Starting and Growing a Successful Business

killongy

Pigeon
We're in agreement but how would you suggest structuring $5M as just debt? Assume the company is small with negative cash flow and an existing line of credit from receivables. I've seen more of a debt & equity mixture. I encourage you to give your perspective. I'm just one person with just my experiences. My way certainly isn't the only way and most likely isn't the best way. It's fun because there's always something new to learn.

I've been trying to give the 30,000 foot view without getting into the details to limit confusion. I've skipped debt as financing but it's really important. In addition, many companies that I see have existing debt and stock structures that have to be fixed to move forward. I haven't talked about how best to structure your company for sale later on (C vs S vs LLC, keeping it clean, basis step-down, agreements for key employees).

One big area is scalability. I don't know how may times I'm pitched an idea from an existing company that wants to grow. They give a presentation about doubling the size of this group, tripling the size of the sales team etc. They don't add in the management overhead needed for these new hires. They underestimate how long it will take to get them up to speed and how much disruption to the existing workforce training will take. They don't know how ready the existing employees are to take on management roles. Some of the smaller companies need to learn about EEOC rules as you get larger. Evaluating how a company can really scale up is a big part of determining a good vs bad investment.

Now that I would be interested in!

Big thank you for the quality info thus far.
 
DVY - no, I actually don't work for anyone. I've been off the grid for almost 6yrs and am a business owner. The 5% upfront fee is for two reasons: 1) industry standard so you don't have to argue for it, 2) Math. Everyone focuses on the coupon rate. As an investor you care about yield. If you have a face value of $10mm on your loan, but only advance $9.5mm because of the upfront fee...this pops the yield without increasing the coupon. Same goes for any back-end fees.
 

fortysix

Woodpecker
Gold Member
Thanks for this thread guys -- In the future (I hope this future is distant) as this thread wraps up I will print it out so that I can go over it / consult it multiple times as well as write out some personal thoughts on it by hand.

I have a question I would like to ask as well. Since the name of the thread is Starting and Growing a Successful Business, I was wondering if we could take a step back - Can I ask you about the process for coming up with your business idea?

1. Did you come up with the idea for your business after you worked in a certain industry and identified problems and then solutions to those problems, or did you just randomly think of something through random brainstorming, and then decided to pursue it?

2. How important is it to work in the industry you work in prior to starting a business in that industry? (for instance, tech).

All of the businesses which I have been able to come up with so far have been service based - this generally means that if I'm gone, my business is gone as well. Further, in my mind, this makes it more difficult to sell a business after it has been created. I would really like to come up with a stand-alone product, but I have been intimidated by trying to develop something in a field foreign to me (I'm in the legal field, not much experience with tech, etc...) I have considered hiring people to develop my idea, but I don't know to what extent I would constantly be screwed my my employees, who would have substantially more knowledge than me.
 

paninaro

Pelican
se7en said:
All of the businesses which I have been able to come up with so far have been service based - this generally means that if I'm gone, my business is gone as well. Further, in my mind, this makes it more difficult to sell a business after it has been created.

Read the E-Myth book others have recommended in this thread. It addresses how you scale those through having good processes in place. As an added bonus, documented processes make a business much easier to sell, because it shows how it can basically run without you.
 
se7en said:
1. Did you come up with the idea for your business after you worked in a certain industry and identified problems and then solutions to those problems, or did you just randomly think of something through random brainstorming, and then decided to pursue it?

2. How important is it to work in the industry you work in prior to starting a business in that industry? (for instance, tech).

All of the businesses which I have been able to come up with so far have been service based - this generally means that if I'm gone, my business is gone as well. Further, in my mind, this makes it more difficult to sell a business after it has been created. I would really like to come up with a stand-alone product, but I have been intimidated by trying to develop something in a field foreign to me (I'm in the legal field, not much experience with tech, etc...) I have considered hiring people to develop my idea, but I don't know to what extent I would constantly be screwed my my employees, who would have substantially more knowledge than me.
In order:
1. Did you come up with the idea for your business after you worked in a certain industry and identified problems and then solutions to those problems, or did you just randomly think of something through random brainstorming, and then decided to pursue it?
>>>Yes, same industry. As they say, the hardest part is taking the first step. It is much easier to take the leap of faith if you plan to do something linked/related to what you were doing before.

