Who doesn't want to have a stake at a idea that has a great business opportunity and great growth potential?
During my career I've had the opportunity to talk to numerous people who had business ideas.
Most of these people where out to make money and this is their primary concern day in day out. Most try anything to the point where they forget that there are other factors involved other than seeking to maximize profits.
Business needs to make money by selling a service or a product in order to survive. However, focusing on the money part ALONE is what created the whirlpool of pollution and near slave work conditions in the world.
While it's true that businesses don't do "volunteering work" It's extremely important that each startup and entrepreneur thinks of it's place in the world from a different standpoint than money alone.
Socially, Economic, culturally and pollution wise. I haven't met too many businesses whose models are really true and caring about everything around. Being environmentally and human friendly is far easier than people imagine.
It all needs to start from the vision and desire to do things differently.
What's the true purpose of your vision?
I for one am out to learn various skills in IT and Business continuously. Improving my communication and leadership skills has become one of my top 5 goals.
Making money is of importance to lead a good and content life. In my vision it's just a side effect and a consequence of attaining high-value skills. NOT the main thing I'm out to do at all costs. If my purpose in life would be to become a billionaire I would already have been running my own multi level marketing company instead of spending thousands of hours revising my skills. MLM is much more efficient in creating money than learning to become skillful at something.. MLM systems don't provide any real value. The world is full of products and services no one actually needs. Everything is a scheme to get people to use them.
Creating something of value requires time and energy. Something that will be worth in the long term!
Before I take any project I consider the following:
- The people I'm working with and/or for need to have perfect Integrity
- Is what I'm doing moral AND does it feel right?
- Will I enhance my skills by this opportunity?
- Is this project interesting and are the end user services/products providing real value to the world and end users?
- Will this make money or is it a dry opportunity from someone's imagination?
There are also additional questions which enter into consideration. A majority of the answers need to be positive.
For any Idea to succeed you need a plethora of skills. We can however group those skills in 5 main broad groups.
- Network: the right people with the right skills
- Skills: all skills required for a project to be accomplished including programming, legal
- Financial: Knowledge and Money
- Communication: They way you convey a message
- Leadership and Management - These should be separate yet they're important
Can any Idea succeed based on promises of richness?
One recurring proposition I have received - and I've seen this happening to almost anyone who is a professional programmer and devops - sounds like the following:
"Hey Andrei, I have a great Idea that is extremely big and can generate millions of $. If you would like to be the lead programmer and sysadmin we can give you % (percentage is between 10% to 40% depending on many factors) of the profits when we're finished"
Most of the time a company won't make profits for a few years. I don't want to work so long and get 0%. I'd rather do something more valuable in my time.
"But, Andrei. Will you miss this great opportunity and a change to become rich and famous?"
I tend to tell them what I've already written above. Money is a consequence of having the skills i currently have. This doesn't mean that I'm willing to work for free.
What I tended to do up until 2018 was to schedule 1 hour meeting where I let the person explain everything so I can decide It's worth it or not.
My findings are rather surprising. Most people who contact me have many "potential opportunity ideas" and they claim to have researched everything.
But they haven't taken the time to write a 20 page research paper where they organize everything. They lack proper statistics to back up their findings and even IF they have some statistics they lack the proper statistic skills to understand the market. Being able to make a good decision is a skill. I ended wasting countless hours of discussions to get the information I needed in order to know if it was worth investing my skills or not.
Starting from 2018 ON I decided to only talk to people who have the bare minimum documentation whenever they have an awesome idea for a startup. Most of them say "But hey, you're the programmer. You take care of the development and let us do our business jobs."
I tend to reply "If you think that at the official launch you'll have 100.000 people per hour visiting your application. I need to Know on beforehand WHAT kind technology to use. And if you want me to have stakes in the company instead of you paying me directly then what's the point? Why not pay me directly so you can keep my part of the profit/stakes? "
These questions often leave the people bewildered. It's because they don't have money nor want to pay a programmer at this point. They think that such an offer will make anyone crawl. Nope.
