We have written extensively over the years on business, especially on our own experiences and the lessons we learned building the famous Barefoot Wine brand. Now, due to the coronavirus and the associated massive unemployment, more people than ever are considering starting their own businesses. Many are about to make the same mistakes we made, but they don’t have too.
Because we did not have the kind of advice we now provide, when we started out, we fell victim to many commonly held misconceptions about business. The idea that if you just have a great product that meets a big need, you will be successful, is wrong. The idea that if you just have a cute label and compelling catch phrase, sales will soar, is wrong. The idea that hiring, training, and team building is easy, is wrong. The idea that someone besides you will make the sales happen, is wrong. And the list of popularly held misconceptions goes on!
We learned many truths about business the hard way. Our subscription to these wrong ideas hurt us in many ways. We made wrong decisions, wasted too much time, spent too much money and spent too many sleepless nights. Many new start-ups are now poised to make those same mistakes. Sure, we eventually figured it out, but why go through all the suffering and anxiety that we did? We offer you access to the lessons learned by us, folks just like you, who have been down that road …and took notes!
And what does that road look like and what can you expect? New entrepreneurs need a road map that identifies the dangers of each stage of the journey with alternatives to help mitigate those dangers. But like any road map, you have to start with a clear destination. Entrepreneurship is anything but a Sunday drive, it’s more like a wild rocket ride!
So the first question we ask is, “Why are you doing it?” Some of the answers we get are troubling like, “It’s my passion,” or “I want to be my own boss,” or “I want to get rich overnight,” or even, “I’ve got a great idea!” While all these are popular, they may not give you the mindset you need to navigate the strategic decisions you have to make if you want to ultimately monetize your “great idea.” We’re not just talking cash flow here, we are talking about actually getting paid the big bucks that can happen through an acquisition, merger, or public offering. That is the goal all should keep in mind, right from the very beginning.
But in order to do that, you must take your idea, wrap it in a product; take your product, wrap it in a business; take your business, wrap it in a brand; and then build your brand to the point that it becomes an acquisition target. Some say they never want to sell their brand, but even if they wanted to, it would take many years to even achieve the metrics to attract an acquirer. Running your business from day one as if it were going to be acquired someday (even if you never want to sell) will help you navigate the road ahead. You will simply be much better prepared.
The Four Stage Rocket
So what about those stages on the road ahead? From our experience building and selling a major brand, we identified four distinct stages, each requiring different strategies for brand survival and growth. Here is a brief summary:
- STARTUP. You are about to launch or you’ve just launched. You are running on your savings or on your investor’s money.
Danger: You can run out of money before you achieve a positive cash flow. In other words, sales just don’t happen fast enough.
Mitigation: Before you launch, understand what everyone in the distribution and retail process wants from you, your brand, logo, label and package design. Understand where the low hanging fruit is sales-wise (how you will gain market access). Be resourceful and seek advice.
- BUILDUP. You have launched successfully and you have secured a few good customers, so you can pay your bills.
Danger: You have all your eggs in one (or two) basket(s). Any discontinuance now could be the death of your brand.
Mitigation: Quickly develop other customers. Even if they are smaller, their combined sales can help offset a sudden discontinuance by a larger customer. Resist the temptation to produce your product for one buyer – they will play you off against another producer who charges a few pennies less.
- BUILDOUT. You have achieved a positive cash flow and you are expanding into new markets. You are regularly gaining new customers.
Danger: Most businesses fail at this point. You can spread yourself too thin. You may have grossly underestimated the cost of sales and the cost of customer service and retention.
Mitigation: Start slowly, making your mistakes in a small, manageable place. Learn the true cost of sales and service before you expand. Carefully develop one market at a time. Learn what’s needed. It may cost you more in some markets. Leave those for later.
- ENTERPRISE. You have expanded. You are regularly making larger sales. You are beginning to be a major player. You are able to negotiate reduced supply costs due to efficiencies of scale. You are finally becoming an acquisition target.
Danger: Your company now has strict divisions of labor with departments that specialize in various types of work. It seems more efficient, but now your people are less engaged. They take sales for granted. They become isolated and insulated from sales and thus your branded product becomes less relevant to the marketplace. You are in danger of getting knocked off by a competitor with a more relevant branded product and more engaged customer service.
Mitigation: Elevate sales and customer service to the top of your organization. Recognize the essential role they play in the success of your brand. Establish formal lines of communication from your sales and customer service team directly to your marketing and production people so they can stay abreast of your competition, market changes, and your consumers’ feedback.
OK, Entrepreneur! It’s quite a multi-stage rocket you’re riding! We help entrepreneurs understand what each stage means and help them be prepared in advance. We have written over 1,000 articles on the subject, we have been published in many major busines publications, given classes to international students of entrepreneurship, and spoken for a hundred conferences and schools, and even written a New York Times best seller.
But more importantly, we have actually done it and got our butts kicked along the way …so you don’t have too! Hey! Experience counts! We’ve been there, done that, designed and printed the tee-shirt! And we have the experience it takes to help other entrepreneurs succeed faster.