Mark Cuban’s 12 Rules for Startups
Mark Cuban is a billionaire investor and owner of the Dallas Mavericks, with a lot of experience starting and financing startups in America. He is also a Shark Tank investor and author with a 4.3 billion fortune that places him on number 179 on the Forbes 400 list.
Mark Cuban is an experienced serial entrepreneur and has started and sold several profitable businesses and websites, so he knows his way around.
In 2012, he guest wrote an article on the Entrepreneur website detailing his 12 rules for startup founders and employees. As unconventional as they are, these 12 rules have a lot of valuable gems you should check out.
MARK CUBAN’S 12 RULES FOR STARTUPS
1. Don’t Start a Company You’re Not Obsessed With
How do you sell others an idea you don’t believe in? A good entrepreneur has to be passionate about a plan before they turn into a successful business.
The passion you have for your business is the driving fuel behind all the work you have to put into it. You can’t leave the obsession to your employees, no matter how invested they may be in the business.
No one can take your business to the level you want except you.
Here are some reasons why you need to be wholly obsessed in your business before the start date
- That obsession will push you towards achieving your goals even when you don’t have anyone behind you.
- You need to be passionate about your business to attract customers, investors, and other people you need to push your business forward. No one is going to believe in an idea that the owner isn’t passionate about.
- Passion gives you the strength and boldness you need to start your journey into the startup world.
- Your passion for your startup motivates others to take it seriously.
2. If You Have an Exit Strategy, It’s Not an Obsession
Every startup founder has heard about having an exit strategy before starting your business to avoid getting into trouble in the future.
An exit strategy can involve liquidation – either at one time or over some time, taking your company public, or selling to another company. In reality, an exit strategy is required for any business, but that is the exact opposite of what Mark Cuban recommends.
According to Mark Cuban, any startup that has an exit plan is not an obsession, and it goes against the first of his rules for startups.
He believes that you should never build a company to be sold, especially if it is something you have a lot of passion for. A business that is sold is considered successful, but when the sale strategy is planned from the beginning, you spend too much time planning the future sale instead of meeting the needs and requirements of your investors and clients.
Rather than having an exit strategy, focus on providing your customers with top-notch services, and optimizing your customer experience.
When you know you have a way out, it can diminish your motivation and that of your employees. Because who wants to put in their best in a company that the owner doesn’t believe in?
3. Hire People Who Will Love Working With You
Your employees will spend a minimum of 8 hours per day working for you, so why risk hiring anyone who doesn’t care about your company?
You may think that getting paid to do their jobs is enough for an employee to be invested in the business, but that isn’t the case.
There are many reasons why you need such employees, but chief among them is the desire to do better and get better results that comes from knowing that you’re valued and respected in your place of work.
When your employees love their jobs, they take the business like theirs, and that makes them interested in seeing it succeed. You’ll spend less time and energy in getting them to do their jobs well, and they are more productive.
Also, when your employees love doing their jobs, they tend to work better together, which improves your work environment and keeps them focused on their objectives.
How to Keep Your Employees Interested in Your Company
- Keep your work environment friendly and open
- Stimulate your employees with challenging tasks to keep them active
- Cultivate a healthy teamwork atmosphere
- Keep the line between management and subordinates open
- Create opportunities for employees to advance in the company
4. Sales Cure All
The primary reason for starting your business is to make a profit, so that is something you have to be aware of before starting your business.
While you shouldn’t be putting all your attention on your profit, it is essential to know if, when, and how your startup will be profitable before you go into the whole process of establishing the business.
You need to ask the critical questions like, “How will this company make sales and bring in profit?” Typically, a small business needs about 2 or 3 years before it becomes successful, so don’t put too much pressure on yourself.
Firstly, you need to establish a clear sales strategy. What are you selling to your customers? Are you selling a product or a service? Who are you selling to? Once these questions are answered, you will have a clearer understanding of how your business will run. The next thing you need to ensure is your profitability. Making sales is one thing, but making a profit on those sales is completely different.
There are different ways to check your company’s profitability, and you need to have a good understanding of certain sales factors. These factors will give you an estimate of how much profit you can make on your sales.
Factors That Determine a Business’ Profitability
Gross profit margin
When you deal with physical products, your gross profit is the best way to determine how profitable your product is. To know your gross profit, you need to deduct the cost of your product – including the cost of production, from the revenue you made from each sale. For your product to be considered profitable, you need to be making at least a 50% profit on each sale.
Profit per customer
Sometimes, that client you think is your most lucrative client because they pay higher may be costing you a lot to maintain. You need to consider how much time, effort, and money is going into each customer’s projects, and compare them with how much you’re getting from them. The results might shock you!
Your operating costs include everything your business needs to function, like salaries, office rentals, product design, and other expenses.
The goal is to make sure that your profit is much higher than your costs before your business can be considered profitable. Some expenses are necessary for your business to run, so you need to consider them when setting up your business plan.
Net profit margin
Your net profit margin is the key factor that shows if you’ve been profitable or not. It is what you have left when you remove your expenses from your total profit.
If your expenses surpass your overall profit, then you’re running at a loss. If you spend as much as you make, you’re “breaking even.”
5. Know Your Core Competencies and Focus on Being Great With Them
Those are your startup’s core competencies. Every company has one, so you need to figure out what yours are and focus on improving on them to give your company a leg up against your competitors.
Your core competencies are those particular abilities or features you have that differentiate you from the rest of your competition. It can be something as little as your packaging techniques, or your creative TV ads.
Focusing on those core strengths can make your company more profitable and appealing to customers. Try not to stray too far from your company’s core values; instead, find ways to innovate.
