“Don’t Share Your Big Idea Because Investors Will Steal It” (And Four Other Stupid Misconceptions)
If you want to go from wannabe to newbie to successful entrepreneur, you’ve got to bust through some of the most common misconceptions about starting your own business. If you are already building a business, you may have discovered some of these myths the hard way.
Regardless of where you are on your entrepreneurial path, the last thing you want to do is buy in to a stupid misconception. So get a clue:
1. Don’t Share Your Big Idea – One of the most common myths is that entrepreneurs must protect their genius ideas from pariah investors out to steal their best stuff. Investors don’t steal ideas. They don’t want to run a business; they want to invest in a business. Duh.
And no, they do not have an army of can-do people just waiting to download your business plan so they can launch a copy of your business before you can so much as scratch your head. Investors want you to do all of the work. So share ideas, just don’t give away the secret sauce.
2. Go In 50/50 With Your Best Friend – Partnering with your best friend is like marrying your mother. Sure you love mom, but it’s just bizarre – and gross – to consider marrying her. The instinct to partner up with someone you know and trust is understandable. Launching a business is a big hairy deal, and having your best bud along for the ride takes some of the edge off. But do you really have to split it down the middle?
Partnering in business is like getting married, just more intense and risky. More than 50% of marriages end in divorce – so if you want to hang on to your business and your best friend, nix this idea pronto. If you want to work together start off with 5% ownership each, and then each quarter assign equity based on performance, something that can be easily measured.
3. Writing A Business Plan Improves Your Chances For Success – That 200-page document you labored over (or paid through the nose for) is bad for the environment: a total waste of trees. Despite your best intentions, you will never review your business plan again. A business plan is pure fiction, right down to the five-year revenue projections. Why would you waste your time writing a fictional account of your business, when you could be launching it?
All you need to start and run your company is three sheets: A one-page Prosperity Plan outlining your vision, a one-page Quarterly Plan detailing immediate goals, and the Daily Metrics, a method for keeping you on track. That’s it, Sherlock. Save your mammoth manifesto for your memoirs and get crackin’!
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4. Count Your Profits At The End Of The Day – Many entrepreneurs and corporate honchos believe profit will happen naturally at the end of the day. They focus on getting everything paid first and then count up the leftovers, if there are any. It sounds logical, but it’s actually really stupid. Everyone gets paid except you? How is that a good idea?
The get-rich-right approach is to make your profit at the beginning of the day. Take your profit off the top and use the leftovers to run your business. Start with a small amount, say 5% of gross revenues, and then stash it away in an interest-bearing account, a Profit First Account (PFA). Setting up a PFA will build up your cash reserves, allowing you to actually earn a profit from your blood, sweat, and tears, and will force you to learn how to spend less to do great work. Now that’s smart.
5. Balance Work And Family Through Self-Employment – No matter how hard you try, you will not be able to devote equal time and energy to both your business and your family. It just ain’t gonna happen. And if you’re one of those schmoes who think owning their own business is the key to spending more time with their family, I’ve got a bridge in Brooklyn you might be interested in buying.
The entrepreneur’s life is demanding. You will work long hours. As hard as you think it will be, you’ll end up wishing it were that easy. The only way to spend more time with your family is to integrate family and business. Get your family involved in some aspect of your company, whether it’s having the kids collate papers or brainstorming with your spouse. Bonus: free labor! Way to TP it!
So how many stupid misconceptions did you believe – even just a little bit – before you read this post? Don’t worry, it doesn’t make you stupid, it just means conventional wisdom is total BS. What are your top misconceptions? Pass em’ on…
By Mike Michalowicz, Author of The Toilet Paper Entrepreneur
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Tags: don't share ideas, ideas stolen by investors, investor, small business
January 12th, 2009
Hey Mike -
Excellent observations. I see the first one play out all the time. You’re absolutely right that people fail to realize that building a business isn’t about knowing a magic recipe – it’s about massive amounts of hard work.
Anyone can sit around at shmooze about an idea. Far few people can make it happen.
Personally, I fell for trap #5. Before jumping into my own business I made a mental list of reasons why it was a good idea. One of them, I’d have more free time.
