It has been a few weeks since my last post, mostly because I have been flat out busy with both freelance accounting work and the continued growth of the business. April has continued the trend of good, strong sales, with total merchandise sales of just under $4,000, and total revenue of over $6,000. It was not quite as busy as last month, but it is very close. One thing that is rapidly becoming clear is that a $3,000 is now a slow month, whereas this time last year, it was our best month. Furthermore, the local firm I am doing freelance work for is quite happy with my work so far, so I expect that I will continue to get work as long as they have jobs that need doing.
While I have been very happy with how the business is doing, I can't help but be sad sometimes that I didn't start the process of building this business much sooner - at least 15 years ago when I first conceived of the idea. E-bay was around then, and with a few technological exceptions, everything that was critical to the success of my business model was available then. But I didn't do it because I believed that everything had to be perfect before I could start: I had to have a full inventory and I had to have enough money saved up to live on for years while my business got started. The flaw in that line of reasoning though is that it never got started. 15 years went by before it did. The main reason why I allowed that to happen is that I over-estimated the importance of money in starting my business. The other reason why it happened was that I had too much money.
Now, don't get me wrong. Money is a critical ingredient to a new business. Without money you can't hire people, and you cannot buy stock. So some money is critical. However, what I have learned over the past two years is that what is even more critical is the development of a reputation, and the mastery of a viable business model. What do I mean by these two things? I'll explain.
You can have the best product in the world, but chances are you are not the only one selling it. When you start an online business, your largest challenge is gaining exposure and getting people, who already suffer from information overload to engage with your brand. This engagement is critical and is the first step in the sales process. Far too many people labour under the illusion that if you have a good product that people will just come and buy it without engaging with you first, or with your brand. While a few will indeed do this, generally it won't be enough to sustain a business, because people don't buy when they don't trust, and they don't trust people or businesses they don't know. This is why I love "tire kickers" whereas other business owners are often annoyed by them. To me when someone asks a question about my stamps, it means that they were interested enough to engage. Even if I don't think I can help them, I will try. The only time I won't is when the person contacting me is trying to engage me through my business media to discuss something that has nothing to do with stamps. Eventually, some of these people will become customers, or will tell other people about the business. Also, many people are reluctant to purchase items online with businesses they don't know or cannot read reviews about. Thankfully, E-bay has a built in system for customer reviews called "feedback" that gives potential customers an idea of whether or not a seller is reputable. Building up a solid feedback score with a long history takes time and isn't something that can be rushed. Building rapport with customers takes time also. Without your customer base, it is very hard to make sales, but with a solid customer base, it is much easier. So you are better off starting to build your customer base as soon as you can, even if you aren't in a position to stock a comprehensive product range when you get started. As long as you explain to your customers that you are in the process of building your offerings and that you make sure that whatever you do supply is of the best quality, you will build a good reputation.
The second reason why it is good to just get started on a small scale is that it will allow you to see, before you sink in too much money whether your business model is as viable as you think it is. After all, a profitable business is just the summation of a very large number of individually profitable transactions. If you can ensure that all of your transactions are profitable, then it will go a long way towards you being able to secure financing for your business idea later on.
This is where the concept of having too much money comes into play. If you start your business and you have a year's savings, then you have just enough to give you a reasonable cushion to give you time to get your business established. But you don't have so much that you can afford to rest on your laurels. You don't have so much that you can just overlook unprofitable transactions thinking that the profitable ones will compensate for them. You don't have so much that you won't be constantly re-evaluating the viability of your business model as new information comes to light, as you gain experience. The other thing is. you won't have so much that you won't feel an immense hunger to get the business on solid ground as soon as possible. That's a hunger that will push you to come up with ideas to make the business successful that you would just not come up with if the hunger isn't there. That lack of hunger is the major reason why businesses that are started on the side, with the idea that "I'll quit my job when the business can support us" rarely get to that point. It is very difficult to create the momentum that builds your reputation and moves your business forward if all you are spending on it is your spare time outside of work and family obligations. For one thing, your customers won't see you as someone who is dedicated to what you are doing if they can't get a hold of you when they have a question or concern about your product or service.
