I started my practice on a shoe-string budget. I can’t remember what I spent but it wasn’t much (see below). If I had to take a guess, it was under $5,000. No fancy paintings on the wall. No fancy computers. Hell, I didn’t even buy furniture (I will explain). The key to me was to start a business on the cheap, cheap, cheap and begin to build out as I made money rather than get it just right in the beginning. If you have any type of business, full or part time, you know it sucks cash up like crazy so best not to spend too much before any money comes through the door. Ever see a retail store or restaurant that opens up and closes very shortly thereafter? It is not because no one bought or became patrons of their establishment per se; in some cases, they blew through all their cashing opening up the business and didn’t have enough to stay around long enough to attract loyal customers. As my Dad told me when I started the business, watch cash flow carefully in year one.
If I had to do it all over again, and knowing what I know now, I would have spent more, less or the same on the following items opening a business:
More on marketing: A lot of small businesses have the following sales cycles- there’s a huge pop in the beginning as your family and friends buy or recommend you to everyone then comes a slump as the initial surge declines then one of two things happens- the business bears down, finds its niche and the business takes off or the business crashes since the owner-managers can’t get themselves out of the decline or they realize how hard it is to run a business and call it a day (I may have described the life and times of small cap stocks as well). You have to spend on marketing to get you past the decline. I was really cheap on marketing and, in hindsight, it kept my business smaller for longer than it needed to be. Not just any old marketing though- anyone can do a brochure. Smart marketing that educates your clients, conveys a unique value proposition and directs the reader to a call to action.
Less on technology. By way of context, earlier this decade, a good lap-top which costs between $600-$1000 now cost over $2,000 back then. I had the laptop, the 5 in 1 machine, laser printer, scanner- but I never used 50% of the features on any of the hardware. You don’t need a super-duper computer to run a business. Just a reliable, crash-proof computer with good book-keeper software.
Same on rent. I am a huge believer that the home-office doesn’t work; it is too much of a comfort zone and there isn’t the impetus to get out there and sell (which ever business has to do regardless). I had a home office for 3 months and was extremely unproductive then became a sub-tenant in a building for $600/month on a 1 year sub-lease. Best decision I made. It got me out of the house and into the routine of work (its hard to motivate yourself when you are self-employed sometimes). I got really lucky. My landlords were a great group of people who gave me free furniture (it was a total mismash- thank god for their board room), referrals and advice (which was priceless). I know a lot of small businesses want to save money by working from home but look at it this way- if you can become a subtenant (so you are not committing for a long period of time) in a place where people can give you referrals and business, your rent just got paid for and more.
More on employees. At one point I had to hire part-time help bad but I was cheap and got bad talent as a result. My assistant, let’s call her “Little Miss Quiet”, was very nice but never said a thing to me and never told me anything- like she needed help, didn’t understand my instructions (I am a notoriously bad instruction giver) or she had nothing to do. I was a bad employer- I should have asked her more questions. But Little Miss Quiet and I had a routine where I would assign her work at the beginning of the day (which I found out later she couldn’t do) and then we wouldn’t say anything to one another the rest of the day. One of the other assistants in the office actually pointed out to me that we rarely spoke and my response was “yeah, its like a bad marriage. No one says anything to one another but the quiet accusations continue to mount on both sides.” Yes, I admit I was a bad employer. We parted ways and I actually did two things (i) paid more money for another assistant who was great; and (ii) paid someone to train her since I knew I was terrible at giving instructions. The lesson being don’t cheap out on talent. One final note, my great assistant is in Generation Y. Don’t be afraid to hire young- just look for a hard-worker with a good attitude and they will want to learn.
The same on the optics of being successful. You know the optics of success: the brand-name furniture (“come sit in the Eames chair”), the gold embossed business cards, the fine china etc. etc. I spent exactly $0 on these- hell, I didn’t even bring a mug to the office. I just used my landlord’s guest mugs (my clients drank from mug without someone else’s business on it- cheap, cheap, cheap). I was in the service business. I sold me and not the stuff that surrounds me. I also believe that we spend so much time on optics and not on substance that if you can truly provide substance, you can stand out.
