“Kevin, I have a great idea. I want to xyz; what do you think?”
The business ideas are typically related to one of six areas:
a) A brand new business/project that is offline, like a retail store.
b) An offline biz project like joining a MLM/network marketing group but it could be a service business.
c) A person’s first-time online project.
d) An online project separate from their main online business.
e) A new product or service for their current online business.
f) I want to write a book about….
Each of these COULD be a great idea for some people on some days. Maybe one will be a great direction for you! Maybe.
Before I go any further, know this about PROJECTS.
Projects like all those things up their are projects. If you fail at a project you are a normal human being. You get back up and pick another card from the project deck. Never think that “your business” has succeeded or failed. You did great or poorly on a project. Cool?
Now, even more elementary is that quite often, there is an air of secrecy about a new project. The person is thinking that if someone else had the idea, they would jump on it and hit the jackpot. I’ve heard thousands of “ideas” but none, not ONE, have ever needed that air of secrecy.
Good Ideas for the Seasoned Business Person
In general, (d) and (e) above are typically good ideas. This means that the person has already done it once, and they simply are going to make something else work or make something work for the first time.
Minor modifications are typically all that is required to put together something that has a good chance at success.
What About for the person who is New and Experiencing their FIRST Project or Business?
You’re rolling dice.
So don’t bet YOUR MONEY.
Bet your BRAIN.
In other words every business eventually requires MONEY and TIME. But the SMART person begins with investing a lot of TIME and significantly less MONEY.
My first suggestion is do NOT BUY SOMEONE else’s business!
In general business projects are all over the board as far as potential.
Some ideas are fantastic. Others would be almost impossible to work.
Most people overestimate the likelihood of SUCCESS of a project/business.
Most people underestimate by 5 – 10 TIMES the amount of clock hours required for a real project/business.
Most people COMPLETELY MISCALCULATE what to actually DO EVERY DAY in a new project/business.
“Kevin, I want to open a pizza shop/diner/gas station/convenience store/music store/ art store…or…I want to flip real estate/buy rental property.”
If the person has a pristine track record of making brick and mortar businesses work, it’s not so much the notion of whether the idea will “work”, but capitalization, optimizing location, marketing strategy and hiring.
And then…it’s a coin flip as to whether the project will succeed. Brick and mortar is TOUGH in 2016. It’s more likely a brick and mortar will FAIL both long and short term than it will succeed. PERIOD.
Aside from the seasoned veteran opening an independent store, I dread this conversation because 2016 is not the year to open a brick and mortar store. It would simply be illogical and unwise.
If you think you have an exception, get me on the phone for 90 minutes and talk me into your idea. It will be the best $1500 you’ve spent this decade.
Do a Sensibility Assessment
It’s simple. Before you go putting your time and/or money into ANY business/project, you do a Sensibility Assessment.
Today you get some key insights into just what that means in the real world, and you’ll see how to avoid blowing it…
Probably worth reading and then keeping this article forever…
There is a never-ending list of “opportunities” out there. There’s even new businesses in a box, where all you have to do is put up someone elses website that they have made and you are assured you’ll make money. Now that sounds great doesn’t it?
Obviously it is a disaster!
If someone is going to sell you a “complete business in a box”, and all you have to do is put the pre-made website up and the people will come, then why would any person sell it to you if it would be a sure thing for simply slapping it up on the web?!
It makes no sense because it is not sensible.
There are some projects and models that DO make sense. The are ideas that are likely to be fruitful.
What are they? …
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The Franchise Model: Sensible?
As you evaluate your ideas as possible business projects, go ahead and put those ideas up against something you can easily relate to.
Franchises:
Burger King, Curves, Starbucks, Lifetime Fitness, Meineke Muffler, Domino’s Pizza, Dunkin Donuts.
Some of them do quite well. McDonald’s, UPS Store, and Subway come to mind. All require more time, royalties and money than you want to invest.
