Ten Things I Wish I Had Known About Business Before I Started

ten-thingsAs some of you know, I have been working for myself since the early 90’s. When I started out, I thought it was simple to be in business for yourself. I used to believe that it only took honesty and hard work and everything would be smooth. I do not regret embarking on being self-employed but I wish I had known these ten things before I started out.

I come from a family of entrepreneurs. I have been involved in the family businesses since I was a child. I also held many different jobs since I was a child and bartered for things I wanted but could not afford on my own. I was not poor but I wasn’t rich growing up, however many of my friends came from wealthy families so they had disposable incomes. I desperately wanted a Commodore 64 but I didn’t have the money for one.

To get my first computer, a British Sinclair ZX80, I sold handmade kites, made out of newspaper papier-mâché and also made test cheat sheets for my classmates. I would hand write tiny little pieces of paper that my classmates could use during their test taking. One of my classmates sported a Rolex watch and obviously, he was my best client. He would take the cheat sheet, I created for him and insert it into the bezel of his watch.

Yes, I now fully understand the corruption inherent in what I was doing but at the time, it didn’t even cross my mind. That is how insidious corruption is and I should have known how inherent it is in the business world back then.

I eventually got my Sinclair computer, which immediately led me to the very first lesson I learned about business, fully understand what the technology is before investing in it. Marketing is what sells products but it is also nothing more than lies.

Unbeknownst to me at the time, while my friends were happily playing games on their Commodore 64 computers, game they could barter, buy and trade because they came in cartridges; I could not play any of the cool games because my Sinclair did not have any.

The first lesson I learned is that the glossy marketing does not match the reality. The Sinclair was a computer but it was not compatible to anything else. That is why it was much cheaper than the computers that had all of the cool stuff.

The lesson in marketing did not fully resonate in me because I wasn’t ready to learn from my mistakes. The Sinclair showed me another lesson that I should have learned but I wasn’t ready to learn it yet.

Buying cheap is not the best practice. Cheap does not signify business astuteness, it just means that you do not fully understand that products sell to make someone money. A cheaper product is not cheaper because someone found a cheaper way to make a compatible product but rather they found a way to skip some important requirements in order to sell it cheaper. They are still making money from you but doing it by not offering a compatible product but one missing certain components or functions in order to make it cheaper.

However, I was stuck with the Sinclair and not having the software, I wanted I learned to program.

As a minor, I still felt the need to compete with my wealthier compañeros and therefore landed my first real job.

I was fortunate to be receiving a great education and unlike many of my classmates, I spoke two other languages beside Spanish. Landing my first job, I realized that speaking English and French was the key to success. However, my first job as a telephone switchboard operator soon taught me the third lesson I should have learned, payment on your work is not equal to your knowledge.

Although I thought the person that hired me to connect the hotel guest’s calls to incoming calls or outside lines hired me because I showed initiative and spoke various languages. Because of my age, I had to convince him to hire me. At that time, the switchboard was your old style telephone switchboard where a cable had to be physically connected to a plug in order to connect the telephone to an outside line. Because it was a hotel in Guadalajara, it was obviously beneficial to be able to communicate in English. After I convinced that manager that I could operate the switchboard, he hired me on the spot.

The money he paid me was the most money I had made up to that point and I got to speak to many individuals, practice my English and best of all sit on my butt in an air-conditioned room. However, he didn’t hire because he valued me as an individual but because I was willing to work for the cheapest amount of money while still being able to perform the functions he needed. The money he saved on me went straight to his pocket.

Although the lesson was I right in front of me, I didn’t learn that people pay you as cheaply as you let them pay you, not what you are worth.

After many years of following orders and having my life pretty much dictated to, I decided I wanted to be the one calling the shots. I embarked on my first business venture, the one that has led me to today.

Unbeknownst to many of you, my childhood plan was always to be a pilot. I got to fly some of the coolest planes but in the end my plan didn’t work out as I intended it to because no matter how hard your work, how hard you study and how prepared you are there is always life that throws curb balls at you.

This time I finally started paying attention I learned lesson number four. No matter how carefully you make a plan it is always subject to outside influences beyond your control. As a pilot I have always planned everything I do, including leaving the house in the morning, based on the worst-case scenario. My family and some of my friends know that I am an annoyingly detailed person always analyzing and planning every minute of the day.

Lesson number four is that nothing ever works the way you plan it. You have to have contingency plans.

Because my flying plan didn’t work out exactly as I predicted and because computers and programming was something I had continued delving into I started programming applications for small businessmen.