I find it very rude when someone takes the time and work for granted by proposing such a percentage of something that can or cannot be.
Business Opportunities get rejected because no one needs them
Let me explain WHY I usually reject these offers, and if you're a software developer you should too. Most "business opportunities" aren't well thought out. They are wishful ideas in a world where people buy crap from China and ship it to sell it on Amazon in the USA.
There are millions of different products, applications and services wanting our attention. If you do something, make it so it's life changing.
If people can live without it and still be efficient then it's probably not such a good idea. The catch is efficiency. If it helps someone save 2 hours a day great!
If it doesn't then you may be able to find certain developers would do anything for money. People who are not interested in your business at all.
This is an guaranteed road to failure.
It's a Number Game - We all need Statistics to take decisions
The market is extremely volatile whenever you think about making a good decision you need to take into account all the data you can get.
The statistics claim that 94 to 96% of businesses fail within the first 5 years. 90% fail within the first few years and only 4% make it to a point where they hit 10 years.
By failure I mean businesses which close down or file bankruptcy.
Simply stating that your idea is great and that people will want it when all the data suggests otherwise is complete B.S.
Most StartUps get venture capitals and aren't profitable even after 2-3 years. They then reach a certain level where they go on for 2 more years and then disappear.
But Andrei, there are so many people who had many failed businesses yet they've eventually got a big success and are now millionaires!
Sure, let's say I'd accepted only the top 10% most promising business propositions. I would have probably been busy working 100 hours a week.
And to top it off, this meant that I would have probably worked for nothing or for a very small sum which meant that maybe 5 to 10 of those hours would have been paid in the end.
Now, why would I (or any sane person) work his ass off for someone else's idea for only a small margin of the profit?
Crypto to the rescue
I've even had people willing to transfer some new hype cryptocurrency to my wallet instead of real palpable money. Most of the times it's some weird currency which has no real value except the fake value which they portray on websites. This means that even if I'd own $100.000 of that virtually I'd have no real way to make it into REAL money.
And no, Initial Coin Offerings aren't real money either. It's just a world of virtual money which gets transferred and there is no real value in it.
You can read more about the cryptocurrency speculation hype and how it's a waste of resources and time.
Most people who approach me either say they would like to give me a percentage of the stake in a company or a percentage of the profit.
Knowing your economy and finances is very important.
A company that has a $1.000.000 income per year and a $100.000 profit where you have "can" get 30% profit is something interesting. Far more interesting than a company that makes $5.000.000 per year where all you get is 10% of the profit. However, considering the fact that some companies always have a negative profit. This is a very bad option.
I always find it funny when a big multinational says that they will donate 2% of their profits to a non profit.. Sure, and if they don't have any profit?
Having a stake is much more important than just a part of the profit. This is because profit at the end of the fiscal year is inexistent for most new companies. They reinvest the majority of their money.
Some companies fail, even if they have VC backing. They fail to make sales to cover all the costs so they can make a profit.
If any startup cannot offer the developers at least a minimum of 50% of the project UPFRONT and DURING the development then they're fooling everyone.
What I also hear when such people approach me is that they already have a team of friends who would fit certain positions. Like Marketing, Customer Support, design, social media marketing. A big happy family.
Just because someone sits on Facebook and twitter all day long doesn't make anyone a marketing expert overnight.
When reviewing those people I often find that they've read some articles online and think they can equate this with thousands of hours of experience and experimenting.
They throw around numbers that go along with "This market has made 100 billion last year alone..""
At that moment I'm thinking, Ok great, and How am I sure you will make even a fraction of that let's say 0.01% during the whole lifetime of the company??
Does anyone have the skills necessary for success?
I also have thousands of ideas which I can implement. New ideas pop up in my mind DAILY. Most of them are well documented and researched. I have hundreds of pages of marketing research which I've created over the years.
Why don't I start putting time and effort in them?
First of all, any idea whether completely new or an existing one NEEDS a lot of time and money for marketing.
People WON'T start knocking on your door to buy your product and neither will investors offer you money for something that has NO backing at all.
