Entering Entrepreneurship Post-Covid – The Perks, The Costs & Bonus Insider Tips

Joe: When you drive down like Portland streets, how many closed businesses do you see?

Todd: In other cities, it's very common to have parts of towns shut down and businesses up and move to different areas. But Portland is still thriving. All these places that say they have leases available are all kind of booked.

Joe: I notice a lot of empty buildings out here in the suburbs. I see many businesses leaving, but I think they're mostly relocating.

Todd: Portland's a bad example because of all the civil unrest we had.

Joe: Right. I think that's kind of what I'm pointing to. So many places have lost small businesses, and in the middle of downtown Portland, you have civil unrest and protests - things that will basically drive away business. The homeless, specifically people in the Oregonian, have pointed that out as it is driving away business.

 Todd: Well, there's been a problem in the Pearl District way before the riots, and it is that to lease space for high-end restaurants is so expensive because of the real estate value. Even these high-end restaurants can't make a profit because the lease is so high; the cost of doing business is just too high.

Joe: So, to bring in a few statistics here, I went to the Wall Street Journal for this. They said 200,000 small businesses shuttered their doors in the first year of covid. According to the vice president Kamala Harris, about one-third of all small businesses now. If you look at the timeline of covid, we have now gotten to the point where 33% of small businesses have closed their doors. So, my question to you, as someone who has decided to start a small business, is that kind of like walking into the casino and seeing everyone lose the table? Do you see a table on fire, and you put your chips on that?

Todd: Yes. But in gambling, you least know the rules of the game. In small businesses, there are way more moving parts and way more moving people. It's a lot harder to get data and make decisions.

Joe: When you say knowing the game, that is actually a good way to phrase it. You've started businesses before, yes?

Todd: Yes, I have. I had a construction company in Seattle that did very well. We had our ups and downs in the beginning, but then it was outrageously successful. I like to brag about the story because I got fired from a company that I started and that was named after me.

Joe: I didn't know that part. Is that still around?

Todd: No, not anymore. But you really have to be a jackass to get fired from your own named company.

Joe: What's the name of our podcast again? Kidding. So, in your opinion, how will this time be different?

Todd: I'd like to think that we learn from our mistakes, that we are a little older, a little richer, a little wiser, and I will not make the same mistakes as I made before. I think there are as many dangers and successes as there are with failures. When you are failing, you get afraid, and you make mistakes; that's a problem. But when you get successful, you get kind of arrogant and cocky. And I think it's human nature to take people for granted once you get successful and downplay what they did and focus more on your own brilliance.

Joe: Right, and we talked about how people who are successful almost by default go to the rags to riches narrative. That said, Forbes has a list of key questions that every business should ask themselves before they launch. We also have some key statistics from LegalZoom about small businesses. So, I was wondering, are you willing to come under fire for us today? Are you willing to walk us through the process of starting a small business?

Todd: Absolutely.

Joe: Okay. And anyone who is into self-awareness, self-improvement, and anyone who wants to make it as an American has thought of or will at some point start a small business. I'm going to quote Tom Cruise in Risky Business, which is somebody had to invent the little plastic tags on the ends of shoelaces. So why can't that be us?

Todd: I like that. There are as many different ways to make a million dollars as there are millionaires.

Joe: Right, well said.

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It's every American's dream to quit their stupid job, tell their stupid boss where to go, start their own business, and become outrageously successful. We have some myths to dispel about starting your own business.

Myth One: What is the perfect time to start a small business? Is there a perfect time? Or is it better to just take the leap and sew your parachute on the way down?

Todd: Have you ever thought about starting a small business?

Joe: I think because of the way my mind works, I assume all people who start a small business are going to open a brick-and-mortar shop of some sort. In my mind, it’s like you have to be wearing suspenders, you have to be stressed, and you have to have something physical in the windows. So, I'm going to start a woodworking business where everything wobbles.

Todd: You're like an Amish. Everything is old school. To be fair, your wedding gift to me wobbles. I've been able to fix that. I think the warranty work would kill your business. Your initial sales would be fine, but everyone brings that shit back.

Joe: Yeah, I would have a contract that I sent out with everybody that's like, you understand that this wobbles, right? So, jokes aside, if I'm going to start a business someday, I'm coming to Todd to pick his brain, know what not to do, and walk through these steps. So first, I want to start by asking when's a good time to start a business? Like, how did you know now is the time?

Todd: This is a tough one. You know, billionaires get richer during recessions. It's good to start businesses when things are slow because things are more affordable. But I think if you have fewer resources, it's better to be in kind of a booming economy. But the business I picked in is construction. And right now is probably one of the hottest times I can ever remember for construction. So, I think that's a good time if you don't have a lot of resources. I think if you have lots of resources, any time is good. And that's kind of the key to is can you hang in there when things get tough.

Joe: Right, that's when you need to have the larder full. That's when you need the resources to be able to last the winter.

Todd: And if you think you are going to do this all on your own, you're doomed. You're going to have to surround yourself with good people, people you hire, consult, and even good customers. You need customers. You need a little bit of luck, too.

