Buying stuff for your business

When you start a business, if it is like most, you will need stuff to operate. Whether it be computers, desks, chairs, phones, coffee makers, you get the picture. If you want to increase your chances for success here are a few things you can do:

  1. Use what you already have – Chances are you already have a computer, you have a desk, you have a chair, you have a phone, and you have a coffee maker. Use what you can from what you already have to keep your expenses down. It might be inconvenient to share some of these items, but if you really believe in the business you are starting these sacrifices will be worth it.
  2. Buy used – This is a really a good rule for buying stuff in general personal or business. New loses its value, and often times is not any better than what you can find used. New becomes used the minute you start using it, so it’s really only New until you buy it. You can save a tremendous amount of money by being patient and finding the right deals. With that said you should always use discretion.  If it seems like the deal is too good to be true, and has a certain smell to it, trust your intuition and move on. In this economy, businesses and individuals alike are looking to dump their assets for pennies on the dollar so there are some unbelievable deals out there that are for real. This past weekend I purchased a 1 year old Steelcase Leap chair for $220. The guy I bought it from payed $650 for it new a year ago and he treated it very well. He needed to move it quickly so I paid about $200 less than I should have. I could put it on eBay today for $400. The other nice thing about buying used is that items have already lost most of their value, so if you want to upgrade something you have purchased used, you can get most of what you paid for it back out. Craigslist and eBay are two great places to look, but don’t stop there. You can get good discounts at major retailers by purchasing open box items. They won’t be the very best deals, but still good nonetheless.
  3. Stay simple – Many of the things you think you will need, you don’t. For instance, you may thing you need big expensive filing cabinets, but you might be able to get a good document scanner instead. That would limit the space you need and is more scalable. If you need to keep the paper, get cardboard storage boxes to keep old paperwork in. Sure they might not be as attractive, but attractive isn’t important in this case, conserving cash and not being wasteful should be your priority. You don’t need polished and fancy to start out. Truthfully you never will. Focus on addressing the problem you need to solve instead of looking at the solution for what you think the problem is. Focusing on the solution is a wasteful approach. I speak from experience. The more simplified you make things, the easier it will be to go in different directions as your business matures.
  4. Always negotiate – The asking price is never the price. This even applies to retail stores. If where you arrive in the deal isn’t a win for you, then walk away. When negotiating, always try to focus on creating a win for both sides. You can do this by collecting information and understanding what the other party is trying to accomplish.
  5. Pay Cash – You can get better deals when you have cash in hand, and you won’t go into debt buying this stuff.
  6. Keep your finances separate – You don’t necessarily have to have a “business checking account.” If you are trying to see if your concept will work, there is no reason to incorporate and spend all the money to become a business, but you do need to keep good records. The easiest way to do this is to keep your “business” money in a different bank account. Buy all your stuff from this account.

How about a little return on the Unemployment investment?

Possibly the single greatest sign of our weak economy is the vast number of people who are unemployed. You hear about it when you turn on the news, people are talking about it everywhere you go, heck you may even know someone. I personally have two immediate family members. This number has actually improved significantly over the last month, as it used to be 3. All of them live in the same household, and prior to the third getting a job, they were all living off a combination of Unemployment Benefits and Food Stamps. While I don’t claim to be an expert on the system, I have seen it place as a payer and with my family being a recipient. The only side I have missed is that of the administrator.

I’m going to cut to the chase here. I have an idea for unemployment reform that seems painfully obvious. I’m not quite sure if the idea is just plain stupid, impossible to administer, or if there is some kind of legal implication for putting it in place. Perhaps it really is as brilliant as I think it is, as most simple ideas are. From what I understand, and what the program actually requires to receive benefits, is that those who receive them really want to get back to work, i.e they are looking for a job. The reason they are not working is because nobody is hiring. I have seen a few instances where people actually stay on unemployment because it pays them more than some of the available jobs would. Strangely enough these same people say they want to get back to work. Over the past 2.5 years there have been many instances where I have wanted to hire someone, but it just didn’t make financial sense to do so. Ironically a big part of this was due to the high amount of taxes that need to be paid by the employer for employing someone rather than contracting with them. I’m sure I’m not alone here. Many businesses always seem to have that project that isn’t getting done, or busy work that needs to get taken care of. Heck the government probably has a few projects they could use some help with, some red tape that needs applying or some paperwork that needs filing.

So that leads me to my proposal. Let’s put Americans who are receiving unemployment benefits back to work, by having them fill these jobs that need to be done and can’t afford to be funded. These people are getting paid to sit around and do nothing productive, so let’s make them produce. They are saying they want to work, so let’s put them to work. The government could enlist these individuals and actually get some production for those unemployment checks. They could allow small businesses to get some extra needed help.  The checks are going out anyway, there is work that needs to be done, and these people want to work.