More on training and education. My biggest mistake was that I spent so much time just keeping my head above water that I didn’t spend any money on education and training since I considered it an unnecessary expense. In other words, I didn’t invest in myself. Training and education are important- they help you meet more people in the industry, expand your horizons and keep you energized. If I had to do it all over again, I would have definitely set aside a training budget and spent it.
As I am looking at the above list, it dawns on me that the common theme is that too little money is spent on the soft stuff of running a business (employees and training) and too much on the hard stuff (computers, furniture etc.). From a business perspective, people buy from people and not shiny metal objects so you have to invest in the soft stuff. From a personal finance perspective, I would draw the same lesson- think of the people you know who are smart money people; it is not so much they always own the best stock or investment product (the hard stuff) but they have wired their minds in such a way to be good with money which comes through education and experience (the soft stuff). Good luck to everyone starting a business.
Tomorrow I have a guest poster on entrepreneurship and on Friday I make my predictions about BCE.
June 11th, 2008 at 10:56 am
Great article. Spending the little bit of money you have on the many things that need it is difficult. One of the best ways is to leverage your job or another business to help subsidize your new business. For example, you could use your computers, cell phone, business phone line, supplies, suppliers, marketing, etc. from your job when starting a new business. Sometimes you can just use the ideas from your job or other business to help get you started. Starting from zero is impossible. Look around you and find the tools you need to help start your business.
June 12th, 2008 at 1:01 am
“The longer your office says starving young attorney, the longer you’ll be one.” — Selling The Invisible, Harry Beckwith (an excellent book if you’re selling services)
I don’t mean to argue (especially with a lawyer!!!) Let’s assume you’ve got substance (a prerequisite for going into business), you’re spending judiciously, and you’re in a service business. The optics of being successful then seem very important. They help instill confidence and create a better first impression. That leads to more business and helps justify the fees. Clients experience what they expect to experience (a placebo effect)
There’s another benefit: looking successful makes you feel successful which makes you more successful. This may seem silly but it works. Once again, you need to spend carefully. For example, a nice suit is probably more important than a nice chair.
I visited a suburban “905″ BMW dealership that looked like a Toyota dealership and used a Ford minivan as the courtesy shuttle. That wouldn’t matter if they charged Ford or Toyota prices. In contrast, visit the 5-storey BMW Toronto. The building and views take your breath away. Which helps justify the prices
June 12th, 2008 at 10:15 am
Riscario- I should put my comments in context. I piggy-backed off of the optics of my landlord who had a nice reception area and a nice boardroom so, again, I got lucky and didn’t need to spend on the optics of success someone did it for me. My experience speaking to most other people who had started a practice was that the fancy brochures got promptly thrown into the garage and the first fancy dinner was a nice treat then the client would complain about the 2nd one.
Your assumption of substance is also, sadly, not my experience in business. Most people have a great look but little after that. If you begin to drill down on the service provider, I found that most were fancy suits and not much else.
I like Selling the Invisible but it assumes competence and substance is present and needs to be wrapped up in a nice sales package. Alas, there is a lot of nice sales package wrapped around not much else.
Thanks for the comment; they are always appreciated.
June 13th, 2008 at 1:10 am
TMW: We’ve had different experiences but what we’re saying is more similar than I first thought.
Indeed, too few have substance as you get to know them — even with fancy designations and/or years of experience. That’s great if you’re in competition but disappointing in general. Ignoring those folks, you’re left with the eagles: those with competence and substance and perhaps in need of better packaging. They’re the ones I meant.
You’re fortunate to have found a helpful landlord with nice facilities at a low price. Brochures and dinners are probably a waste for the reasons you’ve given. In a service business, consistently providing timely, relevant information can be cheaper (email, phone, online) and more effective.
Thanks for clarifying/expanding.