Build a profitable business- the baby steps part 3

In the last part of our guide we discussed some common misconceptions regarding what it takes to create and run a successful business. In this part, “Build a profitable business- the baby steps part 3″, we are going to expand further on some of the most misunderstood thoughts regarding what it takes to become a successful entrepreneur.

In general there are two ways to strike gold as an entrepreneur. You either take an existing product or service and add value to it. Or you invent or come up with a completely new product or service. Let´s take a closer look at these two roads, and let´s understand the pros and cons of each.

1. Add to existing product/service. This is the most travelled road, and probably the best way to go about it. There is no need to reinvent the wheel in order to make it as an entrepreneur. Just make your wheel a better one. Make it appear shinier. Make it spin faster. Be better at marketing your wheel. Make it easier to fit. Find a way to manufacture it in a less costly manner. Sell it better than your competitors. Be more knowledgable than your competitors regarding wheels. Provide better service once the wheel has been bought. Offer your wheel in new cool designs. Be better at branding your wheel than your competitors. Have some sort of unqique selling point (USP). Ask yourself: why would a customer buy from me instead of buying from the next guy? What makes my offer different, and separates it from the crowd?

There are hundreds, maybe thousands of ways to take an existing idea, tweak it a little and go to market with it. It sounds easy. Let us assure you it is not. The concept is easy. It´s converting the concept into practice that is the tricky part. What we are trying to convey here is that it is not the idea in itself that makes a business. We were ourselves stunned as new entrepreneurs when we saw how pretty ordinary ideas could be transformed into serious wealth. If it was that easy why isn´t everybody doing it? Take a restaurant owner we know of. For 10 years he ran his restaurant. He made money most of those years. Not much, but it was a consistently profitable business. After 10 years he decided to open up a new restaurant. That one was profitable as well. Over the coming 5 years he built a total of 7 restaurants all over the city. While each restaurant didn´t make a lot of money by itself, the group of restaurants were starting to produce some impressive profits.

What made his business stand out? Did he have a revolutionary idea? Did he invent something new? Did he have a much better or more unique product than everybody else in his business? Not really. He just happened to know a lot about the restaurant business. Also, there weren´t many competing restaurant chains specializing in the same kitchen. When we talked to him about his success in business he doesn´t attribute it to anything in particular. He just claims he worked hard over a period of years, and over those years he learned his business really well. In essence, he knew how to make a wheel better than most other comptetitors. And once he had learned how to do business in a profitable manner, he could just duplicate that lesson over and over. Today there are 40+ restaurants in his chain.

When we asked him about the keys to his success he couldn´t really point to any one key factor. In fact he said he wasn´t really fantastic at anything. It´s not so much that he makes the tastiest dishes. It´s not so much that he had the best locationof his restaurants. It´s not that he was an expert at marketing. He simply claims that he knew a bit about everything and that the sum off all those things made a pretty profitable business. Moreover, he knew exactly what needed to be done in order to establish a new restaurant, and in what order to do it. He knew the process of doing business, and the end result of that knowledge is that he is one extremely wealthy individual today.

He feels, and we agree on this one, that you don´t really need to bring anything new to the table in order to succeed in business. You can build a successful business on an already existing idea, but you will give youself the best chances of success if you can add some value to the product or service you are providing. In his case, he feels that he added value to his business by being more knowledgeable than the next guy. “If you do something every day for many, many years you tend to learn what works and what doesn´t”, he told us. He simply took that experience and knowledge, and applied it to a pretty straightforward and uncomplicated business in a systematic way. He claims anybody could do it. We believe him.

2. Invent or come up with new idea. The other way to strike gold is to come up with something new, something that no one has thought of before. While we do recognize the potential value of being first to market with a great idea, we find this road to be a lot more narrow than the first one. After all, the pioneers are the people with arrows in their backs. New ideas hold value, and if you are on to the next great thing you should probably pursue that avenue. It´s just that we always look to our experience before we dish out any advice. Between us we have many decades of experience as successful entrepreneurs. On top of that we personally know lots of other successful entrepreneurs. Our empirical data on the matter is as clear as could be; most successful entrepreneurs are operating in pretty ordinary, almost boring businesses. Situations where someone has come across a revolutionary idea and built a successful business around it are rare. Situations where someone has “nicked” an existing idea, tweaked it a little, focused on great execution and cashed in 5-10 years down the road are plentiful.

