Suppose that you are an entrepreneur and you want to start an online retailing company. You understand at the start that you will need to set up systems to handle order processing and fulfillment, customer support, inventory management, returned merchandise, accounting, etc., etc. But what if you had started other ventures in the past and already had infrastructure set up to handle those things?
For example, what about inventory management and order processing? Irrespective of the product that you sell, you will need warehouse space to store inventory (assuming that you aren't doing a drop-ship only operation), you will need systems for tracking inventory, space for filling orders and storing shipping supplies, and not least of all, you will need to have personnel who are trained to take orders, retrieve the merchandise from the warehouse, package it, and ship it to where it needs to go in an efficient and timely manner.
Suppose that, as a serial entrepreneur, you already owned a warehouse and that you had already set up systems to handle shipments and train personnel. Suddenly, starting a new retailing company isn't as big a task because much of the work is done already. Your warehousing infrastructure is a like a pipeline into which you can push new business ideas more or less at will. In fact, if your operation were efficient and automated enough, you could go into business handling inventory and order fulfillment for other companies! (Incidentally, there are lots of companies that do this if you are willing to pay for it).
The same thinking applies for other aspects of the business, from customer support to marketing to human resources.
Thinking about business in this way makes it much more interesting than it might be otherwise. An entrepreneur isn't "selling stuff." Rather, an entrepreneur is building machines and pipelines to automate the money-making process. I want to start an online retailing company simply so that I can build warehousing and customer support pipelines (making money in the process is, of course, a big plus).
Sunday, January 16, 2011
Monday, January 10, 2011
Lessons for Entrepreneurs
Suppose that you want to start your own business. You have a killer idea for a new product, you already have a prototype, and you think it will sell really well. You just need to build it and start selling it, right?
Wrong. Unfortunately, there is much more to it than that. When I started my own company I figured that I would be doing what I loved to do - that is, design and sell inertial and orientation sensors. I quickly learned, however, that designing the sensor itself is just a small part of the process. Running a business is a full-time job and if you want to be successful, you have to have a good plan beyond "I'm just going to make these and sell them!"
As a start, I've listed a few things below that you have to think carefully about.
Manufacturing
How are you going to make your product?
If your answer to this question is "Well, I'll just make them myself," then you are already off on the wrong foot. If your business experiences any appreciable growth, you will quickly be overwhelmed - and not just because you can't make your widgets fast enough. You will inevitably discover that running your business would be a full-time job even if you didn't have to make everything yourself.
If you are bootstrapping a new company (ie. starting with very little capital) doing manufacturing yourself might seem like a great option because it is cheaper and easier than setting up systems to do it elsewhere. With a little work, though, you can find ways around it. If you do end up doing your own manufacturing, then make sure you have a solid plan to stop doing it as soon as possible. Your business will grow, and you need a plan to make it happen. Don't be reactive or you'll hate life.
Marketing and Sales
How will you market your product? How will you accept orders? Who will handle order fulfillment?
Order fulfillment can be a headache. Suppose you have a system set up to take orders online. You make it live and, magically, the orders start streaming in. What now? Do you intend to print sales receipts and shipping labels, package, and ship each individual order yourself? You might get away with it for a while, but if you have any appreciable sales volume, you will find yourself swamped trying to stay caught up. You will run out of time, guaranteed.
It is easy to dismiss this problem by saying, "well, if order volume gets too high, then I'll just hire someone to do shipping." That's a good idea, but it's something that needs to be planned carefully and in detail. Where will your employees work? How much will it really cost to hire them (after taxes, unemployment insurance, accounting, etc.)? How will you train them so that you don't have to always be around to make sure that they do a good job? What kinds of systems will you need to have set up to make sure that employees don't make mistakes when handling orders? You need to answer these questions in careful detail before starting your company.
Customer Support
No matter how good and well documented your product is, your customers will always have questions. There will always be returns for defective products. There will always be lost shipments, incorrect addresses, damaged packages. How are you going to deal with these problems?
Again, the tendency is to think "I'll do it myself until I hire someone." But the same problems apply. You need a plan. At what sales volume do you expect to have to hire someone to stay caught up? Can you afford to hire an employee at that point? What about training? ... etc. etc.
Sales Taxes, Licensing, Accounting, Export Regulations, Legal Problems...
