The first time I consciously decided to start a business (computer sales & repairs), I held an amazing amount of misconceptions. They could all be summarized as “money simultaneously grows on trees and is brought in by the wheelbarrow by customers eager to purchase my wares”. You’ll have to forgive me, as I was still well in high school.

To my credit I knew that I had to work hard, but somehow in my mind there was a nice thick line drawn directly between work and success. If I worked hard through the night, slept through class, and put every ounce of strength that I had into the business, then profits and growth were my divine right. I was half correct of course, as rarely is an easy way of making money simply handed out on a silver platter. But somewhere I had made a terrible mistake in the formula and got half of it wrong. It turns out that you can toil endlessly in the fiercest conditions known to man, but if what you produce is of value to few then your rewards will be proportionally small. That big thick line does exist, but it’s actually drawn between success and value.

The Real Reason Why a Business is Successful and the Consequences of Using the Wrong Formula

The principles here can apply to VC-funded start-ups with $6 million in the bank too. However today is all about small business, the kind that I have started several times, and which can turn pizza money into a high income or reduce your income to not being able to afford pizza.

In my case I had worked very hard, but most of that time had been spent on an unadvertised company website that nobody would visit, writing paragraphs extolling company virtues that no one cared about. I had spent virtually no time on the things that would have mattered, such as handing out fliers door to door or networking (unless you counted trying to sell $2000 machines to penniless high school friends). I also firmly butchered the notion of “you gotta spend money to make money”, holding dearly to my heart the belief that effective marketing had to be paid for and by not having money I had no chance against the competition. I was terribly wrong again; my current venture has still spent less on marketing than what I had proposed for the computer sales business, but it’s making thousands in profit per month and growing quickly. I wanted fancy business cards, full color fliers, expensive newspaper ads, and everything else that other companies had, except that I didn’t have $100K in starting capital. Boy, what was I thinking.

So a high school kid knowing nothing about business failed. Big surprise…

Except that I’m not the only one that got the formula wrong, and I was certainly not the oldest! When statistics like 90% of small businesses fail in the first five years abound and examples of basic business mistakes can be found by walking a mere block through any downtown, it doesn’t take much to see that a whole lot of business owners are getting the fundamentals wrong too. Rational, intelligent, and well-intended people, who when reading this article may think “wow I would never be that stupid”. The problem is that until you look back at the situation and write down what it is that you did, the mistakes aren’t nearly so obvious.

Having realized that my original “work very hard” formula was wrong, I’m now convinced that following the correct one with just as much passion and dedication can lead to highly predictable success. The real trick is to provide value, as much and as often as you can. The more value that you provide, the more profit will follow. It is your duty as an honest, ethical and smart business person to come up with ways of providing value and providing that value to as many people as it will benefit. Uncoincidentally this is a recipe for making a whole bunch of money. Convinced and ready to begin?

You are going to start a successful business, and you will do so with the correct time-tested formula used by everyone from BMW to Walmart to As Seen on TV products. You are on a mission to consciously provide value, over and over again, and you will apply this philosophy to all aspects of your business. Your product, be it a commodity like a computer part or something entirely unique and handmade, will be put forth in a way that puts your customer’s needs front and center.

Your business will be delivering something useful to solve a problem. But you won’t stop there. You will find the best way to provide it to the people that need it. Your marketing, your sales, your shipping, and your customer service will be just as focused on the customer and the value that you can provide as the product itself. It’s all equally important, because you are only providing value if people know about your valuable product and have an easy way of obtaining it. The truer this sentence is for your business, the better off it is (so long as you don’t have a business model that actually loses money… which happens far more than you might think).

Starbucks didn’t hit its culturally engraved status because its staff is able to provide the extremely unique and skill-heavy service of making a cup of coffee and charging an arm and a leg for it. The people that disagree with this are (shockingly) not the owners of mutli-million dollar coffee businesses themselves. There’s something more to it, and thats the entire Starbucks experience created around it. An experience that does indeed provide people something they desire and thus value that they will pay for. They took a commodity and turned it into a highly profitable business. What you might not know is that they weren’t even the first ones. Decades prior Second Cup, another highly successful coffee store, had revolutionized coffee too by providing a good cup of coffee to people on the go. Prior to that coffee purchased by the cup was a throw-in at diners and tasted like it. Just because someone has already done something revolutionary doesn’t mean there’s no room for you to up the ante.

As a small business starter who probably has little or no money this doesn’t apply to you. You can’t possibly be able to provide value on that level. You can’t come up with a product that customers will happily buy and give you rave reviews for. Providing excellent value won’t allow you to compete against the big established company. Oh wait that’s me from high school talking. Yes you can provide value and yes you can get a business going on next to nothing. Just by sticking to the fundamentals and getting them right you can leap ahead of most of the competition by creating a profitable business. The entirety of the business model for my new venture has been to fill in as many gaps between website clients and website development companies as possible, thus providing genuine value that gives clients a reason to choose me. I do all this through a sustainable business model that I’m constantly evolving to become a more efficient value generator. It’s worked very well, growth is incredible, and my initial investment was the cost of a business registration and a few phone calls. Nothing I’ve done has required advanced calculus, divine wisdom, or a pile of money. So what’s stopping you from doing the same in your business and succeeding?

