Nothing to Lose, Everything to Gain

by Ryan Blair

  There are an unlimited number of entrances into the world of entrepreneurship—you don’t have to jump into it immediately, or even all at once. Some people can’t sleep at night without knowing that they have six months of living expenses in the bank. This is admirable and responsible. However, if this is your comfort level, you might not be ready to become an entrepreneur. You should start saving money now to have that security cushion, with the goal that in two years you’ll be ready to strike out on your own. You may even want to take on a second job during this time frame, knowing that the extra income is going to support your goals of business ownership and that the current sacrifice will lessen the risk to some extent.

  It might be better, too, for you to keep two accounts during those twelve months—one for living expenses once you start your own business, and one for your business fund. If you know that you tend to be a more cautious and risk-averse individual, then you’ll probably want to make sure that you’ve got a solid savings account not only for your family but also to have a nice chunk of change for launching your business when the time is right. It can take quite a while to get the right investors interested when you’re first starting out, so having in place several months of the initial start-up cost will be really important for your peace of mind.

  Maybe during this time you can begin to acquire the necessary equipment, establish your Web site, or research the necessary paperwork and tax laws regarding the kind of company you’d like to establish. By taking these small but essential steps, you can help to spread out the cost and the legwork over a longer stretch of time so that the impact isn’t quite so jarring and the financial burden of the start-up cost doesn’t hit you all at once.

  The same thing is true if you’re someone who is not comfortable with owing large amounts of money. Though they are a great tool for a lot of people, small-business loans might not be the best route for you because of the looming knowledge that payments are going to come due and interest will be accruing. If that’s how you feel about the matter, that’s great—it’s healthy to want to live debt-free. Unfortunately, that’s not an option for most first-time entrepreneurs.

  When I started SkyPipeline I had to put a lot of expenses on my credit cards. I personally guaranteed hundreds of thousands of dollars in loans and had to live off the company. This technique for starting a business is called bootstrapping. I remember saying to myself, “If this doesn’t work, I’m ruined.” Leveraging yourself as I did is not for the security-driven, employee-minded person. I recall having to make several difficult personal decisions in order to keep the business alive. I can look back now and say it was all worth it; however, I will never forget the feeling of financial uncertainty that haunted me along the way. My advice to all entrepreneurs is to try to avoid personal guarantees. I’ve learned this lesson the hard way.

  In the end, though, you need to be aware that nothing will ever remove all the risk. No amount of preparation—personal, financial, or otherwise—will completely lift the uncertainty that surrounds business ownership. There is no fail-safe approach to being an entrepreneur, which is why it is so important to do this self-assessment before you get into the thick of things.

  The most important thing is that you know what you’re getting into. I’ve been in scenarios just like those listed above. Each is scary in its own way, but you have to know how far you can go before you break.

  The other thing you have to consider is what the risk tolerance is of the other people in your life. Who else is depending on you, and how much risk can they tolerate?

  What other needs exist in your life right now? If you’re married, what is your spouse’s employment situation? Will he or she be starting this business alongside you or working at another job that will be supplying income as you pursue your own business? Do you have any children who will be getting ready to head off to college soon or who may have special needs? And what about elderly parents either within your household or in assisted living—do you provide any support for them? Will you be needing to in the next few years?

  If you feel confident that you can take on a business, where is your partner’s breaking point? At what point will your spouse decide he or she can’t live with the uncertainty and the sacrifice anymore? You may be able to weather the storm, but if your partner can’t—if your partner craves security over any of the entrepreneurial drivers of independence, wealth, recognition and fame, or contribution—then you may need to rethink your plan.

  Perhaps you can agree to a prearranged stopping point when you will both decide that enough is enough. You may be considering this business move in order to provide your family with a better life, which is totally admirable. If you are lucky and your family is fully supportive of the risk, you’re going to be starting out in a great position with a solid support system in place. But if they aren’t on board with your plan and don’t share the same level of risk tolerance as you, your work on their behalf may all be in vain.

  I’m not giving empty warnings; I know firsthand that this can happen, because I have lost a few relationships over this same issue. You have to make sure your family is supportive of the work you are doing and the lengths to which you have to go in order to get your company on its feet. Otherwise, the discord that can result is a risk you’ll have to consider as well. That’s the only relationship advice I will give; I’m no expert on the subject, but I can tell you to make sure the person you’re with can handle your career and its high risk.

  There is a risk in making the move to start your own business, but there is also a risk in not acting. Don’t let fear stop you from doing what you feel driven to do.

  Martin Luther King Jr. once revived a quote from Benjamin Franklin, who said, “Most men die at 21; we just don’t bury them until they’re 60 or 70.” Don’t be someone who lives a life of excuses instead of action.