Many of those close to me have suggested to me that I shouldn't regret staying in the accounting profession for as long as I did. Usually, these well meaning friends and family members will point to the speed at which I was able to build my inventory and will say that I never could have done that if I were employed in a less lucrative field. While that is indeed true, I have found that I can only process and list so many stamps in the time that I have. It's wonderful to have such a large inventory at my disposal. But the reality is, most of it will just sit here until I get around to listing it, which could be up to 2 years. If I had started this business 15 years ago and taken a less lucrative, but less demanding job, I very likely would have been in a better position than I am today, for even though I may have had less stock to work with, it would all be listed. I wouldn't have the huge backlog that I have now. I would be light years ahead of the game in terms of having a reputation. By now, I would be a well known dealer in most professional circles, whereas right now I'm still relatively unknown. But probably most importantly, if I had started this earlier and earned less money, I would been a lot more careful about the financial decisions I did make during the last 15 years. But having a large 6 figure salary allowed me to lie to myself. It allowed me to convince myself that it was OK to mortgage myself to the hilt and live a 6 figure lifestyle with my family, since "my day would eventually come". It never did though, and it was only after I left the profession that I got a second chance.
So I'm writing this post for those who want to pursue their dream and know very clearly what it is. Even if you know at 19 or 20 what that dream is, don't allow people to talk you out of pursuing it, or putting it on hold to "be responsible" by taking a high paying job. I say this because the longer you stay in that type of environment, the more difficult it will be to get out, and the more regret you will have from never having tried. You are much better off giving it your best shot and giving up only when it becomes clear that it is not viable economically. At what point is that? I would say that it is not at that point just because your revenue volume is low. A business idea is not economically viable when you cannot make an individual transaction profitable. In other words, if I couldn't sell stamps at enough of a margin to cover E-bay's fees and have a decent profit left after many, many tries then I would have known that my business model wasn't viable. Or let's take a different example. Suppose your dream is to be a disc jockey. If you couldn't get a gig that pays you enough to cover all your expenses of performing that gig, including a reasonable return on the equipment that you supplied, after many, many attempts, then your idea might not be viable. But if you are able to turn a profit on even a small volume of transactions, and you know you can replicate those transactions, then your business is viable, even if it isn't yet self-sustaining. Your problem becomes how to sustain it until it can sustain itself. Your main options there are to seek financing from investors or to work part time or full time, though full time work has the major drawback that I have discussed.
Of course, it is much easier to secure financing when you can show that your fundamental business model is viable. That, you do, by showing what you have sold to date, and what profit you have been able to make. That is why on shows like Dragon's Den and Shark Tank the dragons and sharks ask all the time about sales volume. The contestants will go on these shows and talk about how wonderful their idea is and they will get interrupted with the question. "How much have you sold?", or "You mortgaged your house and put it all into the business. How much did you sell?". Most of the time when the person answers "none" of gives a low number like "$5,000" and they are turned down, it is not because of the sales volume being low. It is because their answer does not convince the dragons or the sharks that they have mastered their business model. If the contestants could show that their idea is profitable and scalable, then lack of funds is not a problem. But when somebody invests their life savings into an idea before they have proven its soundness to themselves, that is major red-flag to a prospective investor.
I want to go back to the example of the disc jockey for a minute though because it is much easier to judge viability of your business model when you are selling a product. Basically you will either be able to find or create a market for your product that is willing to pay you more for it than it cost you to buy it or you can't. In the case of a disc jockey or other artistic pursuit, you are still selling a product, but it is highly personal product (a personal service or your pre-mixed music). In that case your reputation and your connections became much, much more important to your success than they would be to someone selling a non-personal product that anyone can sell. I think the only time it would be appropriate to give up on something like this as a way to make a living would be if you had a very large following of fans but it was clear that those fans were not willing to pay you for your work. This often happens to bloggers for instance. I write two other blogs in addition to this one. My Canadian stamp blog gets up to 500 visits a day on a good day, and usually around 300. I have had a donation button on my blog now for over 4 months and I haven't received one dime from anybody for my posts. People are quite happy to read it for free. But none of my readers want to pay for me to write the posts that I write. All that means is that if my dream were to make a living writing stamp blogs, I know now that it probably isn't an economically viable dream. On the other hand if my dream is to become a stamp dealer, and to use my blogs to build my reputation and gain exposure within the collector community, then it can be very viable if that traffic leads to profitable stamp sales.
So don't make the mistake of allowing a lack of money to stop you from developing your business idea. Work on your idea, build your reputation and connections, and prove to yourself that you can make money at it. I think you will find that if you do that, you will be able to find the money you need to continue developing your business. It may not be enough to become a big business, but it will be enough to allow you to make a living doing what you love.
