Tuesday, January 26, 2016

Business is Business

Kirk Tuck pointed me to a recent post of his on The Business of Photography.

Reading it over again, it struck me that we're in a strange state of affairs in the western world, or at least my socio-economic stratum of the western world. The companies in the news are all Hot New Startups, disrupting something or other. If you're on facebook, you probably have far too many "friends" who are plastering their part of the world with the story of their new little business, and How Well It Is Going. We get left, I suspect, with the idea that the way a business works is that you launch it, and then start counting your money.

On the Hot Startup side of things, we have venture capital working very hard on the theory that massive infusions of cash can trim a couple years off the normal startup ramp of a new business. This works sometimes, and explodes messily rather more often (VCs leave that part out when they're talking to you).

On the Facebook side of things, the new side business of photography, or selling tupperware, or jewelry has to be promoted with pep and positivity. Nobody wants to hang around with a loser, so from day one anyone with any sense talks up the positive and doesn't talk much about the negative.

Overall we're soaking in the impression that businesses launch, and start generating money pretty much right away.

It's not true, and it never was. Even a massive cash infusion doesn't shorten the timeline much. It accomplishes two goals: It gives the investor who provided the cash a large stake in the resulting business, and it makes the success (if any) larger and faster. Instead of 8 years to a $2M/year business, it's 6 years to a $20M/year business (or something). Most of the people selling tupperware and so on are in an "infinity years to breakeven" scenario, despite the peppy attitude.

The reason it takes a bunch of time can be viewed thus:

There's a concept of a sales funnel. You've got the mass of people, companies, or whatever your potential clients are, in the world who are not customers. The business's primary function is converting some of those in to deals, transactions in which money changes hands in the good direction.

Your business plan contains, among other things, how you're going to develop a multi-step process for converting some random potential client into a paying client. Lots of people will see a billboard, some percentage of them will note the number, some of those will call the number to listen to a pitch, some of those in turn will make a visit to the store, and some of those will actually buy a product. Or whatever. It is very much a funnel, because you notionally stuff the entire world of potentials into the top, and winnow them down successively to smaller and smaller subsets until finally you have paying customers.

The funnel takes time to fill. You have to watch it, measure it, find ways to measure how many potential clients are advancing from one step to the next, and you have to fiddle with your activities at each step to increase the percentage of potentials that advance. It typically takes something like 7 years to get a nice viable funnel working.

This is where the bulk of the time goes. Compared to filling a sales funnel, developing a product is, except in extreme cases, pretty quick.

Interestingly, a forum I look in on from time to time has a bunch of old timers who pretend, not very convincingly, to be professionals. They leap on people looking to start a business with a series of stock questions "DO YOU HAVE INSURANCE? WHAT ABOUT LICENSES? BUSINESS PLAN?" intended, obviously, to crush the new person and drive them away. They're pretty successful at that. Anyways, they never seem to mention anything about sales funnel, marketing activities and whatnot. Nothing whatsoever about, you know, actually running a business. They're pretty fond of saying that you're not gonna be successful with a Rebel and a kit lens, which makes about as much sense as saying you can't be successful wearing brown shoes.

So, in summary, I will echo Kirk here: Don't look to a bunch of amateur photographers for business advice.

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