Ed McLaughlin Updated Headshot

Thank you reddit participants for joining me during my “Ask Me Anything” session about Startups, Funding, and Entrepreneurship.

For those of you who could not join us live, I have compiled the questions and answers here so that you and others have access to the information we shared.

To your business success!

~Ed

By Ed “Skip” McLaughlin

Author, The Purpose Is Profit: The Truth about Starting and Building Your Own Business

Part 1 of Reddit AMA: Entrepreneurship & Startups 

  • How to grow organically without giving up ideas that VCs want
  • Luck and success
  • Funding and Bootstrapping
  • Advertising
  • Expansion of current business vs. focusing on a new venture
  • Strategizing for a seasonal business
  • Choosing the right business idea

Question

I’m a current principal engineer that has worked in everything from startups to places like Apple, EA Games, and Google. A few of us are tired of making others billionaires, and are ready to stop playing wannabe VC jumping from company to company for equity shares. We’ve got solid concepts, solid products. Now where to go? We’ve got appointments with Anderseen and a few other bay area VCs but how do we manage to grow organically without giving up the absurd amounts of the ideas that most bay VCs want?

Answer

If you have a proof of concept or a prototype, you need to secure pre-orders to shift the leverage from the VCs back to you. If you can optimize the leverage through pre-orders and actual product sales with genuine customers, you will optimize your negotiating leverage and maintain your lion’s share of the equity. I know – easier said than done, but well worth the effort to ensure you become the next billionaire!

Question

How did you fund your business?

Answer

I funded my first business by bootstrapping. It was a B2B service business, so the cost of entry was relatively small. My second business was a national magazine, and I did not have adequate funding lined up – which was a primary contributor to its failure. Simply stated, service businesses usually require less capital – whereas product businesses eat capital – particularly when it comes to building inventory.

Follow-up Question

Why did you decide to bootstrap?

Answer

I wanted to maximize control – because control was one of my primary motivators for starting my business. Said another way, when you work for BigCo and you produce and do everything correctly – and then you get swept up in an across-the -board reduction or a personality conflict – that defines the value of control over your destiny.

Question

Would you attribute any of your success to luck? If so, what percentage?

Answer

I think hard work and timing create luck. Said another way, if you have the stomach to work at something hard enough and long enough, and if you’re willing to pivot and adjust your business model, I think you can succeed at almost anything. Using this definition, luck was 50% of our success.

Question

What is your preferred advertising methods when trying to promote a local business? Do you focus more on online marketing or offline? I’m trying to start a dental web design firm in the UK, thanks so much for your any help I really appreciate it.

Answer

First, you need to define the geographic scope of your market. Second, you need to understand, “What is working” in the space you are competing in today. With limited resources, there is no need to throw toilet paper (your dollars) up against the wall to see what sticks. All of that being said, you should include an appropriate amount of digital advertising to ensure your customers are thinking of your product or service as leading edge.

Question

Hello Ed,I have 2 questions for you. What did you start out with going into these ventures? At what point would you stop expanding one business to concentrate on another?

Answer

I am a big believer in “prioritize, focus, and win.” Said another way, I prefer to hunt with a rifle than a shotgun. To answer your question, I focused on my first business until we achieved positive cashflow and profitability before I started to invest in my second business. Which by the way, I lost my shirt on my second business. To me, success in a startup business is all about distinctive competence in the area in which you are competing.

Reply

Thanks! I love the analogy between the rifle and shotgun. I’m talking to my business partner about buying a few more trucks to help speed up our work for the possibility of taking on more customers to increase cash flow. We do seasonal work during the summer, and I want to start something that we can do to cover the months we don’t work (September to April), although it is kind of difficult in the area we live as it is mainly oil and gas related. So if it was you, would you increase cash flow first, or start prioritizing on something for the off-season?

Answer

You’re getting at the nub of the question: Why is Howard Shultz getting into the liquor business? He has sunk cost in real estate that is operational between 6:00 am and 6:00 pm. If he can launch a successful liquor-serving business (a bar), he will get higher utilization and throughput from his sunk costs in real estate (i.e. more profit). So before I buy more trucks, I would make sure that you can increase the utilization across the full calendar. Otherwise, you should find a leasing company to rent the assets from during peak season.

Question

I have a sole proprietor service business. How can I get clients to pay what my services are truly worth?

Answer

If you understand your customers pain points and you can quantify the benefit your service will bring – then invest heavily in nailing down your value proposition. If it’s B2B, focus on hard benefits. If it’s B2C balance hard and soft benefits.

Question

How did you choose what business to start?

Answer

I am a big believer in starting and building businesses where you have proven competence in the field (i.e. you understand the customers, pricing, competition, and the way business gets done).

Question

Hi Skip, What business ideas are bouncing around in your head that you have not developed yet?

Answer

Wow! That’s a tough one – but since you asked, I think managing new application development and code writing as an outsource provider is a giant opportunity.

Ed McLaughlin is the author of  The Purpose Is Profit: The Truth about Starting and Building Your Own Business, along with co-authors Wyn Lydecker and Paul McLaughlin. The Purpose Is Profit (Greenleaf Book Group) is available in bookstores now.

Order The Purpose Is Profit here.

Copyright © 2016 by Ed McLaughlin All rights reserved.