High-Impact Entrepreneurship

15 things I wish I’d known before starting my first company

Reprinted from QuickSprout. Original article here.

By Neil Patel.

From a very young age I loved the idea of starting a business. It helps that I grew up in a family full of entrepreneurs, so there’s no surprise that I launched my first company while I was in high school.

Since then I’ve launched several businesses…some succeeded, but most failed. While I made and lost a lot of money, each success or failure always led me to learn something new. So, looking back over my career here are the 15 things I wish I’d known before I started my first business.

Lesson #1 – Swing for the fence

Here’s the deal…it takes as much effort to create a small company as it does to create a large one, so you might as well swing for the fences.

What does that look like? Well, the first question you have to ask is this: are you are a slugger or a base hitter? In other words, what is your tolerance for risk versus reward?

Employees are base hitters. Entrepreneurs, on the other hand, can be sluggers. While CEOs can make big money, most of the millionaires in America are entrepreneurs.

So the question is, where do you want to be? If my business partner and I focused all of our energy on our first business and tried to swing for the fences instead of creating a lifestyle business, we would have made much more money than we both currently have.

Lesson #2 – Create a simple product

Some of the best products are simple. Take the iPad, for example. I bought my dad one and was about to tell him how to use it. He grabbed it from me, looked at it (the iPad was on already), and started swiping away. He didn’t need a degree in rocket science. The same is true for products and services like Google and Amazon.

Unfortunately I entered the business world thinking that great products were complicated. They had every gadget and cool feature imaginable. The thing with complicated products…even if they do solve great problems…is that 94% of people abandon them because they find them difficult to operate.

When I first started out as an entrepreneur I used to try to create products and websites that had every single feature that you can imagine…boy do I regret it.

A good example of this is VeriSign, the ecommerce authentication company, is kind of complicated. People don’t understand right off the bat what the company does, which is why the company struggled until they figured out a clear and concise slogan: “The driver’s license for the internet.”

Now people instantly understood what VeriSign does, which is to help a business website gain trust with online customers. So, in the end, avoid making your products complicated. Keep them simple.

Lesson #3 – Solve a problem

Crazy Egg was my real first success in business because my business partner and I started with a problem instead of a product. Once we figured out what that problem was, we started making the product.

And think about this: when you offer a product that solves a customer’s problem, it’s so much easier to sell. Just get them to admit there is a problem, and then offer your product as the solution.

Now, being simple to use and solving a problem is not the only thing that makes a product great. Here are two more:

• Make the technology disappear – Whether it’s a Pixar movie or the iPhone, Apple products are great at using technology to solve problems, but they are also great at making you forget you are using it.

• Make it personal – A product like Jittergram allows you to stitch together intimate moments into one stop-action movie. Facebook allows you to hook up with old friends. If you can make it personal, people will love it.

Lesson #4 – Know your market’s price tolerance

The very first real job I had was selling vacuums door-to-door, but these vacuums were really expensive and I was also really young, so even though I was looking forward to the challenge of selling these vacuums, I didn’t really know what to expect.

Part of my presentation was to shampoo and clean their carpets, which I did for free. This got me in the door, and once in the door I figured I could persuade them to buy. However, only one person bought a vacuum, and they eventually returned it because they got buyer’s remorse the following day.

I learned pretty quickly that I needed to be in a business where I sold something that people could afford. It’s a temptation to think that if you sell a high-end product that the customers will come, but that’s not always true. You have to know your market and what their price range is for your product value.

For instance, it took some time to figure out what the market would tolerate with KISSmetrics. After some testing, however, we found the optimal pricing strategy.

Lesson #5 – Advertising is a must

At one point in time I got fascinated with Monster.com’s business model. They made a ton of cash, and I wanted part of that, which is why I built a similar product I called Advice Monkey.

I poured a ton of energy and over $10,000 into Advice Monkey. I launched it and watched it go nowhere. What was wrong? I needed to market it or it was going to fall flat.

After hiring and firing three Internet companies, and watching my money get wasted, I decided I needed to learn how to do Internet marketing.

The unfortunate thing was I couldn’t do credit card transactions, so despite the buzz in the media over the product I eventually had to close it.

None-the-less if you want to create a successful business you can’t just rely on word of mouth. You have to understand marketing and learn how to drive eyeballs to your website.

