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Do You Think Like An Entrepreneur? … Let’s Find Out

Beat-up old van

A good friend of mine recently decided to start his own business. You might remember me talking about it and how leverage works. He’s partnering up with his brother, who has his own small painting business.

There are a lot of decisions to make as an entrepreneur and their latest one involves transportation. They have an old van. It runs, but it isn’t very reliable; it needs some work.

The Decision Is This

There are some options here. Let’s take a look …

  1. Spend $500 to get the old van running smoothly
  2. Buy an old van or truck for around $3,000
  3. Buy something new or almost new in the $20,000 range

Other Things To Consider

Before you decide what the right decision is, there are a few things to consider here. Here’s a couple. And maybe you’ve already thought about them:

  • Reliability. If you can’t depend on the vehicle to get to the jobsite, that’s a big problem. There’s a cost to your reputation and ultimately there are some real dollars tied to that if you lose jobs because you’re unreliable.
  • Image. Part of your reputation is image. We live in a world where image is important and people will judge you on face value. A new truck conveys a much better image than an old beat up one.

Got it figured out?

Now Let’s Get Into The Mindset

The company always buys this old broken-down junk” is a statement that most people who’ve ever worked a 9 to 5er have uttered. Or certainly heard. It’s an employee mindset. After all, it’s the employees that have to deal with that broken-down junk everyday.

When you first start up a business, getting to positive cash-flow is everything. And the capital you have to invest in the business has to last until you get to that point where the business is standing on its own two feet.

And then once you’re making money, it’s about ROI. Return on investment.

So, although there’s no answer here that’s 100% right because there are a lot of factors to consider, there is one answer that’s a lot more right than the others. You spend the 500 bucks to get the old van running smoothly.

Once it becomes too expensive and too time consuming to keep repairing, it’s time to buy another one; maybe used or maybe lease a new one. And in a pinch, if it totally breaks down, you can always rent a vehicle for a few days until you decide the best course of action.

That’s what most well established billion dollar companies would do. And it’s what most seasoned entrepreneurs would do.

Think like both.

Denouement
 

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7 Comments

  1. I would have to agree with you conclusion. It would be easy to justify over-spending, but in the beginning, the extra expense would probably drown you.

  2. Hey Anthony,

    Good terminology. That’s the thing; most of the reasons we can come up with to spend big on capital assets are just things to try and justify the expense when it’s not warranted.

    For a startup, it’s really important to build that “preservation of capital” mentality from the beginning.

  3. Hi Shane:
    I agree with you. And also would like to give the link to my blog posts which talks on the same area:
    http://www.rajeshshakya.com/category/entrepreneurship/

    Regards
    Rajesh Shakya
    http://www.rajeshshakya.com
    Helping Technopreneurs to excel and lead their life!

  4. Hi Rajesh,

    Glad you liked the post. “Technopreneurs” … I like that. It’s catchy.

  5. Even if the old beat up van hurts their image, they can concentrate on other aspects of their business to gain a better first impression…such as how they deal with their customers and whatnot. I’d definitely go with the $500 repair :D

    -Gregg

  6. Gregg,

    We discussed image. The bottom line is that their quality work is going to be the best barometer of their image. And their people/sales skills. And the fact that they’re getting a lot of work through referrals.

    In the end, they fixed the old van up for now. Which is a great move.

  7. [...] On the one hand, 15% means I have to spend about $35k a month to get $40k for a profit of $5000 a month. Seems risky and capital intensive. But on the other hand, this is a monthly turnover, and simply annualizing this rate shows a return of 180%. Still about 20 times better than your average mutual fund. So it depends on how you look at it. [...]


 

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