If the private sector were to become the benefactor from this I’m certain jobs would get created. Let’s be practical for a moment and see how this would work in my business. I have some extra work that I could use the help with right now, but I can’t afford to pay for it. I also have many projects that I have deferred until I have some time to work on them. Give me a developer and designer who are looking for jobs and we could have a product spun up before the end of the year. If the product even remotely works out, I take those individuals off the government’s hands and give them jobs. I know, most people would just work the system and keep using the free help. It doesn’t matter though. There are a few reasons. First, it’s not costing anyone anymore than it is today. These people would be working, filling a void in their work history, and if they did a good job would be gaining a reference. Plus they really want to work. Another reason, is I don’t believe that any smart employer would work the system like this. If they see a good employee that can help them in their quest for profit, they will hire them. I think the group who would take advantage is only a small subset. Furthermore, a smart government mathematician somewhere could come up with a ratio that only allows an employer to continue to use this program if they have made a certain number of hires from this program during a certain period of time. We also wouldn’t want these jobs to be full-time, as these individuals would still need to look for permanent employment.

There is also a real nice byproduct here. People could get on the job training to learn new skills. Normally this training comes in form of useless government funded training programs for the unemployed. Many times employers will avoid hiring people to train them on the job, because they don’t want to pay money out to train someone, only to have them leave and have to go out and do it again. So the guy who can’t get a job because his only experience is flipping hamburgers, could go work for a A/C repair company as a helper and leave with real qualifications. The government could also cut spending on their useless programs. This could obviously work for many different industries where long term training is not needed to be qualified, and on the job training is feasible.

This concept if very similar to Microsoft’s Bizspark program. This program allows software startups to get all the Microsoft product they want free of charge for three years while they are building their company. Once the three years are up, if they were successful, they exit the program and they start paying Microsoft lots of money for this software. Obviously the timeframe for my proposal would have to be shorter, but you get the idea.

The cool thing about all of this is that it shouldn’t have to cost the government an extra dollar to implement it. Take a group of these talented unemployed people, put them to work for a custom software development company, and have them build a system which automates the process. When the program is in place, and additional administration is needed, bring on some of the unemployed administrators to take care of it.  Get the word out using the media (heck Obama could tweet it and millions would hear), and include an announcement in the unemployment paperwork that already goes out to employers and the check recipients. If there are enough jobs to go around, then the government can make filling these positions a requirement if you want your unemployment check. That shouldn’t be a problem though.These people want to work.

That is a great segue into what perhaps the best thing about this idea is. The government doesn’t have to implement it in order for it to work. If you are unemployed and want to work, nothing is stopping you from targeting a company you would like to work for and proposing that you come on board to do some volunteer work or an internship. Make a list of 2-5, and I’m sure you will get picked up by one. If you don’t, make a list of 2-5 more. If you are a talented out of work software developer or web designer, you can apply here. Most likely after a few months you will have a full time paid gig.

I would really love to hear your opinion on what you like about this idea, what you don’t like and why you think it would or wouldn’t work.

Want to live the dream? Drive a piece of crap car

Being in debt is the first step you can take towards living the life you don’t want to live rather than what you dream of. The first step you can take towards being successful in a business venture is being debt free. It won’t guaranty your success, nor do you have to be debt free to start a business, you are just stacking the deck in your favor if you are. One of the biggest challenges you will face when starting up a small business is cash flow. The less debt you have, or if you are fortunate enough to not have any, the less cash you need to keep your business going. It also means that you have to be profitable, to keep it running. If you have to borrow money to start your business, or for its upkeep, chances are you shouldn’t be playing the game.

I’m not saying this from a holier than thou perspective either. I have spent the last two quarters paying back creditors for mistakes I made last year. The biggest mistake perhaps was not driving the piece of crap car. In the first year of my company’s existence, things were going really well. Things were moving fast. So fast in fact I decided it would be prudent to go out and buy a sports car that could keep pace; with borrowed money. To go with that sports car, my ego decided the company needed to grow, so I hired two full time people making a combined $120k per year, one earning a healthy commission, and the other getting fully reimbursed for health insurance. Along with the personnel expenses, my personal expenses were high, the company needed a bigger office, and I signed up for the we will approve anyone Dell computer lease. After a few months of slow sales, money started getting tight, so we brought on a marketing person to try and drum up more business, after all we now had a massive expense sheet to support. Then we started getting the occasional customer who wouldn’t pay on time, or at all, so I started to borrow money just to cover payroll. Things were getting worse but I wasn’t willing to wake up from my dream turned nightmare yet. Sadly, I wasn’t having fun anymore, the 90 hour work weeks were piling up, and we were taking whatever business we could get our hands on. By the end of 2009, projects started to go south because we took on too much work for not enough money, and we were ticking off all of our clients. The quality of our work went down the tubes. Our environment had a feeling of desperation to it as well. We didn’t really discuss things directly; instead  we choose to have endless hours of wasteful conversation regarding how we needed to change things in order to be the best web design and development shop around. Had we not been wasting this time, we could have been getting our work done and wouldn’t have lost as many projects.

