10 LESSONS FROM INVESTING IN A STARTUP

In 2019 I invested some significant cash in a small manufacturing business which makes tomato ketchup, fruit juices, laundry bar soap, and other products. These are my key lessons as an investor:

1. Your capital is going to be tied up for a long period of time with a real possibility of never recovering it. When you invest in a startup, especially in something like manufacturing, your money is not just parked there; it's actively being used to keep the business running. This means you can't just pull it out whenever you want. There's also a real risk that the business may not succeed, which means you might not get your money back at all. It’s more of a long game, and patience is crucial.

2. Prepare to get your hands dirty in the day to day. You cannot afford to be hands off. Investing in a small business isn't like buying stocks; you may need to be involved in daily operations, especially in the early stages. Whether it's making decisions on production or dealing with suppliers, expect to be more involved than you might initially think.

3. Make sure you have a good team running things. The business is only as good as the people. The right team can make or break your investment. It’s essential to have people who are not only skilled but also share the vision of the company. They need to be able to handle challenges and work together effectively.

4. Run many experiments and keep what works, discard the rest. Innovation is key in a startup. You might need to try several different approaches before finding what works best for your product or market. This means being flexible and ready to pivot strategies based on what the results of these experiments show.

5. The learning curve is steep and you will make many mistakes. Learn from these and move on. Starting a business is a learning process, and mistakes are inevitable. The important part is to learn from each mistake, make adjustments, and not dwell on them too much.

6. You will run out of money or come very close to closing the business. Don’t. Financial challenges are common in the startup world. There might be times when it seems like the only option is to shut down. Finding ways to persevere through these tough times is crucial, whether by securing additional funding, cutting costs, or finding new revenue streams.

7. There will be an unexpected problem every day. Get used to it. When running a startup, unpredictability is the only predictable thing. From equipment breakdowns to sudden changes in market demand, be prepared to tackle unexpected issues almost daily.

8. You are unlikely to make any money in the first couple of years. Keep pushing. It often takes time before a new business starts generating profit. Initial years are about growth and reinvestment, so don’t be discouraged if you’re not seeing immediate financial returns.

9. You will be tempted to pursue different business opportunities. Keep focused on the original vision but be flexible to new realities. It's easy to get sidetracked by new opportunities that seem promising. While it's important to stay focused on your core business, also be open to adjusting your plans if those new opportunities align well with your business goals and market needs.

10. Hopefully the business will grow into something meaningful to sustain your grandchildren. In the meantime, take each day as it comes. The ultimate goal is for the business to not only be successful but also enduring. While keeping an eye on the future, focus on navigating the daily challenges and milestones. Building a business is a marathon, not a sprint.

Each of these lessons highlights the mix of dedication, flexibility, and resilience needed when diving into the world of startups.