When many first undertake the long and winding journey of entrepreneurship, there is one critical component often taken for granted—Experience!
We have countless inquiries of members who say they have x amount of capital and asking what sort of businesses they can undertake? Yes there are plenty of opportunities around but unless you have experience of running an enterprise or the x enterprise, your first days will be tough.
Statistics do show that for every business started, the success rate is 20% after 5 years!
In other words the failure rate is 80% over 5 years.
Dear reader, are you prepared for a 20% success rate? And with most of you used to scoring As and Bs at high school and colleges but when it comes to business, your As and Bs turn to FAIL#
Welcome to the Learning Curves which are also called Experience Curves.
Below we illustrate how the learning curves work;
You attend a cake baking training and the trainer demonstrates how cakes are baked and takes 45 minutes. Now let’s see practically how long it will take you to bake your own#
- First cake: 2,5 hours
- Second cake: 2,0 hours
- Third cake: 1.5 hours
- Fourth cake: 1 hour
- Fifth cake: 50 minutes
- Sixth cake: 45 minutes
Not only did you take longer to reach 45 minutes with 5 attempts but chances are high that your first cakes were not up to standard. You may have thrown away the first 3 cakes which translates to a heavy loss on materials. This is money lost but the good thing is you were persistent and kept on improving till you successfully managed to bake standard cakes within reasonable times.
These are the losses you encounter when you join entrepreneurship—learning costs or losses. Because this is actual money lost, it hurts lol
Due to poor recording, these costs are likely to go unrecorded and in most cases some just abandon projects at the earliest losses and move to the next.
Shifting from one project to the next due to learning curve losses means you are forever learning and losing out.
So take a project to full completion, document lessons, review performance and improve.
Business Planning and Experience Curves
Is the business new?
Is it your first time to run a business?
Then your learning curve is going to be very steep. Farming for the first time? Its safe to say you are going to be burnt in the first year or years. Do thorough planning, engage experts but be realistic, you are going to be sinking your capital with little to nil returns.
If you would like to short circuit the experience curve then visit other farmers, network, learn and farm on a small piece of land. Slowly improve and increase area farmed over time.
The problem with most newbies is they want to get rich quick! You just want to plant 50 hectares of sugar beans for the first time because you saw someone who successfully made money from it the previous season.
So every business plan should factor in learning/experience curves and these should be reflected in cashflow and operational projections.
*To accounting professionals, this brings back memories of P2 isn’t it? How did you find it? Are you still using the concepts in your day to day life?
