Paul Winkler: Welcome. This is “The Investor Coaching Show.” I’m Paul Winkler talking about the world of money, investing, financial planning, and retirement planning.
Business and Entrepreneurship
We go through two stages in life, as I always say, where you work for your money and then your money works for you. Often, the most successful people in life tend to own businesses. You get to be a business owner when you invest in the stock market.
You just don’t have to run it. But some of you may want to run the business and actually want to be engaged in that, and that being the first part of your life. Whereas you work for money, you’re doing it in such a way as to actually develop your own thing.
That’s exactly what we’re going to talk about this hour with Associate Professor of Music, Business and Entrepreneurship at Trevecca, Dean Diehl.
We’re going to be talking about small business because you have a new book out, called Crawl, Walk, Run. What made you sit down and go through the process of writing a book?
Dean Diehl: I started teaching at Trevecca in 2008, and they turned to me halfway through my first year teaching there and said, “We’ve got this small business entrepreneurship class and we think you’d do a good job teaching because you’ve actually run businesses.”
So they asked me to teach this class, and it has become my most popular class. Students really enjoy it and I’ve been able to develop really helpful resources from it.
PW: That’s cool. And you’re dealing with a population right now that is very entrepreneurial. They’re really into running, and we think all is lost in America. We’re going socialist, we’re going communist. I’m like, no.
We have a very entrepreneurial population rising up.
DD: We do. And I think that part of what drives it is some of their frustration with some of the things they see in corporate America, and their response is, well then I’ll just do it my way. I’ll start my own business. I’ll see if there’s a way to do it in a differently.
Minimize the Risk of Failing
PW: That makes sense because if you look at companies, a lot of times in the past and go back through history, you had to be super, super big to actually get anything done. You had to have massive amounts of equipment, massive amounts of machinery, massive infrastructure to run a company, and therefore you had to be big in order to compete.
But the reality of it is, in a service economy, you’re actually not needing all of that. So that’s probably a big reason that they’re going that direction, don’t you think?
DD: I think that’s part of it. Of course, we’ve talked about this in the music industry. Anybody can upload a song to Spotify. So 30,000 songs get uploaded a day.
And so, the fact that it’s easier to open a business, you’ve got the same thing.
More people are opening businesses than ever before.
Especially coming out of COVID, there has been a jump in the number of people deciding to start their own businesses. It’s to the tune of 12,000 to 15,000 a week.
PW: Wow. So when you’re talking about running a business and starting up, one of the things that you’re bringing these kids through is coming up with their own ideas. Don’t a lot of kids come up with ideas that sound great, but before they can even start, it’s commoditized?
DD: Yes. And I’m glad you brought that up because probably the strongest concept in the book is a concept I talk about called micro-targeting. Well, let me just back up a little bit and just say the whole idea of Crawl, Walk, Run, we have these 10,000 to 15,000 businesses that start every week, and half of them are going to fail in the first five years.
What the book is designed to do is to minimize your risk on the front end by testing your ideas early on. And the whole book comes down to the concept of finding a sliver in the market.
So yeah, when you look at something, let’s use photography for example. It’s commoditized. There’s photographers everywhere.
Specialize Your Small Business
If you want to be a general photographer, you go to the typical photographer’s website, they’re going to have pictures of babies, pregnant moms, families, dogs, sports, and weddings, and they’re going to be generalists.
That is conventional wisdom. You’re going to start a small business, if you’re going to have enough customers, you’ve got to string together all of these services to have enough people. What you’re really doing is fading into the noise.
Specializing is the only way to survive.
To survive as a small business, you have to think smaller, not bigger. You have to micro-target.
PW: Yeah, because it’s a knee-jerk reaction. It’s like, I’ve got to make sure I take anything that comes along.
DD: That’s right. And you may have to do that. There’s a difference between how you market yourself and what you’re actually doing to make a living.
PW: That now, see, that helps. Okay. So in essence, you may be marketing and specializing, but you may actually have people who come to you and they just assume that you’re good at other things as well.
DD: That’s right. Let’s say that you do this market analysis. And what we do in micro-targeting is you pick your trade area, you pick your broad area, like photography, you make a list of all the photographers in the area, and then you make a list of what are the possibilities.
And so you have children, you’ve got families, you’ve got portraits, you’ve got graduates, you make that list. Then you go through each competitor and you rate them one, two, three. One, they don’t do it at all. Two, they do it, but it’s not their focus. Three, it’s their central focus.
PW: Where are you looking for this information?
DD: You’re doing it online and you’re going to their website. You can find your competitors and get really good ideas from them. And don’t neglect the ability of just walking into their store and seeing what they do or calling them up and asking them questions.
