Starting a business for the first time?
What’s your business idea?… a tech startup? A product that will completely change the world? A “Yelp for geriatrics”?
Before you get too excited, I must warn you:
If your idea is some world-changing, paradigm shifting technology or concept, you’re basically sinking your own ship before it even leaves the harbor.
I’ll put it plainly:
Most people I’ve met who are starting a business for the first time (myself included when I started) have essentially no clue what’s needed to actually successfully start a company.
Everything’s a shot in the dark.
Which is fine…shooting in the dark is how first-time entrepreneurs learn.
But if your business idea is something that’s so much of an uphill battle that it’s basically rock climbing…something way outside of your skillset and ability to executre…what do you think your chances of success are?
I’m not here to discourage you. In fact, I’ve got a perfect idea that can help solve this problem:
Go start a foundational business first.
What’s a foundational business?
A foundational business is a business that’s really easy for you to execute.
A foundational business is characterized by these key elements:
- The idea is straightforward and easy to understand (i.e. not very innovative).
- The idea primarily uses skills you already have.
- Can be implemented in a matter of weeks, or even days.
- Something you have a high degree of control over (i.e. not relying on other people to keep things moving).
- Has a super-straightforward way of making money (i.e. not “well this is Yelp + Facebook + freemium + ads”…I mean as easy as “You do X and you get paid Y”)
A foundational business teaches you the business acumen and mindsets needed to actually run a company.
You take the foundations you built with your foundational business, and apply them to a bigger venture when you’re ready.
You’re not trying to change the world with a foundational business. You’re trying to learn (this is most important), and to undertake something that is more-or-less guaranteed to make you some money for your efforts.
Why a foundational business?
A foundational business allows you to get started quickly.
And the quicker you get started, the quicker you can start to learn how the game of business works, such as:
- How to set prices.
- How to deal with customers.
- How to create a revenue model that actually works.
- Learning how much your time is worth.
- Learning about yourself: what kind of work you can do and what your tolerance for risk and getting stuff done is.
“Innovative” startups take months of product development, require programmers, huge investments, and a lot of resources and intellectual capital to launch.
All of those “next Yelp’s” and “like Facebook, but better’s” out there take months trying to develop a product concept, finding talent, raising money…all of which are gargantuan tasks even for skilled entrepreneurs.
A founational business, on the other hand, gets started easily. Because it uses skills you already have, a foundational business amounts to you trying to monetize something that you already know how to do. Since you already know how to do it, you can get started in a matter of weeks or days (rather than months!). It lets you jump head-first into entrepreneurship, and to start learning about how business works ASAP, as opposed to having to wait months for development efforts.
Examples of foundational businesses:
- Kickstarter projects
- Websites that offer a straightforward and in-demand service or product (and even this is probably too risky if you’re not savvy with online marketing and content development)
In short: ANYTHING that’s squarely within your skillset and your ability to do fairly easy qualifies!
The bottom line is straightforward:
For your first business, don’t just try to jump into the mix doing something lofty. Because, even if your idea is good, if you’re not skilled enough to execute successfully, it will just fail.
And that would suck.
Give yourself a chance to learn first. Then, go make your impact on the world after you actually know what you’re doing.
“But RC, I thought the point of entrepreneurship was to innovate and make big things.”
That’s a purpose of entrepreneurship…
…to those who have the knowledge, skills and ability to make a radically innovative product.
But if you can’t execute, then it doesn’t really matter what your intentions or philosophies about entrepreneurship are, does it? You’ll fail no matter what.
Remember, ideas are only worth 1%…execution is worth the rest.
A hugely-successful person who started “foundational businesses” first:
You know the billionaire who kept Newt Gingrich going for months after it was clear he wouldn’t beat out Romney for the primaries?
Yep, that’s Adelson: the owner of the Sands Corporation, which owns some of the finest casinos in Vegas and Macau (I’m preferential to the Macanese casinos myself).
Adelson’s foundational businesses were many:
- Selling toiletry kits
- Selling newspapers
- Mortage broker
- Investment adviser
- financial consultant
- “De-Ice-It”, which sold some sort of antifreeze.
- Charter tour business.
- Where he first started making his big dollars: COMDEX, the premiere computer trade show of the 80s.