Lesson #6 – Payments should be easy

While it might sound obvious, if you don’t make it simple for people to pay you, you will struggle. Here are a few examples to prove my point:

• Street vendors and food trucks have been at a huge disadvantage for not taking credit cards until Square came around with their product that accepts credit cards on the iPhone or iPad.

• Fast food companies accept credit cards for a reason…just about everybody has one, and the transaction is pretty seamless. Sure, there is a charge, but that is worth it when it comes to the time it saves.

• PayPal allows big and small businesses and consultants to get paid immediately, no matter where their client is in the world.

This is why it’s always best to figure out how you are going to accept money. And make sure you don’t have any roadblocks in the way of you making money…such as requiring too many form fields on your checkout process. I used to do this because the more information you collect the lower your credit card processing fees are, but I realized that reducing the fields increased my conversions which more than made up for my extra credit card fees.

Lesson #7 – Be patient

Since Crazy Egg was popular from the get go, my business partner and I thought our ship had come in and it was just a matter of time before all the money started rolling in.

I mean, we had a simple product that solved a lot of people’s problem and tons of bloggers were writing positive things about the company. It was just a matter of time before the offers to buy the company for would start coming in.

That never happened.

We eventually had to focus on profitably and now the company does great and we get inquires all the time to acquire the business. It just took us 5 years to get there.

You have to be patient. Don’t expect miracles to happen.

Lesson #8 – Premium prices have advantages

There is a temptation when you are starting out in business to keep your prices low so you can attract more clients. I tried that for a little while, but quickly learned that those who liked lower prices also liked to complain a lot…especially in the world of consulting.

It’s not worth it.

On the other hand, charging premium prices has these four benefits:

1. You appear like an authority – Charging premium prices must mean you are an expert in your field.

2. You will get fewer complaints – Companies that have the money to afford you won’t make comments about the amount of money they are paying.

3. You deliver excellent customer service – When you are only focusing on a small number of clients, you are able to deliver way better service.

4. You’re reputation grows – Your clients will start bragging about you because of the excellent service you deliver.

This is exactly what founder Matthew Wensig of StormPulse figured out. His company had a lot of small paying customers, but changed their focus on big organizations like the White House. This narrowed their customer base but raised their revenue.

Lesson #9 – Free work can lead to lucrative work

Do you freak out when you hear about doing free work? I mean, do you believe me when I say that doing free work can actually lead to more money?

Let me explain.

Every client you have could be an introduction to a bigger client. For instance, let’s say you are doing the SEO for a small-business who has a contract with a large company or organization. In fact, by your calculations, you could make ten times the amount if you worked with the large company.

So, ask the small company if they will introduce you to the right people in the big company, and if you land a contract with them you’ll do all of the small company’s SEO work for free.

Think about it: if a small company is paying you $5,000 a month and a large company can pay you $50,000, you can afford to lose $5,000, because in the long run you’ll be gaining $45,000 a month.

That’s huge, so swing for the fence!

Lesson #10 – Never Stop Closing

While networking comes naturally to me and I was doing a lot of it while building my first few businesses, I could’ve done more. Another thing I could’ve done more of was closing.

Just meeting people, growing your contact list and building relationships will not grow your business. You need to actually look for clients and customers who will pay you.

And once you gain momentum and are starting to make good money, don’t stop. Because once you get lazy and stop closing, you’ll stop making money. This is one of the main reasons my old consulting company never had steady revenue growth…the finances looked more like a roller coaster.

Lesson #11 – Eliminate everything else but the essentials

I can’t tell you how busy I was early in my career. I was trying to do everything and be everything. That definitely hurt me because I was spreading myself too thin.

Just look at Apple and their product line. You might think that they have a ton of products. The truth is they only have a handful. You can buy each product in a variety of ways, but the core product remains.

That, my friends, is focus. And it allowed them to do several things very well:

1. They could listen closely to what their customers were saying.

2. They could create the products to meet the needs and desires of those customers.

3. They could make those products the best in their category.

You can’t do a good job of building a business if you don’t focus. The golden rule in business is this: “Find the things in your business that make you the most money and focus on them. Eliminate everything else!”

Lesson #12 – Always lock into your passion

I was making a lot of money back in the early days when I had the Internet marketing company, but the only problem was I didn’t really enjoy it.

