Should You Think Big or Small When Starting a Business?
There are many questions you have to answer when you’re looking to start a business. One of the first questions that come up is – should you start big or small? Before you answer, let me clarify. Big is starting a business that requires a large upfront cost. You may need to take out a loan, use a majority of your savings, borrow money from family or friends, cash out your 401K plan, max out your credit cards, or take a loan against your house, to name a few things. Starting small simply means not incurring a large upfront cost. You are able to fund your business yourself, using a small part of your savings. There is no really no right or wrong way to start your business because it depends on the type of business, your tolerance for risk, your net worth, your age, and other factors.
Donald Trump likes to brag about how he thinks big. But the problem with thinking big is that it comes with big risk. Of course, there are advantages and disadvantages either way you go. Starting a business is risky. No matter how carefully you plan, you can never predict whether it will be profitable or not, or if it will be profitable “enough”. If you forecasted the company earning $10,000 per month but it only ends up earning $1,000 per month, you may deem the business a failure.
Your net worth also dictates your risk when starting a business. Someone with 20 million in the bank can easily pour 5 million dollars into a company. If he loses that money, it may hurt but not as much as it would for someone with 10 thousand dollars in the bank trying to start a company that requires 100,000 dollars. If she loses the 100,000 she will more than likely end up filing bankruptcy. Your age also plays a role. If you are a single 25 year old starting a business, you can tolerate more risk than a 50 year old with a family, mortgage, and car notes. The 50 year old has much more to lose which may include his house and/or savings. If the 25 year old fails, he has 40 years to recover vs. the 50 year old who has 15 years to recover (assuming retirement at 65 years old).
If you are considering starting a business, if possible, it’s a good idea to start small to ensure success, and then scale the business. I recently read about a gentleman who owned a very successful restaurant. He first started selling food on the street via a food cart. It did well, so he eventually rented a very small store front. He continued to do well and then moved into a much larger restaurant. He minimized his risk by first testing the market on a small scale. When he decided to scale his business he already had customers he could rely on. His risk was extremely low when he first started, yet he made it big.
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