The Ultimate Small-Business Cheat Sheet is presented by Slate
Think you’re the next Jeff Bezos or Mark Zuckerberg? If so, this list may not be for you. The world’s meteoric startups—the rare few that topple industries and remake society—are usually built by breaking rules, not following them.
On the other hand, you probably aren’t them. Startups that turn into multibillion-dollar companies are the business world’s equivalent of lottery winners. Stake everything you have on a dream of a jackpot, and you’re likely to end up holding worthless scraps of paper.
Judging from the responses we received when we put out the call for nuggets of entrepreneurship advice, our readers understand that. Some have probably been through it—and if they came away poorer, they also came away wiser about what it takes to start a business that has a realistic chance to survive and prosper over time. The flipside of the sobering fact that roughly half of all new businesses fail within five years is that the other half survive. If you long to be in that number, read on.
What follows are 10 rules for starting a small business, chosen from among the many Slate reader submissions on the basis of readers’ votes and our own favorites. The list is designed not to encourage you to chase your wildest dreams but to help you turn your more viable dreams into a real livelihood. And, of course, it’s designed to provoke debate—so feel free to rebut, quibble, corroborate, or expound on these rules in the Comments section below. Thanks to all those who participated, and congratulations to those whose rules made the cut.
1. Be Realistic About Your Business Model by Patrick L.
When contemplating a business model, look around and find successful examples of that model to study. If you can’t find any, then you are either an extraordinary genius, or the business model can’t work in the real world. Choose whichever is more likely.
2. Don’t Invest Your Own Capital by Greg L.
If you knew with 100 percent certainty that your oil well would strike black gold, then you’d be better off borrowing the money to start it up, knowing full well that you could pay off the loan and keep all the future profits to yourself. But since most businesses are very risky ventures, especially new ones, you should take on equity partners instead (or consider crowdfunding sites like Kickstarter). That way, if things don’t pan out, you won’t be on the hook for the startup costs and you can move on to the next venture without debt hanging over you like a cloud.
3. Be Your Own Slave Labor by bubbg
Unless you are willing to work for hours on end, forgoing your own benefits and health—or unless you’re blessed with a 401(k) or a trust fund—entrepreneurship may not be for you. Many people burn through their savings, raid their children’s college money, and max out their credit cards to build a product using consultants, laborers, and experts—but not all these products even make the market. You can’t hire people cheaply unless you’re willing to work cheaply yourself (at least at first).
4. Value Your Time by Bruce Oberg
I mean this literally: Pick a dollar amount that your time is worth. You may not actually be paying yourself, but just having the number can help you make many day-to-day decisions. For instance, say your time is worth $60 an hour: If Costco will deliver your weekly supplies for $100, and it would take you two hours to do the shopping yourself, then Costco is the way to go.
(Editor’s note: This might sound like it contradicts Rule 3, but an economist will tell you that even slave labor has an economic value.)
5. Hire Well by Dom
Regardless of how small a business you own, eventually you will probably have to hire outside help, whether in the form of a cashier, clerk, or accountant. I can think of nothing worse than a business owner who has a vision for their business yet hires employees who consistently thwart this vision. Make the hiring process as careful and deliberate and important as the starting of the business was.
6. Sell on Features, Not on Price by Jerome Graber
When starting your own business, you naturally will be desperate for sales. But if all you are competing on is price, soon you will be selling at cost (or even below). No one can beat the “Wal-Mart” of their own industry on price alone. Instead, master the art of explaining to your customers why your higher price is actually a better value.
7. Know Your “Nut” by Ms. Sterling
Know exactly how much money you need to stay in business—everything from rent, electricity, and worker’s comp insurance to coffee, toner cartridges, paper, and even how much you pay your tax preparer. Divide that number by the number of days a year that you’re open for business, and that’s your “nut”—the minimum amount of money you need to bring in every day. Keep track of it on a daily basis: If you have a lot of days where you don’t make your nut, you need to rethink things.
8. Embrace New Technologies by Center for Public Policy Innovation
New technologies such as cloud applications and mass data storage have lowered the cost of entry for small businesses. These technology solutions are inexpensive and allow small businesses to compete with large corporations on a scale never before seen. Small businesses need to take advantage of low-cost technology tools, leaving entrepreneurs with more money to invest in their ideas.
9. Treat Your Vendors Well by David Myers
Treat your high-volume vendors at least as well as your best customers. They can discount your raw materials based on volume, or even just on the relationship and the hope of future volume. Also, with a good relationship you can count on them to be understanding about late payment on invoices and open to waiving finance charges or not putting you on COD.
10. Be Damn Good at What You Do by L.M.
An employee at a large corporation can afford to be mediocre—you can’t. Every job you do for a client has to be the best job you can do; every widget you make has to be the best widget you can make. Do that, and word will spread. Self-employment is a meritocracy.