While I have been very happy with how the business is doing, I can't help but be sad sometimes that I didn't start the process of building this business much sooner - at least 15 years ago when I first conceived of the idea. E-bay was around then, and with a few technological exceptions, everything that was critical to the success of my business model was available then. But I didn't do it because I believed that everything had to be perfect before I could start: I had to have a full inventory and I had to have enough money saved up to live on for years while my business got started. The flaw in that line of reasoning though is that it never got started. 15 years went by before it did. The main reason why I allowed that to happen is that I over-estimated the importance of money in starting my business. The other reason why it happened was that I had too much money.
Now, don't get me wrong. Money is a critical ingredient to a new business. Without money you can't hire people, and you cannot buy stock. So some money is critical. However, what I have learned over the past two years is that what is even more critical is the development of a reputation, and the mastery of a viable business model. What do I mean by these two things? I'll explain.
You can have the best product in the world, but chances are you are not the only one selling it. When you start an online business, your largest challenge is gaining exposure and getting people, who already suffer from information overload to engage with your brand. This engagement is critical and is the first step in the sales process. Far too many people labour under the illusion that if you have a good product that people will just come and buy it without engaging with you first, or with your brand. While a few will indeed do this, generally it won't be enough to sustain a business, because people don't buy when they don't trust, and they don't trust people or businesses they don't know. This is why I love "tire kickers" whereas other business owners are often annoyed by them. To me when someone asks a question about my stamps, it means that they were interested enough to engage. Even if I don't think I can help them, I will try. The only time I won't is when the person contacting me is trying to engage me through my business media to discuss something that has nothing to do with stamps. Eventually, some of these people will become customers, or will tell other people about the business. Also, many people are reluctant to purchase items online with businesses they don't know or cannot read reviews about. Thankfully, E-bay has a built in system for customer reviews called "feedback" that gives potential customers an idea of whether or not a seller is reputable. Building up a solid feedback score with a long history takes time and isn't something that can be rushed. Building rapport with customers takes time also. Without your customer base, it is very hard to make sales, but with a solid customer base, it is much easier. So you are better off starting to build your customer base as soon as you can, even if you aren't in a position to stock a comprehensive product range when you get started. As long as you explain to your customers that you are in the process of building your offerings and that you make sure that whatever you do supply is of the best quality, you will build a good reputation.
The second reason why it is good to just get started on a small scale is that it will allow you to see, before you sink in too much money whether your business model is as viable as you think it is. After all, a profitable business is just the summation of a very large number of individually profitable transactions. If you can ensure that all of your transactions are profitable, then it will go a long way towards you being able to secure financing for your business idea later on.
This is where the concept of having too much money comes into play. If you start your business and you have a year's savings, then you have just enough to give you a reasonable cushion to give you time to get your business established. But you don't have so much that you can afford to rest on your laurels. You don't have so much that you can just overlook unprofitable transactions thinking that the profitable ones will compensate for them. You don't have so much that you won't be constantly re-evaluating the viability of your business model as new information comes to light, as you gain experience. The other thing is. you won't have so much that you won't feel an immense hunger to get the business on solid ground as soon as possible. That's a hunger that will push you to come up with ideas to make the business successful that you would just not come up with if the hunger isn't there. That lack of hunger is the major reason why businesses that are started on the side, with the idea that "I'll quit my job when the business can support us" rarely get to that point. It is very difficult to create the momentum that builds your reputation and moves your business forward if all you are spending on it is your spare time outside of work and family obligations. For one thing, your customers won't see you as someone who is dedicated to what you are doing if they can't get a hold of you when they have a question or concern about your product or service.
Many of those close to me have suggested to me that I shouldn't regret staying in the accounting profession for as long as I did. Usually, these well meaning friends and family members will point to the speed at which I was able to build my inventory and will say that I never could have done that if I were employed in a less lucrative field. While that is indeed true, I have found that I can only process and list so many stamps in the time that I have. It's wonderful to have such a large inventory at my disposal. But the reality is, most of it will just sit here until I get around to listing it, which could be up to 2 years. If I had started this business 15 years ago and taken a less lucrative, but less demanding job, I very likely would have been in a better position than I am today, for even though I may have had less stock to work with, it would all be listed. I wouldn't have the huge backlog that I have now. I would be light years ahead of the game in terms of having a reputation. By now, I would be a well known dealer in most professional circles, whereas right now I'm still relatively unknown. But probably most importantly, if I had started this earlier and earned less money, I would been a lot more careful about the financial decisions I did make during the last 15 years. But having a large 6 figure salary allowed me to lie to myself. It allowed me to convince myself that it was OK to mortgage myself to the hilt and live a 6 figure lifestyle with my family, since "my day would eventually come". It never did though, and it was only after I left the profession that I got a second chance.
