Small Business Ideas For…

I saw this keyphrase in doing some search engine / marketing research and having worked with hundreds of small business owners, wanted to give some hidden, less-known, and business-killing-if-ignored guidance.

The fact you’re reading this is great: Read why you *must* start a business here.

While SwiftCloud is hardly any grand slam yet (i.e. $10Mil+ in my pocket is my benchmark and expectation), it’s a solid lifestyle business and more importantly, we’ve worked with several hundred businesses over the last few years, and have seen both successes and failures – and learned some patterns you can adopt from the winners, as well as my own digesting of 100+ of the best business books including MBA studies.

First, the most common mistake I’ve ever seen:

Mistake # 1: Starting with the product, instead of starting with the buyers, i.e. the flow of money. 

If you want money, start by talking to people who have money and want to spend it on your service or product. Most people are in the Nike school of business: Just Do It, which is a major reason the failure rate of new businesses is over 50% in the first year – they jump in, without a real and solid plan on how they’ll get customers. Most businesses fail because not because they have a product – but because they don’t have enough buyers. Get 50,000 shoe buyers and you’re probably guaranteed to earn a profit. Get 50,000 pairs of shoes and you might just have a very full garage.

This doesn’t have to be some big formal expensive study, but don’t talk yourself into what you want to be true. Most people get excited and jump in – that’s great, but make the sales and marketing more of a priority than the product itself at first. Find ways to get pre-orders, sell gift certificates. All your friends will tell you “that’s great! love it! Sunshine and rainbows!”, but the moment you ask them to actually buy, pull out a credit card – many will start the stories, reasons… and the real truth. If they actually hand you their credit card or cash and agree on a delivery date, and it’s profitable to fulfill – you’re in business, IF you can get strangers to do the same thing.

Start Marketing immediately, even before you have a product, office, store, etc. Most humans are busy creatures of habit and self interest and frankly don’t care about you or your goals. To stick into their minds as the provider of choice for your service/product requires a brand – impressions and marketing.

Tip: In 99% of cases, if you decided to start the business today, you have at a minimum a few months of work ahead of you, setting up the brand, location, office or store or website, etc.

Mistake #2: Starting while injured.

A lot of people seeking for “Small Business Ideas for…” might have just had a door closed – i.e. laid off or unemployed and simply see it as a logical choice. This contributes to the high failure rate of business. It’s going to be more work and more expensive than you think to get rolling, but momentum is a powerful thing – you get the flywheel spinning, reassign a few hats, and next thing you know you truly can make a great income with freedom and flexibility, and you stop trading your time for money.

If you’re recently unemployed or fired, and are not sitting on $100k+ liquid to drop into your  business, just realize you’re starting with a severe disadvantage. Personally I’d say get back to a day job or get an investor as soon as possible, then when stable, start “setting the table” for your upcoming business – start working part time, and get some money flowing.

Money is the ultimate problem solver in business. If you have lots of money coming in, you can probably solve everything else – but lack of actual incoming orders – paying customers – is a the biggest challenge you’ll face.

Mistake #3: Doing too much yourself

This gets back to why you can’t start weak: You need a team, but partnerships frequently sour. Personally, I am fine with stock options to win staff, but I’ve seen healthy businesses turn sour when partnerships turn bad – it’s like a divorce. For that reason, for better or worse, I’ve always started my own companies alone, then pay up and grow some momentum, then bring on minority shareholders if needed.

That’s just me. Some people swear by partnerships, but be advised, it gets messy.. ranging from secret drug use, affairs with under age employees leading to lawsuits, people who have widely varying work ethics and desires. Like a marriage, they always start with sunshine and roses – but thorns come out over time, especially in bad times, and your baby business can get killed in the crossfire.

Furthermore, business is about hats – you’re going to have to wear a lot of hats out of the gate (sales, accounting, management, operations, etc.) – the sooner you delegate these hats down to your core strengths, the more likely it is your business will succeed. Assembling your team early – before you even launch – is smart and will save you headache.

A good tax professional will save you more than they cost – and so will a marketing expert (like me). Lawyers? It depends – you can setup a business online using places like IncParadise.com or Legal Zoom, but for partnership agreements, you don’t even know what you don’t know. There’s buy-sell agreements, “key man” insurance, a ton of other issues and pitfalls.

But remember: start with the money. Everything is solvable if money is coming in (mostly). Get some money flowing as early as possible before spending thousands on legal fees before you even know there’s a real business.

Hidden Mistake #4: Not Creating a “Flywheel” – a repeatable, systematic method for getting customers and clients.