Oh and by the way, none of this is original or new. Materials with insights into all manner of the value-oriented philosophy are widely-available. I first came across it myself after buying Jay Abraham’s Getting Everything You Can Out of All You’ve Got, and I’ve seen it in countless other places too, including business class. It is not a lack of knowledge of this concept that is the problem, it is a lack of business owners seeking and implementing it.

I came across this Times Online article today that I could not resist linking to. It’s actually a book excerpt from How to Get Rich by Felix Dennis, the founder of Dennis Publishing of Maxim magazine fame (among other publications).

Aside from being well-written and entertainingly snobby, the excerpt hits home on some important points. Some key excerpts:

Nobody believed that exercise could prove addictive until science stepped in and discovered endorphins. And making money, I assure you, is a hell of a lot more of a rush than jogging.

Up to just seven years ago I was still working 12 to 16 hours a day making money. With hundreds of millions of dollars in assets I just could not let go. It was pathetic. Because whoever dies with the most toys doesn’t win. Real winners are people who know their limits and respect them.

I firmly believe this is true as otherwise we wouldn’t have nearly as many billionaires. At some point you simply don’t need more money. However it’s only pathetic if you’re making money for money’s sake, rather than enjoying the ride.

If you wish to be rich, however, you must grow a carapace. A mental armour. Not so thick as to blind you to well-constructed criticism and advice, especially from those you trust. Nor so thick as to cut you off from friends and family. But thick enough to shrug off the inevitable sniggering and malicious mockery that will follow your inevitable failures. Not to mention the poorly hidden envy that will accompany your eventual success.

After a lifetime of making money and observing better men and women than me fall by the wayside, I am convinced that fear of failing in the eyes of the world is the single biggest impediment to amassing wealth. Trust me on this. If you shy away for any reason whatever, then the way is blocked. You will never get started. You will never get rich.

Fear of failure is almost certainly the reason that you have not already begun to make yourself rich. It haunts all of us.

This is a constantly reiterated concept by successful business owners everywhere. It’s the fundamental barrier that causes people to come up with all sorts of wonderful excuses for not starting that business they’ve been dreaming of. Dennis goes into this in-depth and strikes important point after point.

It’s not very easy to find a book that is both well-written and full of great advice. Based on the excerpt it’s got potential to be entertaining and insightful in the same was as Branson’s Losing My Virginity. I’ll post my full review once I have my hands on it in a month.

As humans we are naturally highly emotionly driven. Each of us have a fine balance of emotions and logic in our decision making process, with some decisions being largely emotional like buying a fancy piece of technology, and others logical like a careful chess move.

Emotion certainly plays a role in running a business as it well should. Imagine running a company without receiving any of the thrill of closing a big sale, releasing a new product, or snagging a major feature in an important publication. Imagine putting in 12 hours a day along with all your savings if there was no passion to keep your energy burning high through it all.

Unfortunately emotion at the wrong time or insufficiently checked by logical reasoning can be incredibly destructive. It can lead to buying the wrong car at a high price in the heat of the moment. It can result in offering a customer an unprofitable price in desperation to seal the deal. It is the enemy of cool calculating poker players, who are capable of amassing strong winnings over a period of strong play only to lose it all in a few angry moves when luck goes sour. It must be kept in check.

This applies to all points on the business spectrum. You’re goal isn’t to get rid of emotion and become a machine, it’s to recognize it and prevent yourself from making a poor decision because your head is clouded with negative influences such as fear, impatience, desperation and anger. There are a lot of parallels between business and poker, as both are games of risk with the short-term outcome being a complicated mix of luck and skill. Rationally a poker player will live by the long term positive outcome expected from his/her superior play, but emotionally it’s all about the immediate situation where the worst hand catches a lucky draw. An undisciplined player will make future betting decisions on this emotionally devastating but mathematically acceptable outcome, causing more losses that quickly outweigh the original. So much for humans being rational beings.

Enough poker advice. This is just as serious in making business decisions, including the decision to start, continue, or end a venture. At the initial point you may decide to test a new idea for a product or marketing campaign. You do some calculations and conclude that you will need to spend so much money and have so much data before you can conclude whether it works or not. So far so good, you have rationally worked out the conditions of your test and know what to look for. You launch the experiment and it all goes to hell. You may find that your data is telling you that the idea isn’t working, but you are emotionally attached to it and decide to give it a longer chance. You do this instead of the logical response of killing the project or improving it so that it does work. Inevitably you lose more money, money that could have been allocated towards profitable activities. The opposite is equally true - when the first few numbers are discouraging it may be tempting to pull the plug even though you know the results are not large enough to be statistically relevant.

Notice how these emotionally charged reactions have had the opposite effect of their desired results? This happens all the time with business owners. I’ve done it myself and have seen plenty of others do it. Controlling it takes practice in elevating your consciousness to recognize when your decisions are about to be made based on irrational emotions and then being able to stop and re-evaluate whether this is a positive idea or self-destruction.