I was under the impression that all I needed to do was deliver the product I promised and the client would pay me what we had agreed upon. Nope, most businessmen are where they are because they have embarked upon squeezing as much free labor as they can from naive contractors just starting out. You might agree on making a program that tracks the widgets in the warehouse but somewhere between the discussion of what the client wants and what you are making the specifications get lost.

Lesson number five is that the businessmen will seldom agree that all that was agreed upon was a tracking system believing that each time he sees what you have produced he will argue that it was assumed that it would use a barcode reader and that prices as well as costs were presumed to be included. Each time you reluctantly add the “missing” components and present it to him in anticipation of the paycheck you desperately need there is yet another missing component in your delivery.

Eventually the business relationship turns sour and each of you walk away feeling like you were taken advantage of.

Lesson number five is that you and the client are adversarial in all business relationships. The client is looking for the Cadillac but he is only willing to pay for the Chevy. The lesson is that you must price your service not at what it is actually worth but in anticipation of added components and partial payments.

During the personal computer explosion, Mexico was still an economically closed country. Before NAFTA, electronics were very expensive and difficult to acquire. I saw a huge opportunity for IBM Personal Computers and the clones.

Lesson number six is that successful businesses look for ways around the system. A successful business does not toe the line but crosses it just enough to be disruptive but not too far to bring the attention of the regulatory agencies upon you.

IBM Computers were a hot commodity, and I mean hot. The clones, like the Compaqs could be purchased for about $1,000 in the US but they sold for over $3,000, sometimes more in Mexico. This was because they were heavily taxed and were difficult to attain. It didn’t take an economic genius to know that if I could buy them for $1,000 and sell them for $2,000 not only would they sell like hot tamales but also I would double my money each time I sold one.

However, they brought in a much higher margin because there was a limited supply of them and I had to find a way around the supply limitation. If I brought them in through the bureaucracy, the margin would disappear along with any possible profit I could make. Following the bureaucracy meant never selling one computer because the system is rigged against you from the onset.

I found a way around it by paying mordidas at the bridge. A few Pesos was just part of the cost of selling the computers.

It was the perfect plan, at least for a while.

I opened up a PO Box like box at a retail center; I could not exactly ship computers to Cd. Juárez, and sat in El Paso waiting for UPS to arrive at the PO Box. I had to be there because the computer manufacturers didn’t exactly ship computers without payment, so I had to have cash on hand to give the UPS driver for the computer. Yes, back then it was done in cash.

At a $1,000 each, I could manage one or two orders at a time. Initially I thought that if someone ordered a computer and I delivered it, they would pay me as promised. I was a little savvier but the clients were much smarter than I was. Some still are.

Lesson number seven is that your clients will not always be as honest as you are. You may know your client, you may also like your client but your client will give you a bouncing check for many reasons. Sometimes they are just over extended and sometimes they make a mistake and other times they intended to cheat you from the onset.

There were many time I paid cash for the computers and in return I received a check that wasn’t worth the paper it was written on. Not only was I out the profit but the little cash I had accumulated as well. Once the computer is in their office, there is nothing to little you could do to get it back.

I know some of you are thinking but what about taking them to court. Forget that, even if you win it is too late. Remember you are in business because you want to make money. You do not have the deep pockets to fight a legal battle nor is the system on your side. You can’t even walk in and get your computer back.

The solution to lesson seven is to do what the computer manufacturers were doing, don’t trust your client and demand payment in cash at the moment you deliver the product. Now you see why I had to pay in cash.

Economy of scale is lesson number eight.

Selling onesies or twosies at a time may seem like its easy money, especially if you are able to pull it off weekly. However, the aduaneros aren’t stupid either. They know what is going on and the few Pesos soon turned to a big chunk of your profit. In addition, by the time, the order is placed, the time it takes to sit and wait for the UPS driver (this was before Internet tracking) and the time it takes to deliver, test the computer and receive payment makes it near impossible to sell more than two to three computers a month.

You have to expand your market and with that comes overhead. The PO Box establishment was not enough and sitting in the car was a waste of time. That led to an office and its inherent costs. In addition to the added costs, I needed a larger market. Because of the connections, I have been cultivating in the Maquila industry peddling my computers I started receiving orders from Chihuahua and farther south all the way to Mexico City.

That now created another problem, the logistics of order management, delivery and client support. I knew I needed all that but I did not have the money for employees. I needed to grow so I bought a rickety old Ford pickup truck. (Yes, like the one in the image) I thought it’s simple; I’ll spend a week handling client orders, another week ordering computers and a week transporting them to their destinations. That would leave a week of banking, taxes and recovery. Or so I thought.

I needed the scale to squeeze more profit out and growth seemed to be the way to success.