Every now and then, offers have come my way to buy franchise stores from the store owners.
I never did it.
Why?
Because the math is not favorable for me, though the franchise store CAN be a good model for some.
Take a 20 second step back and ask yourself WHY does UPS Store franchise out that store over there instead of keeping it as a corporate store?
(Some McDonald’s you walk into are owned by McDonald’s. Some are “owned” by franchisees.)
KEY POINT and Answer: Simple. The upfront franchise fee plus receiving the 5-10% off the top of every dollar made is believed by the corporation (UPS Store/McDonald’s in this case) to be greater than the profitability of the store in the long run.
If the corporation believed that the profitability of the store would be greater than the upfront fee plus say 7% per dollar in the door, they wouldn’t franchise the store, they’d KEEP IT and run it themselves.
You should consider this core concept in thinking about every idea that isn’t 100% your original project.
IMPORTANT:
This doesn’t mean that buying the franchise store is a bad bet!
It might be quite nice indeed to be an owner of a franchise store that, while the income is likely to be modest, it’s long term stability is likely to be solid.
Just because McDonald’s believes their store is more profitable to franchise than to run themselves doesn’t mean they expect it to be a failure. They’ve simply made calculations that give them the highest probability of profitability. Period.
If it costs $100,000 to buy a franchise store (not a McDonald’s, which would be many times that number) and then you pay 7% per customer dollar forever, that means that you have a solid gauge to use when determining the reasonable maximum you could expect to earn.
If the store is projected by the company to earn 15%+ profit year after year, they’d keep the store. At 14% it’s a wash. At 13% they are better off having a franchise owner running the store.
So, in this case of 13%, you simply think, “OK, if I take home 6% (13-7) plus the salary the company punched in for managing the store, how much do I make?”
Realistically, that’s a management salary of say $40,000 plus the franchise owner making 5 or 6% of whatever the revenues of the store are. If that’s 6% of $1,000 per day, that’s an additional $15,000 per year. All these are just ballpark numbers, off the cuff. You get the basic idea.
I personally like a lot of the franchise models out there. Here’s the best reason:
For people who aren’t full blown entrepreneur types, people who want to have instruction manuals for businesses that are generally successful, franchise can be managed to make a decent living.
The new franchise owner gets a job working for themselves without having to figure out all the “how to’s” of running the business. There are worse options in life!
That said, the idea of paying 7% off the top of every customer dollar is a huge amount of money, and I’d personally prefer to have you keep that as a cushion if nothing else.
So for most, I suggest working a little harder and doing your own promotion.
If you have $100,000 sitting around, and want to follow a plan that is likely to do fairly well, a franchise might be a good idea. But if you prefer not to write that check, the lesson of the franchise helps you decide for or against your own cool idea.
Here’s your idea …
The Coffee Table Business Model
Now to your idea. Now, imagine you implement your idea. That would be your own Coffee Table Business….that’s a small business or cluster of projects or freelancing or something similar, from your Coffee Table.
There are potentially plenty of ways to turn that into six or seven digits.
Thinking back to a franchise store, you can’t realistically pull that off with the vast majority of stores in the vast majority of franchises.
It is, however, a lot easier to screw up your own idea because you are starting from scratch. The good news is, you can always start over and you aren’t limited to failing on your first try.
Consider your “buy in”.
How much are you investing, up front, out of your pocket in your business?
Maybe $1,000 if it is online. Not much of a risk.
That compares to $50,000 – $500,000 for a store in a franchise chain, not to mention the 5 – 10 year lease on the building space, which is huge…
And this is YOUR IDEA! I personally prefer the $1000 risk with your idea vs. the six digit cash out of life savings.
So with such little risk on the downside and a potentially significant upside, what could go wrong?
The most common screw ups in starting your own ventures?
They are the same as the experience of most who move in this direction.
These aren’t business mistakes, per se, but a general lack of knowledge about business. Two things come to mind.
