Many entrepreneurs start businesses with big dreams. That’s how it should be; you need a big dream to propel you forward. Then reality smacks you in the face. Suddenly your dream turns into a nightmare as your baby business, which you lavished your precious love and resources, hemorrhages cash. Instead of providing you with life-sustaining income, it looks like you’re headed for ruin.
Some dream, right?
I know the feeling. May 2004, as the first Texas Black Expo came to a close, I was devastated. I had worked an entire year thinking I would make a profit. Not only was I not getting a check, I was in the hole over $100,000. I remember looking in my wife’s eyes as she held our six-month-old daughter. “What are we going to do?â€ she said as tears gathered. “I guess I’ll go back to work.â€Â How could I respond? I did what any good businessperson does. I said, “Babe, don’t worry. I got this.â€ Truth was, deep down, I had no clue how we were going to survive.
Our story has a happy ending. I stuck with the business, and today the Texas Black Expo is going on its 14th year, and we’ve grown to be the largest African American empowerment festival in Texas.
Secrets to Surviving the Tough Times
Building a business is hard, and you need to know when to launch it properly. Here are the signs, based on my experience, that you’re ready to launch your business.
1. Keep Expenses Low.
To survive, we had virtually no overhead and expenses were low. The first years of Black Expo I lived in a small home in a modest neighborhood with two roommates who helped pay the mortgage. I had no car note, didn’t eat out, and didn’t go shopping. My only other expenses were groceries and gas. You may think, “I could never do that.â€ The truth is if you can’t do that, it’s not theÂ time to start your business.
2. Prepare for Setbacks.
The problem with many new businesses is we don’t prepare for rainy days. We plan for good times but the best time to plan for rainy days is when the sun is shining bright. If you’re going to launch your own business, you need to be prepared to survive a year with no income from the business. And when profits start trickling in, don’t throw a party to celebrate and don’t give yourself a raise. Put your profits back into the business and pay off debt. Doing this illustrates that you have the commitment necessary to build a business.
3. Take the Long View.
You need to build a strong foundation, and that takes time. With Black Expo, at the end of Y1, we were $100K in the hole. In Y2, we broke even, which meant we were still $100k in the hole. In Y3, we dodged the bill collectorsÂ because everyone we owed from Y1 we told we’d pay in Y2. While we were able to pay all our vendors from Y2, we were still in debt to Y1 vendors. At the end of Y3, we made enough to finally pay everyone from Y1, which was great, but there was nothing left over for us. It wasn’t until Y4 that we made a profit and were able to live a bit more comfortably.
That’s the real truth about building a business. You have to be able to weather the storm. The foundational stuff is key to launching and growing a successful business.
Your Savings Plan for a Strong Foundation
Before you start your business do this simple exercise:
- Take out a sheet of paper. Write down your total monthly expenses. Categorize them as needs or wants. Be honest with yourself: Is premium cable TV a need or a want? Is driving an expensive car a need or a want?
- With the ones you call “needs,â€ ask yourself if you could meet this need in a cheaper way or eliminate it altogether.
- Add up the total amount. This is your monthly expense. Multiply it by nine. This is your savings goal. Then cut out all items listed as wants and add up the total. This is your monthly saving amount. Then calculate how many months it will take to save up nine times your monthly expense.
- Once you have nine times your monthly expenses in the bank, then you’re ready to launch your business.
- During this savings period, begin to prepare for starting your business. Begin reading about business building, learn about creating budgets, perform product analysis, etc. Once you do this, the other stuff becomes easier.
If you wait and build your savings foundation, your decision-making will be clearer because you’re making decisions based not upon survival but sound business practices.
Jerome D. Love has been an entrepreneur and professional speaker for 20 yearsÂ and founded the Texas Black ExpoÂ in 2002. He was named a Multi-Million Dollar Top Producer (Prudential Texas Realty), Entrepreneur of the Year (National Black MBA Association, Houston Chapter), and Pinnacle Award Finalist (Greater Houston Black Chamber of Commerce), and is a popular keynote speaker for both corporate and collegiate events.
Love and was selected as keynote speaker for the Los Angeles Mayor’s Economic Development Summit and the New Mexico State Leadership Conference. He has also shared the speaking stage at conferences with business icons like Priceline founder Jeff Hoffman, Chuck E. Cheese founder Gene Landrum, NBA legend Earvin “Magicâ€ Johnson, and others.