Uncomfotable Situations Part 2

…The best way to deal with uncomfortable situations is to be completely knowledgeable about all facets of your business. Knowing that you can cover all the bases should any difficult questions or doubts arise will help you go into situations with confidence. This will allow you to put on a performance: you will articulate and persuade. Your chances of success are at their greatest.

Another issue with constantly throwing yourself into uncomfortable situations is burning yourself out mentally. Humans only have so much energy. The mental exertion that you inevitably spend adapting to each new situation wears on you. It doesn’t help that you often have poor nights sleeps and million other things to do besides just dealing with people when starting up your business. To minimize energy expenditure while still doing a good job, you must learn to be carefree. If you put too much emotional investment into each interaction or stress about about the interactions too often, you will burn out quickly.

Being carefree is highly difficult; a business is your sweat and toil. The key is to have perspective. Your business is not the be all and end all. If worst comes to worse you are employable (companies love entrepreneurs because starting a business indicates that you have initiative and passion). You can drift back into the working world should things go sour.

Uncomfotable Situations Part 1

In my fourth installment in a series of less than uplifting take away points about entrepreneurship I will discuss how:

(4) Entrepreneurship is UNCOMFORTABLE… You have a product in which you are passionate about, but soliciting others to enter into contracts with you, knowing that rejection is a likelihood, simply feels unpleasant. No one will feel as passionate about your product as you. When you talk to other potential business partners and you see their lack of excitement it takes the wind out of your sail. You can’t let that happen. You must sell them on your product. You must win them over so that you can garner their services.

An hour before asking someone for services (in a meeting type setting), you feel nervous. For example, I had to meet with the head of product placement for Metropolitan Market. I had to convince him that my pastry should be on the shelves of his grocery store. I knew I would have to exert a great deal of energy, come off as intelligent, and argue convincingly. The task in front of me seemed harrowing. Nevertheless, I summoned up the energy and convinced him to carry my product. After it was over, I felt extremely good. You feel a high high when you succeed. Most of the time, however, you don’t succeed, in which case you feel negatively.

The high highs and the low lows make starting a business an emotional roller coaster. If you can’t handle this, you should probably avoid starting a business…

Money Part 2

…I was wrong. I calculated that a piece of the pastry (Mochi) cost 14 cents to make, with just taking into account the ingredients that go into it. I figured I could sell a piece of Mochi for anywhere between $2 and $2.50. This appeared to be an ungodly profit margin. Hotels, who frequently retain 80% of revenue as profit, couldn’t come close to this margin. I did not even begin to consider that my costs could exceed revenues. Nevertheless, renting a kitchen for $15 an hour, paying $500 a month to rent a space for my stand, driving from home to kitchen to stand to home everyday (about $150 in gas per month) made the money add up.

I had banked on a high volume of sales because my location had some of the highest foot-traffic in Seattle. When sales were slow, variable costs greatly exceeded revenues. Sales ended up being slow too often. Total costs exceeded revenues on a monthly basis. I had to either shut down and take substantial losses or find an ulterior business model…

My assumption that costs would outweigh revenues was simply unfounded. Every budding entrepreneur should look at his cost structure meticulously. He should also come up with a reasonable projection for revenue, perhaps based on market research. Ensuring that the one’s financial resources will not deplete is critical. Ingredients must be bought and rent must be paid: the fact is, a business cannot function without money. While it is impossible to derive a completely dependable source of money, you must find sources that have a high probability of producing. This way, you are at least hedging your bets that your income will cover costs.

Money Part 1

In my third installment in a series of less than uplifting take away points about entrepreneurship I will discuss how:

(3) The MONEY MUST be THERE… First, you need startup capital to get the business off the ground. This is intuitive.

Second, your revenue must eventually exceed your variable costs. Many people with great ideas do not take this into account. Internet companies are the chief example of this: they are founded on great ideas, but ad expenditures frequently cannot cover the cost of paying employees. When I first tallied the costs and revenues of my business before I began operating, it appeared as if revenue would exceed costs…

Everthing Must Go Right Part 2

The small ingredients required for functionality torture an entrepreneur. For example, a huge problem of mine was finding a good location for the pastry stand where I could also access electricity. Electrical outlets are on walls, yet, placing a stand against a wall hurts its prominence. I had three options: go against the wall and lose prominence, buy a generator which is loud and expensive, or utilize extension chords which present tripping hazards to pedestrians. I opted for the last option.