Joe: Okay, so start a business when you know there is some sort of demand and have a lot of good friends?

Todd: Yes. People who are not like you, though.

Joe: We did an episode about finding mentors and business partners, and it talked about exactly that - you want somebody who thinks different from you so they can see your blind spots.

Todd: The best mentors are not the people who have been doing it for 30 years.

Joe: Yes, According to Harvard Business, it was people who are about six months ahead of you. If we can go back to the statistics. This is a graph from Statista. And it's the number of small businesses established less than a year old in the United States. Now, this graph goes from March 1994 to March 2020. So, it goes into covid. If you notice on this graph, something changed in 2006. We're tracking more than 700,000 small businesses. And then right after that, in 2007-2008, things started to dip precipitously, especially in 2008. That's when we are in prime recession territory. And then it starts climbing back up again. We return to pre-recession levels. In 2018, it kept going up. And then, during covid, it hockey sticked up; it goes so far up. So, I need to ask you because I would have bet small businesses would decrease during that time. But it's the opposite. We're up to 800,000, which is more than ever. And so, I'm here to ask Todd - what the hell is going on? What am I not seeing?

Todd: I think this ties right in with the Great Resignation. People are being worked between texts and emails, not with living wages. It pushes them not to take it anymore. This is not sustainable stress, and I need to do my own thing. And I think that covid helped too because the money the government delivered gave people time to go after their dreams and make a plan. Without that break. I don't think they would have had the energy to even do it.

Myth Two: Only wealthy people can start a small business, right? Or loan experts. If you're neither, then enjoy being the CEO of all that nothing.

Joe: Do you think it's if everyone who went and stayed home during covid and dreamed up an internet business of some sort, even if they make the same amount as their old crappy job or less, do you think they win in the end? 

Todd: I think it's usually in a little feast or famine. I think you will either make less than your old job or do so much better. I have a couple of examples of these. I used to work with this guy who used to sell women's shoes at the mall. He wanted to be a private investigator. And that's what he did after work. Never slapped. He got in his van and followed around cheating spouses, and he would go to courts. Now, five years later, he has one of the bigger PI practices, and he does a lot of famous cases in the northwest. And he made way more money than he would ever have made selling shoes. I also knew a bartender, and he was a Hispanic guy. He started buying one car at a time. And he started selling him to his friends who had moved up from California, and he'd let them make the payments to him. He went from being a bartender at Applebee's to having a very big Auto Finance Company where he was making 20% interest. He became a very successful Banker.

Joe: Those are great stories because they both demonstrate doing something you love and doing it after hours - doing it in a way where it's like clearly, you have an inkling to do it when you're not on the clock.

Todd: Also, they were two people with zero experience in that. They didn't come from money, and no one showed them how to do it. They saw something they had a genuine interest in, something they would be passionate about. I think that's another problem, too; when you start a small business, there's this misconception that you'll never work another day if it's something you really love. When you start dealing with deadlines and clients, it gets stressful and it could take the joy out of whatever you think you used to love. It becomes a job.

Joe: Correct. So, you will take the thing you love and turn it into business, but it still might be better than grinding for somebody else's business. When did you launch your first business? What age were you?

Todd: When I was 25, again in 35, and now in my elderliness - pushing 50. When I was 25, I was in a relationship with someone who was a successful businessperson, and they were eight years older than me. They helped me fund it, and without them, I wouldn’t have been able to do it.

Joe: You were a very early starter. The national average for entrepreneurship is 42. What is your education level?

Todd: I do not have a business degree from Harvard if that is where you are going with this.

Joe: Yeah. I'm not picking on Todd; We have had episodes about college degrees, and a college degree or college education is becoming less common among entrepreneurs in the US. Did you know about that?

Todd: No, I did not. All these CEOs are telling people to hate college, right? It is the Elon Musk thing.

Joe: Yeah, they bash on college. A couple of weeks ago, I did hear on the news that Elon stopped having degrees required at his businesses. He put it on paper that you could just come in and tell them where you've worked and what you've done. They made it more accomplishment-based. We'd have to poke into it. But in the US, about 56% of self-employed people in 2019 were people with college degrees, which is down from 60% in 2018 and 64% in 2017. So, every year it seems to creep down a bit; people are getting more and more confident without having a degree that they can start something.

Joe: I want to talk about the motivation of business - the Forbes questions. I'll tell you what the questions are because it walks you through your motivation to start a business and things you should know before you launch. Question 1: Why did you want to start a business?

Todd: I can't stay in the industry that I'm in because it's just become so oversaturated. The commission structure is the same as it was back in 1999. And we know everything's gotten more expensive. The expectations for the position are just unreasonable. So, the stress level and the work level for the pay are just not sustainable.

Joe: I remember we were in the car, and we started talking about a position you were offered in management. I asked why not take the job, and you mentioned that there were so many extra steps that they require, and they turned it into something where you don’t just manage people, but you had to process so much online. It was a guaranteed burnout position.

