Start-Up Tip - How Will You Make Money?

In an era when companies like Twitter can raise millions in capital and have no revenues flowing in, you may wonder why your business needs revenue or profits to exist or to raise capital. Twitter is simply in a league by itself. Investors invested in young, smart people with track records. That can happen -- but not very often.

The average Joe or Jill has to be able to demonstrate to investors that their business idea can make money. That means you need to plot out how you're going to do it. I've had all sorts of ideas of how I'd make money, if I were running Twitter, but they are not about to hire me. I'm not young and hip.

Making money is not that mysterious. You make a product or create a service, and you sell it to customers. Of course, Twitter doesn't sell its service. Google doesn't either. But Google does sell pay-for-performance advertising.

So, ask yourself -- What am I selling? What can I charge? With pay-per-click or pay-for-performance advertising, the market determines what you can charge. Demand drives the price and the volume because advertisers bid on the keywords they are buying. This works the same on Bing, Yahoo! and other pay-for-performance search engines and ads.

But what if you sell knives? You have a great design. Where will you sell it? What will you charge? How will you get it to consumers? What will it cost to manufacture? All these calculations go into figuring out how you're going to make money. Even if you don't like to do math, learning to do this kind of math is essential (and fun) because it empowers you to understand your business. Entrepreneurs who understand their businesses can more easily raise money and can have an easier time making money.

Take a look at other products on the market and see what price points they sell at. Find out what the sales volume is. Think about your wholesale price to your customers and how that will compare to the retailers' final price to consumers. Figure out the mark-ups and the profit margins. What is normal in your industry?

And while you're at it, remember the importance of having a brand. It doesn't cost a lot to make Nike sneakers, but Nike charges a lot for them because of their brand name. Can you create a valuable brand like Nike or Google? Even Twitter has become a valuable brand because of all the people using it. It's helping to fuel the revolution in Iran. How powerful is that?

Women Entrepreneurs

Yesterday, the Connecticut section of the New York Times ran an article about Women Entrepreneurs in the our area. It focused on "Carla Schneider, 40, of Orange, whose product, the WubbaNub, a silicon pacifier with a small stuffed animal attached, has been used in neonatal intensive care units and by mothers of fussy babies around the country." And the article went on to say that "for many female entrepreneurs, necessity is the mother of their venture." I used to belong to the Women's Entrepreneurial Network, which had no end of striving women with their own businesses. It was true that many of the members who had seen real necessity in the marketplace had plenty of success, but a lot were just wannabes. The wannabes were thinking of starting businesses or were in overly crowded markets, where it was hard to make money.

The article points out that more women start businesses than men. But most woman-owned businesses make very little money. Nearly half of businesses owned by women make less than $10,000 in annual revenue.

In my business planning work, I've only had one woman client -- only one woman who realized the great value of a professional plan and was willing to pay for it. In my marketing communications work, again, I've only had one woman client. I've always wondered about that. Are women more conservative with their money? Or do they have lower ambitions and so don't want to spend money on their businesses? I'm a woman, and I've got to admit, I hesitate before spending money on professional advice or help. But I've also mixed my home life with my home-based business. I work out of a home office, which gives me a tremendous amount of freedom and keeps overhead low. I also realize that what I do for my family and home has economic value. Otherwise, I'd have to hire other people to do my "home work". Still, I love having my own business and generating and contributing my own revenue stream to the family. When paying college tuition, every penny helps.

In any event, the article about women entrepreneurs in our area is well worth reading. It really shows how exciting it is to build a business from an idea and how it is possible to be a business owner and a person with a home life. Here is a permanent link to the article.

http://www.nytimes.com/2008/06/22/nyregion/nyregionspecial2/22Rwomenct.html?ex=1371700800&en=ad2d6107b4914913&ei=5124&partner=permalink&exprod=permalink