Profitable From The Get Go: Is That Even Possible?

“A dead end street is a good place to turn around”

-Naomi Judd

First year of trading

About to start a business?

And wondering how long would it take until ‘the baby’ to start spitting out (net) cash?

I have some bad news for you…

Not anytime soon.

Or at least that’s what the conventional wisdom suggests!

Shocker, right?

I know – after all, someone has to pay the pills.

And that someone is YOU!

But is ramen profitability really beyond reach when starting out?

Ramen what?

Ok, for those of you wondering what’s that about, here is a neat definition from our friends at QuickBooks:

Ramen profitable describes a business owner who is barely making enough to earn a small salary and pay living expenses, but is making a profit.”

So, with that aside let’s get back to today’s question:

Is getting profitable, even at a ramen level, doable during your first year of trading; Or is it just a sheer fantasy?

Ok, let’s start digging…

Shooting for ramen profitability? Don’t hold your breath!

Yes, you did read that correctly!

Profits at your first year shouldn’t be expected.

In fact, it takes much more than a year for hitting cash-positive.

How much more?

Well, Dee Lio, an advocate of this line of thinking, put’s that number to 3 years.

In his words, the story typically goes something like this:

“In the first year, you’re usually red. The second year (if you make it), you’re generally even, but saddled with the first year’s start up costs. Year three usually pays back year 1, with true profits starting near the end of year three.”

But what’s the reasoning behind this phenomenon/claim?

The reason why the majority of new companies, on average, have to go through this cycle until to find their footing and turn things around is because

hitting product/market fit TAKES TIME!

Yep, getting the product’s value prop right doesn’t happen overnight.

Of course, this comes to no one’s surprise.

Only a quick look out there (aka market) makes it clear even to the hardest critique that rough, half-arsed, products are more the norm than the exception.

And if only that was the problem…

What do I mean by that?

Well, here is the thing.

Even after your product hits ‘market acceptance’ you still have to refine/boost a bunch of other critical business elements such as your:

  • Marketing Engine
  • Business Economics
  • Product Pricing
  • Business Credentials
  • Value Delivery
  • Customer Retention

And the list goes on…

Tough, right?

I know.

So, with all that said, is it time to settle with the idea of being cash-strapped for a couple of years post-launch?

Wait for it…

NO!

How come?

Introducing the ‘alternative reality’.

Not such thing as an exact time-scale

Yes, my friends.

There is another side to this story.

The one that suggests that these numbers are just made up and don’t stand up to the slightest scrutiny.

As they say, every business is different, hence naturally depending on factors such as the type of industry you’re in, your level of domain experience and the business model you have adopted, the breakeven time would naturally be different.

But let’s take these 3 variables one by one:

1. Business Type

Yes, it seems that there are some winners (plus some losers) when it comes to time-to-profit.

Or again, that what the claim is.

Here you go…

Winners: Professional services, online/home-based businesses, drop-shippers, e-commerce stores, ‘sharing-economy’ companies.

The why?

Because company types like them are characterised by low overheads, little to no startup capital needed, and a flexible business structure.

Losers: Retail shops, hospitality/leisure businesses, manufacturers, construction companies, restaurants, software providers, apparel stops, recruitment marketplaces.

The why?

You guessed it – for the exact opposite reasons than the ones listed earlier.

2. Level of domain experience

Ok this one won’t need a lengthy explanation.

In a sentence, the suggestion is…

… the more domain experience you have before jumping in, the less time you would need for figuring things out and turning into profit.

And for some that’s only logical since by being an insider you will naturally be better placed to seize market opportunities and ‘steer the ship’ in the right direction.

3. The Space/Industry you’re in

Last but not the least comes the industry variable.

The suggestion here is that some industries are tougher to be cracked than others.

A couple such examples?

– Web Search Engines

– Social Networks

– Investment Funds

– Retail

– Recruitment

Conclusion

So, from everything that is being said so far what is true and what is BS?

Well, at least from my own experience, getting profitable, even at a ramen level, during your first year of trading is a tough one, especially for first-timers.

And just to be clear, in no way I am suggesting that is ‘impossible’ just highlighting that figuring everything out (see list above) and hitting product/market fit is definitely not a walk in the park.

As for those that are suggesting that “some business models out there are ‘loss-proof’ and conducive to immediate profitability…

… let me say this:

THERE. IS. NO. SUCH. THING. AS. A. LOSS-PROOF. BUSINESS. MODEL

Yep, that’s what I call a classic business BS as usual.

Having said that, I, of course, acknowledge that some business types, models, industries are tougher than others…

… but not to the extent of making it either impossible to beat the odds or in the opposite scenario to turn it into profit from the outset.

But to answer today’s question…

Yes getting profitable is doable during your first year of trading but tougher than most wannabe entrepreneurs would ever imagine. 

And with this said let’s wrap things up with today’s key takeaways…

Today’s Key Takeaways

– Hitting product/market fit is easier said than done

– There is no such thing as a loss-proof business model

– Some markets are tougher to be cracked than others

***

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

If you enjoyed today’s post, check out my brand new 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

“Winning is a habit. Unfortunately, so is losing”

-Vince Lombardi

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