How long will it take before your idea becomes profitable?

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Cover of "The Wolf of Wall Street"
Cover of The Wolf of Wall Street

If you believe in overnight success, perhaps you are one of the people standing at the Lotto queue on a Saturday/Saturday afternoon.

Movies like “The Wolf of Wall Street” give the impression that money can be made quickly. Perhaps it’s the truncated form of the movie, portraying a life and business that took many years to develop, that gives the impression that overnight successes possible. I’m only talking about Jordan Belfort and the time it took for him to get his boiler room penny stock operation going rather than the ethics of the type of business idea he came up with. Fleecing people from their hard earned money and pension savings is the work of a crook and con artist rather than what we believe to be a honest business person.

You only have to pick up a magazine or book on small business and speak to people who portend to know a lot about small business to hear about the statistic that many small businesses fail in their first year. There are many reasons for failure in the first year but one of them is that thinking a business can be profitable in its first year is often just wishful thinking. Some businesses may take anything from 2 to 5 years to become profitable.

In this economy it is taking longer to reach profitability because demand is not what it was in the past, consumers are more cautious with spending their money and larger businesses are trimming back on expenses wherever they can.

The way that most people plan for the retirement is not a good model to follow when planning for a new business. Many people spend more time planning what model of car to buy, what refurbishment is to make to their existing home and planning their year-end holiday than they do to one the most important milestones in their lives when their income suddenly drops by 30%, if they are lucky and have a pension,. I’m not being critical here because I count myself in as one of those who doesn’t do enough planning as is required but I’m merely pointing out that if you go about planning your business the way you do your pension or retirement, you most likely will end up being disappointed.

I visited a nursery plant grower recently and walked about the newly established nursery growing admiring all the wonderful plants and special grasses. This business was started about six months ago and yet has not made one cent. The reason for this is simply because the stock takes a long time to “manufacture” because most of the growing, despite fertilisers and other nutrients, is provided by mother nature. I am sure that the profits in this business will come but it will take more than a year to recoup the initial investment costs, buying stock, planting the flowers and feeding them.

If you are planning to start a business from scratch, it pays to plan way ahead in detail but of course not be bogged down in planning. You need to have a business plan, even if it is only a one-page business plan, that details what you are going to sell, who you are going to sell it to, how much you are going to charge, how you are going to attract customers and how you’re going to run your business. When you do your projected sales forecasts it’s useful to do a sensitivity analysis which really simply means indicating your most optimistic sales projection, your average sales projection and your most pessimistic or conservative sales projection. The other thing is to be aware of is that in starting a business from scratch costs will be three times higher than you anticipated and it may take two or three times longer than you anticipated to reach a profit.

Yes, there are so-called rapidly successful businesses but these are in the 1% of all businesses and are really anomalies rather than what regularly happens. Planning to implement a new business may take 3 to 4 years before you even sell your first product. That’s why, like planning for your retirement one day, it’s important to take small steps day in and day out towards realising your ultimate goal.

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