As 2010 started off, I knew that things weren’t going to get better. There was no evidence to support it. I was selling off personal and company assets to survive, as I hadn’t taken a paycheck in months. Sales had halted because I fired the sales guy, and didn’t have time to sell anything myself as I was too busy slaving away with project work. Clients were growing impatient. Rather than filling the hole up, I dug it deeper and hung on to my last two expensive employees for 3 months more than I should have. Finally by the middle of March, I informed them that their last paycheck would be in two weeks. From there I feverishly started eliminating unnecessary expenses. No more office space. Subscriptions that were going unused were cancelled. When money started rolling in again, I kept my personal expenses down and started paying the debt off.  I contracted with my ex-employees to get overflow work done, paying them when I got paid and only for the billable work, instead of having the constant stream of salaries flowing out the door. When our car lease expired in June, my wife and I decided to stick with one car. Once we could afford to do so, I dropped $2k on a piece of crap for running errands and getting around town. It has faithfully taken us everywhere we needed to go. Instead of being in the red every month, my business was finally profitable again with a decent surplus.

I attribute this mostly to the fact that I didn’t have to take bad projects anymore to survive. I cut my client base down significantly, and resolved to only do business with companies I like to do business with. Additionally, and maybe more importantly, this has allowed me to take a little time off of client work and focus on my true passion of software development. In the next few days I will be submitting my first app for the iPhone, QuickFire, to the App Store. Even though I’m not quite debt free yet, the goal is to be there by this time next year. Being profitable is the element that has allowed me to position things where they need to be. The amount of stress that lifts off your shoulders is incredible and your focus shifts dramatically.

To give further credibility to what I’m saying take a look at the list below. According to CNBC these companies have no debt:

  • Google
  • Apple
  • eBay
  • Electronic Arts, also known as EA or EA Sports
  • Bed Bath and Beyond
  • Gap
  • Texas Instruments

It’s amazing what you can do when you don’t have the debt monkey on your back. Sadly, most businesses offer the monkey a ride before they have made their first dollar. Many people think you need a business loan to get started. Consider this, you can’t go bankrupt if you haven’t borrowed money. Most businesses go through rough patches. By not having debt, it means you should have savings, which will help you during these times. It also means that you don’t have money going out the door that isn’t producing profit for your company. Anything that doesn’t produce profit in a business is unnecessary and it should be cut. This includes office space, 3rd party services, vehicles or even employees.  This last one is hard, and I have personally had to do it, but a business cannot survive if it is losing money. The one exception I would note is charitable activities. While I believe all financial contributions should be made personally, if you build a small company with employees I would encourage you to participate in charitable activities, on and off company time. Being in business for yourself includes making tough decisions, perhaps more than you ever had to deal with in your life. If you start and stay debt free, chances are you will never have to deal with layoffs, and as long as you understand your customer base (that’s another article), and you will never have to shut it down either.

37signals has been writing a series called “Bootstrapped, profitable and proud.” It highlights the stories from tech companies who have $1M in revenue, didn’t go into debt to get started, and are profitable. The first article in the series is about Campaign Monitor, a software company that has doubled their revenues and profits for the last six years. If you are someone who finds it easy to learn by example, be sure to check out the rest of the articles in that series.

Finally, this wouldn’t be a complete article about debt without mentioning Dave Ramsey. Whenever you are dealing with debt, the first thing Dave tells you to do is to sell the car, and buy a piece of crap that will take you where you need to go. I recently had the pleasure of attending an all day seminar put on by Dave. One of the things he mentioned, is that companies should shoot for having 50% of annual expenses socked away in savings. This is tough to do, especially if your company starts growing very quickly. Rapid growth can come with elevated expenses, and if you are not careful money can leave your bank account more quickly than it goes in. Of course with more employees, that 50% becomes a larger number exponentially. Dave’s company isn’t even there yet, although they are close. This goal is much more attainable though when you are shooting for it from day one, have zero debt, and low operating expenses. If you are currently in debt, I strongly suggest that you take his Financial Peace University class. This is a great class that is geared towards personal finance, however many of the principals apply to business as well. For more business specific material, you can check out EntreLeadership also by Dave Ramsey. The one day course I took would have had a tremendous impact on how I would have run my business had I taken it before I started my company.

The irony here is the piece of crap car won’t get you where you want to go in style. It won’t always get you there quickly. The point A to point B trip can be somewhat of a challenge at times. The car with a payment will help you to impress people you don’t know or even care about. For a short time, it will quickly take you back and forth to your destinations, in comfort, with lots of cool gadgets. However the newness wears off, the value depreciates and the payment sticks around. The piece of crap will will teach you a thing or two about humility and contentment. The piece of crap car will also allow you to do just what you need to do. It might be slow, but it will ultimately get you to the road less travelled, where dreams happen. The one with the payment might be shiny, and it might go fast, but it’s ultimate destination is rush hour traffic. If you’re not into cars, just think tortoise and the hare.

Old Faithful

1999 Hyundai Sonata