2. How important is it to work in the industry you work in prior to starting a business in that industry? (for instance, tech).
>>>>I think it is critical, but this is just my view. I can easily move one degree of separation, maybe two degrees...but I just feel naked if it gets too far out of my wheelhouse.

All of the businesses which I have been able to come up with so far have been service based - this generally means that if I'm gone, my business is gone as well.
>>>>This isn't necessarily a bad thing. The key is to get off the W-2. I had a friend that was a successful entrepreneur, and he said to me two things on this point: 1) a service business isn't a bad place to start, just make sure you don't get stuck there, and 2) very few people really make their killing on their first business, it is the process of starting new businesses/ventures that leads to the home run.
 

Gringuito

Woodpecker
Gold Member
anonymous123 said:
This isn't necessarily a bad thing. The key is to get off the W-2. I had a friend that was a successful entrepreneur, and he said to me two things on this point: 1) a service business isn't a bad place to start, just make sure you don't get stuck there, and 2) very few people really make their killing on their first business, it is the process of starting new businesses/ventures that leads to the home run.

I won't repeat the other points that anon makes but I want to stress this. I started a services business before I was in college. But remember that it doesn't scale well so use any profits as seed money to something better. You want to find a business that will keep running even if you're not there as well as not be completely head-count dependent.

To his second point: What do all successful people have in common? Past failures. You need to learn from your failed businesses how to succeed.
 
Gringuito, it's rare to have someone share this info so selflessly, this is a very very motivating thread. Thanks a lot. I have a simple question for you as someone who has no experience.

What do you think of the recruiting pitch of consulting firms like McKinsey that, as a consultant, you can 'learn on the job' and somewhat inadvertently learn the ins and outs of running a business? How do you feel about consulting firms in general?
 
Great thread, I don't know if you're still replying Gringuito, but I have some questions for someone at the very beginning of a startup (but who has been selfemployed for a while).

I'm in tech too.

1) How do you feel about partners when starting out? Try to find a partner to help take the load off or hire people instead and maybe turn them into partners later on? Seems to me that searching out a partner specifically isn't the greatest idea and that it should come about more organically by surrounding yourself with other independent and enterprising people, such as working at big coworking spaces and socializing with the right people?

Which leads to:

2) What about bootstrapping? Thoughts on when and how early to look for some financial backup? I don't know where you are based, but what are your thoughts on bootstrapping in cheaper European cities like Talinn compared to Berlin or London where cost is much more expensive, even if you live spartan.

3) What are your thoughts on getting something on the market and making money even though you are inexperienced, learning as you go, versus going slower and putting out a more polished product but later?
 

Gringuito

Woodpecker
Gold Member
Rotisserie said:
Gringuito, it's rare to have someone share this info so selflessly, this is a very very motivating thread. Thanks a lot. I have a simple question for you as someone who has no experience.

What do you think of the recruiting pitch of consulting firms like that, as a consultant, you can 'learn on the job' and somewhat inadvertently learn the ins and outs of running a business? How do you feel about consulting firms in general?

I've never worked for a consulting firm but I'm a bit skeptical about learning how a business us run by working for McKinsey. I have used them before. Sometimes it's useful to bring in an outside opinion if your management team having too hard a time coming to a consensus on an important issue. It's better for the team to be angry at an outside consulting group than with other team members in the same company. I normally avoid using consulting firms if I can.
 

Gringuito

Woodpecker
Gold Member
berserk said:
1) How do you feel about partners when starting out? Try to find a partner to help take the load off or hire people instead and maybe turn them into partners later on? Seems to me that searching out a partner specifically isn't the greatest idea and that it should come about more organically by surrounding yourself with other independent and enterprising people, such as working at big coworking spaces and socializing with the right people?

I don't have a problem with partners, I've had them in most of my businesses. But be sure that one of the partners has a controlling interest in the company. There's nothing worse then two or more partners that have to agree before something gets done. The first time you don't agree it will put an enormous strain on the companies and employees. You can split the ownership stake at 50/50% but make sure one of you has 51% voting shares. That person should be you.

