So, how do you actually make money? What are you selling, who are you selling it to, and what is the amount of profit you make on each transaction?
Sounds like the kind of straight-forward questions that any business owner could answer. However, year after year, as a veteran judge of elevator pitch and business plan competitions, I see entrepreneurs absolutely fall apart in response. Believe it or not, more than a few are actually offended: Why would I be motivated by something as selfish and base as making money? I’m not greedy. I’m trying to create jobs for the community and be an inspirational role model for the kids.
Each year there are many entrepreneurs who start businesses with no real plan for actually making money. Some have been pushed into entrepreneurship as the income source of last resort, perhaps after being fired or laid off. They’re so busy just trying to survive that they never quite get around to figuring out whether they are actually making money or not—or even if they can—until it’s too late.
Others are so in love with their business idea, product, or service that they assume that making money will be a natural result of their passion, hard work, good intentions and positive thinking. Often, these are the same entrepreneurs who gleefully state that their product or service has no competition (wrong) and assume that their revenue will grow exponentially while costs will stay flat or even decline (also wrong). To them, the test of profitability represents the pin that could burst their bubble—a reality check to be avoided at all costs.
(With rare exception, the only businesses or services with no competition are the ones that nobody wants—even if they’re needed. In fact, proof that your idea is viable, even if you are the first one to think of it, is that competition will come seemingly out of nowhere to feast on the market demand you’ve discovered or created. So cut the “we have no competition” crap.)
Sustained profitability is never a happy accident or a result of serendipity. It only comes with intention, planning (including analysis and testing of your results in order to refine your profit-making processes) and execution, if at all. If your answer to the question, “how do you turn a buck?” is a series of errs, uhms and ahhs, or a bunch of convoluted jargon, your business concept is muddled. Trust me: bankers, investors and other potential sources of debt or equity capital will not be impressed. A business without a profitability plan is like a race car without an engine—it might look fast, but it only goes downhill.
If you can’t explain in just a few, easily understood sentences, exactly how your business makes money—to the dollar, based on real numbers—chances are you’re not making any, or won’t be for long. This is why having an elevator pitch for your business is so important—not only in case you run into Michael Lee Chin or Robert L. Johnson on the way to the 30th floor, but so you are crystal clear in your own head about your money-making premise and how it works. This kind of clarity is critical to keeping your business on course and your employees, customers, and investors on the same page with your goals and vision.
An entrepreneur without a profitable business will have a hard time creating jobs, being a great role model for others, or doing any of the things that successful owners of money-making enterprises can afford to do. It’s hard enough to make money when you are trying your hardest—facing tough competitors, fickle consumers, and an unsympathetic economy. Can it be done without really trying? It’s possible, but not likely, and not for long. Better to adopt the attitude that your number one job as an entrepreneur is to make money. To achieve sustained entrepreneurial success, profitability cannot be an optional exercise.
Black Enterprise Executive Editor-At-Large Alfred Edmond Jr. is an award-winning business and financial journalist, media executive, entrepreneurship expert, personal growth/relationships coach, and co-founder of Grown Zone, a multimedia initiative focused on personal growth and healthy decision-making. This blog is dedicated to his thoughts about money, entrepreneurship, leadership and mentorship. Follow him on Twitter at @AlfredEdmondJr.