June 8, 2011

Starting a business can be easy. Earning a profit with your business—not so much. While there are many ways to grow a business—from bootstrapping it with credit cards to taking on investment capital—the goal, at some point, should be to start earning a profit. To get there, however, a business needs to first get its cash flow under control, specifically by taking in more cash than you pay out on a regular basis. That’s called breaking even. The companies that find ways to get to that point quickly are often the same ones who tend to survive over the long haul since the business can essentially pay for itself. What follows are stories and advice from entrepreneurs who found ways to get to break-even and beyond.

Case study 4: Invest in your salesforce

Greg Murtagh once worked for a boss who had a sign on his desk that said: “If nobody sells anything, nothing happens.” In 2004, Murtagh kept that mantra close to heart when he started his company, Triad Retail Media. Triad Retail Media helps large retailers such as Walmart make more money from their websites by teaming up with big-name advertisers such as Johnson & Johnson and Proctor & Gamble. “The first thing I did was go out and hire a salesforce,” says Murtagh, whose company is based in Tampa, Florida. “Because of who my customers were, companies like J&J, I needed to hire experienced and polished corporate sales people. People like that aren’t cheap. They get six-figure salaries plus a commission.” While making that kind of investment in his salesforce resulted in a $50,000-per-month burn rate, it also paid off quickly as the big deals brought in by his team helped Triad reach the break-even point in just six months. “I believe you can outsource just about anything in your business like accounting or human resources,” says Murtagh, whose company expects to earn $120 million in revenues for 2011. “But you don’t outsource sales. I believe you should hire people you can trust and train to really know your product or service.”

Case study 5: Prove your concept

When Jacqueline Linder went shopping to find some steel container to replace the plastic ones which she used to carry her lunch to work, she realized no one made such things. So she decided to do it herself. While Linder knew that she no longer wanted to eat her food out of plastic, she wasn’t positive who else out there felt as strongly as she did. “A market is not your family and friends telling you that you have a great product or service,” says Linder. “A market is when someone is willing to spend their money to buy what you are selling.” To find out if people were willing to pay for her product, which she called LunchBots, Linder spent several months coming up with designs and hired a contract manufacturer to build her a few prototypes. Linder then went to a local natural foods grocer who agreed to sell six of her LunchBots on consignment. She got a call a few days later from that grocer who wanted to place another order after the first six sold out. She ran another test where she put 12 more LunchBots out for sale at a fair held at a local school. They sold out in less than two hours. “At that point, I felt like I had my first proof point that people were willing to pay money,” says Linder. That’s when she took the plunge and ordered 5,000 more units that, on December 28, 2008, she began selling on her website: www.lunchbots.com. Linder’s business has continued to grow and she now sells mostly through boutique retailers as well as sites such as Amazon.com. She has also continued to add new products to her line, using the same approach where she offers a few for sale before placing bigger orders. “Often entrepreneurs think they need some big infrastructure, elaborate we site, full executive team, fancy marketing plan, consultants, etc.," she says, "when, in reality, they just need to make a few widgets and go sell them to see if it makes sense to continue."

Case study 6: Face facts

Josh Steimle started his business by building websites back in 1999. His business took off from there. By 2007, he was running a full-service interactive marketing agency with 10 employees. The problem was his business was dead in the water. The truth was that Steimle had been running his business from the very beginning on debt. In its eight years, he had never earned a profit so, in his words, he became “addicted” to finding new ways to borrow money: credit cards, an SBA loan and taking investments from friends and family. “I even went for a while without paying payroll taxes,” says Steimle. “That’s definitely never a good idea.” But, with a burn rate of about $70,000 a month, Steimle didn’t think he had any other way to keep his business going. “I always thought that if I kept things going, all we needed was that one lucky break for us to really make it,” he says. But, when the recession hit, Steimle’s credit lines dried up and he had to face the facts: he was about to go out of business. That’s when he decided to take a hard look at his business and what he was really spending his money on. “What I found was that the debt was helping cover up my mistakes in the business rather than confronting and solving them,” he says. When he looked at the numbers, Steimle swallowed hard and made the decision to both opt out of the lease on his office which cost $5,000 a month and to make all of his employees contractors, which not only saved him from paying health care premiums, but also helped him budget better as he could hire workers when he landed new jobs. While he admits he was saddened to lose some of his employees to other jobs, he also knew the decision saved his business, which is now finally turning a profit on a monthly basis. “In retrospect, I wish nobody had loaned me money in the first place,” says Steimle. “I might have been profitable from Day One, and never would have racked up all that debt I’m now paying off.”

Read 6 Strategies For Breaking Even (Part I)

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