It seemed like delivering four to five computers would result in profits of about $4,000 to $5,000 a month, remember I was supposedly doubling my money on each computer. In reality, what I was doing is increasing my costs for each computer. Between gasoline, mordidas all along the highway, sleeping in the truck because someone always wants to steal what you have, I was lucky to be pocketing $800 to $1,000 a month. This was very different from the $4,000 that looked good on paper.

However, I was making money and at the time, $12,000 US dollars in Mexico a year was good money. I made more money than I thought possible, although it wasn’t the riches I was dreaming about.

Things change though. Lesson number nine is that your business model has to consistently evolve because the business world is ever changing.

I was making money because I was willing to cut corners, wait for days to receive the computers and because I had cultivated and learned how to deal with computer distributers like TechData and Ingram Micro. I also knew how to navigate the perilous mordida gambit on the highway.

It was the knowledge that allowed me to make money. However, business evolves and Computer City showed up in El Paso. Almost overnight, my clients were looking at me and telling why would I pay you $2,500 for a computer I can go to El Paso and buy for $1,000?

I didn’t have the right answer.

A quick side note to those of you that wonder why Computer City showed up in El Paso. It was the Mexican market. This is true for Time Warner high speed Internet as well.

I had built up a nice infrastructure, you have to continually invest in your business and I had a nice savings account.

I thought why not go after the corporate and government markets.

I had slowly started selling to some of the Mexican government entities but it was extremely cumbersome. By the time, the “certifications” were in place and the “right people” made the decision the profit just evaporated.

For years, I had heard how the United States is not as corrupt as Mexico. I naively believed it.

I started bidding on government computer orders. I soon learned though that as slow as private individuals are too make a payment the government entities are much, much worse. Not only does the payment have to go through an overly bureaucratic process that grinds the check to a crawl but, also, your check is at the mercy of a clerk, or two, or three that doesn’t want to work that day or misplaces the paperwork needed to move the check along.

To the clerks it is just a piece of paper but to you it is what you need to make the next rent payment, the next tax deposit or the payroll. The Net 30 days turns into very long 60, 90 and sometimes months before the check finally arrives.

It starts a vicious circle that is extremely difficult to get out of. You need orders to keep your business growing so you continue to accept government orders because they are the largest and because you have invested so much time in bidding. You win the bids and you are expected to deliver as promised. You borrow more and more to make the deliveries and continue to pay your overhead but the checks do not arrive as you predicted. You even build in delayed payments into your bids but you are constantly under pressure to lower your profit margin because there is always someone hungrier than you are, a new competitor that hasn’t figured out that it takes too long to be paid.

Eventually you decide to bail out of the government work but by that time, you have borrowed so much money and are still waiting to be paid that there is no profit and the bills continue to come in.

If you are lucky enough to survive this onslaught, you soon realize that to maintain the size of your operation you need the government work. Reluctantly you bid again thinking you have learned the lessons in money management needed for a larger business.

The problem is that you are not the only business dealing with the same situation. Everyone doing business with the government is now in the same predicament. It is a dog eat dog race to the bottom and the only way to survive is to corruptly position yourself not only for the government work but also with enough profit to deal with the slow payments.

Lesson number ten could be as simple as not doing business with government entities but in the many years I have been in business, lesson number ten comes down to the lesson of understanding that very few businesses grow to the sizes that many perceive as successful businesses.

However, those that grow through sheer hard work are so few that I cannot point to one example.

I realize many of you are thinking the Ford Motor Company as an example or even Microsoft but take a moment to look at their history and you will see that there were other factors involved some of which many of us are unwilling to do. This post is too long for me to get into this but a simple Google should give you a general idea.

Lesson number ten is that a large publicly perceived successful business is your goal, it is not.

The hardest lesson I learned, and in many ways, I am still learning is that there are many small, mom-and-pop businesses that are much more successful than I have ever been.

Lesson number ten is that your business should be about keeping you and your family comfortable and it should never be about being the next Microsoft of the world. I started out by dreaming about being the next Microsoft when in reality I should have been happy with the money I was making peddling my onesies and twosies computers instead of growing the next business empire.

However, I know I wrote that this is the ten things I wish I had known about business but there is something I want to leave you with. I am always told how lucky I am not to have to answer to a boss.

The fact is that I do not have one boss but have many bosses. Every one of my clients wants to feel like they are my only client and thus they each want the best service I can give them. Thus, each of my clients is my boss. Each of them wields a paycheck over my head.

If you think you want to get into business because you don’t want to have a boss, think again because being in business means having many bosses – all of them wanting to be the only one.

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