1. Failing to understand the difficulties of acquiring large numbers of customers.
2. Failing to understand the profitability potential of a project.
A business is your customer base. A business is your mailing list. It is not the product you sell. It is not the service you provide.
If you know how to build a large and loyal customer base, you are in good shape.
If not keep reading.
How Many Customers You Have Matters
The first is simple.
Imagine you want to sell a Vitamin Product. Good for you! Cool. Say it’s a $20 bottle that will last a month.
Perhaps your profit is 40% per bottle that you sell and let’s say you have about 50 homes in your neighborhood and 50 people on your Christmas Card list. Of those, let’s say 20% can be persuaded to buy your GOOD PRODUCT. That’s 20 sales per month at $8 per bottle and you took home $160.
Now let’s say you have Facebook and 5000 friends that “friended” you. And let’s say you are going to be effective in winning over 50 of them to buy your product from your online store…. Now you will have earned another $160 each month.
You’ve spent nothing and made $320 for the month.
Nothing wrong with that.
IMPORTANT: Do this simple task to find out if you have more to earn from your current contacts/network.
STRATEGY: Try to GIVE AWAY something of modest but real value to the first 100 people that respond from your network, in this case, your Facebook friends.
KEY POINT: If you can actually give away 100 of something, you have proven you have the *attention* and interest of those 100 people AND you were able to get them to take an action.
In my mind, if you can give away 100 of something to your group of 5000, you have a starting point for the future.
Now you want to consider, how many of these people, whose attention you have, and who now have something of yours, will end up buying doing their business with you?
Perhaps 1/3, perhaps 5%. Let’s say you got really lucky and got 1/2 to buy something after they accepted a gift from you. This won’t happen very often in the real world…almost never….but what the heck…
That’s your Facebook 50.
Now this is where it is going to stop for the vast majority of your Facebook and Neighborhood Vitamin Customers.
Perhaps 1/2 of these people will still buy vitamins from you six months down the road and that’s great. So you have a nice income of say $320 per month. That is a nice little part time income depending on how these people will get the product from you. (if you have to pay for shipping, you will not be in good shape, if they do, you are fine.)
So, will Your Idea make you money? …
Can Your Hot Idea Make You Any Money?
So if you were asking me,
“Kevin, can I make a million on the Vitamin idea?”
“What if I had a downline or affiliates selling for me?”
“What if I had lots of other supplements people could buy as well?”
Will you make a million? Obviously not.
Before I tell you what I don’t like for you about this type of project, I want to share with you what I DO LIKE about network marketing.
The first aspect of network marketing I like is that you have a marketing plan created for you that you are to implement. Marketing IS business.
Another aspect I like about network marketing is that it teaches you the basic big picture of how to build a business.
Part of what bothers me about this model is that it’s NOT YOUR IDEA. It’s someone elses idea for you.
Nevertheless, before returning to your creative process, let’s look at the Vitamin Project a little more closely.
If you retained 50 customers and each one eventually does $100 of business per month with you and you are earning 40%, that’s $2000 per month.
Down lines and Affiliates?
KEY POINT: Here is the rule you should always use in your new small business or project:
NEVER assume ANYONE is going to generate income for YOU…except you.
Might you make millions because you have great affiliates or a “down line?”
Of course anything is remotely possible.
But you’d never use this kind of a “possible” as part of your plan. Anything generated from affiliates or a downline would be considered a bonus. It COULD be a huge bonus, but you would never project your income based upon what an affiliate or a downline might accomplish.
If you are content with $2000 per month, working say 20 hours per week and you are OK with asking friends and relatives to get their Vitamins from you, you have a nice little Coffee Table Business. Eventually, 50 people might buy your vitamins to the tune of $100 per month. It won’t be as easy as it sounds.
(Gut Check Question: Would you buy vitamins from your brother or sister…uncle or aunt…next door neighbor?)
The “friends and relatives businesses” aren’t among my favorites, but you could see how they could provide a nice supplemental income. The probability of such a project panning out to a full-time income, long-term, is small. Not impossible. Never think that. Simply, small.
