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“Fail Efficiently – Zig Zag Principle #38”

Post by Rich on September 16, 2011 in Business Advice, Excerpts From the Book, Zig Zag Principle

I’ve learned a great deal over the years about failing efficiently.  When I use the word fail, I’m not talking about falling off tall buildings, going bankrupt, or losing everything. What I mean by failing efficiently is that if you can’t get to profitability, you accept that you have nowhere left to go.  You have to become financially profitable before you go on to the next step.  I see far too many people say, “Oh, well, if I just add resources and scale, then I’ll get to profitability!”  But they are inevitably wrong.

Failing efficiently means that unless you hit profitability in whatever time you allocated, you are done!  You need to stop.  If you do, you’ve failed efficiently, and life goes on.  If you aren’t willing to stop, you will fail at a level that may have devastating consequences. 

In your personal life, if you keep going into debt without getting to profitability, you will end up in financial ruin.  You cannot keep trying to add resources or buy more and more things unless you have the cash to pay for them. (And while, yes, credit can be easy to get, at some point you’ll max out and no one will loan you more money.)  Become profitable in your life, in whatever pursuit you have undertaken.

Eating our own Cooking

When we took back Froghair, we decided that Curtis would not quit his full-time job to come on board until we had $60,000 in the bank as a buffer.  We felt that a three-month buffer was a safety net we would be comfortable with and that it would take the pressure off in case we had any kind of a hiccup.

To begin with, we were working Froghair as a fifth priority.  I was taking time off to hike in the Himalayas after selling CastleWave, and Curtis had other priorities.  We had a part-time college student named Shane who was helping us.  In August 2010, we sat down and defined our zig number 1.  After looking at our expenses, we determined and wrote down our financial target number, which was that we needed to net $25,000 a month in order to be profitable.  We were both dedicated to putting 65 percent of our resources toward this effort.

Other than Shane, we did not hire any employees until we hit this target, so the three of us were doing everything.  We had a lot of motivation to reach our goal of becoming profitable before January 1, 2011.  We also set a goal to have five new, high-profile brands in place.  On December 1, 2010, we officially hit this goal one month ahead of schedule.  In November we posted $382,600 of sales with $51,195 in net profit.  Now, having hit that target, we celebrated and then turned our skis so we could zag in the other direction.  That next step was to begin hiring and adding additional resources, as I’ll discuss in the next chapter.

 

Summary

When you are driving to profitability in zig number 1, follow the basic components.  Set a financial target and figure out how long you will allow yourself to hit your target.  And be sure to give yourself permission to be miserable along the way.  This is hard work, and you’ll have to dig down deep to get through it.  But absolutely do not start working on the other steps until you hit this first zig.  If you fail, that’s fine. You failed efficiently.  You can restart.  You should absolutely begin your undertaking with the mindset that you are going to succeed, but if you don’t, get past the pain and move on to the next thing.  But, as your first step, always drive for profitability as your zig number 1.

 

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