middle ground simply doesn’t exist for them!

Too far-fetched?

Just have a chat with anyone that raised capital and see for yourself!

And if by any chance believe that going big sounds like a good idea, think again!

What’s the other route?

The alternative – bootstrapping

The alternative I am talking about is, of course, bootstrapping. Put simply, the process of starting (and operating) a business without external funding.

Yep, Vegas self-funding, baby!  

How does that work?

Simple. Start small with little to no (personal) capital and work your way up the entrepreneurship ladder organically.

I know, fiscal discipline, focus on profitability from day 1, and organic growth (funding growth through re-invested profits) doesn’t seem as glamorous as getting/leveraging other people’s money and going fast and furious.  In reality, though, it’s probably the only way to shape a business OUR way without outside interventions.

And in case you are wondering, yes, this model really works! Thousands of entrepreneurs managed to build 7-figure businesses by doing exactly that.

One of the most famous bootstrapping success stories is probably Zoho. Founded by Sridhar Vembu in 1996, Zoho started as a tiny network management software company, and today, 21 years down the road, has become a 5000+ employee monster CRM company with an estimated half a billion turnover.

Not too shabby, I’d add.

4 Rules to live by

So, does bootstrapping sounds like a good idea?

Glad to hear that!

Let’s now see a couple of “rules” you should keep in mind pre-starting and while bootstrapping a business.

Rule #1: Pick a business type that fits the shoestring “model”

What does that mean?

Three things:

Shoot for a business type that a) does NOT require investing a sizeable capital up front, b) has relatively short sales cycles, and c) can get operational quickly .

The reason I bring this up is because certain types of companies,  due to their nature, are practically impossible to be set up using the bootstrapping model.

Examples of capital-intensive businesses: Construction firms, pharmaceutical companies, car producers

Examples of companies with long sales cycles: Recruitment agencies, manufacturing companies, B2B hardware companies

Examples of companies that can’t be built on the fast: Drug companies, medical device manufacturers, banks

Rule #2: Start small and on the side

This doesn’t require a lot of explanation.

Starting small raises the chances of being able to afford building ‘that thing’ from your personal savings. Plus, by doing it – at least initially – on the side will help you avoid the main cost of setting up any sort of micro-business, which is paying the founder a survival salary.

Rule #3: Leverage the platforms that already exist

Another no-brainer.

Rather than trying to reinvent the wheel, use tools, platforms, and technologies that already exist.

Let’s assume you want to start an ecommerce company to sell jewelry.

One option is to go and build the whole thing yourself (website, distribution channels, “shopping cart,” sourcing materials, logistics, etc.).

The bootstrapping-friendly option?

Assign many of these things to companies that already did the hard work for us, such as Amazon, Alibaba, Shopify, eBay, Etsy, PayPal, Stripe, WordPress etc.

Of course, that means you’ll have to sacrifice some profit in the form of commission to them, but if you ask me it well worth it. Not only does it dramatically save you a lot of time and upfront cost, but it enables you to partner with market players that demonstrably mastered ‘their craft.’

Rule #4: Spend money to make money

This savvy advice comes from our friend, Elke Govertsen.

In her words, “choosing how to spend the small amount available to you is very, very important. You need to spend your startup cash on something that will turn into more money directly.”

Of course, it’s worth noting that during the product creation phase, the “direct payback” is pretty much impossible, but after that stage is over Elke’s point makes a ton of sense.

So, with all that said, I think is time to wrap things up with this post’s key takeaways.

Key Takeaways

– Constraints can be an advantage in disguise.

– With the right attitude, limited resources can make you a better entrepreneur.

– Bootstrapping and self-sufficiency go hand in hand.

– Miss having a boss? Go and raise capital.

***

Moral of the story?

If you have a knack for raising capital and want to do it anyway, consider working for a charity rather than building a business!

🙂

Ok guys, that’s all from me for today.

If you enjoyed today’s post, check out my kindle book, The Aspiring Entrepreneur Entry Strategy: A practical step-by-step guide for finding a validated, winning business idea that stays true to who you are, that is currently available at Amazon.

I hope to see you soon.

Best,

Andreas

The reality is that for most businesses, they don’t need more cash, they need more brains

– Mark Cuban

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Domain experience: A must have before starting out or simply overrated?

“Whether you think you can or you can’t, you’re right.”

– Henry Ford

The Universal Truth…

I think we can all agree that when it comes to startups, there is no such thing as a universal formula.

However, being in this space for quite a while, I keep hearing that the odds of making it as a new entrepreneur without domain experience is not on your side.

And just to be clear, even though that term can have more than one possible interpretation, in general, when people talk about domain experience they usually are referring to the mixture of hands-on industry experience (e.g. pharmaceutical industry) and relatively deep functional expertise (e.g. digital marketing).

With this covered, let’s jump into the meat of this post and try to answer today’s question: Is domain experience a must have before starting out or simply overrated?

No Domain Experience? Don’t Despair!

Let’s start from what seems to be the dominant view: having domain experience pre-starting is just unnecessary.

The logic behind this argument? Typically it comes down to 2 factors:

Factor #1: Being an outsider can be an advantage in disguise.

