The New Venture

Are you sure about this?

Question:

What is the most exciting aspect of starting a new venture? 

Answer:

That’s easy – Coming up with the idea.  The idea is fun – everything else is work.  

AND, it is work without pay.

So – how can you feel assured you will be successful?  The answer is not that hard because success can be broadly interpreted. Success can simply be creating a job for yourself.  This category includes a good number of services - Lawyers, CPAs, Realtors, Personal Trainers, Architects, Engineers, Landscapers – and the list goes on.

Success can also be achieved by creating a stand-alone business.  That is a company you put in motion and according to the structure you created, and eventually it can be operated by others. A perfect example – any franchise.

Regardless of your vision, when you launch you are adopting costs without any guarantee of offsetting income.  These are expenses that typically repeat monthly.  Add them to COGS for your initial burn rate, together they will determine your 1st break even threshold.  If you know the price of your product or service , quantify it by units and subtract COGS from the unit price; now divide remaining expenses by the difference.  

Now you know how many units it will take to overcome your monthly launch expenses.

Here is a simple example:

Your product will go to market for $100 per unit.  You can build 125 of them monthly inside the costs you have outlined.

Your COGS is $60

You are committing to rent, insurance, utilities, phone, licensing etc.

These are all G&A expenses – the G&A budget is $4,000 per month – that’s your burn rate.

You will need to sell 100 units to break even.

But you are only going to sell 5 units month 1 and increase sales by 10 units each month thereafter.  As you fall short of breakeven your expenses will continue to add up.  Under this scenario, do you know how much you will be required to invest? – 

Answer = $20,000.

How soon will you hit breakeven? – how soon will you recover your capital contributions?

Well, we know you clear breakeven in the 11h month – can you tell me when you generate a net profit? – 

Answer = month 31.

So here we had an idea where we could make a 40% profit on our efforts; and we have a market to grow into.  This should be a successful venture, correct?  

It is.  

This venture broke even inside a year and made a profit by year end 3.  

No profits until year 3 and you are telling me this is a recipe for success?

Yep - it is an excellent potential record – and it indicates how hard it is to create your own successful small business.

View the corresponding video to this blog post on YouTube, here!