There are a couple key goals of a business:

  1. Create a profit-generation machine wherein for every $100 you spend, you get back $200 – i.e. a profitable method of acquiring clients.
  2. Giving away all the “hats” (roles to fill) as the business grows. You win when you have created a *profitable* business, and given all the hats away. At that time, you have effectively, a cash machine – it spits out cash to you even when you’re not working. This is also the type of business someone else wants to buy.

In the excellent book “Good to Great”, Jim Collins talks about a flywheel metaphor, which is a repeatable process that on each spin, yields profit and growth. Once  built, and you have a proven system, you simply need to spin the flywheel faster and faster.

Most small businesses never truly build a flywheel. They are essentially a “practice” – founder-driven, based on the founder’s “book of business” i.e. people who know, like and trust her or him. If the founder dies or quits, the business is dead.

That’s not a true business in my opinion. It’s a job. It might be an excellent job that pays millions per year, but it’s still a job. The neighborhood plumber, auto mechanic, insurance guy – these are usually “practices”, and prone to disruption.

Mistake #5: Not leveraging experts.

Experts will point out hidden value. None of us know what we don’t know. We have things we know that we don’t know, but that’s where experts and consultants come into play.

A business financing expert may be able to show you how to buy a business using, say, “factoring” (receivables financing) to raise capital to cover a short term bridge loan (home equity line of credit, for example) combined with seller financing for very little out of pocket.

A marketing expert might save you $30,000 on cost of customer acquisition based on a $500 consultation.

Your vendors might give you 90 day terms on goods you collect for up front, putting an extra $100,000 short-term-cash into play for you.

The help is out there if you ask, and the cost of hiring a professional is usually more than offset by the money they save you.

What’s next?

I realize I didn’t actually give you any small business ideas for whoever you are, but guidelines for success. The ideas are all around you if you watch the flow of money. Simply find the intersection of (1.) something you know a lot about and can delivery, and (2.) that’s profitable, and (3.) you don’t mind doing. You don’t have to love it at first, sometimes that grows out of truly helping people and doing a great job. Frankly, this whole “do what you love” Hallmark idea is a bit trite – nobody starts out wanting to be a janitor, which is why people get paid. Everyone wants to be a movie actor in hollywood, but at any given moment, 99.8% of them are unemployed, and have some other job (i.e. waiter). For many, the love follows helping people in some way, then the business grows, then you get freedom – then sell the business and do it again. Or retire young!

3 Most Important Lessons in Internet Security

In the world of a dot-com startup, security is an easy thing to push to tomorrow.

Don’t get me wrong – we all know it’s important. But it’s rarely important AND urgent.

Until, of course, you’re reminded by the hackers.

Lesson 1: Schedule Security, or the hackers will schedule it for you.

Recently, due to *human* failure, one of our exterior-only (not core systems) was hacked, for simple commercial malware intent. Fortunately, losses were minimal, and he/she was not able to create a “back door”, and we know this was a reasonably inexperienced hacker, because he/she left a lot of “tracks” – the good ones immediately hide most of the evidence of their intrusion. He or she simply wanted to embed virus-installing malware links, which was removed within minutes. Nothing serious (no client data, no credit cards, etc.) was compromised – but it was a good reminder.

Lesson 2:  All hacks are either (1.) Opportunistic or (2.) Targeted

The opportunistic ones are fairly easy to deal with: Simply be a harder target than the next guy. As your e-business grows, and you have greater traffic, Google Pagerank (an unofficial semi-used indicator of SEO value) then the opportunistic attackers have greater reason to go after you. The opportunistic ones usually just want eyeballs to spam-ads, clicks to virus or malware, or hard drive space for as cheap and fast as possible.

The vast majority of hackers (99%) on the web are after simple things  – space in which to host malicious code, SMTP servers to spam from, zombie machines to swarm into a DDOS (Distributed Denial of Service attack), etc.

Much more scary are the targeted attacks.

Truly locking out 100% of targeted attacks is very, very difficult. Easier is making the cost and difficulty to hack you exceed the perceived or actual value of intrusion. Even major banks, the NSA and CIA, and internet security companies like Norton or Kapersky get hacked, often because a human dropped the ball more than code failure, but both happen. As SwiftCloud (company I founded) grows in scale / scope / perceived data value, I know it becomes a bigger target, and eventually, a hole will get found.

