Millionaires and Billionaires are hyped in the media all over the world for their great achievements, and usually they have founded one or multiple companies to make their fortune.
But only very few people see the real systems beneath the surface that have actually taken them from often a harsh private background to where they are today.
Unfortunately in our regular school system, there is not too much time spent on teaching people about business.
So it is no surprise here that the real process remains hidden and invisible for the vast majority of people.
I myself studied economics because I wanted to learn so badly about business and how to make a lot of money.
Shockingly, even in a university education of economics you learn hardly anything that is actually helpful if you want to do business yourself.
Countless hours are wasted to learn about market theories, mathematics or bookkeeping - yet not a single class is taught on how to start your own venture.
This blogpost is now going to teach you what a university education in economics could not teach me.
To go further into detail, let's take a look at a analysis of a company to get a full understanding of how to start a business:
Contrary to what most people believe, a company itself does not consist of large office buildings or production sites.
Also the staff, the goods and vehicles are not a necessary part of it.
A company itself is rather a folder of documents.
These documents give it its corporate entity, define equity and responsibility. The company itself is therefore intangible and consists rather of a combination of rights and duties for the people involved.
And that is basically it. No product, staff and buildings so far.
The company then has to “live”, meaning it has to have some sort of monetary objective that it pursues.
To stay “alive” every company is expected or founded from the start to generate profits. Companies that fail to generate profits after a certain time will be closed as no one wants to lose money on a constant basis.
So at its core there has to be a process or system that brings in a stream of revenue and is thereby generating profits for the company and its shareholders.
Step 1 - The Product
Profits are usually generated by providing some kind of product. A product can be almost anything - it can be information, any sort of device or something to eat.
Think about a TV station - their product is to provide you with entertainment.
Or take a factory that produces tires - their product is the tire that you use for your car.
Another example would be a real estate company - they build houses for people to live in.
Take social media as another example - their product is a platform where you can interact with your friends and family.
But a product on its own is not enough to generate profits.
There has to be a certain value that the products add to people's lives. Otherwise no one would consume it, meaning no one would spend money on it.
There are countless products that have been created yet they never became a success - if people are not interested in what you have to offer, they will not buy from you. Period.
Now to get people interested in your product, there has to be usually a form of benefit for them involved to even consider your product.
If I would build a car that is slow, uncomfortable to drive, has real low quality interior and breaks down regularly: would you like to buy one?
Clearly you would not. Why should you buy this crappy car if there are other beautiful and great quality cars available?
Even if it would be ridiculously cheap it would not make any economical sense to buy it.
So my product did not create enough value to convince you - you would never buy it, instead you would take what my competitors offer you.
This is just basic human nature, we look for the best possible deal that we can find. Now some might look more intensely than others, but basically we all want to have the best that is available to us at the cheapest possible cost.
To start any company first and foremost there has to exist a concept that provides a product that people want to purchase, usually this is accompanied by some kind of benefit.
The product does not always have to solve a problem - many gadgets or clothing companies for example start by providing something that is cool or that expresses a certain lifestyle.
An expensive car for example does not solve any at all problem, often it even creates more problems for the owner with expensive repair services that need to be done etc.
And still, people willingly spend their life savings to drive around in a new Porsche or Mercedes.
It's because these vehicles provide an emotional benefit, you feel good when you drive around in it and it boosts your social status.
It is not necessary that consumers are the ones who pay for your product although this is the most obvious thought.
If we look at Google, they charge companies to advertise on their search platform and the consumers can use it for free.
The more important step is that you have a product that people actually want, and this means that someone is willing to pay for it the price you are asking.
Step 2 - The System
If you have a good product that provides value and where a demand exists, there are now different ways to monetize it.
For instance, some companies are trading goods.
They buy stuff x for 10$ and sell it for 30$, which usually generates them a profit after paying for all expenses to put it simply.
In this case you don't even have to create the product yourself - it is enough that you are admitted to a certain manufacturer who is creating and producing the goods that you sell.
Other companies are producing goods themselves, which can be anything from food or a bottle of wine to clothing, cars, a building or smartphones.
And other companies do not rely on any tangible goods at all, for instance an insurance business that provides contracts to ensure people's possessions.
Or here are other firms that sell digital goods like audio programmes or marketing courses online.
What they all have in common is that in order to create a profit, the product has to bring in more money than it takes to create it, including all the operations necessary around it like taxes, shipping, fees etc.
Here it gets a little more complex, the entrepreneur has to calculate all costs for producing the goods like raw materials or workforce as well as all legal requirements to run the business, and then adds his margin to the final sale price to be profitable as well.