I've never had to search for partners, they've always been someone that I've known.

2) What about bootstrapping? Thoughts on when and how early to look for some financial backup? I don't know where you are based, but what are your thoughts on bootstrapping in cheaper European cities like Talinn compared to Berlin or London where cost is much more expensive, even if you live spartan.

I'm a big believer in bootstrapping. Beg and borrow as much as you can before looking for outside investors. Your goal should be to scrimp along until you're cash flow positive. Once you are the cost of getting money will go down quite a bit. This isn't always possible depending on your development and sales cycles but it should be a goal.

3) What are your thoughts on getting something on the market and making money even though you are inexperienced, learning as you go, versus going slower and putting out a more polished product but later?

You're in the tech space so look for the smallest possible product you can ship. Draw up the full product specs but try to ship a minimum complete product initially. Your first clients will then help you fine-tune the next versions along your product roadmap. You won't be inexperienced for long after your product is shipped.

I know others will tell you to polish your product for the best first impression. My experience has been it's better to ship faster and aggressively upgrade. Managing client expectations is important during this phase. Be careful to know what your development team can really deliver and try to be realistic with those initial customers about new feature timetables.
 
Are there books or links you could recommend for someone who is considering starting a business?

I have a few product / service ideas but have no.clue where to start.

Really trying to get away from working for someone else for the rest of my life.
 

ColSpanker

Pelican
Gold Member
Gringuito:
First of all, thanks for all the help you have been giving. I've been reading the thread closely.
The company I own with my business partner is considering a low-cost product for the home repair market. It has the potential to be very big, but potential is something you can't use as collateral. My business partner has been busy with his own company and doesn't seem to be very interested in the product.
Would it make sense to find an investor to get this product to market?
I know you are a fan of bootstrapping and that is what I have done for the past 8 years that I've owned this company. But I need to either make a clean break and move on or find another partner who will have the drive and money to make it a success.
 

Gringuito

Woodpecker
Gold Member
jayyrod1 said:
Are there books or links you could recommend for someone who is considering starting a business?

I have a few product / service ideas but have no.clue where to start.

Really trying to get away from working for someone else for the rest of my life.

I mentioned earlier in the thread about books I like: Millionaire Next Door, The Ten Commandments for Business Failure, and Good to Great. The best way to learn is by doing. Make some mistakes like the rest of us did and keep moving forward. As a mentor of mine taught me: It's easier to change direction than to get moving.
 

Gringuito

Woodpecker
Gold Member
ColSpanker said:
Gringuito:
First of all, thanks for all the help you have been giving. I've been reading the thread closely.
The company I own with my business partner is considering a low-cost product for the home repair market. It has the potential to be very big, but potential is something you can't use as collateral. My business partner has been busy with his own company and doesn't seem to be very interested in the product.
Would it make sense to find an investor to get this product to market?
I know you are a fan of bootstrapping and that is what I have done for the past 8 years that I've owned this company. But I need to either make a clean break and move on or find another partner who will have the drive and money to make it a success.

Is there a contract stopping you from developing this new product in a different company? You mentioned earlier that your business partner isn't as motivated as you. Maybe it's time for you start a new company without the partner. You can still work in the existing company. Or have your partner buy you out and use the money to fund your new product. After 8 years of working a company without hitting it big, it's time to evaluate if this company has the potential as it's currently structured to succeed.
 

ColSpanker

Pelican
Gold Member
Gringuito said:
ColSpanker said:
Gringuito:
First of all, thanks for all the help you have been giving. I've been reading the thread closely.
The company I own with my business partner is considering a low-cost product for the home repair market. It has the potential to be very big, but potential is something you can't use as collateral. My business partner has been busy with his own company and doesn't seem to be very interested in the product.
Would it make sense to find an investor to get this product to market?
I know you are a fan of bootstrapping and that is what I have done for the past 8 years that I've owned this company. But I need to either make a clean break and move on or find another partner who will have the drive and money to make it a success.

