I often write on Quora.com, where I am the most viewed writer on financial matters, with over 271.9 million views in recent years.
In the answers below I focused on the following topics and issues:
- How can people, realistically, start a $1million a year business? What are the practical steps which increase your odds of success? What are some of the key mistakes business owners tend to make along the way?
- What type of business would I never want to own?
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Let’s start with two basic assumptions:
- Most business owners want to make money. Now sure, money isn’t the only reason to start a business, but it is one reason
- Most businesses fail. The failure rates gradually goes up beyond the 44% failure rate after five years seen in the chart below. Even fewer earn $1m in a year. Fewer still do it sustainably for years or decades.
The reason I mention these two things is simple. If starting a $1m business was easy, then everybody would do it,
Now, with those assumptions out of the way, let’s look at some practical ways you can increase your chances of getting to $1m.
- Start with something you have experience in
Get a job. Get good at it. Then start your own business. There are notable exceptions, but most successful businesses are started by people who get experience in a domain.
2. Keep your costs low and understand the difference between revenue and profits
If you have loads of infrastructure costs, your chances are smaller. For example, if you are renting a $10,000 a month office in month one, have $10,000 in fixed costs like salary, then you need $20,000 just to break even, and more realistically as you need to live.
Besides, having $1m in revenue but $1m in costs is pointless, unless you have some kind of long-term plan to reinvest and eventually become profitable.
It is better to have $700,000 in revenues and $200,000 in costs, than $2million in revenue and $2million in costs, unless you are just looking for an exit or have some long-term strategy,
Paying lower taxes is also part of costs. Let’s put it this way. If you are living in a cheap and low-tax country, and you can do all the key tasks like accounting and sales/marketing to begin with, your cost base is very low.
Eventually, you do need to scale, but start small and lean.
3. Focus on scalability
Once you have a business which is turning a profit, it makes sense to take loads of data and do many experiments.
The reason is simple. Let’s say you have found an advert which works really well.
Currently, you are spending $1,000 a month on it, and it is delivering loads of revenue.
In that case, scale it up. Invest more. Focus on making your processes more efficient so that you don’t need to spend loads of more time on things as your business gets bigger, because everybody only has 24 hours in a day.
4. Be confident but not complacent
You have to believe you can do it, because there will be so many naysayers. However, arrogance and especially complacency can be a negative thing.
5. Understand the path of least resistance
Why is Amazon so big? They have a good brand name? They are cheap? Furthermore, they got in at the right time into markets?
All are important, but I think the most important is that they make the buying process easy.
If you make it easy for somebody to buy from you, they will. If you make the process difficult, they might not, even if the product is great.
Silicon Valley actually counts the number of clicks the buyer has to go through to purchase, as they know it is key.
That is one reason Apple worked on Apple Pay and this button:
Not every business can be like Apple or Amazon, especially due to compliance in some industries.
Yet if you can at least make your processes easier than your competitors, you will have an advanatge.
6. Scale your ambitious
Human beings, as per the last point, like to take the easy option. Even people who aren’t lazy don’t usually like hard options.
A sensible business owner therefore makes processes easier. However, this tendency in human nature can also be a negative thing.
Business owners who start to earn a good living often take their feet off the accelerator.
The most successful business owners often don’t start off with the ambition to make $1m in a year.
They start off hoping to make $5,000 or $10,000 a month. Then they do it, and then hope to make $15,000, and then $20,000 and so on.
There are two sides to the balance sheet – costs and revenues. If you, as the owner, don’t know the basics of accounting and marketing, this is a disadvantage.
it is a huge mistake to think “well I can hire a salesperson”, or “the product sales itself”.
In this day and age, (most) consumers wants to deal with an expert in their domain who can communicate, not a traditional sales person.
They want thought leaders. And yet many business start up leaders think words like profits, sales and revenues are dirty words, and accounting is a boring word.
They are the oxygen that keeps a business going.
