For many designers, a decision to launch a business is very much an emotional one, tied up in a personal passion to create beautiful things. Running a business, however, requires a much more rational, analytic approach. Strong business leaders approach their decisions from both perspectives: a bit of gut feel and a bit of pragmatism.
Financing your business is no exception, and there are a series of questions you should ask yourself before launching that require both an emotional and rational approach.
What’s my investment threshold?
Right up front, my co-founder, Wei, and I set a maximum amount we were each willing to invest. We tested our number with other entrepreneurs to make sure it was realistic, but we also set it low enough to keep us disciplined. We heard so many stories of designers investing thousands into their business with no return, and we didn’t want to find ourselves in that situation.
What’s the minimum investment you can make and still get a return you’d be happy with? Then cut that number as it’s nearly guaranteed that there will be unanticipated costs.
What’s my risk tolerance?
Another way of asking this question is “how much are you willing to lose?” I hate to be a pessimist, but we all know half of all start-ups fail. How much are you willing to spend to see your designs out in the world? Clearly you’re comfortable with a good amount of risk if you’re considering launching your own business, but put a dollar figure to that risk level so that you feel comfortable with what you might lose.
How should I spend my money?
Once you have your number, think carefully about how you want to spend it. Do you want to be known for a high-quality, unique product? Or is marketing and press most important for you to succeed? For Wei and I, producing a high-quality garment is critical to support our brand, Avantūr, so we are putting 90% of our resources to production. As a result, we tend to get creative, i.e., less expensive but still effective (!), when addressing other business needs. Once you figure out the key driver for your brand, it will it much easier to make budget decisions down the road.
When do I expect a return?
When production is delayed, fabric doesn’t arrive, and websites get wonky, Wei and I constantly remind ourselves that we are in this for the long-term. We aren’t launching a brand to make money fast, but we do want to make sure that Avantūr starts paying for itself by a certain time. For your business, that may be five months or five years, but whatever it is be sure to keep that timeframe in mind. Check in with yourself every couple of months to re-assess and evaluate your progress. Are you there yet? If not, what do you need to get there?
This wouldn’t be a good finance post without one last bit of concrete advice…track your expenses, establish a budget, and be disciplined in your financial decisions. Make every penny count!