Don’t get me wrong. I was very grateful for the money and very grateful for all the people who helped me build the business. But it felt too much like a real job, and that just wasn’t going to work.

If I was going to be successful long-term I needed to find what I really enjoyed doing. If I was going to work 80 hours a week, then I needed to love what I did.

But it’s also important to realize that passion alone won’t fuel a start up. In fact, excitement can actually cloud your thinking. You need to be realistic about your new business and prepare.

John Bradberry lists the secrets to startup success:

• Prepare for your journey as an entrepreneur.

• Develop a strong attachment to your customers and market—and not your idea.

• Create a plan to breakeven, secure funds and get profitability.

• Execute on your plan, but be flexible.

• Ask for and listen to advice constantly. This will help you keep the blinders off.

• Give your business time to grow.

Passion is great, but it must be tempered by planning and preparation.

Lesson #13 – Hire carefully

In the beginning there is the temptation to hire anyone…friends, family or personal recommendations. When I first started out, I made this mistake.

This definitely is the wrong way to hire. Over time I’ve developed a process to evaluate those who I hire:

• Test the waters yourself – You can’t hire effectively unless you understand what that person is going to do. Spend two weeks in that position, even if you hate it or are not that great at it. This will help you get a sense for the job and the pay.

• Develop a process – Each new hire should be able to be dropped into a job with all of the things they need to succeed. This includes training manuals, orientation, FAQs and proper supervision. The success of that hire will depend on the quality of this process.

• Forget about pay – Some people will work their tails off whether you pay them $20,000 or $250,000. Other people will goof off and watch the clock. Find out what people are passionate about and pay will become secondary.

• Consider more than talent – A talented professional may not fit into your culture or they may not get what you do or sell. A great way to evaluate these two aspects is to get other employees to interview them.

Hiring isn’t an easy thing to do, so my advice to new entrepreneurs is always to hire slowly and fire fast.

Lesson #14 – Smart people learn from other people’s mistakes

Early in my career I learned from my own mistakes instead of researching why others in the space or in business in general failed. If I avoided those mistakes I would have increased my odds of succeeding.

This is true in business, and in life.

See, life is really too short to expect that you can learn all the necessary lessons from your personal mistakes. That’s why it’s essential you watch others and learn how not to repeat them. Average people learn from their mistakes. Smart people learn from other people’s mistakes.

So, how do you do that? Here are some tips:

• Get a mentor – Find someone who is older than you and more experienced than you. They don’t necessarily have to be in the same industry as you, but that’s a bonus. Ask them what were their biggest failures, and the lessons learned.

• Read about business failures – People and companies are pretty open about sharing their failures online or in books, so scoop these stories up. Think of Research in Motion or Turntable.fm.

In the end, try to pay attention to other people’s mistakes to keep yourself out of trouble.

Lesson #15 – Cash is king

Even though I’m young, I’ve started and ran several businesses. I probably have as much experience as guys twice my age. So what’s the number one lesson I learned?

Cash is king.

You will not survive if you don’t have it coming in. And if you do have it coming in, you need to conserve it; otherwise you won’t survive for long.

You can’t trust the economy. Some years you’ll make a lot of money, and then some years you won’t make very much. Here’s what you should do to save cash:

• Use volunteers and interns – Instead of hiring people ask people if they will volunteer a few hours of their time. Or look for students who are looking for experience.

• Work like a slave – You and your founders should be putting in 60 plus hours a week…even if you aren’t getting paid. It’s expensive to hire people, especially when you first start off, which means you are going to have to work your tail off.

• Resist a fat salary – Go lean until you are certain your business will survive a huge salary.

• Don’t buy expensive office furniture – Can you rent furniture? Pick it up at the Goodwill or Salvation Army? Surf freecycle to see what people are giving away.

• Keep the office space at a minimum – The overhead is what kills so many businesses, so don’t lease big and think you’ll grow into it. Lease small and deal with the discomfort until the money is there.

Conclusion

Even though I made a lot of mistakes in my career, I don’t regret making them. They have lead to some awesome insights, and I’ve gained so much experience in the meantime.

Besides, each lesson was a stepping stone to my next business. That means both KISSmetrics and Crazy Egg are stepping-stones too, and I’ll be able to write a post about the lessons I’ve learned over the coming ten years.

What lessons do you wish you would’ve learned early on in your career?

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