Is there a contract stopping you from developing this new product in a different company? You mentioned earlier that your business partner isn't as motivated as you. Maybe it's time for you start a new company without the partner. You can still work in the existing company. Or have your partner buy you out and use the money to fund your new product. After 8 years of working a company without hitting it big, it's time to evaluate if this company has the potential as it's currently structured to succeed.

No contract, other than we each own the company 50-50. He's hinted if I gave him control in the company he might do more, but I've let him know that shit will not be happening. Every time discussions get heated he floats the "dissolve the company" balloon. I've let a volley loose of my own lately: I buy his ass out.
Never thought about letting him buy me out. As he's mostly played the "silent partner" role, the company couldn't survive, unless he has a secret plan I don't know about. It is an option.
The current product under consideration was a joint idea. I'm sure he'd try to get a piece of it if I ever did buy him out.
But you are right. After 8 years it's time to bring this nonsense to an end.
 

booshala

Pelican
Gold Member
Great post, Gringuito. Good nuggets of knowledge being dropped in the subsequent posts as well.

At the end of the day, if it were easy, everyone would be doing it. I always have a few plates spinning but recently I've been focused on trying out wholesaling Chinese manufactured goods to a small but lucrative niche in the Southeast. Never knew about licensing, injection mold tooling, customs brokers, freight forwarding, insurance requirements, and numerous other components of this type of business.

In the end, I think you just have to grab your balls and do it after making the best educated guesses possible. Might sound like Captain Obvious talk to some, but I don't think I truly understood that until recently.
 
Is there a contract stopping you from developing this new product in a different company? You mentioned earlier that your business partner isn't as motivated as you. Maybe it's time for you start a new company without the partner. You can still work in the existing company. Or have your partner buy you out and use the money to fund your new product. After 8 years of working a company without hitting it big, it's time to evaluate if this company has the potential as it's currently structured to succeed.

Wow. Hard to relay the wisdom behind a post like this. Gringuito - I will PM you. It would be nice to connect.
 
Gringuito - thanks so much for your excellent contributions to this thread. Definitely one of the ten best threads there has been on this forum.

Quick question - with the mindset and knowledge you have today. If you were suddenly transported into the life of a regular guy with a regular job - how would you go about entering business and making money?

I am just curious as to what your first concrete steps might be?

For us regular Joes - we can follow a lot of the logic and reasoning in business advice. But we are often not sure what the best initial step would be? For example - would you petty much pick an industry at random - and have a crack at it - knowing that you will learn more by doing and failing than anything else? And if you happen to get lucky and make it big then all the better.

I hope my question makes sense? Me and many other regular guys love reading about business and shit. But it is hard to figure out what concrete steps you would take from going from having a regular job (with no cool contacts) to entering the sort of space you are operating in.

Cheers!
 

Gringuito

Woodpecker
Gold Member
cardguy said:
Quick question - with the mindset and knowledge you have today. If you were suddenly transported into the life of a regular guy with a regular job - how would you go about entering business and making money?

I was a regular guy with a regular job (more or less) when I left college. I had started my own very small businesses while I was still in college but they only generated money to help pay for books and expenses.

The hardest part is the leap of faith to start a business in the first place. As long as your employment contract doesn't preclude it (and even if it does) why don't you start a side business now? What is stopping you?

I am just curious as to what your first concrete steps might be?

Pick a name for your company, something generic if you want. File online or in person for a DBA (doing business as). It costs almost nothing.

For us regular Joes - we can follow a lot of the logic and reasoning in business advice. But we are often not sure what the best initial step would be? For example - would you petty much pick an industry at random - and have a crack at it - knowing that you will learn more by doing and failing than anything else? And if you happen to get lucky and make it big then all the better.

I only choose things that I'm personally interested in. If I don't think it's a "cool" idea I won't do it. What are your hobbies or interests professionally. Doesn't anything you're using while you're at work that pisses you off because it's designed poorly? Isn't there any company you have to work with that are arrogant assholes because they control a market?

And remember that all successful people have one thing in common: past failures. It's like game, look at a failed business as a learning opportunity. It's no different than getting blown out by a HB9.
 
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