It took about 24 hours for me to realize I must have been crazy to think this is the case. What could I possibly have been thinking?
But, even with this said, I definitely have the best job in the world. Even if my New Year’s resolution of not working on Sunday was already broken by the 2nd Sunday of the year.
January 12th, 2009
I like the comment about the business plan. I am trying to work with a startup and the boss had one of those 200 page plans. During the first meeting we told him to put it away and get down to a 20 page PowerPoint presentation for the VC’s and nothing else. He almost seemed bothered that his hard work was essentially useless.
January 12th, 2009
interesting concept to count your own profits first – does this work even during the early start-up days – or do you break-even and then start paying yourself first?
January 12th, 2009
Before I started my own business, I believed in the myth you point out in #5. You are so right, there is no balancing work with family life. That being said, once you get going, it becomes a bit easier. The first year or two is the hardest, so if you have just started, take heart because it does get a bit easier.
January 12th, 2009
ometimes a family business will succeed better than other partnerships, when you know everyone is already proven and you know each others strentghs and weaknesses, on the other hand, a masterming or partnership with people who join along the way is way better, because you have to prove yourself to one another, meaning you can choose by background and skills where each of the associates performs best and it’s easier to weed out the bad links, with family or friends there’s always the fear of loosing someones love or friendship if you would want to fire or cut them out!
Fabio
500+ FREE Self Empowerment resources and the home of 1% Private Money For Real Estate Group, come join us! http://www.facebook.com/group.php?gid=85769345601
January 12th, 2009
WOW, very good information.
Thank You for sharing….
Harry
January 12th, 2009
I really like the PFA idea. I think I will implement that to my business.
“2. Go In 50/50 With Your Best Friend ”
I’ll tell you from experience. Going into business with friends is a terrible idea. I have made this mistake in the past. Don’t do it. =)
Great post.
January 12th, 2009
Business plans are overrated. I built my business and made millions without never having one. Of course, if you seek VC funding, you’ll need one. A business is a living breathing entity; the moment you launch, is the moment you will find your business morphing in different directions that you originally anticipated. Customer needs drive business growth; not some wish list on a 50 page document. Nice post.
January 12th, 2009
PFA’s work! I have been doing it for years, and see the bottom line results every quarter. It is kinda surprising… such a simple system, can have such a dramatic bottom line effect.
- Mike
January 12th, 2009
I like the idea of the PFA – Smart idea to pay yourself smart. (Put on your own mask before assisting children.)
I personally think people with business / marketing plans do better than those without, HOWEVER, I agree that a biz plan is infinitely more effective at 3-10 pages than it is to drone on as though there’s a word count to get an A on your essay. Keep it simple!
January 12th, 2009
Regarding point #2, I tried partnering with my dad five years ago, and it was a disaster, both financially, and on the relationship. Great advice.
January 12th, 2009
Does anyone have an example of these they would be comfortable in sharing?
“A one-page Prosperity Plan outlining your vision, a one-page Quarterly Plan detailing immediate goals, and the Daily Metrics, a method for keeping you on track”
January 12th, 2009
@Daniel – Here are sample plans -
http://www.toiletpaperentrepreneur.com/toolbox/index.php
January 12th, 2009
[...] Toilet Paper Entreprenuer Blog” to my required reading list, and was impressed by his topic today about stupid misconceptions regarding your business. In addition to his idea of a “profit [...]
January 12th, 2009
I’m so glad to read myth 3, since after months of building my business I’ve never written a business plan. I’ve always thought my time was better spent growing my business, so now I feel validated to see this advice on your site.
Thanks.
January 13th, 2009
You rock, Mike–thanks for this post. I’ve been hovering around your site after recently discovering it through Scott Bradley’s group on FB.
This was a most excellent post.
And it all hit way too close to home–ugh. I came up w/ a great business idea just the other day. But as per my MO, I’m at a loss as to what to do w/ it as #1 is my weakest area. Unfortunately, I don’t fit into your focused demographic to qualify for assistance through your company.
Damn. Come to think of it, I already made the additional mistakes of buying into #2-#5.
