The sums rarely add up for start-ups

We invested £30,000 and four years of our lives into Lashbrook Lassis. If you think this is a lot, then you shouldn’t start your own business. This is in fact a fraction of what most start-ups spend and often businesses will run at a loss for significant periods of time before generating a profit.

With such little capital, we knew our pricing strategy wasn’t the most competitive but we felt (quite naively) that once the buyers saw us and the drinks, they would fall in love and do anything possible to have Lashbrook Lassis stocked on their shelves. While this may be a similar mentality to some other start-up food and drink businesses, the reality is quite different.

Firstly, cost is paramount. You may be the most charismatic entrepreneurs going, with a back story that would give Harry Potter a run for his money, though if the price is not competitive with other similar products then your business just won’t work. For instance, the very cheapest we could sell our drinks was £1.65. This just about broke even with the ingredients, materials and manufacturing costs, though someone like Naked or Innocent would be selling their smoothies for less than a £1. That’s a huge difference; a 65% difference to be precise and the supermarkets were unsurprisingly just not interested.

Secondly, it is an increasingly popular idea that start-ups shouldn’t look to build a business, but build monopolies instead. While it seems to run contrary to free market thinking, yet it is possible to see evidence of this certain sectors. There are several large start-ups that have created great products, though when you look a bit closer there the distinct sense that they are involved in a war of attrition with their competitors. For instance, Uber have lost $4 billion in 7 years and subsidise each taxi journey by 60%! This clearly doesn’t look good on paper, but those who invested in Uber are all thinking (or hoping) it will be the next PayPal. They for instance spent $60 million dollars on a generous referral program and grew by 7-10% a day! Nowadays, you would struggle to think of anyone who competes against PayPal .

This is what it takes to succeed on a national or global scale and so when you begin contemplating your new business, you need to ask yourself whether you have the capital to make these sorts of sums add up.

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