These are the uncomfortable, nitty-gritty necessaries inside any business. Expect to spend long hours keeping the books straight, making sure you plan for taxes, looking up shipping regulations, and generally lubing the cogs on your little startup to keep it running.
Can you see how you can become quickly overwhelmed if you don't plan carefully? You can't handle manufacturing, customer support, marketing and sales, order fulfillment, and everything else on your own. Even if you are "partners" with one or more other people, things can quickly spin out of control if you don't plan ahead (who is responsible for what? where does the "buck" ultimately stop?)
Incidentally, the same principles apply regardless of the type of business you are starting. An online retailer may not have to worry about manufacturing directly, but there will be issues with your supply chain, your relationships with manufacturers, etc. A software company will still have support and potentially shipping problems. A service-oriented business will have significant personnel management overhead. There isn't really an easy way out...
Wrong. Unfortunately, there is much more to it than that. When I started my own company I figured that I would be doing what I loved to do - that is, design and sell inertial and orientation sensors. I quickly learned, however, that designing the sensor itself is just a small part of the process. Running a business is a full-time job and if you want to be successful, you have to have a good plan beyond "I'm just going to make these and sell them!"
As a start, I've listed a few things below that you have to think carefully about.
Manufacturing
How are you going to make your product?
If your answer to this question is "Well, I'll just make them myself," then you are already off on the wrong foot. If your business experiences any appreciable growth, you will quickly be overwhelmed - and not just because you can't make your widgets fast enough. You will inevitably discover that running your business would be a full-time job even if you didn't have to make everything yourself.
If you are bootstrapping a new company (ie. starting with very little capital) doing manufacturing yourself might seem like a great option because it is cheaper and easier than setting up systems to do it elsewhere. With a little work, though, you can find ways around it. If you do end up doing your own manufacturing, then make sure you have a solid plan to stop doing it as soon as possible. Your business will grow, and you need a plan to make it happen. Don't be reactive or you'll hate life.
Marketing and Sales
How will you market your product? How will you accept orders? Who will handle order fulfillment?
Order fulfillment can be a headache. Suppose you have a system set up to take orders online. You make it live and, magically, the orders start streaming in. What now? Do you intend to print sales receipts and shipping labels, package, and ship each individual order yourself? You might get away with it for a while, but if you have any appreciable sales volume, you will find yourself swamped trying to stay caught up. You will run out of time, guaranteed.
It is easy to dismiss this problem by saying, "well, if order volume gets too high, then I'll just hire someone to do shipping." That's a good idea, but it's something that needs to be planned carefully and in detail. Where will your employees work? How much will it really cost to hire them (after taxes, unemployment insurance, accounting, etc.)? How will you train them so that you don't have to always be around to make sure that they do a good job? What kinds of systems will you need to have set up to make sure that employees don't make mistakes when handling orders? You need to answer these questions in careful detail before starting your company.
Customer Support
No matter how good and well documented your product is, your customers will always have questions. There will always be returns for defective products. There will always be lost shipments, incorrect addresses, damaged packages. How are you going to deal with these problems?
Again, the tendency is to think "I'll do it myself until I hire someone." But the same problems apply. You need a plan. At what sales volume do you expect to have to hire someone to stay caught up? Can you afford to hire an employee at that point? What about training? ... etc. etc.
Sales Taxes, Licensing, Accounting, Export Regulations, Legal Problems...
These are the uncomfortable, nitty-gritty necessaries inside any business. Expect to spend long hours keeping the books straight, making sure you plan for taxes, looking up shipping regulations, and generally lubing the cogs on your little startup to keep it running.
Can you see how you can become quickly overwhelmed if you don't plan carefully? You can't handle manufacturing, customer support, marketing and sales, order fulfillment, and everything else on your own. Even if you are "partners" with one or more other people, things can quickly spin out of control if you don't plan ahead (who is responsible for what? where does the "buck" ultimately stop?)
Incidentally, the same principles apply regardless of the type of business you are starting. An online retailer may not have to worry about manufacturing directly, but there will be issues with your supply chain, your relationships with manufacturers, etc. A software company will still have support and potentially shipping problems. A service-oriented business will have significant personnel management overhead. There isn't really an easy way out...
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