By Charlene Oldham GOBankingRates.com.
Starting your own business allows you to be your own boss and pursue your passions in the workplace. What it probably won't provide, at least in the beginning, is a whole lot of financial stability. It typically takes startups at least three to six months or more just to break even.
And when the business is in the black, entrepreneurs shouldn't expect to pocket the profits. Instead, they should plan on reinvesting in the business. Here are five things effective entrepreneurs spend their money on to help catapult their companies to the next level of success.
PRODUCING QUALITY GOODS OR SERVICES Kyle Taylor founded The Penny Hoarder in 2010. In one year's time, the website, which offers advice and resources to help people earn and save money, brought in about $55,000. Rather than reaping the windfall, Taylor plowed half of that back into the business and redesigned the site. He's continued the practice of reinvesting half his profits; spending on advertising, site development and design; developing a smartphone app; and expanding and improving the site's content.
"We just acquired the company that creates all of the content for The Penny Hoarder, and now we're focusing on building a larger in-house writing staff," Taylor said of his recent reinvestment strategy. "This year is all about investing in our team, which has grown from one employee to 16 employees in just six months."
MAXIMIZING INVENTORY OR SERVICE CAPABILITIES One of Warren Buffett's earliest investments was a pinball machine that he and a buddy bought to put in a barbershop while Buffett was still a high school student. With the money they earned, they bought more machines until they had eight in different shops.
When the friends sold the venture, the future Oracle of Omaha used the proceeds to buy stocks and to start another small business. By age 26, he'd amassed $174,000, or $1.4 million in today's dollars.
INNOVATION AND DIVERSIFICATION Although it was a pretty savvy business venture for a teenager of his time, Buffett wouldn't be a billionaire if he'd stuck to pinball machines. Similarly, Taylor also recognized that the Internet and advertising are constantly evolving.
"I also believe it's important to diversify my business investments, so we've tried to create new revenue streams that are outside of our bread and butter" business, said Taylor. His business is projected to bring in about $10 million this year.
"While our current revenue streams are continuing to grow at a rapid pace, I want to be prepared for any potential downturns in the future," he said. "One such foray is the 10-week Grocery Budget Makeover class we just launched, which is our first product launch."
That's a smart strategy considering that demand for products and services could dry up as the market changes. The print media industry and brick-and-mortar bookstores offer two recent examples, so even successful businesses should be evolving to avoid extinction.
"Innovation is how to keep reinventing your business and keeping it competitive despite changing market conditions," said Tito Phillips Jr., founder of the digital marketing and coaching firm Naijapreneur.
MARKETING It doesn't matter how high quality or innovative your products and services are if no one buys them. Unless your business puts out a product or service that needs constant replacement, there's no need for even the most satisfied customers to keep coming back.
Entrepreneurs who want to expand their business should always be looking for ways to grow their customer base through advertising and marketing. Phillips suggested increasing your company's exposure on social media platforms as a low-cost way to build your brand.
"Marketing is how you keep growing," Phillips said. "Without getting new customers, your ability to make profit will diminish."
EDUCATION Entrepreneurship requires business owners to face new challenges every day, so it's important to invest both time and money in continued education. One of the most effective ways to increase your knowledge as an entrepreneur is to find a great coach or mentor who can help you expand your knowledge and your network, according to Theresa Delgado, a coach who specializes in small business sales training.
"Investing in a coach or mentor not only advances your knowledge and skills, but by having these people on your team, you're more likely to increase your exposure, and this can lead to referrals and/or being introduced to people who could eventually become part of your team," she said. ___ Charlene Oldham writes for GOBankingRates.com, a leading portal for personal finance news and features, offering visitors the latest information on everything from interest rates to strategies on saving money, managing a budget and getting out of debt.