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Frank Turley

Capital for start-up

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Somebody told me this years ago. "Starting a business without capital is kind of like being the Butterscotch Man. You have to get warm in order to run, but you have to run in order to get warm."

I am not a maker of butterscotch, but I get a kick out of this saying, nevertheless.

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Frank,

It's an interesting thought on the paradox many entrepreneurs face. 

I've seen quite a few entrepreneurs whose recipe for success involved a well-stoked fire fed with other people's money.  I've seen a lot of talented, hard working, and well-funded people fail .  When I compared them to dullards who  seemed to just "fall into" success, I fell back on the old "life's not fair" line.

Then one day, it dawned on me that a lot  of failed entrepreneurs benefit from hindsight.  I'm not saying that success requires failure, or struggle because that's obviously not true for everyone.

I think that business success depends on timing and opportunity more than any other factors.  Lots of small businesses are based around the craft, product, or services of the entrepreneur.  There's a tendency to assume that "build it, and they will come", is a sound strategy to get steady revenue.  This is partly due to the successful dullard who slaps up their shingle and the world clambers to buy from them.

Getting to where you can see the opportunity is only half the solution.  I live in a town where most of the restaurants aren't very good.  I can see an opportunity for a restaurateur committed to good food.  The problem is that on average, the folks in town haven't seen a pay raise in nearly a decade.  Prices for everything have gone up, and as a result, lots of restaurants are closing.  No amount of advertising, interior finishes, or incredibly good food could change the fact that people in my town can't afford to eat out.  In contrast, the first entrepreneur to launch a good restaurant in better economic times, will be way ahead of their competitors.

 

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It takes money to make money! Some of the older  guys around here used to say, "money is like manure, it doesn't do any good unless you spread it around"

 

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Twisted,

I've never heard that phrase but it's funny.  I think it's especially funny if you take a cynical view of advertisements.  How often do you encounter an advertisement that just reeks of "manure"?  

Somebody's hard-earned money went into spreading fertilizer on pavement.  It's not enough to just fling manure at everyone, you've got to land it on fertile ground.  

My extremely limited experience with modern "marketing people" taught me that they're big on spending for online advertising.  When pressed for results, they'll generate charts and graphs from Google, Facebook, etc. showing you how wide they threw the fertilizer.  There is no data on "conversion" which is when an advertisement reader becomes a client by making a purchase.

Ask them how thick the fertilizer needs to be before you'll see green shoots and they'll tell you it "depends".  On what?  They'll tell you how one client spent for years before they saw a gain whereas another client's business took off after a single ad buy.  With answers like that, what proves the advertising made a difference at all?

While it's doubtlessly true that potential buyers need to know a company exists to be customers, I think there's a huge difference between marketing and advertising.  I've yet to meet a "marketing" person who actually knew how to secure customers for their fee.  Everything works on faith rather than fact.  For all the hype about Artificial Intelligence and gains in social media, there's precious little benefit to the small entrepreneur.  Facebook and Google will happily take your money to generate lots of charts and graphs about demographics and data points.  They can't and won't guarantee that your advertising dollar will make any difference to your sales whatsoever. People are spending outrageous fortunes to generate better online statistics.  

Getting back to your original idea, I think there's a lot to recommend using your capital effectively.  If the majority of your paying customers have a few social functions in common, it's a no-brainer to make sure you capitalize on the marketing opportunity.  I know a very successful business owner who sponsors an annual charity event that constitutes about 80% of their advertising budget.  Their competitors are hammering out radio ads annoying the morning commuters year round.  Speaking for myself, there are some major advertisers I consciously avoid doing business with because of how much they annoy me.

As a society I think there are too many situations where we replace difficult research with simplistic proxies.  Nobody's willing to do the work to know how to measure efficacy because we've ceded this power to mindless trust in machines and institutions.  Even a cheap toaster comes with a warranty to mitigate the buyers risk.  Why is it reasonable to believe that marketers/advertisers are "gatekeepers" if they can't offer any guarantee to deliver paying customers?

The brutal truth is that advertisers and marketers lose faith in their own process when they share the risk. 

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I remember that phrase being used in "Hello Dolly":  wikipedia:  Vandergelder spontaneously repeats a saying of Ephram's: "Money is like manure. It's not worth a thing unless it's spread about, encouraging young things to grow." 

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On 15/11/2017 at 4:19 PM, rockstar.esq said:

Speaking for myself, there are some major advertisers I consciously avoid doing business with because of how much they annoy me.

So it's not only me then.