Except for COMDEX, nothing on this list is glamorous or innovative.
Starting a foundational business was advice I didn’t take, and I would have saved lots of time and frustration if I had taken it.
I should have learned more about how business works first and done something simpler, rather than just jumping straight into something that was hard for me to do (i.e. Focosos, my web startup designing a research project management tool for academic research).
I spent months recruiting programmers, and months waiting for the product to be developed after I found programmers; much of that came at the expense of just launching a business in something I had more acumen and expertise in (such as content marketing or consulting for CPA firms).
I mean, I’ve learned some great lessons the hard way, but honestly, I would have rather just spent the first year doing a business in marketing / content creation–something I already was pretty decent at–as opposed to just hopping into something difficult that took a lot of time and required a level of expertise that was initially above my abilities.
I’d still have had time for innovative stuff later on. But I jumped into the hardest thing first. And that’s caused a lot of unneeded frustration and failure.
An example of someone who will probably fail because they didn’t start a foundational business first:
I heard through a connection about a guy who was starting a business on the side (he works a full-time job also). We’ll call this budding entrepreneur “Mr. X”.
Mr. X wouldn’t explain much of his business because he wanted an NDA to go into the details (an instant sign of a rookie entrepreneur. People aren’t going to “steal your idea“). But from what was gleaned by asking Mr. X circuitous questions, the business idea, at the very least involved heavy purchases of expensive capital equipment.
The “secret sauce”, though, was that Mr. X had some sort of technology that would make his sales operation a raving success compared to any other possible player in the market.
To make a long story short, Mr. X had done essentially no demand testing to see if people would actually want to buy their product…
…and more importantly, if whatever their technology was could actually do better than all the technology already on the market…
But that didn’t stop Mr. X from wanting over $1 million in funding
For capital equipment and “marketing”…
…for a product that had no proven demand and no revenue.
Let me show you what happens when entrepreneurs try to get a ton of money from investors for a no-revenue company:
Bear in mind, it actually wouldn’t be too tough for Mr. X to test the demand for his product
Instead of raising millions for capital equipment, Mr. X could just read trade publications and see if there were any competitors.
Why not ask potential customers if they would buy it?
Maybe he could start by raising $10,000 or some smaller amount of money to start the project on a small scale, and scale up from there (after proving some traction, raising money becomes much, much easier).
Why should Mr. X have started a foundational business?
Because he doesn’t know anything about creating products people want.
He doesn’t know anything about understanding “what actually goes into launching a successful company”?
If he knew the mechanics of bootstrapping and successfully starting a company on the cheap, he would be actively looking for ways to launch this idea easily, instead of trying to raise over $1 million for a random idea he and a friend came up with.
And because Mr. X doesn’t know what he’s doing and he’s bitten off more than he can chew, he’ll probably spend the next 6 months spinning his wheels, making no progress, until finally giving up in a moment of overwhelming frustration.
If Mr. X did try to launch a foundational business first (let’s say, putting his idea on Kickstarter, or offering a service from an expertise he already had), he probably would have seen the nuts and bolts of starting a company, and had a better idea of the skills needed to successfully launch a venture.
But instead, Mr. X chose to start a business where basically everything was beyond his control and ability to execute on (and something he naively thinks will need $1 million to start, and even more naively thinks that he will be able to get $1 million for).
“But RC, [Insert Successful Person Here] started a successful company in college / high school / as an infant! Why can’t I?”
Because the issue isn’t them.
The issue is you and your abilities.
And if you look at people who were successful starting companies at an early age, you realize that many of those companies were…foundational businesses.
Take Cameron Johnson, for example, who started his first company at age 9 selling customized birthday cards (probably using the Windows 98 version of Print Shop Deluxe), and made $50,000 selling Beanie Babies over the internet.
Great business ideas, but not exactly something “unique” and “innovative”…these ideas had a super-easy business model and were super-easy to execute (easy enough a kid could do them…literally)
What’s your foundational business?
What’s a business you could execute easily, given your skills and abilities? Write below and let’s talk about it.
Have you started a foundational business, and are now onto something more exciting?
Are you working on a foundational business now to develop skills for a bigger venture?
Let me know in the comments below!