Todd: Well, I went to the place and talked to the people, and I heard a horror story that happened the day before. One of the managers (10 years younger than me) in the same position fainted from the stress. And I'm like, I can't do it. And that's another thing - if you think owning your own business is you're going to be the boss, it's the exact opposite. You will work for your employees, whoever you're selling things to, your vendors, your advertisers, and your days will become a lot longer. There's no walking out and just getting a paycheck at your own business.

Joe: A couple of questions were skipped because we already answered them. Now, one that I do want to ask, because there is so much demand for housing, who are your competitors right now? How are you going to identify them?

Todd: For me, it's for identifying them, and they're not that hard to find who the top three or four are. And I think you got to pick the big one because you are not a threat to them; modeling them does not do you any good because you don't have the resources. A few years in, you can model such as looking at where their advertising is and where they are hiring. If anything, you have to figure out what you can be profitable in. I think businesses are really about the people. I think the companies with the best, smartest, and most hard-working people have a company where there's not a lot of turnover. That's what you want to model.

Myth Three: How much is the new business owner expected to do for themselves? Should I do the finance myself, the hiring, the firing?

Joe: How big of a chunk of your starting budget was for advertising?

Todd: If you think something will cost a thousand dollars, plan on it costing about nine grand. You have to times everything by eight or nine, so more than I care to disclose. And let’s face it, advertising is a weird thing. You really have to keep your eye on that, or you could end up spending an unlimited amount of money in a very short amount of time. You really need to get your head around early on what your cost per lead is. I saw a speech years ago from Bill Gates. He said all business is, is the cost per lead. How much does it cost you to get a customer? And I thought for him to take that painfully simple approach shows that is what it really is all about.

Joe: You already answered their question #10 on the Forbes list. The next question is, how many employees will you need? What resources do you have? So, a lot of these questions are about building a team. For me, I don't start by looking for employees. This is just my experience with writing online. I start by collaborating. I find people I respect, look at their work, and ask them, "Hey, do you want to work on something together?" Mutually beneficial. And if I like how they work, then I will keep asking them to do things with me until we have a business deal at some point. So basically, I work with good people I respect and slowly turn that into a business partnership. 

Todd: For me, the only great thing about being the boss is picking the people you work with. And at your current job, you can't do that. So, you can recognize things in people and see how good of a fit they will be in something. I absolutely would rather give somebody part ownership, even if it's a little bit to secure that partnership. But I also think we want to hoard even our dreams as humans.

Joe: Leaders who start something will often think they ARE that business, that is it not just something they built. They think it is a reflection of them, so they get to run it and tell everyone how they are allowed to participate. I assume that in small businesses, the same carries over. At some point, you have to give up a little chunk of it to keep those partnerships flourishing.

Todd: I think you need some real self-awareness of where you are personally. There has to be a level of trust when you talk about your own finances. And if a business goes under, you may not just lose money; you can lose relationships and where you live. The stakes are high.

Joe: This is not something on our Forbes list of questions, but I will ask it. I hear of people starting small businesses and putting more on the line to save it. Like they will mortgage their house, put up vehicles, and risk relationships…how much are you willing to put your chips in hypothetically?

Todd: I have done that. You know, you'd take out an SBA loan and attach it to your house, so the SBA loan terms are great. But again, when things go south, and you're not making any salary, it causes stress. I would back down and take my losses before losing my house or my wife. Hopefully, you know what's happening before you hit that point.

Joe: There was a Freakonomics article about how many businesses actually had side plans, and they found that so many people who started really successful businesses all had outs. They all had back doors.

Final Thoughts

Joe: So, my final question for you. When will I be ready to start a business? How do you know you are ready?

Todd: There's something to be said for being brave and trying something new. The right time to start is always five years ago. In other words, starting now is the best time. You're not going to have more resources, and you're never going to have the energy and the drive that you do today.

Joe: That is a good way to put it. Your readiness is frequently tied to how educated you are on the subject. So, look things up and go into it aware yet overly cautious.

Todd: You've got to take some risks. If you are the carpenter who measures too much, you're going to have to cut, and you're going to have to get going.

Joe: So, I want to pitch you a couple more business ideas, and these are winners. I don't want you to make me feel too bad about these. I'm going to hire actors with foil blankets and those little paper cups for Gatorade like they have for jogging. Except, they just stand outside of bathrooms. So, whoever comes out of the bathroom next, they put a foil blanket around their shoulders and a Gatorade cup, and it's like ritzy clubs downtown where they just expect a five-dollar bill. Another one I'm thinking about is converting storage places into apartments.

Todd: I think they probably are doing that in Tokyo.

Joe: This last one, if it doesn't exist already - we take text-to-speech chatbots that will just have a nothing conversation. We sell those paired to children's CB radios. Like those walkie-talkies that you sell to kids so they can talk to each other. Except for the walkie-talkie, it just goes to a chatbot. So, it just keeps up a conversation with them for as long as they hold down that button.

Todd: I think you should stick to writing and scrap all these ideas and do something that you are truly great at.

Joe: Okay, I guess I'll take the advice.