  GET REALLY UNCOMFORTABLE

  Closely related to your tolerance for risk is your willingness to sacrifice. You need to be able to stomach a large amount of uncertainty in your daily life, and you need to be willing to pare down to a minimal existence for as long as it takes to reach a point of sustainability in your company, which means at the very least a year or more. You have to determine just how uncomfortable you can stand to be, forfeiting not only luxury items or small indulgences, but also forgoing your physical comfort. You need to consider this seriously because without a willingness to sacrifice, you are never going to achieve your business goals.

  Sacrifice is a word we tend to hear a lot about from politicians, but it’s not something most of us keep in the forefront of our minds every day. However, that is going to change when you enter the world of entrepreneurship. Sacrifice is going to be echoing in your head constantly as you make decisions about what you can afford, what you need, and what you’re going to have to plan for.

  There are several steps of sacrifice you’ll have to take even before you formulate your business plan, starting with how you think about money in your personal life.

  I think most middle-class Americans are in a holding pattern of comfort. They have a desire to keep up appearances, and then those appearances take on such a semblance of reality that the people living them believe they have to borrow money to maintain a lifestyle that was phony in the first place.

  When I was growing up in Southern California, wealth was all around me. Even while living as a normal middle-class kid until the age of thirteen and then as a poor street kid for several years after that, I saw how the most successful business people, investors, and other professionals lived. Their lifestyle was what I wanted, and I was always curious about what it would take to get from where I was to where they were. What was different about the way they thought that opened them up to such success?

  By the time I was in my early twenties and was back in the middle class, I had established a pattern of living that seemed very different from my neighbors. Whenever one of them earned a large amount of money, a new car or a new boat would inevitably show up in
the driveway. Maybe a woman would be flashing some new jewelry or a man would be sporting a Rolex.

  I fell into that trap more than once myself, purchasing a flashy new car that would stretch my budget or taking a lavish vacation with my raise or bonus. It feels good to spend money—I would feel like I had finally attained the standard of living I’d always wanted . . . until the bill came due. And then I realized the biggest difference between me and those people I had wanted so badly to emulate: they could afford to live in the manner I was only pretending to. And why could they afford it? Because they had been smart with their funds early on and could now reap the benefits.

  Once I understood that difference, I quickly realized that my money would go a lot—a lot—further if I reinvested it instead of spending it. Once I started to channel money away from personal comfort items or status-driven indulgences and toward more entrepreneurial investments, I found that the returns would almost always generate even more capital. At first I spent the money expanding my business. Later I was able to use it to invest in other promising companies. And as the luxury brand items were depreciating in my neighbors’ driveways or closets, my money was continuing to grow. Investment over consumption—that has to be an entrepreneur’s mantra.

  There is nothing wrong with spending your own hard-earned money in whatever way you see fit. My stepfather always told me to take 5 percent of my gains and reward myself, but that was it! When you start making millions a year, you can have a lot of fun with 5 percent. I am a great proponent of incentive and rewards programs. However, the long-term future of our money depends on the choices we make for it today. Do you want to have a business that is stable, a community fixture, and able to weather the markets? Do you want to reach a point when, maybe someday, you could maintain a comfortable lifestyle simply from the interest paid from your capital? Then you need to be willing to make sacrifices now.

  Don’t fall into the unhealthy pattern of continuously chasing the next cheapest offer for money from banks or credit card companies. That’s how people land in debt, bankruptcy court, and in the cycle of miserable employment. The entrepreneurial road is continuously obstructed by the chase for cash. If your debt-to-income ratio is too high, you will never be able to launch your own business because the security of a secure income will keep you tied to your current position (if you are still employed), even if the work is mind-numbing. If you are currently out of work or anticipate being there soon, the same is true. If you are locked into debt and financing beyond your means, you will be desperate to take the first job that comes your way simply to be able to make your minimal payments. If you’re in a hole, quit digging and do what you truly desire.

  If you are part of the “comfort chase,” as I like to call it, you have to start changing your mode of thinking long before you can hope to launch a feasible business. You have to think of your money as a tool for investment that is continuously working to bring you a return and build wealth rather than as a tool for buying you luxury items that only make it appear as if you are wealthy.

  Remember that each time you decide not to spend, each time you choose not to pursue a new line of credit, you are investing in your future security and the security of your business. The point of investment, after all, is to sacrifice with a bit of risk in the present in order to return dividends in the future.

  If you really love what you want to pursue, necessary sacrifices will be much easier to deal with, which is why it is so important to have your driver and passion clearly identified before you start pursuing your dream.

  But the fact is, the business world is built on more than just dreams. It’s built on hard numbers and profit margins. And that’s where the second level of sacrifice comes in. Once you have made the necessary changes to your way of thinking about money before your entrepreneurial leap, you have to be willing to maintain those changes—and possibly even take them to a new level—once your plans get rolling.

