Jacques Mattheij explains that it takes three years to build a successful business, so new entrepreneurs shouldn't be surprised that the first couple of years are really tough:
Typically it goes like this:
- in the first year you lose money. Earlier on more than later in the year
- somewhere during the second year you break even.
- in the third year you finally make back all the money that you had to add in the first
The reason why it works this way is simple enough (even if that doesn't explain the timing). Customer acquisition is a time consuming process and a new business does not have several things that help a lot in gaining new customers:
- a reputation
- a network
- existing customers
I have a slightly different viewpoint on this, based on my own experience and observations. Since we work with quite a few tech businesses at GrantTree, and I've been part of the startup community for some years now, I think I've got a reasonably wide cross-section of sample businesses and entrepreneurs.
Here, then, are my observations:
- A lot of new entrepreneurs (myself included), do take several years (2, 3, 4, it depends) before their business starts taking off (as in, making enough money to pay the bills from sales rather than funding). Some people never get through that initial process, and that's not always because of lack of perseverance.
- Once that first period is out of the way, though, the time it takes for them to build a functioning business seems to change dramatically. I know people who regularly build functioning, highly profitable businesses in a span of months. GrantTree itself has had a highly profitable first year (though the first few months were ... interesting.
- The only shortcut for that process seems to be either tremendous luck, or an existing client base before the company is founded. Some of our clients jumped straight from corporate job into running a profitable business - but the previous employer was the main source of income at the beginning.
My conclusion, then, is that it doesn't take three years to build a business, it takes three (or some number higher than 2 in most cases) years to build an entrepreneur.
Being a successful entrepreneur takes more than a client base, a network and existing customers. It takes experience, sales/hustling skills, the ability to focus on what matters to the business and drive it forwards despite a million distractions and no one to tell you what you should be doing, to make mostly correct entrepreneurial decisions quickly, the ability to make do with extremely limited means. It also requires a network (something most new entrepreneurs don't have) and a personal reputation, very often, but those are far from sufficient.
So, my way to look at this is that what's being built over the first three years is not a business. It's a person, with personal assets like a reputation, a personal network, experience and knowledge, and so on.
Once the entrepreneur has been successfully constructed against all odds, businesses can and do get built much, much faster - even services-based businesses like GrantTree.
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