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This is an older post but I would like to add to it. The question of money comes into play only when you don't see it as a tool like any other. For example if you had all of the equipment and metal you needed to start money would be less of an issue however you have to get customers to support your overhead. If you are limited on the tools and resources then you would need money to buy those items to get started but your overhead is much lower so you need to make less to turn a profit. In reality what you are lacking is neither money nor customers but time. We measure time in dollars no matter the job or skill you might have. When we price the items we make in our shops a popular pricing mechanism is to count the number of hours involved in the work and charge accordingly. We get faster at the work we make more in that time frame we get more money, or become more competitive with prices. We go back to what you need as a blacksmith to start making what you want to sell. A forge, a hammer, and a surface to pound on. I made a forge for $25.00 with stuff from the scrap yard and no welding involved if I add the cost of the hand grinder $18, and the hand drill $50, and the bolts from the hardware store $5, and finally the hair dryer $20 I have me a working coal forge. I would get a 3lb cross pein from harbor freight for $6 and for an anvil its back to the scrap yard for a plate or I beam or if you're lucky a block of steel for $0.15 a pound. I used to sell my stuff at the farmer's markets over the summer and saved every penny after taxes to buy more equipment. I learned how to manage a number of online stores to widen my customer base as well a use other social media to gather interested parties and create a captive audience. I began making the tools that I could wich ment later nights and earlyer mornings but is totally worth it when it comes to a power hammer or specialty jigs. This allowed me to widen my product line and improve efficiency so that I could make more product. 

 

This does not mean that you should just start like I did. It was a lot of work and taxing on the family a little bit, and if i had 10k to spend starting out I would have happily spent it on things I needed. However I gained a sense of what my work was and what I was capable of along the way, and that I feel was well worth the time spent over money. I have tools that I never take for granted. I know how to fix everything in my shop if anything breaks down, I know what customers want what products and how much they are willing to pay for those products. I have learned a lot about social media marketing and facebook adds, as well as etsy, instagram, twitter, redit, youtube, and imgur. These are lessons that will do you far better than any power hammer or fancy 400 lb anvil.

So how should you start off creating your business? I can't say for you but if I had to do it all over again I probably would not change a single thing. I hope this helps anyone that reads it. Just start right now and don't wait.

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Camulus,  It  sounds like you got your timing right to make an opportunity work for you. I think it's worth exploring your path to success better.  Burning through startup money with no particular business plan leaves the vast majority of entrepreneurs worse off than they started.  It's terrible advice that ruins lives.  

You mentioned a long list of social media sites that you've learned to use for business marketing.  Seriously, if you've figured out the formula to (repeatable) success with that, could make much more money as a marketing consultant than you ever could as a blacksmith.

It's been my experience that a lot of people aren't too curious about what caused their success.  The supremely capable tend to underestimate how much skill and knowledge their approach required.  The supremely lucky tend to overestimate the strength of their approach.  Anybody can hit the mark once in a while, repeatable success is what actually counts.

 

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@Rockstar I have not given it much thought to be honest. I'm no wizard at social media I just have a lot of experience with it. There are formulas for some things but others are organic and had to control. My youtube for instance is a pain in my rear end, but my instagram, and facebook are pretty steady and predictable. Both have grown rather quickly and take little to maintain, but youtube is harder. I totally agree though about learning to crawl before you run. It's like giving a power hammer to someone that has never used a hand hammer to move metal. Without the basics and the growing pains you miss out on all the lessons that the experience has to offer.

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Thanks for bringing this thread back to life Camulus. Even though I don't intend to start a business I'm very  interested in the subject. My Father was a business owner operator for years and I have no intention of working 6/14s and more, we almost never saw him for dinner. He didn't advertise, his business was all based on reputation, word of mouth and a highly effective bidding "formula."

Anyway of the many things he was always telling me, (I'd suggested he do a TV commercial,) was advertising wouldn't work, we made nothing for the public market, we made components. Money was a consumable like: sheet metal stock, utilities, maintenance,  lube grease, coffee, etc. and had to be budgeted like any other. He went on in detail mostly lost on a pre-teen kid but it's this thread that brought the memories to the surface. Funny thing the brain eh?.

Dad's "advertising" budget was invested in evaluation and bidding jobs. He'd take me along occasionally when he made personal inspections or had meetings and he had a demeanor of nearly total indifference to the success or failure of a bid, he used a similar technique at auctions. He was a good poker player though not a gambler. Bidding jobs was one reason he insisted I learn to read and draw blue prints. Most of the inspections were reading blueprints or looking at prototypes. 

Anyway, I think my point is. Money is a consumable like the gas in your truck, stock on the shelves, utilities, etc. and it's a decently effective method to treat it like nothing special. Vital but not special. If that makes sense.

Frosty The Lucky.