No electricity would have equated to death of the business. A shiny business license, stand, canopy, and product mean nothing without electricity. Another small, but potentially life ending issue; I needed a place to store my stand. Without storage, in a metropolitan place such as Seattle, my stand would have been vandalized. Other minor life threatening things: I needed a vessel to transport the pastry from kitchen to stand without upsetting the shape or allowing it to go bad, a nearby bathroom for me or other stand employees to use, and a stand that could take rain without rusting. The list continues…

Unlike almost every other aspect of life, a business must fit seamlessly together. If one part doesn’t work the whole thing fails.

Everthing Must Go Right Part 1

In the second part in a series of less than uplifting take away points about entrepreneurship I will discuss how:

(2) EVERYTHING must go RIGHT… Again I shall examine my Japanese pastry business in order to illustrate this point.

There were a number of things that the business required in order to function: a stand, canopy, health department license, business license, spot to operate, and a kitchen to make the pastry. Without having each one of these things the business could not operate. Nevertheless, these are just the macro level things that I needed for making the business functional. A dearth of micro-level things existed. Although they were small things, they were life or death matters…

Complications Part 3

After many phone calls, this is how everything worked out.

My dad agreed to lend me six thousands dollars. Seattle Center agreed to play host to my stand in return for 15% of revenue or $500 per month. Simbree LLC agreed to rent out their kitchen to me for $15 an hour. Ballard Metal works agreed to build the stand for $3,000. An advertising firm (whose name slipped my records) agreed to build the canopy for $800. The health inspector and I worked out a design and cooking procedure that met health codes. After all my conversations with the inspector, she told me in a completely serious tone that, “I talked to you (me) more in the last three months than I did my husband.” The government approved my business license. I made deals with two wholesalers, Uwajimaya and Cash and Carry to buy initial ingredients for my Mochi (the pastry at my stand).

By use of a Uhaul, I brought the stand, fridge, canopy and signage to Seattle Center and setup shop. The business had finally gotten off the ground in early June of 2006. Note: after all this, I hadn’t even sold one item! Many many more complications presented themselves in the process of running my business, but I will not detail them. The take away point from this three part series is: founding a business is complicated.

Complications Part 2

Faced with a lack of funds, tough health code regulations, having the stand and canopy built for the right price and within the necessary time frame, lack of signage for the stand, lack of location, and lack of business and health department licenses, I took to calling everyone and their grandma (aka suppliers, government organizations, and food venues) to coordinate my operations.

Mind you, I was in Los Angeles at the time I decided to coordinate this business. Not only did I have a full course load as a second semester of sophomore year at Occidental College, I was a varsity member of the track team. To further complicate things, I decided to keep an active social life by juggling at least two girls at any given time. This entailed talking to them on the phone, going out, ensuring that my girls never crossed paths, and bringing enough passion and energy to each encounter to retain their interest.

As it all played out, my grades tanked, I had a mediocre track season and I ran my cellphone bill up many hundreds of dollars past the expected mark. Nevertheless, I dealt with my business related complications efficiently and effectively…

Complications Part 1

Here is the first in a series of less than uplifting take away points from my experience founding a business.

(1) EVERYTHING is COMPLICATED… I intended to start a simple business: a stand selling a pastry. I began looking for stands on the internet. The prices were outrageous with the lowest grade stand starting at $5,000. I called a number of restaurant design companies who gave me lower prices, but told me I would have to commission a steel company to build the stand. I called steel companies. They told me it could take months for the stand to be built. Moreover, they did not have the tools to build a canopy, which the stand would undoubtedly need. I also began reading the health code manuals for food establishments in Washington State. Rules such as requiring a sink, a health department approved kitchen to produce food and a bathroom within 50 feet of one’s establishment posed a serious problems, because they were very particular and not many venues could fit the requirements. Furthermore, I didn’t have funding, a location for my stand, or a kitchen capable of mass producing pastries. Wooooo!

The Fourteen Steps to Starting a Business

As taught to me in my collegiate Managerial Economics class:

1. Devise idea 2. Kitchen Table talk 3. Get commitment from founders 4. Quit your job 5. Write business plan 6. Seed capital 7. Hire first worker 8. Find home 9. Startup 10. Second round of capital 11. Incorporate 12. Sell first product 13. Third round of capital 14. Initial Public Offering

These steps do not have to be done in this exact order. Some things to note: #3 Kitchen table talk refers to talking to one’s close friends and family about the business plan. This is important to ensure one’s business idea is not stolen. #4 Quitting your job is important because the company you work for might claim ownership over the idea otherwise. Also starting a business is time consuming. Quitting your job allows you ample time to hone the business.