  When you have external investors in your company, you have a duty to make them a return. An investor might say, “All right, you told me what you love and how you propose to build a business around that. But what I want to know is how are you going to fund this business to support yourself and your lifestyle?” If you haven’t considered the way you’re going to live while getting your business off the ground, an investor is not going to be interested in anything else you have to say, because it means you haven’t thought through the situation thoroughly.

  But an entrepreneur who is asking for other people’s money should not be asking for what she wants to live on, neither her eventual salary goal nor even an amount equal to her current lifestyle demands. An entrepreneur has to ask for what she needs to live—and that means preparing for sacrifices.

  As an investor, I want a person who is going to sacrifice to get me a return on my investment. Consider an investment pitch that opens like this: “I want you to give me five hundred thousand dollars for a year to fund my business and I’m going to take half of that to live on.” No potential investor would be willing to commit to such a plan. I know I would turn it down because in a plan like that, not enough of my money is put to use. What is the incentive for the business owner to work harder if he’s already living comfortably?

  Now if the entrepreneur were to say, “My bare requirement to live on and to pay for my children’s school, my mortgage, and all my bills is seventy-five thousand dollars a year. I need to earn that and I need to earn more than that to be comfortable and have security,” then I would be more likely to listen. We could work out a plan where I could tell her, “Maybe there’s a way that I’ll give you seventy thousand dollars if you hit your targets and another seventy thousand if you exceed your targets.”

  Too often I meet entrepreneurs who are there to negotiate, and they misread my words when I say, “When you are looking for other people’s money, tell people what you need versus what you want.” You should never say “Here’s what I want” to an investor unless you’re in a position of strength, that is, you have a business that’s strong, profitable, growing, and in demand.

  I know what it takes to get a business on its feet—and I know that you have to stay hungry for the next sale in order to pour the right kind of energy into your development in the early stages. If you’re not uncomfortable, you’re not going to be working so hard to create a superior product and pursue clientele.

  Take a look at your estimated start-up cost, then divide that number in half. Could you make it work on that amount? Divide it in half again. How about now? Those are the numbers you need to be considering when you anticipate your standard of living. When the available resources are greatly reduced so that you’re in survival mode rather than surplus mode, it’s amazing how quickly items that seemed to be necessary suddenly become less so. Your essentials shift when your priorities do.

  Repeat this same halving of capital with your estimated monthly budget needs. Could you make the business survive—could you survive—on an amount half or even a quarter of what you initially projected? If you find yourself facing that reality, what will you be willing to sacrifice in terms of your business plan and your personal life in order to keep the company afloat? The answer to that question should be “whatever it takes, up to everything I have.” Make sure that you account for every necessary expense as you determine the amount of your capital dedicated to selfpreservation. This will become that starting point for your business plan.

  There is one more step of sacrifice that will be required, and that is your time.

  I often jokingly explain entrepreneurship like this: you get to set your own hours—you pick the seventeen hours of the day that are best for you, any seven days of the week. Of course, as exhausting as the hours can be, if you’re doing what you love, it doesn’t drain you in the way that the previously described Death Cycle does.

  Once your company is on firm footing, you’ll have far more flexibility and far more freedom, but that doesn’t happen overnight. It certainly doesn’t happen
within the first couple of months either, or even the first few years. Remember that your goals lie further down the road at the five- or ten-year mark. That means you need to be willing to give up your free time now for the sake of having much more of it in the future. Without the sacrifice of personal time, your business will not have sufficient muscle and drive behind it to launch successfully and build momentum.

  What it all comes down to in the end is the same refrain that is laced throughout this book: there is no secret by which you can bypass the hard work, sacrifice, headaches, and sweat equity required to establish and grow a business. The advice in this chapter is not optional for an aspiring entrepreneur. It is essential. If you are not willing to make sacrifices, you will not succeed with your business—plain and simple.

  12

  MILLION-DOLLAR MISTAKES

  Before we get into the next few chapters on the technical aspects of getting your business started, I want to talk about some of the harder lessons I learned—my million-dollar mistakes, as I like to call them. I hear people talk about their successes all the time, but not much about their failures. My purpose in writing this book is so you can understand not only who I am and the mind-set that got me here, but also the mistakes I’ve made in life and business. You’ll probably have a good laugh in this chapter. My hope is that you won’t make the same million-dollar mistakes I did; but you probably will.

  Here are my favorites:

  1. DON’T MAKE WILDLY OPTIMISTIC SALES FORECASTS.

  In 1999, when I was building my business plan for SkyPipeline, we were in the midst of the dot-com boom. The economy was doing great, there were billionaires left and right, IPOs every day, and I had a huge desire to create a multibillion-dollar company out of nothing. I thought the only way I’d be able to secure funding was to make monumental projections.