Maybe my New Year’s resolution should be to not only read your book cover to cover, but to then apply your genius.
Thanks for the great work you do.
January 13th, 2009
Great post. Equity based on performance is definitely the way to go, but better set up a team of “advisors” that all partners respect w/ a clear performance criteria from day 1. And PFA is also a good idea. Startups and inventory based businesses will always overspend. After all, if there is no profit at the end of the day you and your best friend may be arguing how to split what percentage of nothing!
I’m going to repost and share. Thanks again
January 13th, 2009
wow..thanks for that, very informative..I see a couple of mistakes I’ve made already..
Maopa
January 13th, 2009
I can join the group who has very bad experience to do business with friends but I still believe it is difficult to start up without. Good you have someone from the beginning you can trust 100 %.
January 13th, 2009
Mike, this was a really nice post. An eye-opener especially about the PFA accounts. However, I have heard the advice before about paying yourself first. And truthfully, I just don;t see how its possible. Isn’t it a necessary sacrifice to make sure that all bills are paid first, take the leftovers, grow your business until things get going, then pay yourself.
I am yet to do this with my own business, it hurts, but I just need to build my business first.
Sample Plans
thanks for sharing these. Very helpful.
January 13th, 2009
I totally want you to share your 3 sheet program with the attendees at the Monetizing Your Passion Bootcamp (http://myp.eventbrite.com)!!! Many are in the, “but I need a business plan first-itis”! Your awesome technique will blow them away and get them moving NOW! I love it!
January 14th, 2009
Just to add to the list…Analysis Paralysis…. yes you know the fab idea that you don’t want to talk about because you think someone will steal it…so you think about it all the time, then analyse it to death and make it into a huge success in your mind, and never start it! That’s because of the pressure you feel in writing a business plan and you become overwhelmed!
A wise teacher once told me “schedule in your personal life just as you do your clients” so….Yes I would love to see you tomorrow, I have an “appointment” booked already between 11 and 1 but I can meet you at 1:30. They don’t know you are going to a children’s play, having lunch with your girlfriends or spouse or getting a massage! It’s YOU that makes it a struggle.
thanks Mike great stuff!
January 15th, 2009
I enjoyed the post, but I would be cautious with your statement on #1 – some investors WILL take your idea, so it is important to protect it. I’ve seen it happen firsthand.
January 15th, 2009
THANK YOU for not making me feel guilty about NOT having the 200 page business plan!!! I tried doing one years ago and was nearly in tears. They may work for some people, but I think you’re definitely right that they don’t for most.
January 15th, 2009
@Karen – I think few people have a business plan, but puff their chests saying they do. I have never had a business plan (or at least one that was of any value).
I do use the 3 Sheet Strategy all the time, and it has worked wonders!
- Mike
January 19th, 2009
I think the first point’s key – even beyond investors.
People get so wrapped up in non-disclosure agreements and the like that they end up never sharing their ideas with anyone – and so nothing ever happens.
I’m an idea addict – in fact I feature cool new business ideas on my site every day – but I’m the first to say that the idea is just the 1% inspiration that you need to make the 99% perspiration both enjoyable and profitable.
January 27th, 2009
[...] Protecting an Idea Here’s a good article … The Toilet Paper Entrepreneur | “Don’t Share Your Big Idea Because Investors Will Steal It&#… __________________ BEFORE YOU PRIVATE MESSAGE ME, Read [...]
January 27th, 2009
[...] on track. That’s it, Sherlock. Save your mammoth manifesto for your memoirs and get crackin’! – The Toilet Paper Entrepreneur. Possibly related posts: (automatically generated)Times have changed…The last of the questionsOld [...]
February 2nd, 2009
Great post. I currently run a business 50/50 with my best friend and it’s been nothing but good thus far. It’s nice knowing you can trust the person you’re in business with.
February 6th, 2009
Don’t like the business you work for? Then start a better one.
Reality is while you may be entrepreneurial minded and driven if you stop to think about it for a while, you probably don’t have much interest in staying in that industry or doing something similar than you did before. So if you are going to leave, be sure to leave on your own resolve and do that thing which has long inspired you and fulfills your heart.
@teenbizcoach