Doing business vs being self-employed.
Today I spoke to a founder of a startup that asked for advice about how to improve his situation.
After talking for about an hour, we discovered the following mistakes he was doing:
He has built his startup around his personal sales skills, claiming that no one else can sell like him. I said if that was true, he could shut down his operation immediately. Or, start looking for ways how to find average guys and teach them how to sell his product.
He is not paying himself to do the sales job. This leads to the wrong calculation of customer acquisition costs. A lot of the money that he calls profit is the salary of the sales guys whose work he is doing.
He is currently selling to his extensive personal network that he established working in the industry for over ten years. This gives the wrong picture of his future marketing costs. As soon as his network is depleted, he would have to buy those lists for a price he does not take into consideration today. Which, in turn, will lead to higher customer acquisition costs.
Despite all the mistakes above, which dramatically reduce his costs of operation today, he is still not making money. We agreed that he has to triple his prices now and see what happens.
I would say the mistakes above are very typical for people who end up building the place to work for themselves instead of building a business.