Know The 3 Reasons “Why” When Planning Your New Business
So before you decide to start your own business, you need to know your ultimate end game. You need to know exactly what you want to get out of your new venture, both in the short and long term.
Once you do open up your doors for customers, or present your website to the online world, you should of determined beforehand the exact path, and payout, of your business idea.
The majority of entrepreneurs will fail at this, as they will usually get completely obsessed with the challenges of building something that’s completely new and exciting. They’re ready to place their own stamp or brand on their shiny new business without a proper plan.
What they fail to do is answer the most important questions on why they’re starting the business, such as:
• What the ultimate reason(s) in starting the business is
• What they want their business to do
• What the payoff (payout) is that they’re looking for
They need to know this before they begin expending all of their hard work, sweat equity, and the risk and capital that they’re taking in starting a new business.
Having A Plan
According to the majority of business experts, there are a few ultimatums which all businesses should be facing when they initially put their plan together.
There are no wrong answers, but rather the entrepreneur knowing exactly what they want out of the business, so they can steer it into that direction. All of the motives and intents are correct, but what needs to determined beforehand is what their plan is, so they can structure it correctly.
The business owner needs to know this so they can stay as on path as possible, which guides the business towards their goals. The “business model” that they choose will also alter the day to day approach towards building the business, while dictating the daily flow and the long term strategic decisions.
The Three Types Of Business Models
1.) Money Baby Just Money
This type of business platform is created with the goal of generating large amounts of income, but then, that should be the objective of any business.
This type of business, however, when executed properly, can be the ultimate “cash cow,” since what your marketing is your expertise.
You’re also able to markup the price significantly at will. If you operate this type of business, you’re unabashedly in it for the money, as you’re able to keep the margins as high as possible since the product is you.
This type of business is completely service based, and completely specialized. Examples are: Project based management services, or consultants, which fall into this category.
The reason why these types of businesses are able to generate high income is because the majority of the consulting, or the management companies are people powered, usually you.
They’re virtual teams of specialized individuals with knowledge, and thus have no overhead such as machinery. They’re also extremely flexible, and can easily expand or shrink at will.
With these types of companies, you’ll need to watch your overhead, invest as wisely as possible in your growth, and reduce any unnecessary costs quickly as well as decisively.
What you want to do is generate as much income as possible, this so you can ultimately or potentially to do something else if warranted, such as starting another new business, or just simply retiring.
The opportunity to sell these types of businesses are remote, the reason being that the business is usually based on your expertise, but it’s not out of the question either.
2.) Opportunity For The Flip
The second type of business, the main objective is to sell (flip) the company that you’ve began, to a larger company. To be successful, what this type of business needs to demonstrate is:
• It’s able to generate recurring revenue
• It has a proven repeatable process and is proprietary, and
• The originators of the business have firm stable management
If this is the plan for your business, you should have a specifically well laid out plan on how you’d like to eventually sell the company, and have an idea of who you would eventually like to sell it to, and why.
These types of businesses will usually capitalize on emerging trends, develop or own proprietary or intellectual technology or property, which could be helpful for a larger company.
In recent years, there’s been countless examples of small business start-ups which took this path. For instance, an app developer for mobile devices, or a site which does a specific task or function, which caught the interest of the likes of major companies, such as, Google, Microsoft or Facebook etc.
These giants are continuously on the lookout for small niche companies and will buy them out, usually for millions of dollars. The reward that the business owner reaps is the huge payday once they eventually sell the company to one of these bigger entities.
Usually, with these types of companies, any salary is usually sacrificed as the business owner will often just put the profits back into the business to expand it further.
They’ll build up the company for a potential payoff sometime in the future. This means you’re willing to take the risk in the hopes that what you develop or create, is usable enough to attract that buyout.
3.) One Man Proprietor Business
The third type of business will generally just make enough money to support the primary owner of the company. The upside is it also allows for greater schedule flexibility, meaning they’ll work when or where they want to.
Unlike the business being a “money factory,” although it can be, this type of business usually has just one or a few employees, and will rely on the owner’s knowledge and expertise. If the owner, however, happens to get hit by a bus, the income will usually stop the next day.
If you’re operating this type of one-man business, you’re most likely in it for the long term. What you’ve basically done was create a job for yourself, which is admirable, but you have to usually do all of the work yourself.
While you’re not most likely necessarily offering any type of unique or proprietary work or service, you’re still building contacts as well as accounts which could be useful to someone else, if you ever decide to move on or sell.
Know Your Plan
If you’re not aware or just don’t know which category your particular business falls into, you need to establish that before you spend anymore time in deciding the path and strategy of your business.