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Tuesday, 04 August 2009 21:45
You are thinking about starting your own business because you want to be rich, right? If that isn’t the case, I’ll be the first to call you out on your bullshit. But if you want to become filthy rich, that’s because there is nothing wrong with it.
But before you embark on your journey to the riches, think about this:
Pigs get fat, hogs get slaughtered
It pays to be greedy, but not too greedy or else you’ll get in trouble. If you get too greedy like a hog, you can end up loosing it all.
For example, when my business partner and I started Crazy Egg we could have sold it for around 6 million to one of the top Internet companies. We were a bit greedy at the time and wanted no less than 10 million dollars.
At this time the business hadn’t been out for a year and wasn’t even bring in $20,000 a month. On top of that we were losing money because our costs were higher than our revenue.
So for someone to offer us 6 million dollars, we should have been grateful and accepted the offer. If you analyze the numbers, we weren’t even worth 6 million. If we took the 6 million at the time, we would have been happy pigs, but instead both my business partner and I wanted to be hogs.
Now that 6 million dollar blunder wasn’t even the worst mistake I made, but we won’t get into that right now. So in hopes that you won’t make mistakes revolved around greed, here are some things you should know if you plan on owning a business:
Whether it is a business partner or the right employee, you can’t be afraid to give away equity. Yes, you will own less of the company, but hopefully that person will make the company worth more.
You’ll make mistakes and hire bad employees or find bad business partners, but this shouldn’t stop you from giving out equity. As long as you have a good lawyer to give you advice, you can give out equity so that it vests over a period of 3 or 4 years. This way if you make a bad decision you won’t lose all the equity you promised someone, but instead a fraction of that.
Using your own money to start your business is always a good thing, but there isn’t anything wrong with using someone else’s money. With my current company, KISSmetrics, my business partner and I raised a total of 4 million dollars.
We started the business with a few hundred thousand dollars of our own money, but if we wanted to create a hundred million dollar company, there is no way we could do it on our own. If we tried, we would have ended up with another small business like Crazy Egg.
If you don’t believe me, just take a look at the math. Isn’t it better to own 10% of a 100 million dollar company, than owning 50% of a 6 million dollar company? Now granted there is no guarantee that your company will be worth 100 million, but there also isn’t a guarantee that it will be worth 6 million either.
Just because things are great now, it doesn’t mean they will be like that forever. Good things always come to an end, so don’t try to ride them till the end. Get out while things are positive and move onto something else. This way you will hopefully walk away with more money and less stress.
For example, when the economy was great, I could have cashed out of my consulting agency at a really good deal. We had big clients that were paying thousands a month and some even hundreds of thousands a month. Profit margins were really high, but when the economy hit, we lost clients like General Motors.
At first I thought my business was recession proof because clients were paying me $100,000 a month and I was able to make them millions in profit. The problem with my thinking was that I was too logical. At the end of the day when big companies make budget cuts, they look at a spreadsheet and analyze each line item. And when there are lines items called “Search Engine Optimization”, CEOs and VPs usually have no idea what they mean, so they cut them.
So when things are looking great with your business don’t assume that things are going to even get better. Remember, although it only takes a few months to land a multi-million dollar contract, it only takes a second to lose it.
Concentrating on one business model will either make you filthy rich or get you slaughtered like a hog. I personally don’t need billions of dollars; I just need a few hundred million. 
So instead of me putting all of my money into 1 dotcom company, I raised money from outside investors. I also take a lot of my personal money and invest it into other dotcom companies, real estate, the stock market, and whatever else I can get my hands on.
Diversifying is a good way to live like a plump pig. Concentrating and focusing on one thing is smart if you want to be filthy rich, but that usually doesn’t work out. Instead, you will probably end up getting slaughtered like a hog.
Don’t get too greedy! There is nothing wrong with having a bit of greed, but too much can hurt you. If you ever have the opportunity to walk away from whatever you are doing and take a few million off of the table, and put it into your pocket, do it. A few million dollars is life changing!
After you have your first few million, you can be a bit greedier and go after a lot more, but until then, take whatever you can get.