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Camulus,

I appreciate your candor.  I've seen how the perception of social media advertising has gone from being a novelty to almost a business necessity. The few people who are actually seeing a return on investment from social media advertisement seem to be unaware of why it's working for them.  Making things worse, very little is said about how much rampant theft there is in digital advertising.  I have first-hand experience where our content links were pirated to send people to entirely different companies. The social media platforms are perfectly aware of what's going on, but growth is the higher priority so it's better for their business to have several vendors passing off our content as their own.  Moving in lock-step with the content theft, organic reach has been throttled severely.  Perhaps a dozen firms will steal our content, and the platform won't even allow us to benefit from our own content.  When we inquired about it, we got banned.

I work as an estimator which has led me to be particularly focused on what drives outcomes. I see an awful lot of proxies being used in business decisions because real metrics aren't very optimistic.  I had X number of page views is taken to mean that number of vetted clients have carefully read and considered your marketing message.

It's inconvenient to suggest that Bots and international visitors aren't doing a small and localized business any good.  It's also inconvenient to suggest that if everyone is marketing via social media, it's highly probable that a significant proportion of "traffic" will be fellow marketers.  I suspect very little effort has been made to measure the effects of exposure to ones competitors.  Especially in digital markets where it's easy to pirate, or sabotage one another.

Speaking for myself, it's been a whole lot more profitable to pursue markets with higher barriers to entry.  That being said, it's taken a lot of time and effort to gain access.  The hardest part is figuring out where the buying clients are.

 

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Exactly, social media is pretty useless for serious business. Everything EVERY THING posted is public and has no protection against being high jacked. For the regular folk this means your "private"(?) info gets sold to multiple buyers and the site owners make their money on traffic, not security. Congress is wasting time on wonderful public sideshow hearings re. FB and sold data. From Congress' side of the discussion it's a good distraction from what they're deliberately not doing; their jobs.

I didn't give how this effects advertising, I avoid social media advertising if at all possible. I even go so far as to put persistent nuisance spam on my "Don't buy from THEM" list.

The general feel of social media is like a jr. high cafeteria: Loud, chaotic and full of contrived drama. Only the nerds think the cafeteria is a good lace to hag posters drumming up attendance for the next whatever meeting.  Unfortunately it seems a majority of folks like loud dramatic confusion.

I'm glad I don't have to advertise. 

Frosty The Lucky.

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Sorry but the nerds avoided the cafeteria for safety sake.  It's the Jocks and cheerleaders who think the cafeteria is a social nexus...Why no I'm not on "social media"...save for a linked in account that's only active when I'm job hunting...

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Even linkedin can be an insidious place. I was forger getting spammed by recruitment agents and deleted my account. 

If you haven't already, I'd recommend stacking your hosts file with known entries for all the social media, advertising, and tracking sites, all pointed to 127.0.0.1 

Plenty of github repos with lists you can copy/paste. 

Doesn't eliminate the problems, but it does dramatically reduce your potential to be tracked from site to site due to the popular of social plugins and integrations spread across everywhere 

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When my business partner and I started our machine shop back in 1987 we did it with money we saved up. We started with a dinky lathe, no milling machine, and a huge amount of Let's see if we can make a go at this.  No loans or leases, we cash flowed it the whole time we were in business - we closed up in 93 when the building we were in was sold and the new owners were moving in. Looking back we didn't have a problem with not enough capital,  but not enough drive. CNC's were hitting their stride and we should have looked into getting one.  I have been asked if I would start another machine shop, and I tell them no. It is pretty cutthroat business today. The last shop I was at had customers complaining about the price being 1/4 of one cent too high.  If you can find a niche, and can fill it you can do good. A friend's kid started with one 3D printer 5 years ago. He now has over 125 printers and 30 employees and is going to turn a seven digit profit this year..and he just turned 30. 

I will be 53 this year, still making the same wage I was back in 2004, and my retirement accounts took a huge hit during the recession, so i am slowly crawling out of the hole I am in. The only time I was happy was when I was running that shop of ours, and I desperately want to try another business. My anchor holding me back today is called a mortgage. It isn't like when I was 22 with low overhead, and had parents who could catch me if it all fell apart. It is just me today. There is a building in town that would work for what I would like to try, but getting a hold of the owner is like herding cats.  Running on a treadmill chasing a carrot.

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14 minutes ago, JustAnotherViking said:

Even linkedin can be an insidious place.

Boy howdy are you ever speaking the truth!

 

I used to participate on Linkedin discussion forums for professional estimators.  I got banned for two weeks because a person promoting a new unified bureaucracy to counter last minute bids got angry when I suggested that subcontractors bid at the last minute to deprive general contractors of time to bid-shop them.

I politely suggested that demonstrating trustworthiness would be cheaper and faster than demanding additional paperwork.  