Niche Opportunities and the Amazon selling frenzy
Most StartUP Business books talk about such "niche business opportunities". Finding a small niche which you can be the king of.
This is a great idea. However if you lack the skills I mentioned in the beginning of the article then this is very unlikely to go well in the end even if you persist for years.
There are even have books, seminars and workshops on how to buy products from China, have them shipped in the US and sell them via Amazon.
"You can become insanely rich without working at all!". This is the promise of a lifetime.
You can do everything from the comfort of your home. While this sounds great, what happens when everyone is doing this? I've been looking on Amazon in the past years and you can find anything you want 1000x of times.
This is what I call mindless zombie providing. Selling products you don't care about to people whom you don't know. Yes, make Amazon rich while you get some breadcrumbs. Ah, and do you really care about how those products are created? No.. it's the $$ again.
Unfortunately, this type of thinking creates the problems our world is in today. And it continues to create problems.
Not a very bright idea. You're missing out on all the opportunities which a business offers.
The Human Element. Amazon selling is great for a secondary passive income NOT a primary business.
The Statistics to Make Decisions
Let's say John has two niche ideas. They have a potential to make the maximum of $100.000.000 for Businesss Opportunity A in the Big Market and $1.000.000 for Business Opportunity B in the Tiny Market.
The total dollar value is per year.
Business Opportunity 1
A big market requires a LOT of money invested in marketing ,research and implementation.
The bigger the market and the possibility the more money you'll need upfront to invest if you want to stand a chance.
This means you need to invest big amounts of money. A minimum of $50.000 to $200.000 just for the upfront costs.
Also consider that out of the money the company will make there will be a need to reinvest large sums of money in people, technology and marketing.
Also consider that a big market is not only for you, it's a market for everyone else. This means that you will only get a small percentage of that market.
Let's say you can get a maximum of 3% market share, and that you will make 10% profit of that portion per year so you can pay yourself the dividents.
Don't forget your statistics. Many companies failed even when they were backed by VC and funding. When they failed the owners where left with huge debts. 95% failure rate is not meant to scare you ,but meant to make you think hard before you do something.
So a quick calculation 3% out of $100.000.000 is $3.000.000/year.
This means that you can make some pretty money. Remember how I said that a Big market needs BIG money to fund and keep it alive. Imagine 50% of this going in paying people AND technology. You'll be able to sustain let's say maybe 5 to 10 different developers fulltime. Plus an additional of other people for customer support, administration, accounting, lawyers etc. People in DevOps, Programming cost around $50.000 per year at the minimum end. Professionals cost even more.
Now, even if the company can make a 50% profit (which I doubt) this would most likely need to be reinvested in gaining new people and growing. Because if you don't reinvest the money to you won't get a strategical advancement. Cashing out will crash everything.
The timing is also against you.
Think about how the Chinese and Asian cultures copy everything. You have about 3 months of time before people start copying you so they will probably take a bite of out the market. which means less profits for everyone..
Business Opportunity B
Now, let's say you go for the business opportunity B which will be a market of $1.000.000.
If you go after this one you'll probably need a maximum of $10.000 upfront costs.
Since a small market means less competition and smaller costs then you'll probably get a larger percentage of it if not all of it if you have a true unique idea.
Imagine getting 30% of the market while having to invest 10% from your gains.
This means you will probably cap around $300.000 per year. This is more than enough to keep you going as a solo entrepreneur who has one or two virtual assistants.
Now let's say the numbers differ a little bit and that the statistics are different for each domain of activity.
What would I pick? I'd only pick the option when the people running those companies offered to pay for my work.
I'd rather have all the money upfront and a 5% share in a company than a 50% share and no money for my work given that there's a 90% chance I won't make a dime.
How does the company plan to make money?
This is a question I ask a LOT of people. Most answers aren't fixed in reality.
Next time when you approach someone offering them a percentage of your new startup consider if you can offer to pay them UPFRONT 25% of the project they will be working on and paying the rest throughout the implementation of the project. If you can't do that then don't start at all since you FAIL to grasp reality and the business WILL fail.
What would you rather do?