On the other hand, if you already have a somewhat related business and already serve 10,000 customers selling health related products, you could reasonably expect to add 5% of those customers as Vitamin buyers…to your current customer total business volume.
Key Concepts to Keep in Mind…
KEY POINT: In general, the “small profit per unit sold” product doesn’t provide you a good business model for a myriad of reasons.
KEY POINT: Executing business transactions with family members and long-time friends can be filled with a lot of problems.
KEY POINT: I tend to frown on business projects where your net profit per sale is as small as $8 UNLESS you have an extremely LARGE customer base to begin with. The time and effort to earn $8 is almost always going to not be worth your time investment.
Now, let’s change the product and price. Now it’s YOUR IDEA. And YOUR IDEA sells for $200, and your profit per sale is 50%, that’s $100.
Already, this has much greater potential for success.
Why?
It’s just about as easy to build a customer base for $200 products as it is for $20 products. And building a customer base for $200 per sale, with people that are not relatives and long-time friends IS something you can sink your teeth into.
For most people beginning their Coffee Table Business, if they work full time at it online, it’s reasonable to guess they can develop 1000 customers in a year or two, and, assuming they all buy a $200 product, that is something that will begin to take care of you… $100,000 per year in income. That’s 3 sales per day. If the person was only going to work 250 days, you could knock 1/3 off that number and that might be fine.
Kevin, is it really EZ to make money online? …
It’s Easy to Make Money Online with Your Idea, Right?
Every online project requires commitment. If someone were to try to lead you to believe this was EEEZZZZ, you should back off.
If it was THAT easy, the competition would be on it instantly and it wouldn’t be EEEEEEZZZZZZ anymore. Such is the nature of business.
There are no ethical, moral, legitimate, no-competition, EEEEZZZZZ-to-sell products or services.
There are lots of great products and services, including stuff YOU DESIGN, CREATE, DEVELOP, MARKET and SELL.
Here’s another number for you to consider.
KEY POINT: For something that sells online for $100, a well-written piece of marketing copy can often cause 1% of visitors that come to your website or in direct mail…to become customers. Use that as a gauge in judging a projects sensibility.
If someone tells you that you can sell 10% of visitors to a website, they are not likely being truthful with you and you should stay away from them.
OK, imagine you’ve established that the product profit per unit is reasonable.
You’ve got a plan that is going to bring you a significant number of customers this year.
You’ve made sure you aren’t looking at a pipe dream but something tangible.
Laid out well with very few hypotheticals, (anything beyond your control) this is going to be a project that could really be worth pursuing.
Get Feedback From Those Who’ve Done It
Check with people who have been successful in business for 10 or 20 years selling online and offline. They will often have a good “intuitive gauge.” Certainly worthy of feedback and if they are successful they will tell you that they could just as easily be wrong as right.
They will ask you this question: How do you plan to sell it, market it, what will that cost and show me the breakdown of the acquisition costs….
When you have that answer, you are READY!
The plan is ready to be implemented with all systems “go” when you know that you have a Sensible and Viable Project.
Doing six figures online is very doable, particularly in your second year if you are full-time in your first year.
But, is it possible for me to succeed next year AND in the long-term? …
Kev, Is It Really Possible For Me to Succeed?
Can YOU do it? Do you have the talent? The smarts?
Fact is, that it’s not the smart, talented person that succeeds. It’s the person who focuses on their project(s) and invests the time.
Effort > Talent any day of the week. You can do it.
KEY: Are you passionate about this project?
(Or does this project help you in working on that which you are passionate about?)
KEY: Are you really going to be as dedicated to this project in six months as you are today?
KEY: Would you feel resentful if you had to work late into the night on this project or in this business? If so, you are starting a project that is likely to fail. If it excites you to face the challenge, you are home.
That’s the balance of The Sensibility Test.
It’s as simple as that.