Systemize Establishing Your Business
Figure out what they do and rate one, two, three. Your results are all the possibilities. Kids, photography, family, maternity, wedding. You make the list. In the columns, you put the competitors. And then you’re rating one, two, three each part of the grid.
Then when you go to analyze it, you’re looking for ones, because ones mean that nobody’s specializing in it. If you see one of those where it’s all ones, let’s say nobody’s doing pet photography.
And you look, and you see a row of ones and maybe a two where someone’s got a picture of a dog on their site, but nobody else is doing pets. That is to say, in this market, the available micro-target is pet photography.
PW: Got it. So you’re really systematizing this. It’s not necessarily because most people do say, I’m really interested in this and then go into that.
There may be a ton of people interested in the same exact thing, so what will make you different?
Now the book that inspired me down this line is called The 1-Page Marketing Plan. And he uses the example of a plumber who was doing the everyday show up at the house and unclog the sink, and was just like, I need to do something that nobody else is doing.
Without telling the whole story, he ends up as a plumber who specializes in installing fire suppression systems in private homes that cost over a million dollars. Now that’s pretty specialized.
DD: He became the only guy in his area who did that. He went to the contractors and he built a reputation. Now he’s the only guy they call.
Here’s what crawl looks like. Let’s say I decide to be a wedding photographer. Who’s going to trust me? I get them all sold on what I can do. And they go, okay, so how many weddings have you shot? None. That’s a tough sell. So how do you get your first customer?
The Early Process
Very early in the process to see if your micro-target will work, go shoot a wedding for free and shoot it as a tag along. So you hire a photographer, you find friends, you find family, you find somebody that’s going to let you come along and shoot that wedding while somebody else has actually been hired to shoot it.
In exchange, you want to use those photos on your website to show that you’ve actually shot a wedding.
PW: So if you’re going to get into a certain type of electrical work, you’re going to do it for a really super low cost just to get in the door. Then you’re going to start to look for people that will say, hey, he did a really good job, she did a really good job for me. And then now you’re off and running. So that’s the crawl part.
DD: So you’re learning.
There’s always things you don’t know until you find out you don’t know them.
That was one for us. You’re also finding out what the stress level is going to be like for you, and there’s a huge learning curve.
You can sit at home and try to anticipate everything that’s going to happen. You can’t do it.
PW: So you’re so right when you first start an idea, it’s not necessarily intuitive what’s going to work and what’s not going to work.
I worked for a company, and then eventually what I ended up doing was building up my side business big enough where I could leave.
DD: And this book is perfect for the side hustle. I’m not crazy about that phrase, but that’s the one that people use a lot in the little, the small business on the side. And that’s a great outlet for some people. If you’re in a job you don’t like, having that thing on the side that just lets you keep hope alive and do something you’re passionate about.
Try It
PW: You’ve got the security of the regular job that you do. And then you have the thing that you do that you’re passionate about. The beauty is you’re not taking a risk that if it fails you’re ruined.
DD: That’s the key. We talked about how many businesses fail.
The whole idea is that it doesn’t eliminate the chance of failure, but it reduces the harm that can be caused by failure.
There’s a reason babies crawl. Because they can’t fall when they’re already on the ground. They could just topple over.
So I encourage people, when they have a business idea, to crawl really early in the process. I mean, the minute you’ve got the idea, try it.
Get out there. Here’s how you can try it. Test it. See if you like it. See if you think it’s what you think it is. Especially when you’re trying to find that micro-target, let’s find out if those people exist and they really do care about what we think they care about.
PW: Well, I think one of the big things you have to watch out for is some people get an idea they want to crawl, and then what they do is they try to take out a big loan or they spend their retirement plan.
DD: Well, see, one of the things I say in the book is a lot of people say go big or go home. And my reply is always, all right, well, so the first thing you should buy in your go big plan is a suitcase because you’re taking a trip back home.
It’s going to end up with a trip back home. Go big or go home does not work with small businesses.
When it’s your money, your time, your investment, I encourage people to crawl as soon as possible for two reasons.
Fear of Failure
First of all, you want to find out if it’s going to work before you spend a whole bunch of time developing it. But secondly, some people will never do anything. They’re dreamers.
They’re going to spend their whole life saying, one of these days I’m going to. What I hope that crawl phase does is push you out the door to try things and get moving. I’ve seen so many people paralyzed because of the fear of failure.
It’s very difficult to lose a dream and then go, what if it doesn’t work? Now I’ve lost my favorite dream.
PW: Right. And think about what would you be doing if you knew you wouldn’t fail is a good sounding question, but a lot of people will not take that because then all of a sudden you’ve lost a part of you.
DD: Well, here’s what I prefer to say is what would you do if you do it even if you did fail? That’s the better question.
Something that you would do even if you fail is really worth it.
