money-happyThe other day I met with Matt, Mike and Peter, three great friends and business owners. We’re all serial entrepreneurs and neither of us had started a new company in the last year, so we decided to start a new business together.
We talked for a good hour or so about what kind of business we wanted to start. We discovered that our definition of “the perfect business” was very different from those you can find in most business books. These are the criteria our “perfect business” had to meet:
We Should Be Able to Launch The Business in One Month
We don’t like planning for years and then opening our doors and hoping for the best. We like getting started right away so we don’t lose momentum.
We Should Be Able to Start the Business with Less than $2,000
This is why we decided to start with a very small investment:

  1. We want to test the market to make sure there is demand for our product.
  2. When you have little money, you’re desperate to make sales. That’s a good thing! When you have money, you feel like you can sit around and “wait for the business to take off”.
  3. When you have little money, you become very efficient. You negotiate more, look around for better deals and decide against expenses that won’t help your business grow.

We Don’t Want Investors
What’s the first thing business books tell you to do? To write a business plan and look for investors. We don’t like having investors for these reasons:

  • We want to be able to make fast decisions without having to seek for approval for everything we do.
  • We want to focus on creating value for our clients instead of making our investors their money back as fast as possible.
  • Too much money makes people lazy. They stop caring about small costs, they pay more for stuff they can get for less and they’re not as desperate to find clients as they should be.

I’m not saying that having investors is a bad thing; I’m just saying that I don’t want to have investors for MY businesses.
We Want a Business That Provides Cashflow from Day 1
You’ve read it before: start a business, work your butt off and sell it in 5 years for millions of dollars. Although some people try this and make it, the great majority of those who go this route fail miserably. I like instant gratification. I want to make money from day 1. I want to make money every month, not just once in 5 years.
We Want a Business That Generates Recurring Income
The beautiful thing about a business that provides you with recurring revenue is that:

  • You can afford to break even or even lose money to acquire a new client.
  • You don’t need to get new clients all the time in order to keep your business profitable.

Think about it: you give money to your cable and cell phone companies every month. All they had to do to get you to hire their services was to offer you a great deal for the first 3 months. Not a bad business model, huh?

We Want a Business that Allows Us to Charge Our Customers Before We Have to Pay Our Vendors
The hardest part of a business to manage is cashflow. When you have to pay for something before you can charge for it, you can get in trouble. Let me explain: let’s say you start a business with $10,000 and you sell $1,000 widgets that you pay $500 for. If you sell 20 widgets in the first month, all your money will go towards buying inventory and it’ll take a few days for you to get the money from your clients (because of shipping times, the money clearing your merchant account and getting deposited in your bank account, etc.)
You’ll run out of money and when someone orders another widget you won’t have any money to buy inventory. Also, you won’t have money for marketing and unexpected expenses. And, your customers will be upset that you can’t fulfill their orders.
Now, compare the scenario above with these ones:

  • You create your product ONCE and you can sell as many of them as you want without any additional costs (e.g. informational products, software, etc.)
  • You pay you supplier AFTER you collect the money. You collect $1,000 for every widget you sell and you pay your supplier $500 AFTER the sale is made.
  • You sell your supplier’s product and they give you a PERCENTAGE of each sale. This could be in the form of affiliate marketing or drop-shipping and out of these three options this is my least favorite.

The 3 scenarios described above are a lot less risky than buying inventory upfront and then trying to sell it.

We Want a Business We Can Automate

Some businesses are extremely complex and require a lot of time. We don’t like those. We like businesses that we can automate or delegate easily. We like processes that we can break down into smaller tasks and train high school students to do them. This doesn’t mean that we always hire high school students, but it’s a great way to think about it.
We Want to Do Something that Makes Us Happy
This is the most important criteria of all. To me, 40% of the happiness a business brings me depends on who I work with. I like working with smart people I can have fun with and share my way of doing business (mention “business plan” around me and I’ll run away from you as fast as I can).
The other 60% depends on doing something with meaning. I want to know that not only I’m making money but I’m also making the world a better place. I’m not talking about alternative energy or fighting poverty (although I’ll make a contribution to those fields some time soon); I’m talking about creating tools to make processes more effective, save people money, help them make more money, be happier, etc.
When you believe in what you do and get hundreds of nice emails from customers, it feels really, really good.