Nobody at Linkedin would explain why I was banned.  All I got was "flagged for inappropriate comment".

Meanwhile, at least once a week there's a post on my home page that would land your average person in hot water with Human Resources if it were read aloud at work.

I like Frosty's description.  It's packed with bullies, fake drama, and nerds posting about events nobody wants to attend.  The overzealous hall monitors aren't making things better either.  

It wasn't the banning that drove me to stop checking Linkedin.  It was the recurring themes.  No matter where I looked, everything claims the economy is booming in reference to the recent past.  Posts from the aforementioned recent past were making the same claims.  I got tired of the virtue-signalling buzzwords, especially from people and companies I know to be scoundrels.  In my experience, good people don't virtue-signal.

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"If you haven't already, I'd recommend stacking your hosts file with known entries for all the social media, advertising, and tracking sites, all pointed to 127.0.0.1"

My /etc/hosts file?  it only has lines for  local host and my computer; both pointed to loopback.

Or were you assuming that everyone runs windows or uses a smart phone?  I'm on KUBUNTU a Linux distro and use a pretty dumb phone...(My company's insurance carrier was wanting me to sign up for an intrusive monitoring program and told me I would get a free app to make their offer even more intrusive---well the didn't put it like that.  When I asked them if they were sending a smart phone to run it on and would cover the connectivity costs they were indignant.  So I told them I am using a flip phone and it does phone calls and texts and that's all I want for a phone. Why waste time on your phone when you can get high grade time wasting right here---and using a full size keyboard too!)

 

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Yes, your /etc/hosts file. Here is a short except from my own (people on windows can do it to, except it's located at C:\Windows\System32\drivers\etc\hosts)

ff9U9Nf.png

 

Basically any time your pc tries to hit one of the many tracking sites, it will resolve the DNS back to your own address, rather than sending traffic to the trackers.

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On 11/15/2017 at 11:19 AM, rockstar.esq said:

My extremely limited experience with modern "marketing people" taught me that they're big on spending for online advertising.  When pressed for results, they'll generate charts and graphs from Google, Facebook, etc. showing you how wide they threw the fertilizer.  There is no data on "conversion" which is when an advertisement reader becomes a client by making a purchase.

Ask them how thick the fertilizer needs to be before you'll see green shoots and they'll tell you it "depends".  On what?  They'll tell you how one client spent for years before they saw a gain whereas another client's business took off after a single ad buy.  With answers like that, what proves the advertising made a difference at all?

While it's doubtlessly true that potential buyers need to know a company exists to be customers, I think there's a huge difference between marketing and advertising.  I've yet to meet a "marketing" person who actually knew how to secure customers for their fee.  Everything works on faith rather than fact.  For all the hype about Artificial Intelligence and gains in social media, there's precious little benefit to the small entrepreneur.  Facebook and Google will happily take your money to generate lots of charts and graphs about demographics and data points.  They can't and won't guarantee that your advertising dollar will make any difference to your sales whatsoever. People are spending outrageous fortunes to generate better online statistics.  

Getting back to your original idea, I think there's a lot to recommend using your capital effectively.  If the majority of your paying customers have a few social functions in common, it's a no-brainer to make sure you capitalize on the marketing opportunity.  I know a very successful business owner who sponsors an annual charity event that constitutes about 80% of their advertising budget.  Their competitors are hammering out radio ads annoying the morning commuters year round.  Speaking for myself, there are some major advertisers I consciously avoid doing business with because of how much they annoy me.

As a society I think there are too many situations where we replace difficult research with simplistic proxies.  Nobody's willing to do the work to know how to measure efficacy because we've ceded this power to mindless trust in machines and institutions.  Even a cheap toaster comes with a warranty to mitigate the buyers risk.  Why is it reasonable to believe that marketers/advertisers are "gatekeepers" if they can't offer any guarantee to deliver paying customers?

The brutal truth is that advertisers and marketers lose faith in their own process when they share the risk. 

You could be me!  Wise words, friend, very wise.  

I get approached at least once a month by someone saying they can help boost my sales through the internet if I'll just follow their simple plan. 

When I ask them for data on how they can boost my business, they'll show me tons of charts displaying their past performance... but it never covers actual sales.  They talk all day long about the number of visits or views, but nothing about actually increasing my sales.  The only thing that's for certain is that these people get their $10/month or whatever the fee is.  

Honestly, I can't fault them.  Their business is about getting people to buy their product, not producing a product that produces results for the clients.  Big difference there, and a lot of unhappy customers in their wake.

I don't pay for any advertising.  I figure if I spend some time on the various social media platforms and work to spread the name around, that'll have to be good enough.  

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