So I'm writing this post for those who want to pursue their dream and know very clearly what it is. Even if you know at 19 or 20 what that dream is, don't allow people to talk you out of pursuing it, or putting it on hold to "be responsible" by taking a high paying job. I say this because the longer you stay in that type of environment, the more difficult it will be to get out, and the more regret you will have from never having tried. You are much better off giving it your best shot and giving up only when it becomes clear that it is not viable economically. At what point is that? I would say that it is not at that point just because your revenue volume is low. A business idea is not economically viable when you cannot make an individual transaction profitable. In other words, if I couldn't sell stamps at enough of a margin to cover E-bay's fees and have a decent profit left after many, many tries then I would have known that my business model wasn't viable. Or let's take a different example. Suppose your dream is to be a disc jockey. If you couldn't get a gig that pays you enough to cover all your expenses of performing that gig, including a reasonable return on the equipment that you supplied, after many, many attempts, then your idea might not be viable. But if you are able to turn a profit on even a small volume of transactions, and you know you can replicate those transactions, then your business is viable, even if it isn't yet self-sustaining. Your problem becomes how to sustain it until it can sustain itself. Your main options there are to seek financing from investors or to work part time or full time, though full time work has the major drawback that I have discussed.
Of course, it is much easier to secure financing when you can show that your fundamental business model is viable. That, you do, by showing what you have sold to date, and what profit you have been able to make. That is why on shows like Dragon's Den and Shark Tank the dragons and sharks ask all the time about sales volume. The contestants will go on these shows and talk about how wonderful their idea is and they will get interrupted with the question. "How much have you sold?", or "You mortgaged your house and put it all into the business. How much did you sell?". Most of the time when the person answers "none" of gives a low number like "$5,000" and they are turned down, it is not because of the sales volume being low. It is because their answer does not convince the dragons or the sharks that they have mastered their business model. If the contestants could show that their idea is profitable and scalable, then lack of funds is not a problem. But when somebody invests their life savings into an idea before they have proven its soundness to themselves, that is major red-flag to a prospective investor.
I want to go back to the example of the disc jockey for a minute though because it is much easier to judge viability of your business model when you are selling a product. Basically you will either be able to find or create a market for your product that is willing to pay you more for it than it cost you to buy it or you can't. In the case of a disc jockey or other artistic pursuit, you are still selling a product, but it is highly personal product (a personal service or your pre-mixed music). In that case your reputation and your connections became much, much more important to your success than they would be to someone selling a non-personal product that anyone can sell. I think the only time it would be appropriate to give up on something like this as a way to make a living would be if you had a very large following of fans but it was clear that those fans were not willing to pay you for your work. This often happens to bloggers for instance. I write two other blogs in addition to this one. My Canadian stamp blog gets up to 500 visits a day on a good day, and usually around 300. I have had a donation button on my blog now for over 4 months and I haven't received one dime from anybody for my posts. People are quite happy to read it for free. But none of my readers want to pay for me to write the posts that I write. All that means is that if my dream were to make a living writing stamp blogs, I know now that it probably isn't an economically viable dream. On the other hand if my dream is to become a stamp dealer, and to use my blogs to build my reputation and gain exposure within the collector community, then it can be very viable if that traffic leads to profitable stamp sales.
So don't make the mistake of allowing a lack of money to stop you from developing your business idea. Work on your idea, build your reputation and connections, and prove to yourself that you can make money at it. I think you will find that if you do that, you will be able to find the money you need to continue developing your business. It may not be enough to become a big business, but it will be enough to allow you to make a living doing what you love.
Hi
ReplyDeleteWhat A great post. I realy enjoy reading it. my dream is also to be a stamp dealer and I find it hard. I also sell on eBay the collection that I've built for 30 years. most of my sales are Israel stamps.
Keep on writeing.
Hi Sharon.
DeleteI am glad you are enjoying my posts. This is indeed a tough business to be in, but if you can find a niche, particularly with the less expensive material and can make it more appealing to people that is a really good way to do it. Buying and selling the rare stamps is a difficult way to make a living, but the less expensive material is your friend if you are prepared to do the work. For Israel, my understanding is that most material post 1952 or 1953 is very inexpensive, especially without tabs. So what I would do if I were specializing in Israel is I would study the living crap out of the material to the point where I knew everything there was to know about the papers, shades, gums, plates etc - going even deeper than Bale. Then I would buy the stuff up - cheap. Then I would promote it through my blog by showing people all the possibilities that the area had to offer. That would be my advice. I would start small just to see if there were buyers for that material described to that level of detail, and if there were, then I would expand.