Business Basics

We briefly talked about Economies of Scale when we discussed Barriers to Entry, but I thought I’d delve into it a bit more since it relates to so many things in business.

Economies of Scale basically means buying in bulk is always cheaper. It’s how Wal-mart, Sam’s Club, and Costco stay in business. It’s why we buy the package of toilet paper that has 36 rolls, or anything that is buy one get one free. The more we buy at one time, the less it costs us for each thing. It’s your grandmother’s adage of “everything is cheaper by the dozen”.

For example, Wal-Mart can buy truckloads of toothpaste from Colgate, while a mom and pop may only be able —or need— to buy a case of toothpaste. I can pretty much guarantee you that Colgate is going to give someone buying a truckload of toothpaste a way better deal than someone who only needs a case. Thus, economies of scale can prevent a mom and pop from even thinking about starting a little store because they’re going to have to sell their toothpaste for a $2.59 (for example, guessing here), while Wal-Mart can sell the same thing for $1.19. And thus, economies of scale become barriers to entry.

Is your business David to someone’s Goliath? A Dingy to someone’s Steamer Ship? Is there a Dragon guarding the entrance to the Kingdom you want to own, or a jester dangling the keys just out of your reach? Well, in business, the fancy-dancy term for these kinds of challenges is “Barrier’s to Entry”.

What’s a “Barrier to Entry”? Anything that stops a newbie (whether a single shingle guy or a fortune 500 company) from entering a niche or business. This could be another company which is already well established in your niche, or it could mean that there’s a significant cost to get a company up and going, also known as “sunk costs”.

Maybe it’s not equipment, maybe it’s a special skill or license you need. If you want to own a beauty shop, you’re going to need a cosmetologist license and if you want to own a real estate agency you’ll need a Broker’s license, not just a Realtor’s license.

There are three C’s you must have, in my opinion, to start a business and take it from Kernal of Hope to Thriving Cash Register:

1. Courage.
2. Commitment.
3. Cash.

Without all three of these attributes, your Tiny Idea will never be the Next Big Thing. Running a small business is a lot like a marriage: it’s a constant never ending struggle and you have to be present in every moment. It’s also amazingly rewarding and some of the most fun you’ll ever have.

Let’s take the first “C”: Courage. We all know what Courage is, and a small business owner or home-based business owner needs Courage as much as a knight of old needed courage to hop on his trusty stead and ride out to fight the dragon. Because fighting dragons is what you’re doing all day every day when you’re running a business. Whether that dragon is rising insurance rates, plummeting sales, employee issues, or even too much cash (and, yes, believe it or not, that can be a problem!), a small business/home-based business owner spends most of her day slaying dragons. And that, my friend, takes courage. The courage to get up every morning, confront problems head on, make a decision, implement the decision, and live to fight another day. And, the NEXT day…and the next one, and the next one, and…you get the picture.