This is important: My first goal was never to make $1-million. It was simply to generate $4,000 a month, which was the minimum monthly income I needed to survive in New York. I set a minimalistic goal that was within grasp. This took away the pressure. Once I hit this goal, I quit my day job and set a new goal — to build a $1-million-a-year business.
The early stage between conceiving your idea and generating positive cash flow that’s enough to live on is the most crucial stage. Screw this up and you’re dead before you begin. People think entrepreneurs are risk takers. That’s not completely true. Dumb entrepreneurs take the most risk. Good ones look for safe, sure bets, plan ahead and manage cashflow well.
3. Business plans are mostly unnecessary. My first two companies failed. Both were planned out in detail on business plans. They were tech startups I tried to get funding for in Silicon Valley back when I lived in Mountain View in 2001. Yet Mindvalley (at first) had no plan and no vision beyond two years out. It was a simple idea scratched out on a napkin. It was about diving into the pit and selling. I never raised money, never got too complicated. I just hustled.
The goal was not millions, nor was it build and flip. It was about figuring out a way to hack together a business that would make me the $4,000 a month I needed to survive so I could quit my day job, marry my girlfriend and then dream up bigger ideas while not having to hold down a 9-to-5. I now cringe every time someone asks me to explain my business plan.
Instead, every year on Jan. 1, I borrow my son’s color pencils and draw a five-year diagram of where I want to take the company. I then share this vision with my team and we start hacking our way to it.
Start with a vision. Preferably, in the words of Joe Vitale: “One that SCARES you a little and EXCITES you a lot.”
Then, develop a model to make that vision a reality. Work tirelessly toward building a beta — but be prepared to test, pivot and move rapidly as you learn. In the words of Steve Blank: “No business plan survives first contact with customers.”
4. Control your equity. I goofed early: I was too generous with equity and ended up giving up half my company. I lacked confidence and felt I needed a business partner to make things work. I was so dumb I gave up equity without asking for investment. If I had been smarter, I would have saved on equity and instead created a performance-based bonus scheme.
I also did not put in a vesting period nor create a shareholders agreement — mistakes that cost me close to $5 million. As I mentioned earlier, owning the majority of my company is important to me. Having total ownership means I’m not pressured by partners, boards or investors to deliver something that I’m not passionate about.
Take Awesomeness Fest, for example. It makes absolutely no business sense. It’s a huge distraction from making money. And while it’s profitable, we give away all our proceeds to charity and made it community-driven. No board would have approved it. Money matters. But so does freedom and ownership and having a little fun while running your business.
Here’s what you need to know about ownership:
- Never go 50/50. Always make a list of what each partner is bringing to the table and split accordingly. 50/50 partnerships are done by amateurs.
- Don’t just give away a part of your business to a friend just to have a company. Always ask for investment. Make them buy their stake and put their money on the line.
- Use a vesting period: This means that your partner commits to X number of years and only earns the equity upon completing those years. We go for a five-year vesting period.
- Have a shareholders agreement that stipulates exactly how much to buy back each share when the time comes to part ways (in more cases than not, this will happen). Typically six times the last 12 month’s profit is fair.
5. Forge networks and learn to connect. I join a lot of networking groups. Much of my inspiration comes from the people I’ve met in these groups. I’m amazed at how many entrepreneurs suggest that conferences or networking groups are useless. The trick is to get into the right ones.
I didn’t join my first group until 2008, five years after I started out. My business exploded as a result. It wasn’t just the contacts. It was seeing people already doing the things you dreamed of doing. It made your dreams seem so much easier easy and more possible. I call this the Bannister Effect. Before Roger Bannister ran the four-minute mile, few people thought it was possible. But after he finished, in that same year in the 1930s, dozens of people completed four-minute miles.