Before You Launch Your Startup, Clean Out Your Garage
In my book, Guerrillapreneur, I dedicate an entire chapter to convincing small business executives to pursue a “soft” launch verses a full scale “brick-n-mortar” launch on Main Street. Why? Cash is king and in an uncertain economic environment entrepreneurs should preserve as much cash as possible to extend the runway for their business launch.
In a recent post entitled “One Reason Why Your Business is Not Generating [Massive] Revenues”, Tara Gentile correctly surmises that “it is easier to earn your second $50,000 than it is to earn the first $50,000.” Before an entrepreneur or small business executive can earn the first $50,000, he/she must develop what I call a “Slingshot” capability (operations excellence) and establish a brand identity. Few people remember the days when Wal-Mart was still a startup. The Arkansas-based company avoided markets dominated by Goliaths like K-Mart and Sears. During that period, Wal-Mart invested billions (as much as K-Mart made in profits) on its Slingshot advantage, a world-class inventory management system.
Once perfected, Wal-Mart had a solution that improved inventory turns twice as much as the industry average and reduced its shipping and distribution costs 200 basis points below any major competitor. If you are launching a business and your plans don’t include the development of a Slingshot capability, you aren’t ready to leave your garage. Brand Identity vs. Slingshot Capability Brand identity is the recognized, differentiated outward expression of your business’ products or services.
My research suggests that it takes less capital intensive service-oriented businesses (i.e., barber shops) 3 years to develop a brand identity; whereas it takes a capital intensive product-oriented business up to five years. If it takes 3-to-5 years to build a brand and approximately the same amount of time to perfect your Slingshot capability, what should an entrepreneur do in the interim? Fortunately, I do have a framework that provides a little more guidance than my declaration to “launch your business from your garage.”
First, Clean Out Your Garage In a classic 2×2 matrix format, I present two questions to business owners: (1) “Does the task differentiate your business (x-axis)”; and (2) “Is the task critical to the daily delivery of your product or service (y-axis)”.
If the entrepreneur agrees that the task differentiates their business, but is not critical to the daily delivery of their product/service, I instruct them to INVEST and REINVENT the task. Apple is great example of a company that reinvented mobile computing from a differentiated technology into a Slingshot capability
Conversely, if a task does not differentiate the business and is not critical to the daily delivery of your product/service, small business owners must seek to outsource these activities. Trust me, there are too many entrepreneurs who are part-time experts in payroll and accounting software –technology that has nothing to do with their core business.
When a task is critical to the daily delivery of your core product, but does not differentiate your business, entrepreneurs should invest to make this task a low cost activity. Take McDonalds, they do not make Coca-Cola, but it is critical to the daily delivery of their product. McDonalds continuously invests in drink carousel technology to minimize the labor needed to offer up cold beverages with their hamburgers.
Finally, tasks that are critical to the daily delivery of your product/service and that differentiate your business are the seeds of a Slingshot capability. Amazon built its business around providing world-class distribution service. Today, Amazon generates millions in revenue by offering “Fulfillment By Amazon” to world-class Fortune 500 companies and start-ups.
My business partner and I used this framework during our last start-up and worked out of our respective garages until we reached $1 million in sales. We conserved every available dollar and invested in a Slingshot capability that eventually catapulted us $10 million in sales. Before you launch your business, clean out your garage.