Wednesday, December 15, 2010

Business head vs business heart

The hardest part of making any business plan is always when you know you've got a cool idea, you know how to make it work, but you can't make the numbers come out right for it to be a viable business. You're left with three options.
  1. Walk away. This is obviously the logical thing to do. After all, it's why you do a business plan, so you can find out before you start whether it's going to be worth while. The down side is that you'll never get to do your cool idea. And if it was that cool, you're going to be really pissed off when someone else does it, and even more pissed off when they make money at it. I've lost count of the number of ideas I've walked away from, only to see someone else be successful at them years later. So, the answer is clearly to...
  2. Do it anyway and hope the rewards come later. Perhaps you screwed up your planning, perhaps it'll pay better than you think, or maybe circumstances will change. Or maybe it will lead on to something else that pays off. Think of it as an investment. Except that of course not all investments pay off. You might think your idea is cool, but nobody else does, and you're just pouring money down the drain. But that's okay, because you can...
  3. Do it anyway and just accept the losses. If it's fun, and you can afford it, treat it as a hobby. If it makes some money back, so much the better. Of course, if you end up spending more than you can afford, and it turns out not to be as much fun as you thought, that's a real downer, so obviously it's more sensible just to walk away. But then... yeah, we're right back where we started.
The thing is, loss-making businesses are not necessarily bad. Some of the world's most successful businesses spent years losing money before becoming profitable, and the big win didn't always come from where they expected it. They just had to stick around and keep the faith long enough to reap the rewards.

And sometimes, it's perfectly OK for a business never to make a profit. Look at people creating little niche products: specialist magazines, custom artwork, small bands, amateur theatre groups, and so on. It costs them money to make that stuff, and they rarely get back as much as they spend. But they enjoy doing what they do, and by getting something back, they can afford to keep doing it and making people happy.

Yes, business is first and foremost about making money, but the bottom line needn't be the bottom line.


DavidB said...

I must be getting old, but I have moved to agreeing with you. For every 1 company where the Board and investors are in it to win it, there are 1,000 perfectly viable businesses that bobble along just making people busy and happy. And that is no bad thing.

The race to a $1bn is fun to watch, but tends to make monsters of the people involved and leaves hundreds of lives shattered or dazed at the roadside as they blast through.

I'm happy for those that want to ruthlessly make money at the expense of all around them (wealth is a zero sum game), but, for me, spreading the happiness and a little less cash is the way that 99.9% of businesses should aim to go.

Have a little realism when you set out, and it will save years of heartache later.

Matt Kelland said...

Indeed, David, but I wasn't even thinking about businesses designed to make huge returns for the investors and founders. I was more thinking about much smaller ventures. These might be just one person, or even part-time gigs. It's something I've seen a lot of now that I'm spending more time working with artists and craftsmen.

I'm seeing people who are working their butts off to make a small return selling handmade items, and taking crap jobs to make enough to live on, but they still treat it like a business. They don't give up simply because it's not profitable. And I'm glad they don't.