Sunday, February 12, 2006

Rick's Law - advice for people thinking of starting a company

Before I started the start-up software company a few years ago, I went for advice from just about anyone I thought might have good advice for me. One person I visited was a guy I know through bike riding - Rick Sutton. Along with being a rider, he has successfully started and run a few different businesses, including a printing/promotion company and a bike race management company that created a bike race that became the largest bike race in the country (and possibly the world) - the Sea Otter Classic (which I did some work for after I left Tyco).

Rick definitely provided me with some good advice, but one piece sticks out after all these years is what should probably be called Rick's Law. He said "no matter how conservative you are in estimating your numbers -- it will be harder to get sales, and start-up/operating expenses will be higher than you expect." And this proved quite true in my start-up.

What reminded me of this is a bicycle shop that I am advising (and a minority investor in). I passed on this advice to the guy who is starting it as he was preparing his business plan, and he took this into account when choosing numbers. But now that the actual numbers are coming in, he is finding that Rick's Law is coming true for his business. Sales have been slower and start-up costs higher than predicted.

So, if you are thinking of starting a business, do use conservative numbers when running your numbers, but also expect that even your conservative numbers won't come true. Build in some extra funding so you can get past Rick's Law and make the business a success.