So for that, you’re left with the final major lesson:

3. Layer your castle walls

Internet security also includes human practices – the White House website was (maybe still is) written to a DVD-rom, then every 5 minutes uploaded to the live web server, so if anyone hacked it, their hack would live for a maximum of 5 minutes. This is fine for simple read-only sites, but impractical for today’s dynamic database-driven interactive sites, though it’s a useful lesson regardless. Keep backups and assume one day you will get hacked and everything wiped out. Recently we had a datacenter go down, and then the backup generator failed, and then the load balancer failed, causing a client’s mission-critical site to go down [note: this has since been revised, fixed, tested]. Assume the worst will happen, and restrict access to those who need it only, even if you trust them implicitly.

In our hack above, one of our employees was hacked, and the hacker then used that info to simply “walk in the front door”. Fortunately, we had restricted access enough it was just a lesson, instead of major cleanup or a reputation-killing public disclosure. In this case, the exterior site was isolated from the more crucial interior site, and the access was to a single domain, single database on a single server – I’m definitely not saying this to brag, I’m pointing out that security can and should be engineered in from day one. Tripwire and other security code is awesome – but it’s just one defensive tool of many.

Offensive plays make headlines, but require a solid defense to win.

Your Choice: Start a Business, or Fail at Personal Freedom

Let’s assume you like money, and living well, and also having time to do what you want to do.

Fair? I think I’ve cast a wide net.

Pretty much everyone wants this. We all want to live the 4 hour workweek, but the mechanics of what he describes in the book are heavily dependent on getting paid for results, not your time.

Which doesn’t fit most “jobs” i.e. typical employer relationships.

For that reason, you have only a few choices as I see it:

  1. Be born wealthy. Statistically speaking, there’s a 99% chance this is not your lot in life.
  2. Work in “Service Asymmetry”, i.e. pro athlete, movie star, very popular musician, in which millions or billions consume your product and thus you get paid very handsomely, can have a very short career and amass wealth quickly. Statistically, most people won’t succeed (or even try) at this. Most pro athletes end up broke anyway due to spending habits.
  3. Rapid asset accumulation, combined with high ROI, relative to your standard of living. If you live super cheap, make $130k/yr, save $70k/yr after taxes, then you could retire after just a few years… this doesn’t work if you make $60k, save $10k/yr – it simply follows the conventional gold watch plan (retire after 35 – 40 yrs of work). Statistically, most people won’t earn this kind of income AND keep their expenses low enough to make this work- $130k/yr is good income, but most people’s lifestyle pretty quickly rises to match as they follow the house / mortgage / kid / car pattern. Your goal here is your passive residual income exceeding your lifestyle expenses (burn rate liftoff – i.e. making $10k/mo/net rental income or investment yield with expenses < $10k/mo)
  4. Build a business and be successful at it. That 2nd one is a kicker, but if you have a day job wherein you get paid for time, this seems to be your only logical choice as I see it. Am I wrong? Comment below. Fortunately, the internet has created as many opportunities as hazards, and turbulent times favor upstarts not incumbents. Easier said than done, I know, but fortunately, new ways of thinking about this can drastically lower your risk and cost to get moving – i.e. the lean startup or pivoting from service to product.
  5. Redefine your employer relationship to get paid for metrics and results, not your time. For some, this will work – sales professionals for example, but for the majority, their job descriptions are probably too complex for their employer to actually accept this. Besides, automation favors the business owner, not you, so over time, they get more results for less of your time, and can then load you up with more tasks – so like it or hate it, the business owner has a financial incentive for you to stay hourly in most cases, then systematically optimize your workflows (while they reap the benefits, not you).

When just a child I loved robots.

I was born in ’75, so the early 80’s was a time of industrial automation, and fears over automaking robotics, bold claims for the future, and Tang. The inevitable future to my 8 year old logic was that some employer would own a fully robotic factory, and get all the money, while paying fewer and fewer employees. The first plant to go fully robotic would enjoy wider profit margins, affording more robots, outspending on R&D + advertising, and ultimately make the best company and dominate the market.

I was an odd kid. But am I wrong?

The market domination would then lead to an arms race, in which most of the humans would get displaced by the most cost-efficient production method, and while price competition would thin margins over time, the damage would already be done to the workforce.

So this is our world, like it or not. The real question becomes then, what side do you want to be on?

If you can’t beat ’em, join ’em. So I became a robot.

Ok, so that’s a joke for my wife – but I did side with employers and had similar concerns over the classic labor vs. capital power struggle (summed up nicely by friend Max: “What struggle? Capital won.”), which is why I’ve always bootstrapped. The good news: there’s never been a better time to bootstrap and start a business part time on the side, then grow the income to replace your day job – so you truly can live the 4 hour workweek if you choose.