From the Desk #6

18 Feb From the Desk #6

From the desk of:

“The greater the risk the greater the potential reward.” But what if you miss?

When I was a young teenager, my dad gave me a fifty-cent piece to go to the store to buy him a pack of cigarettes. They were $.35 per pack.  I am dating myself in two ways.  The cigarette prices and the fact that an underage child could buy them.  Anyway, I wanted the fifty-cent piece because I had never had one.  Since I did have $.35, I bought the cigs with my money and put the fifty-cent piece in my pocket. When I gave dad his cigarettes, he asked for his change.  I told him I didn’t have his change.  He made me to give him his fifty-cent piece. The lesson that this taught me:

• Think things through; what is the worst that could happen? If you can live with the worst potential outcome, then go ahead and risk.
• Do not assume benevolence, even from you father. What’s right is right, and it can (and sometimes will) be enforced.
• Don’t be undercapitalized. Count the cost, then add some reserve. Too many businesses do not have reserves or staying power to ride out a storm. One glitch or downturn and you are done.

I have seen tiny house builders use up all their savings, including retirement, to start a tiny house endeavor. They either run out of funds before completion; or get the house completed with the hope and expectation of taking the home to one tiny house show then selling it for a handsome profit.  After a couple of shows and no sales the builder ends up going out of business.

Jim Collins in his book Great by Choice, tells a story of firing Cannonballs or bullets.  Imagine being at sea and a hostile ship is bearing down you. You have a limited amount of gunpowder; so, you take all the powder and use it to fire your biggest gun…only to discover that you missed it by 40°.

The better approach is to fire bullets.  When the first bullet misses by 40° fire another, it might miss by 30°, then 20 then 10 and then finally, a hit!  Now, you take the rest of your gun powder and fire the cannon ball which hits your mark.

A tiny house manufacturer would be wise to shoot a few bullets.

• Go to a few shows and see what others are building.
• Talk to some manufacturers how are sales.
• What is the demographic for people wanting tiny houses?
• How big is the market for tiny houses?
• What would my cost be to build, also, including holding costs?

I recently talked with a Tiny House manufacturer who is now doing well in the tiny house business. He told me “if I didn’t have the staying power with reserves, when I started, I wouldn’t have made it long-term in the Tiny House manufacturing business.”

In business especially in startups you often make mistakes trying to see what works. If you make a mistake with too big of a cannonball, and don’t have any reserves for another shot you may end up going out of business for lack of staying power.

“Differed Hope makes one discouraged.” One way to not get discouraged is to have low and realistic expectations. What is the worst that could happen? And have extra in reserve to ride out a mistake or glitch.

Are you firing Cannonballs or bullets?