What You Gain Running A Small, Unprofitable Business
It’s no fun running an unprofitable business, but it’s not wasted time.
Even if you’re not making money, and even if you’re losing money, you’re still making progress towards your final goal: Owning a large, profitable business. (The goal for 66% of millennials)
Here are a few reasons you benefit from owning your own small business, even if you’re not profitable yet.
There’s no money but the experience is real. You’re learning skills you’ll need once your business grows. (Skills that fresh graduates will have only read about in the classroom.)
Marketing – In school you learn that billboards are still a good way to market your products. You know that the real opportunities for small business owners because you’re testing them every day.
Management – You learn to hire, delegate tasks, give feedback, deal with emotions, and make the firing decisions. Working with $5/hour freelancers (who won’t sue you for ‘wrongful discharge’!) is a great low-risk bootcamp for new managers.
Negotiation – Your tight finances force you to negotiate. Learning to negotiate 5% off your purchase price for small orders today prepares you to negotiate 5% off your purchases when placing large orders in the future.
Cash Flow Management – You have no cash cushion. You’ll learn how to time re-orders, negotiate net-90 terms with suppliers, take on small business loans, and restrain your own spending in order to avoid hitting $0. This is great once-in-a-lifetime practice because once your business is safely cash-flow positive, the pressure is off and it only gets easier.
Accounting – You build your P/L statements, calculate your ratios, and ensure everything balances to the penny. Counting negative numbers and seeing red (-) ratios in Excel isn’t so fun, but it’s still an education in accounting.
2. Financial Benefits
Yes, there financial benefits when running a non-profitable business.
Expensing – You’re running at a loss, but at least you can write off all expenses related to your business for tax purposes. By expensing transactions correctly against your other income for the year (income from freelancing or from your day job) you’ll have about 30% less loss due to decreased tax liability. (Make sense?)
A Lean, Scalable Core – You won’t sign up for recurring SaaS products, buy expensive marketing services or hire extra employees without knowing exactly how every expense leads directly to revenue and ROI. Being forced to start lean makes it clear what’s actually needed to drive revenue, without all the unnecessary software, services, plugins, consulting, or coaching.
3. Mental Development
Calm Under Pressure – It’s stressful to run a business at a loss. You can count the days until you run out of cash, when you won’t even be able to buy instant oatmeal anymore. Once you begin growing and hiring, ‘problems’ that frighten others won’t even phase you. You’ll always remember how you’ve solved much worse before.
Persistence – Once you make this work (You’re smart, you’re determined, you will.) you’ll hardwire the failure>persistence>failure>persistence>success ideology. Where others quit, you know how to persist for the long-term towards a worthwhile goal.
You Won’t Waste The Wins – The more you’re stressing about $25 today, the more efficiently you’ll leverage your big wins when they come. Memories of the past ensure that you fully engage your focus, sacrifice your time, and re-invest your profits when a large pile of cash lands in your lap. Rather than taking a vacation, you take a second to catch your breath and then double down your efforts.
Any business that requires even $1 of investment will be unprofitable for some period of time. This is normal and isn’t a signal that you’re failing. Many Silicon Valley companies raise (and spend) millions of dollars ‘pre-revenue’ before their first order from a customer.
Running a small, unprofitable business is hands-on bootcamp for running a large, profitable one.
As you work, hustle, eat microwaved oatmeal, and cold call, trying to turn a few thousand dollars into a profitable business, remember the parable of the ‘Talents’ from the Bible. (This lesson stands whether your Christian, religious, or neither.)
In the parable, wealthy merchant leaves home for a few years. He leaves a small sum of money with his servants. Upon returning, he finds that one of his servants has carefully managed his money while he was away, doubling its value.
“Well done, thou good and faithful servant: thou hast been faithful over a few things, I will make thee ruler over many things: enter thou into the joy of thy lord.”