I’d rather go down failing at this than succeed at something else because you feel like this is something that’s worth doing, something that you want to do.
Now when you’re coming up with business ideas and micro-targets, it’s important that you hear about doing what you love and you’ll never work a day in your life. Follow your passions, follow your dreams. I find, and there’s research that backs this up, we tend to become more passionate about things we’re good at as opposed to becoming good at things we’re passionate about.
PW: There is research. There is no question about it. And the other thing I like to add to that is I look at, there may be something that you do that you love doing and you lose track of time doing it, but the problem is there are too many other people doing it.
Solving Problems
Number two, the other thing is looking at business in general. One of the best things that I had ever heard was that if you’re going to get into business, what you do is you may get into a business other people are doing, and then what you ask yourself is what would frustrate you or what does frustrate you about doing or working with that type of business? Your job is to solve those problems.
DD: One of the biggest problems is not that there’s customers whose needs aren’t being met, it’s that they’re having to settle. They’re being underserved by the market. And that is the prime spot. That’s why I go back to micro-targeting.
Look in the market. If you’ve got something that you think you can be good at, which is always where you should go, ask, “Who’s being underserved?”
We talked about crawling, getting started, kicking the tires, figuring out what you want to do. Walk, what is that with regards to business?
DD: So what walk is working with your guesses and questions. Crawl gives us more questions than answers in some ways.
When you start walking, you have to turn your questions into an actionable plan.
So with the walk phase, and that’s where Judy and I are with Mini-Friends Farm right now.
PW: So this is the business you and your wife are doing.
DD: That’s right. Yeah. Mini-Friends Farm is where we visit retirement homes with our mini horses. What does it cost to do a visit? What’s all involved in a visit? What’s the ideal center that we would want to target? Retirement center. What kind of retirement centers? How big of a trade area do we want? How far do we want to drive? What do the finances look like?
The walk section of the book is probably the most dense planning type section.
Testing the Business
Walk is getting all of these stuff to begin with to figure some of those things out. And we’re doing it by testing, again, continuing to go to people. Now we’re not doing it for free. Now we’re starting to charge people.
But we’re still doing very much, you’re in the lab. It’s still testing. It’s still the beta form of your business, but you’ve stepped it up a little bit. Maybe you’re even testing some advertising and seeing what kind of leads come in, experimenting with what type of messaging helps fill in the top of your marketing funnel.
PW: So that makes a lot of sense. And I think about when I talk to people about businesses, what I say is, okay, so you have the CEO of the company, that’s what the direction of the company’s going to be.
Then you have operations. What does the business do? Then you have the accounting side of the business, and then you have the operations, and then you have the marketing side of the business.
So those four things. CEO, marketing, operations, accounting. And in the very beginning, you’re doing all of those.
DD: And you have varying expertise in those different areas.
When you come up with systems that work, then you replicate.
PW: And then what you’ve done is, I always tell people, make sure you write those things down so that when you start to replicate it, you have other people that you hire to replicate it. They have a system to run on so they’re not flying by the seat of their pants. They’re doing exactly what you have tested and what you know works.
And you eventually want to be only the CEO of the company. You don’t want to be doing all of the marketing. You don’t want to be doing all of the operations or the work of the business, or the accounting, but it takes time to get there. And this is how you do it in that walk phase. You’re coming up with those systems.
Understanding Business
DD: I think that the owner, entrepreneur, small business owner, their expertise and what they need to know, the closer it gets to the customer, the more important that they have firsthand experience. So you may not need to be a full-fledged accountant if you can have someone explain to you how to set up your books in QuickBooks or whatever format you want to use for that.
But the closer you get to the customer, especially at the very beginning, the more you need to be walking through personal experience.
Whoever understands the customer is the person that really understands the business.
PW: Too often what happens, that’s a big mistake that I’ve seen people make quite frankly, I’ve seen them go and try to set up a company, and then what happens is they do the work of the business.
DD: That’s another danger of, I’m going to open a business. I’m very passionate about this and I want to do a business doing this. And I’m like, but that’s not what you’re going to be doing.
You’re going to be running a business. At some point, you have to be passionate about running a business. And again, passion follows expertise, but you have to decide what your role is going to be in the business.
If you want to open a bakery and you want to bake, then you better have a partner that’s going to come in and run the business. Somebody has to run the business.
PW: Yeah. That’s a big mistake that I see people make. So with businesses, and I think, how do you find one that’s going to be profitable, that’s going to make enough money to justify it? That seems to be the hardest thing.
DD: Well, and that’s why at the very, very beginning, the thing that you have to do, even before crawling, is you have to write the word why at the top of a piece of paper and figure out an answer to that question. What is your reason for the business?
