Things I wish I knew a year ago – How to pick the right company to start

I founded 2 companies last October after Denver Startup Week. One failed and one is successful – learn from my many mistakes and hear my keys to success.  There are 3 parts

Part 1. How to pick the right company to start.

People struggle with coming up with an idea for a company and 90% of startups fail.  See how picking a business with the correct business model and profit margins that align with your passions can increase your chance for success.

Part 2. How to get customers – lessons learned in targeting and marketing

People assume that if they have a great product then customers will buy it.  They need to realize that customers need to know about their product before they can buy it.  Getting customers is hard and I made a lot of mistakes around choosing the wrong target customer and wasting advertising money.

Part 3. Opportunity cost, financial stress and the truth about becoming an entrepreneur

Becoming an entrepreneur is one of the most exciting experiences there is, but it is also really hard.  We hear about all of the success stories that help us to take the leap of faith and quit our corporate jobs, but after a few months the reality of paying bills and dipping into savings sets in.

Here is my draft article.  I am currently only 9 months into the year but I wanted to start listing out my lessons learned –

Lesson 1– how to pick the right idea for a startup: Mistakes to avoid

When I worked in the corporate work I used to constantly brainstorm different startup ideas.  Before I launched 2 companies last fall I emailed my wife, mom and sister a list of potential busineses and my sister emailed me back the idea for EasyGlitz.  There was a new trend she was seeing in DC with blowout bars opening up everywhere and she had heard of some companies in NYC and San Francisco that took it farther and did hair and makeup styling directly in people’s homes.  There was no competitor doing this business in Denver and I could be the first…..I thought I was on the verge of huge success but I overlooked three things.

  1. Passion – I am not passionate about hair and makeup.  I am a guy that only gets my hair cut 4 times a year and try not to pay over $15 for the cut.  I told myself I could become passionate about hair if the business was successful.  I lasted about 3 months before lack of passion took over.  During those 3 months I researched and wrote blog posts about how to fix dry hair, I went to multiple bridal shows, I worked a fashion show and had backstage access to the designers and hair and makeup artists, and I co-hosted a makeup lesson where it was 15 women and me talking about makeup.  My wife and sister were jealous but I was burnt out and didn’t really want to talk about makeup anymore.  For a business to be successful you need to be super patient and able to give it more than 3 months.

2. Margins – After the first few months EasyGlitz was making a profit on most appointments.  We had some appointments were my profit was $60.  However for an average appointment I made $10 and it usually required about 2 hours of work, so I was making $5 / hour.  Occasionally we got an appointment that I could not staff and I was so excited to get a customer that I overpaid for high quality and high priced stylists to do the appointment.  On one occasion I worked about 5 hours to lose $50 on the appointment.  When considering a business to start I would focus on high margin businesses and avoid most businesses that you see in a strip mall – restaurant, salon, and flower shops for example.

3. Outsourced – Another mistake was starting a hair and makeup business when I am not a skilled cosmetologist.  I did not realize how hard it would be to get high quality stylists and makeup artists to do appointments.  I had multiple stylists agree to do appointments and then the day of the appointment could not be reached.  It was my company’s reputation on the line and I could not step in and pick up appointments and save the day if I needed to.  Instead I had a stressful few hours trying to re-staff appointments and had to call a lot of disappointed customers and let them know that we could no longer do their appointment.

4. B2C is much harder than B2B – The final fatal mistake was starting a B2C business instead of a B2B business.  B2C businesses are exciting and are the usual stories we hear about – facebook, uber, google, etc.  They also require a lot more investment to acquire customers and usually have lower margins.  B2C are harder to start and be profitable, so I am super excited that the other business I started was a B2B business that has higher margins.   If you need ideas google best B2B business to start or go to a 1 million cups meeting and see what all of the challenges new CEOS are facings and find a way to solve any of those problems.  Usually problems are in the form of getting new customers or getting funding but there are a lot of other problems people need help with also.

Lesson 2 – how to pick the right idea for a startup: Keys to Success

The short answer is do the opposite of all the mistakes I made – So start a business that you are passionate about, that you can do the work, that has high margins and is most likely a B2B business.

Determine your passions.  At this point you don’t need to pick just one but it is a good exercise to list out what areas you may want to work on.  My first piece of advice would be to look at the following to help narrow down your skills and passions –

  1. What you studied in school
  2. Your current career path / skills
  3. Hobbies / how you spend your free time (look at your google chrome most visited sites)

Determine the business need – it may be an iterative process –

The next piece is to talk to businesses or customers and see what their challenges are and how your skills can help them.  Initially Finance Pals started by trying to creating business plans and financial projections for very new startups.  It turns out that startups at the stage of creating business plans are not ready to pay for consulting help and there are a lot of good free resources to help companies get off the ground although I still talk to founders about their business plans and I help guide them towards free resources.

Next I looked for finance jobs at startups because I really like the fun and fast paced environment of startups.  And strangely I could not find any jobs that matched my level of expertise.  There were a lot of 1- 5 year experience analyst jobs that I was overqualified for and other jobs that I was not a good fit for.

When I was at a networking event at Denver Startup Week I met someone that needed financial forecasting and bookkeeping help.  I starting working for Jeff the owner at Great Dental Websites and discovered that there was a big need for my services for companies that were still too small to hire any full time finance staff.  I updated my linked in profile about a week later and within another week one of my old friends form Accenture reached out to me and eventually became my 2nd client.

Originally Finance Pals was just a side business to make some extra cash while I was working on other startups.  Then I got a referral client and formally launched Finance Pals within the next month.  Now that I have launched  I can look back on it all and it makes sense but it did not all come to me in some vision.  It was an iterative process of trying to find my exact niche where my skills were very valuable to clients

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