My dreams of having my own business started in college.
While my buddies were out getting drunk and trying to meet chicks, I often found myself at the library researching different business ideas. Although I try to meet up with my buddies from time to time, making money was the top priority for me. There was just something about having my own business, owning my own time, working on my own terms, and doing stuff I love that truly appealed to me.
My dream of business ownership remained a dream for a few years after I finished college. I went from one corporate job to another. None of the corporate management track jobs I got after college fit my own interests and fit the picture I had in my mind of the ‘ideal life.’ So I floated in my ‘career.’ A familiar pattern set in-I’d get promoted, I’d reach a certain level at a company and I’d find another company where I start a level that is a notch or two higher than my previous job. Rinse and repeat. It seemed pointless after a while.
I finally got the ‘Big Break’ I was looking for when the last company I worked for laid off 90% of its staff-including me-thanks to the Great Recession that started in 2008. I had enough money saved up, so I viewed my layoff as an opportunity to start my own business. Boy, has it been a ride? Here are the five key lessons I wish I learned before I started my business.
Lesson #1: Even if you won’t be approaching investors, you need a business plan
One of the biggest misconceptions about business plans is that you only need to put one together if you are going to be approaching people to invest in your company. My company didn’t have any outside investors nor does it have any investors now. Since I was going to completely bootstrap my company, I thought I didn’t have to hassle with putting together a business plan. Big mistake.
A business plan’s main benefit is that it forces business founders to get real. Seriously. Sure, your ideas will revolutionize the world. Sure, you think people will flock to your business’ doors immediately after you open. Sure, your idea is so hot it won’t fail. Well, guess what? If you think this way, you are thinking exactly like millions of other entrepreneurs before you. Everyone has a hot idea. The problem is that most of these ‘awesome’ ideas are often half-baked fantasies that have to go through an expensive trial-and-error process to build real companies around. I found this out the hard way.
My business actually went through several waves of service changes and service offerings until it hit its current suite of professional services. I wasted lots of time, money, and, most importantly, motivation and energy trying to throw everything at the wall and hoping something sticks. If I had only bothered to write a business plan before I started my business, I would have saved on all this lost time, effort, and money. The business plan writing process would have helped me identify my ideas’ weak spots and helped me identify alternatives and cost-efficient solutions.
Lesson #2: You have to take out insurance on key people in your company
Never build a company around the expertise of one or a few people-and NOT insure them. I learned the importance of ‘key man’ insurance policies the hard way when the Chief Technology Officer of my company passed away. A huge chunk of the company’s future direction died with him because he was the person with all the company’s software skills and expertise. If I had gotten key man insurance for him, I could have used the money to fund the purchase of software from an outsourced overseas company. Yes, he was that valuable-he was able to do a job you’d had to hire a whole outsource company to replace. He will be sorely missed.
Lesson #3: Don’t neglect general commercial liability insurance
The great thing about general commercial liability insurance (GCL) is that it protects you from threats within your company as well as from threats from outside your company. Early in my company’s life, we experienced a serious financial blow when a visitor to our office slipped and fell down the stairs. Since I leased the whole building and the lease had a provision where my company had to shoulder premises liability, I was on the hook for big dollars. If I had general commercial liability insurance, insurance would have covered the plaintiff’s damages.
Lesson #4: If you are going to retain inhouse counsel, make sure you get malpractice insurance
In one of the incarnations or evolutionary stages of my company (you pick whichever metaphor you like), we ventured into outsourced legal services. These services involved very sensitive information. I hired a buddy of mine who is a lawyer as in-house counsel. He was the company’s attorney and the company was his client. Well, he screwed up on a couple of (admittedly) confusing issues, and my company was on the hook for lots of cash. I could have saved myself from the drama of falling out with my good friend and saved the company’s bottom line if I took out legal malpractice insurance. Maybe if I took out legal malpractice insurance for my ex-buddy, we’d still be friends. As you can probably tell he and I were not very happy during the legal ordeal my company had to go through over the course of several long grueling years.
Lesson #5: Focus on making a profit instead of staying busy
This is one lesson I am still learning. I get excited when my sales representatives and account executives bag ‘big’ contract. The problem is, when I analyze the foreseeable effects of some of these deals, they don’t really make me money. In fact, many of them set me back. Why do I keep falling for these time and time again? Easy-I prefers to have everyone in my company stay busy instead of focusing on ROI. Focusing on ROI (return on investment) ensures that I will make a profit. It’s a hard habit to break but I am working on it.
If you want to pursue your dream of business ownership the right way, learn from the mistakes I made. Read the lessons above and save yourself a lot of wasted time, effort, and drama.