8. Don’t put all your eggs in one basket
I have seen so many businesses put all their eggs in one country’s basket and then regretted it.
I saw businesses go under in Thailand in 2014 due to the military coup, in Egypt and Tunisia in 2011 and now during COVID-19.
You can’t remove all risks. Life is about risks and as a business owner you need to take them.
But taking unneeded risks is silly. If you are focusing on one product in one economy when you could be globally diversified, that is silly unless there is a very good reason for it.
It is also important to have private investments as a business owner.
9. Be in a niche market
If you want to create a billion-dollar business, you might have to go mass market.
Yet most million-dollar a year businesses are in a niche market. as people want their problems solved.
If your specialism is helping doctors find jobs, you are more likely to attract people compared to if you recruit for all industries.
There is no need to be all things to all people.
10. Final things
Some final comments are:
- Work hard and smart, read a lot and pivot when you see a problem. It is better to fail soon and fast, and make quick decisions and learn from it, rather than waiting in some circumstances, Covid-19 caught many people by surprise as too few people pivoted in the 2010–2020, even though it was obvious we were moving into an online world.
- Avoid “vanity measures” like how many clicks you get, how much revenue you make if profits aren’t high etc
- Keep away from negative and toxic people and ideas. If you want to get physically fit, it is probably best to spend less time with smokers and alcoholics. The same is true in business. Get rid of negative influences in your life, and especially toxic individuals.
- Play the numbers game. You won’t succeed with most ideas, no matter how great you are. Even after you succeed, keep playing the numbers game with new ideas.
- Don’t care about the opinions of random people who don’t want the best for you.
- Do any activity which can help you to focus more. For example, reduce or eliminate bad foods, alcohol etc. Everybody does need some fun though.
As I said, there is no sure way to create a $1million business, but you can increase your odds.
The above just isn’t as sexy as some ideas, as it often takes longer, but it has a better success rate than starting a business in your room at 18 and hoping for private equity money.
Of course, the short answer is an unprofitable or illegal business.
Yet, from experience, it seems to me that the businesses with the highest chance of failure are:
- In hospitality. Bars, cafés, nightclubs, restaurants etc.
- Those that have high fixed costs and are labour-intensive. Perhaps that is one reason many cafés fail. The costs aren’t low, and the price is usually low, which means you need volume to survive. AND you are competing against the likes of Starbucks.
- Those firms that can’t be online and globally diversified. Relying on just one economy is more dangerous. If you have a global and online business, it doesn’t matter if one or two countries fail. You can even emigrate and nothing needs to change.
- Any business where I have to be there in person, at certain times of the week. So, for example, it isn’t easy to run a restaurant and not work Friday evenings and the weekends. It isn’t that I never work weekends, but I like having the choice.
- Any business where the risks are higher than they need to be, if there is no good reason for taking this extra risk. An example is a firm which could be online but sticks to the brick and mortar model. But I could have used loads of different examples. Another one would be where you are taking a serious risk with your health and safety, for little or no upside.
- Any business which is just done for vanity, prestige or social status. A lot of people start businesses for emotional reasons.
- Big risks of theft like brick and mortar jewellery businesses
Of course, you can make any business work, in any industry, if you have enough experience, knowledge and dedication.
That brings me to my last point. I would never want to own a business where I had no experience in.
It is far better to get a job first, get good at it and then start your own thing.
If you follow this rule, you can make it even in super competitive markets like restaurants.
It doesn’t make success a guarantee, it just dramatically increases your odds.
There are exceptions, such as if you are going into a new market or have a business partner with experience in the industry, but the basic rule holds true.
Ultimately, it is possible to indirectly own businesses which you have no clue about by buying stocks and indexes like the S&P500.
There is few reasons to put loads of your wealth into a private business which is starting up, if you have no experience running businesses in that area, and have never had a job in that industry.
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Adam is an internationally recognised author on financial matters, with over 271.9 million answers views on Quora.com and a widely sold book on Amazon
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To read more click on the link below.