Why? Because as they say ‘you come with a fresh pair of eyes’ and that usually helps you see things from a new angle, challenge long-held industry orthodoxies, and bring change.

An entrepreneur that became famous by doing exactly that is Sir Richard Branson. If you carefully examine his entrepreneurship career, you’ll clearly see the pattern. Time and time again, he’s jumped into to the complete unknown and shook things up.

As Branson himself admitted, this way of doing things was central to the creation of Virgin Atlantic. I knew nothing about air travel, but as I’d flown back and forth from Britain to the United States on business for Virgin Records, I’d become convinced that there had to be a better way… Again, with no knowledge of the industry but plenty of ideas… Virgin Atlantic was born and proved its critics wrong.”

Over the last couple of years, this philosophy has gained significant traction after companies the likes of Airbnb, Uber, Facebook, and Stripe, which all came from unknown founders that had literally no prior industry experience, were put in the spotlight by the press.

Factor #2: You can borrow (or buy) domain experience if needed.

An alternative view is the one that says that even if domain experience is required, there is no reason to wait until you one day hit that milestone; but instead, you should jump straight in and when needed, source it externally.

How?

Well, the advocates of this ‘model’ suggest that this can happen almost painlessly by bringing other people on board – e.g. co-founders, advisors, employees, investors, or mentors – that possess what you don’t.

The moral of the story? There is more than one way to skin the cat, or at least that’s what they claim…

Domain Experience – An Absolute Must Have

Now, let’s take a look on the other side of the story!

So, why do many people think that domain experience is an absolute must have?

Here are three reasons to get you started:.

Reason #1: It helps you build a (superior) product based on facts not speculations

Here the assumption is that unless you actually lived that market, have first-hand experience on how things work, and acquired deep subject-matter knowledge;  you’re stabbing in the dark.

Stabbing in the dark? Yes, according to those who favour having domain experience before starting out, by being a newcomer, you’ll naturally start with a set of blurry market hypotheses, and then solely based on what you learned (or think you learned) during the market research phase, you’ll go and build something people want.

Their point in a sentence? When it comes to building a sound product, market research alone doesn’t cut it.

Reason #2: Domain experience brings credibility

This one doesn’t need a lot of explanation.

Unless customers trust that a company has the ability to deliver what it promises, they simply will not buy.

And even though admittedly there are a number of ways to address this customer fear/reservation, truth be told, by bringing concrete domain experience to the table, you immediately boost your credentials and make yourself look more trustworthy.

Reason #3: Domain experience gives you more tries

What is that supposed to mean?

Let me explain…

In an article a couple of years ago, Eric Ries said: Cash on hand is just one important variable in a startup’s life, but it’s not necessarily the most important. What matters most is the number of iterations the company has left.”

His point?

Figuring things out and landing on a plan that works doesn’t come without a deadline.

And again the assumption is that the lack of domain experience is associated with a lot of preventable rookie mistakes. As they say, “You can’t simply Google your way to expertise,” which naturally results in having less tries cracking the code.

So, is it time to admit that newcomers are inevitably at a BIG disadvantage?

Domain experience: A Big Plus But Usually Not Prerequisite

Not really…

Although I do agree that having domain experience comes with a lot of benefits, saying that without it you will inevitably fail sounds like a (BIG) stretch to me.

Time to put things into perspective?

Glad you agree! So, let’s get back to basics…

What’s a business?

Roughly defined, a business is a repeatable process that: a) creates and delivers something of value, b) that other people want or need, c) at a price they’re willing to pay, d) in a way that satisfies the customer’s needs and expectations, e) so that the business brings in enough profit to make it worthwhile for the owners to continue operation.” – Josh Kaufman

If you also think Josh’s definition is quite neat, the question is: does the lack of domain experience make hitting any of these key milestones practically impossible?

I don’t think so. In my opinion, however, it does help in getting right the first two. But do you know what? Domain experience doesn’t have a monopoly on levelling up an entrepreneur’s chances of making something people want. And yes hat’s not even a secret…

So, what’s my prescription for offsetting the lack of domain experience and making things happen?

In a nutshell, it boils down to this: a) go after a vertical market you understand, b) work on a problem that grows organically out of your own experiences, c) keep things simple, and d) start the business on the side to give yourself enough time to figure it out.

That’s all.

And before wrapping things up, let me say this: relying on someone other than yourself to enlighten you on how the market works is RUBBISH advice.

There! I said it!

You can’t imagine how many times I’ve seen new founders fucking things up because they could barely understand their field, and they naively thought the outsiders/experts would save the situation. Anyway, let’s leave that for another episode.

The “big idea” I’d like you to walk away from this post? The lack of domain experience alone is not a deal breaker, but going after a market and business blindly definitely is!

***

Ok guys, that’s all from me for today.

If you enjoyed today’s post, check out my kindle book, The Aspiring Entrepreneur Entry Strategy: A practical Step-by-step guide for finding a validated, winning business idea that stays true to who you are, that is currently available at Amazon.

I hope to see you soon.

Best,

Andreas

“Time is the most valuable asset you don’t own”

– Mark Cuban

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