My wife’s reason for Mini-Friends Farm is to share her love of these horses in a setting that’s bringing hope and something to look forward to with people that are in retirement homes. If she breaks even or makes a little bit of money, she’s happy because she’s got a different reason.
Dreamers and Pragmatists
I put people in several different categories. There’s, I call the one group the dreamers. They start a business because this is what I’ve always dreamed of doing. This is what I want to do. So they’re following their dream. Success would be making a living doing something that they love.
Another group are the ones that if they’re very pragmatic, I’m starting a business in order to do something else. So my wife had a business years ago when she was a stay-at-home full-time mom as a seamstress because she could make money while staying at home with our kids.
In the gaps, she wasn’t passionate about being a seamstress. This wasn’t her life dream and we weren’t living on it, but it allowed her to do something she was passionate about.
PW: And if you want to make money, you’re going to have to go and do something that other people aren’t willing to do.
So that’s where the opportunity is, so you’re going to have to go get a lot of education that other people aren’t willing to go and work on. You’re willing to do things that are maybe a little bit dirtier than other people are willing to do, more dangerous in some cases.
That’s where more money comes from.
Be thinking about what other people are not willing to do.
So something to really think about in building a business is something that is difficult enough where the barrier to entry is higher, but is something you’re also passionate about, so that that barrier is not drudgery to get over.
DD: And one of the reasons that I hear from younger students about why they would want to start a business has nothing to do with money. It has to do with freedom. It has to do with autonomy. It has to do with being able to work when they want to work, where they want to work, and how they want to work.
PW: What’s in it for them is the problem, not what’s in it for other people, so that can be a trap.
DD: It absolutely can be a trap. The thing though with why they need to know why they’re starting the business is because in the growth process, you need to know where the business is headed.
Viable Business
I’ve seen people start a business so they can spend more time with their family and have more freedom of time. Tthen the business takes over and the business owns them rather than them owning the business.
PW: What is run?
DD: So run is when you’re ready to go with the minimum viable version of your business. And what that means, a lot of times, I try to tell my students to avoid commitments to heavy fixed costs. You want to keep your cost variable.
If you can do a right pop-up retail in somebody else’s location rather than your own location, if you can go to fairgrounds and flea markets and open up temporary things, do it if it is a viable version.
You’re in the business for real now. You’re charging your full price, your marketing is running, you’re generating leads, you’re running the business, but it’s the smallest version possible, so you can test one last time if everything is in place, and then you’re ready to go.
DD: The biggest question people have about run is, when can they afford to hire themselves? When can they quit their job and work for their business? My answer is always the same.
A lot of people start their business because they don’t want to have a boss. They want freedom. They hate their job and they can’t wait for that day.
You can work for yourself when you can afford to pay yourself what you would pay somebody else.
So if you have a hotdog stand, you’re going to pay someone $15. If you’re currently working for $15, sure, hire yourself. That’s what you were going to make anyway.
But if you’re making $40 an hour, you can’t afford to hire yourself because even if you pay yourself $15 for the impact of your personal finances, you’re actually paying yourself $40 because that’s the opportunity cost of working for yourself.
So you can’t work for yourself until your business can afford it, until you can afford to work for what the business would pay somebody else.
PW: That reminds me of starting out as well. I worked for another company in the beginning. And then finally, with the revenue coming in from the business, I could support myself. That’s when I left.
The Art (and Necessity) of Delegation
So then running, part of what you’re doing is delegating and teaching other people to do those things that you do well. Then getting to the point where you only do the things that you’re distinctly and uniquely gifted to do.
DD: And I think one of the biggest challenges small business owners have with all of this is they don’t value their time enough.
Time is more valuable than money.
You can always get more money. You only have so much time. Look at what the very top of your list has to be that if you don’t do, it doesn’t get done.
You have to hold those things with open hands and be willing to set them down and let other people do them. And that is the hardest transition for small business owners when they go from launch to running the business. Because Crawl, Walk, Run is a launch strategy.
DD: Nobody does it the way that you would do. But you have to get the point, you have to get to the point where good enough is good enough on some of these things. It may not be the way you would do it, but there’s more than one way to do it right. That’s a hard lesson.
PW: And it is. It’s hard because it’s your baby, and it’s your name, it’s your reputation. And when you have somebody working for you, that can be hard. So that’s why I like systems because there’s a systematic way of doing things.
Then that way, think of yourself as a franchise. Think of yourself as being a person that’s running a business that’s going to be replicated.
DD: Yeah, that’s exactly right. And I do think that that’s where people struggle, especially the people that are more natural entrepreneurs, they can just do things and they don’t understand why they do them. Expertise actually hurts your ability to teach sometimes because you can’t remember how you became an expert.
PW: We discount ourselves.
DD: And so, you have to go back and rethink how you learned in the first place? How can you show somebody else how to do it?
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