It’s a brutal question. But a really necessary one.

I’ve asked myself this question a LOT since we launched LVLY almost 4 years ago. It’s a question that many small business owners don’t ask themselves enough, or even at all. I’ve been to lots of networking events in the start-up and female founder world and inevitably there’s lot of high fiving and congratulatory hugs being shared with fellow founders in the ‘start-up’ world. But I’m always left wondering how many founders are having those fist pump moments when they look at their profit and loss at the end of every month. My guess is not very many. Probably almost none of them in fact. Some won’t even check their P&L at all. It’s a problem.

Because here’s the thing, spending your time and money on a start-up that doesn’t make (and won’t ever make) money doesn’t actually equate to building a business. It’s just a really expensive hobby. Now, don’t get me wrong, I’m not belittling start-ups or female founders, or male founders for that matter. I’ve just learned the hard way. My business partner and I have a deeply exhausting understanding of how hard it is to make a business actually work. Launching a website, getting a few thousand instagram followers, declaring yourself an entrepreneur and trying to sell some stuff ain’t all it’s cracked to be, let me tell you. It can be a big black hole of time, money, sleepless nights and asking yourself ‘What the fuck am I doing?!’ It’s like becoming a parent but without the upside of having a cute, squishy baby that you love. And this is coming from a co-founder of a company that broke even and became profitable (eventually…).

Here’s what I think the problem is – start-ups are the new black and it’s fashionable to be a founder. Everyone wants to be labelled an entrepreneur and people love nonchalantly proclaiming ‘I have my own company’.  It seems like every man, woman and their pet cavoodle has started their own business or knows someone who has. I love the fact that we live in a time and culture where self employment is celebrated, where barriers to entering the start-up world are almost non existent and where anyone with the ability to use the internet is one step away from being a self proclaimed entrepreneur. But as with all things that become fashionable and mainstream, eventually people who really shouldn’t be wearing ‘that thing’ get the courage to try it on and before you know it they’re strutting around sporting a camel toe with the confidence of Kate Moss in her heyday. Sadly, we’re not all born supermodels, not everyone should wear leggings and we’re sure as hell not all meant to be entrepreneurs. Which is why so many start-ups fail.

In my short-ish experience in the female founder circle I’ve come to realise that people tend to over-share on the girl power bit and under-share the gory details of the monstrous money pits that start-ups can become. I’m definitely still flying the flag for giving it a go but for the best chance of success your eyes and ears need to be bigger than your ego. Let this be a reality check and a rallying cry.

If you want to create a fully legit start-up that works, as in it actually has the potential to make money, here’s some handy tips I’ve learned the hard way:

• Before you do anything else, validate the product / market fit. Basically that means you need to make sure that there are actual real life people who a.) have a need for the product or service you want to create and b.) would be willing to hand over their hard earned cash for it.
• Get really clear on the purpose of your company and the unique selling point of your product. This is important because even if there are real life people who need your product and have enough money to pay for it, it doesn’t mean they’ll spend their money with you if your competitor is better / cheaper / more convenient.
• Make sure you understand ALL the costs of running your business – this includes operational costs (things like rent, staff, marketing, accounting and legal costs, mobile phone etc) and cost of goods and services (things like your product, for LVLY that’s flowers, candles, hand cream, alcohol, gift boxes etc). Your sales revenue needs to more than cover your costs. It’s actually a really simple equation.
• Factor your own salary into your costs because if you’re working for free… well we’re back to the hobby chat again.
• Remember that it’s ok to sacrifice profit for growth in the short term (many companies, including LVLY, make that strategic call) BUT you still need to have a commercially viable plan to break even and make profit… even if it’s going to take 2 to 3 years to get there.

And because there are way smarter people than me in the world, here are a couple of links to very credible articles on some of the topics i’ve mentioned above.

• A simple six-step framework to help you achieve the holy grail of product market fit 
• A discussion paper on the pro’s and con’s of driving growth versus profitability

 

Author: Hannah Spilva