Build a better mousetrap and the world will beat a path to your door, the saying goes. To some extent we feel that this saying is somewhat misleading. Our experience suggests that you are a lot more likely to make lots of money by standing on the shoulders of those before you, i e building your business around an already existing idea and adding your personal strengths and improvements to the coctail. You are much less likely to make money by coming up with the next Facebook or Google, speaking from a purely statistical point of view. Then again, if you do come up with the next Facebook, the wealth that a successful restaurant chain brings looks a lot like spare change.

So what should you do? Go for the existing idea or go all-in for the “next-best-thing-since sliced-bread idea”. Depends on where you stand as an entrepreneur. If you are young and new to this game we would advice you to go with an existing idea, learn as much as you can about it, pinpoint the areas where you will be able to add extra value and then go for it 100% for the next couple of years. The things you will learn doing this are invaluable. Event though that initial venture might not go as planned, it is likely that the skills you aquire will make you a very rich man down the road. A solid understanding of proper business is more important than a good idea.

If you already have a great idea, then by all means explore it. Try it. Listen to your gut and pursue your dreams. Where would we be if all of us kept ignoring the roads less traveled? If you succeed, that´s amazing. If not, you gave it your best shoot, you picked up a lot of skills along the way, and probably learnt a lot more about yourself in the process. That stuff will come in handy whatever road you wish to pursue later on.

We are not saying that one road is better than the other. All we are saying is that the vast majority of successful entrepreneurs out there all had some pretty uncomplicated, ordinary ideas. Instead they brought some other things to the table that made those uncomplicated, ordinary ideas into highly lucrative entreprises. What they lacked in innovative ideas and fisrt-to-market advantages they more then made up for. They excelled in other skills. These people are a success because they are willing to go the extra mile. They are in general hard-working, stubborn and border-line fanatic about their work. They are of pretty average intelligence, and their ideas are not exactly rocket-science. But they have a legendary perseverance and determination and they have a close attention to detail in their businesses. They succeed not because of the idea, but because of who they are and what they are able of doing with that idea.

When we are approached with business ideas or people who are pitching for a capital injection we are in general more prone to go with a chain of hot dog stands than we are to invest with the next great dotcom company (although we have invested in dotcom companies in some instances). The chain selling those hot dogs is a lot more transparent, a lot closer to profitability, and a lot more likely to be a good investment. While the next big dotcom thing has tremendous potential, we suspect that a lot more of those firms also hit the ground before they even get a chance to try to fly. Hot dogs? Well, they´ll probably be around in another 50 years. It´s just a matter of judging if the business model is sound enough. And moreover, it is about judging the skills and experience of the entrepreneurs making the pitch. Skill in business can in some instances even make up for a lackluster business idea. Of course, the best investment have everything in place.

Why we invested in the dotcom companies? Well, the way we see it a dotcom investment is really a derivative instrument, namely an option. What we mean by that? Well, the upside is considerable. The downside can, in most cases, be controlled and kept to a minimum. Since our doctom holdings are a smaller portion of our total portfolios of assets we see them as a way to bring some spice to our portfolios. Sure, they could go bust. But that don´t really hurt our overall financial health. As we have said before, we look upon these investments as options.

We are not trying to convince you to go with an existing idea and not pursuing a new one. And even if we were you should probably not listen to us anyway. The main point we hope comes across is that you don´t really need to reinvent the wheel in order to make it bigtime. On the contrary, most successful entrepreneurs we know of have pursued ordinary, straightforward, uncomplicated ideas and executed flawlessly. Success can be found in more areas of business than many people realize, and although making money online is a great way to start out a business on a shoestring, there are a lot of lucrative opportunites left in business areas with much less sex appeal.

It´s less about the quality of the idea, it´s more about the quality of the people.

It´s less about the idea, it´s more about the execution.

It´s less about being first, it´s more about enduring, and making it to the finish line.

Let´s get on with it and move on to the next part of our guide, “Build a profitable business- the baby steps part 4″, where we will continue our journey together towards entrepreneurial and financial success.

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