For example: producing a shoe with all the materials, transportation and labor costs the company 20$. The shoe then gets sold for 60$ to create a profit.
Why would anyone pay 60$ for a shoe that can be produced at only 20$?
Because it takes a whole company with all their supply chains, distributor contracts, long negotiations and large volumes of production to get the costs down to where it can be produced for 20$.
Producing a single pair of shoes would be much more expensive, which results also in a benefit for the customer who can get his or her shoes for a reasonable price.
And then there are companies that provide a certain service and charge for it, like IT companies, apps or media companies.
They are also often free for the private users who consume the content and then charge companies for advertising on their platform (take Facebook as an example).
The principle here is the same: they also calculate their costs and add a margin to generate profits, only that here it gets even more complex to calculate and not the users are paying to use the platform but the advertisers are paying to get in front of the users.
The most crucial to understand about this step is that all the various factors that can take place have to be considered, whether it is on the legal side like taxes or on the business side, like contractors that fail to deliver on what they promised etc.
For all these scenarios the company's system has to take care of the outcome to make sure none of these problems can throw the company off track.
One thing is certain - that such problems will occur.
And a good system will prepare you to withstand the troubles and still allow you to make a profit.
Step 3 - Marketing
This is the saddest part for many entrepreneurs because here is where many fail.
To most people marketing is rather a myth than science, where everybody has its own perception of how it is and how it should be.
After months of developing and designing products, and even more months of designing a perfect webshop and a great logo and corporate design, no one visits the webshop and therefore no one buys anything.
That hurts.
Now what?
Especially on the internet you find dozens of self-proclaimed marketing “gurus” who claim that they want to help you with their “secret” trick, which is usually just a mere way to sell you on some expensive course that can teach you the same as any good marketing book could for a fraction of the cost.
I personally do read a lot of marketing books and unfortunately also I bought some “magic” marketing programmes for thousands of dollars because I was so desperate at some times.
Any 20$ marketing book contained more and better information than the course from the “guru” for several thousand dollars.
If you really want to learn - read.
It takes more time and is the hard way, but the shortcuts never pay off.
But I am not the only one who struggled with this.
Too many entrepreneurs founded their startups with great ambition, developed a unique product over months, had a perfect management in place and then found no way to sell it with profit.
Just look around your own city or the next mall near you, how many shops have you seen closing because there are not enough people buying to leave a profit?
Online it gets even worse, thousands of blogs and webshops get started, end up with no visitors and then get closed down after several months because the founder did not receive a penny for his or her efforts.
Whatever your perception of marketing is and what technique and channel some gurus tell you is “hot” right now, what marketing always has to be is demand generating.
It does not matter if you get your clients through a TV advertisement or a social media site, as long as your company has enough clients that are buying.
The result in this process is the only thing that counts - that people are buying your products.
Besides the point of how good your product is, you have to find a way to get your audience to buy it.
It is very unlikely that clients will come to your doorstep and ask you if you have anything to sell.
Even if they do - then your system relies on outside forces you cannot control to keep the company running.
If one day people stop showing up for any reason - your business will die.
To stay safe and ensure profits, all successful companies have to find a way to sell their products accordingly.
This is where most startups fail - they cannot find a way to sell their products with profit.
Selling your product for bargain prices is not enough, even if it might be tempting to do so!
Maybe the marketing is targeting the wrong people in this case, it will never take the company off the ground unless there are enough people who want to buy at the price that allows to make profits for you and your shareholders.
How to do this depends on your industry and your customers.
Where do they hang out?
What are they interested in?
The standard approach is to somehow provoke your target audience to visit your store, check out your product, exchange their email address or similar actions.
The possibilities to do this are almost endless.
So test and try every possible approach until you find your winning access to the customers you want to market to. This is the part that you will have to find out yourself.
Unless you have a mentor who really wants to see you succeed, no one will do this step for you.
And no one can.
If you have a truly new and great product that has never been there before, how should anyone know how to market it?
This is something that first has to be discovered along the way.
Therefore, just keep going, and trust the process. You will eventually find your way.
To sum it up, our 3 core processes for every company are:
you need a product that adds great value and is affordable
there has to be a system in place that covers all expenses and allows profits
you have to find a way to market it to the right audience
If you are thinking about starting a business yourself, make sure these 3 factors are in place before you start. Of course, there will also be tremendous other factors that you have to consider, but these 3 are the fundamentals that will make or break you.
If you get these steps right, you are a huge step closer to success. In fact, if you really master them - then it will be hard to stop you from succeeding.
What were your experiences when you started your company?
Did you notice other important aspects?
Let us know in the comments and keep your dream alive!
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