6. An Espresso Machine?
According to Mark Cuban, you don’t need to have a coffee maker in your office. It may sound extreme, but he simply means that every hour of your day should be used wisely – including the lunch hour.
An espresso machine will keep you inside when you should be out there having business lunches and closing deals.
This practice encourages you and your employees to figure out ways to be more productive throughout the day and not only during work hours.
When inviting someone out to a lunch meeting, you need to be conscious of your manners and etiquette. Your behavior during a meal can show your guest how you handle business on the whole, and you never want to come across as inefficient, do you? Practice good table manners and restrain yourself from acting inappropriately so you can leave a good impression.
7. No Offices
Having an office used to be a no-brainer some years ago, but that is changing in recent times. Before you go ahead and rent office space for your new startup, you need to ask yourself some critical questions.
The cost of an office space can run into a few thousand dollars monthly, and that is money you can’t afford to spend when you’re just starting. And when you think about it, you don’t spend that much time in your office anyway!
Sure, it’s convenient to have a meeting point for your employees and a place to call your headquarters, but is it really necessary? Most startups have a small workforce, and a lot of their jobs can be done from home.
Besides, you can meet your clients in their offices or neutral grounds (see: business lunches), so there isn’t a need for an office as a new startup. If these apply to you, maybe you should rethink the budget you have for an office space.
8. As Far as Technology, Stick With What You Know
Technology is continuously evolving and innovating that you may be tempted to pile up as much technology as possible. Stop. Don’t do that.
Anything you don’t have experience using or you aren’t going to put in the time to learn, don’t bother getting them. When selecting the best technology for your business, it is best to stick with what you know, to avoid problems in the future.
This rule also extends to how much technology you decide to use for the business. It is best to keep things simple and use only the ones that are directly necessary for your business growth.
You can always learn new technology along the way, but ensure you master the ones you are familiar with before adding more to your list.
9. Keep the Organization Flat
The idea of a flat organization might sound insane, especially when starting a new business, but it is a proven method that may benefit your company.
When you don’t have defined hierarchies, you give your employees more room to be open and creative without having to stifle their ideas. In a flat organization, everyone answers to each other without any direct hierarchal lines of superiority, so the business feels more like a partnership.
In a flat organization, employees have the freedom to express themselves, and they feel like their input matters.
This work environment tends to inspire more satisfaction and confidence in your employees, especially when you still have a lean workforce. But, it is easy for your employees to lose focus on what their job roles are, so you need to craft a stable organization that fits your company and employees well.
10. Never Buy Swag
Swag is the collective name of the many promotional souvenirs you get to promote your company, especially to prospective clients or investors.
Most companies invest in T-shirts, pens, and even umbrellas and paperweights with their company logos and names emblazoned on them. Well, as a startup, Mark Cuban believes you shouldn’t be concerned about buying swag for your company.
According to him, most people are not interested in your company’s swag, especially when you’re not known yet.
Spending a good chunk of your capital on swag that no one wants or wears is a waste of money you can be putting into more profitable ventures. While you can make T-shirts for your employees to wear to shows, it may not be the best idea to send them to potential investors.
11. Never Hire a PR Firm
PR firms help to manage, build, and enhance a company’s reputation in the media. Usually, PR firms go through your company stories and come up with the best side of your company you want to show to the world.
They also help you minimize any damage to your reputation. They can be a necessary service for certain companies and individuals, but according to Mark Cuban, you don’t need one as a startup. If having a PR firm is at the top of your list, then you may have the wrong idea.
As a startup, your priority should be building your products and services instead of prematurely focusing on public recognition. Out of the many reasons why you don’t need a PR firm as a startup, number one is the cost.
PR firms are crazy expensive, and they are usually kept on a retainer and paid a hefty um monthly. Unless you’re already making a substantial monthly profit, this is an avoidable expense.
Also, PR firms are not as needed today as they were a decade ago, especially with the rise of social media. You would do well to employ a social media manager at the early stage of your company than a PR firm.
And, when trying to contact important people like investors or board members, it is better to let them hear from you, the founder, than to listen to a rehearsed pitch from someone who is barely involved with your company.
12. Make the Job Fun for Employees
Life is too short to waste it in a boring job. As much as your employees love their jobs, things can get stale if there’s no spice or variety.
When things get boring, it’s usually because of many factors, including monotony, lack of challenges, stagnation, or lack of motivation. Getting bored at work is inevitable, but it becomes an issue when it is left unchecked for too long. You have to remember that the happier you are, the more productive you become.
The happiness Mark Cuban refers to in this case doesn’t mean parties and midday office cocktails. Instead, he’s referring to little activities that you can implement in your workplace to improve your employees’ general mood and mindsets.
You are likely to notice an enhanced employee attitude and efficiency.
HOW TO MAKE YOUR EMPLOYEES HAPPY AND MOTIVATED
- Make happiness a priority by promoting a free and relaxed work environment
- Organize office activities targeted towards creating better employee bonds
- Offer incentives to encourage better yield
- Provide excellent employee packages apart from their take-home pay
- Surprise them once in a while with some free lunch or happy hour after work
- Take regular surveys so you can know how to make your employees more relaxed at work
Starting a new business is no easy feat, and no one knows it better than Mark Cuban. Well, anyone who has financed and started as many startups as he has knows what they’re talking about, right?
His 12 rules for startups may seem pretty extreme, but they have worked really well for him over time and helped him build his impressive fortune. So, if you have a startup already or you’re about to start your company, be sure to try out these rules.
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