Episode 48.
How to start a business

Question:

Key Points:

• To legally become a business, people must simply file some paperwork with their state
• That's about it. With this paperwork, you can get an EIN (Employer Identification Number), which means that you can do business in that entity's name
• When starting a business, there's not really anyone there to tell you how to do it or that you are doing it wrong. This is both a blessing and a curse.
• A good business brings in both revenue (i.e. money from custoemrs) and profit (revenue minus all expenses)
• A lot of niave business owners believe their only cost is their COGS (Cost of Goods Sold)
• The biggest expense for most businesses, other than COGS, is for labor
• In the episode, we go through a bunch of calculations on a hypothetical gum business
• The main takeaway is: when hiring people, a business owner needs to consider the increase in their net profit after the additional cost of managing a person and potentially the increase in cost of capital to sell more in order to make that employee worth hiring
• It is not thinking about starting a business that matters; it is the actions. But, thinking before actions is important to do the right actions
• Every good business has to do some form of "transforming or transporting" in order to create a Value Add
• All good businesses have processes for how everything will work
• In the end, a business is just a set of processes that consistently deliver something to a customer for a profit
• Before you start a business, you need to validate that the price people are willing to pay is mroe than your expenses
• That includes: COGS, labor, accounting, market research, equipment, marketing, training, insurance, transportation, building, utilities, IT, collections, legal, HR, and maintenance. (This is not an exhaustive list, but it's a pretty good start.)