I've never personally had to make a profit, and I can't claim to have the answers, but I've studied people trying to do this and I've heard a lot of the questions. You know the odds and yet you feel you're able to somehow overcome them. Perhaps it's a better use of your time & efforts to (1) not have to face the odds by not doing this at all or (2) putting your focus on minimizing the bad stuff instead of maximizing the opportunities.
It's possible that this sort of success requires an amazing combination of knowledge/skills coupled with a huge ego and blissfully-oblivious self-confidence. In other words, the person most likely to succeed at this type of plan would never have thought of posting their questions to a discussion board-- they would have just gone out and done it.
But here are some thought experiments with no particular correct answers:
- You seem to be very good at starting businesses yet not so excited about this "next level". Why mess with success? Why not sell the businesses after you get them started, let someone else deal with the employee handbooks, and stick to what you seem to enjoy most? Will the "next level" accelerate your ER plan, or is this about exploring how far you can take your business-building skills? Will it take more time away from your family? You might be able to balance all these goals but this discussion board tends to be more focused on the exit.
I am very excited about this step. But I have never taken a guaranteed step back to try to move 10 steps forward. Let me elaborate: we profited more in the last 6 months than I've made in a full year with any other business. Next year, I will certainly PROFIT about 50% more if I dont change a thing. That is enticing! Going through with this expansion will put me at a similar take-home next year as I was at this season..maybe a touch less. So my instincts are saying "ugg...wouldnt you like those BIG paychecks next season? BUT, I know they will get much much much BIGGER when this takes its course. It will take more family time - which is a concern. I have a person in place to oversee about 10-15 hours/week in my landscaping company to help ease that strain
- I read and sit through a lot of business-plan presentations. When I encounter "very unique product that sets us apart from every other..." and "revolutionary" my eyes roll and I start looking for the escape hatch. I think those terms should be reserved for products that let you cut your costs by 75% or that at least don't require investing new capital. "Cheap"-- that's revolutionary. "Don't need your investor/partner money to grow my business"-- that's unique.
Oh it's unique, and for my area it is revolutionary. Maybe not revolutionary...but nobody within 150 miles has one. There will be a huge demand for this rental item based on my market research. I have customers ready to rent after showing them pictures. If it is not in as much demand as I suspect, it will double as a the most eye-catching advertisement my money could buy.
- If this product is so unique & revolutionary then why are you running an inflatable-rentals business? Why not start manufacturing or reselling the product to all the other inflatable-rentals businesses? Then you don't have to build a franchise system.
That is one of my ideas as well. There are other companies manufacturing this item, but I think we can build a superior product at a lower cost. If it rents well, I intend to build the item, couple it with a successful business system, and either 'franchise' or open other locations in other markets. If building these things proves to be a better use of my time, you better believe I'll build em!
- No investor wants to have to pay the costs of persuading customers to change their behavior. You want the products that consumers are clamoring to buy without you needing to educate them, and they care about having it cheap & reliable for the next party. You're in a business that's very sensitive to consumer optimism-- they'll never pay up for quality but they'll slam their wallets shut as soon as the economy hiccups.
Believe it or not, customers ARE clamoring to rent inflatables. It's mind boggling. They are also DYING to find something to do for their kids' parties in the winter. And I'm sorry to tell ya Nords', cutting off the kids' fun in a bad economy doesnt seem to be an issue. People will keep their school aged kids happy for their birthdays, regardless of economic times. If they HAVE been cutting back, watch out for THEFED when this economy turns around!!
- Do you need to take this "step back" with debt and repayment? Can you do this slowly from your company revenues or is this a case of "move fast before everyone copies us"? Why is there a need to take this risk just to get to the "next level"? The way this frequently works out is that you invest a lot of money to leapfrog the competition, then they go out and invest a lot of money to leapfrog you, then you all start a vicious price war that only the customers win. The guy who has the best combination of cheap and reliable "wins" with 0.05% profit margins, and everyone's exhausted, and the customers have no loyalty to anyone but price/reliability. This is essentially the story of Buffett spending 20 years and billions of dollars to shut down the Berkshire Hathaway textile factories.
The step back is basically a result of this new item costing me $60k, and my desire to expand our inflatable inventory and geographic reach to a new city. My ROI is so high right now where I'm at, there seems to be no reason to duplicate it in the next major city.
- What happens if you conservatively spend the money, the business starts to grow in a decent manner, and the black swan shows up? (Whatever that may be.) How do you handle the repayment terms? In other words how are you protecting yourself from the debt downsides that you can't predict? You probably already know that at a minimum you'd want to legally separate this venture from all your other businesses and shield your personal assets.
Always working on contingencies. Legally, of course, this is a new entity. These unknowns are what make me nervous!
- If I was your investor/partner, I'd be mildly concerned about how you manage the demands of the other businesses and keep them from interfering with this venture.
He's seen firsthand how I handle things as we are already in business together, but I know it does concern him (and me!).
- IMO only thing that sucks worse than owning a franchise license is being the business that sells them and has to manage them. Look at the experiences of Cardude and 73SS with their dealerships. You see yourself enhancing your streams of passive income, I see you building a massive infrastructure to educate & inspect your franchisees... and then having to deal with their rebellions. Reading
"McDonald's: Behind the Arches" will send you running away screaming from the franchise model...
Yeah, a franchise per se isnt necessarily the route I want to go...but I need to investigate this more thoroughly. In theory, I'd like to find someone person to invest and duplicate our efforts in another market. I would be able to provide proven and refined operation systems, back-end management,sales assistance, marketing, leads, purchasing power, etc. The nice thing about my partner is he can easily bring another 500k or more to the table if so desired. Of course, we need to work through this next transition before thinking about that.
Despite all my apparent negativity, you might succeed. You might be the person who works through the obstacle course and wins the race. But there will be demands on your time and energy (as well as on your family & finances)... unless this "next level" dramatically improves your life then there may not be any reason to mess with the status quo. Why do you need to do this? What does your family think of your "next level" plans?
I TRULY believe this will take me from upper middle class to whatever the next level is. It will be a few years, but it will happen. My wife is excited, which is new. EVERY business venture so far I show to her and my family has been shot down in some manner or another. Each has succeeded. I think they are all finally seeing that I have a knack for making these things work...so I hope they are right. I am tentative...but confident.
Maybe it's best to just keep doing what you already seem to enjoy doing until you don't enjoy it anymore, and then sell it to someone else who wants to build the next galaxy-dominating empire...
The problem is, *I* want to build that empire!
But again, I think that the personality most likely to succeed at this type of plan is the one who blithely ignores all this thread's commentary to just go out and do it. The catch is that it usually also requires an extraordinary sacrifice of time, money, and family.
I am already committed to doing it, but was just hoping for a little reassurance that a step back can often result in several steps ahead. Thanks for the bid of confidence buddy ;-)