Exploring the Concept of Firing Bullets Before Cannonballs in Your Small Business. An Approach to Risk Taking for Entrepreneurs.
In Jim Collins' classic book, Great by Choice, he describes the concept of firing bullets, then cannonballs. To paraphrase, you fire bullets first. Bullets are things that are low cost, low risk, and don’t distract you from your business. Once you have some data to support your next course of action, you fire a cannonball. In this context, a cannonball involves putting all your resources towards your tested plan. (Read more about Fire Bullets, Then Cannonballs by Jim Collins.)
In other words, when it comes to your small business, you don’t necessarily want to jump into everything with both feet. Oftentimes, it’s prudent to test the water before taking the plunge. As you may have noticed, I’m a fan of analogies and have always been intrigued by Jim Collins’ concept.
Here are a few ways to fire bullets, then cannonballs in your small business and mitigate the risk of making big decisions.
SAAS Tools (Software As A Service)
Free versions first - always use the free version before committing to a paid plan.
Max out the features and functions of the free version.
Determine when you need the features of a paid plan.
Run an analysis of how much time you’ll save. Are the time savings worth the cost? If not, keep grinding with the free version for a while longer.
Digital Marketing
Small budgets - spend a little and get some impressions and click-throughs.
Do a lot of testing across ad copy, bids, demographics, etc.
Slowly increase the budget on successful campaigns over time. It may be tempting to quickly add more budget to drive impressions, but it’s best to test first before increasing the budget to make sure you're reaching the right market.
The small modifications you make along the way will help future ad spend be more productive.
Real Estate
Get uncomfortable - real estate is a huge fixed cost and carries a lot of risk. Stay in your current office as long as possible.
When you reach a point of being uncomfortable and inefficient in your office, double down and brainstorm ways to stay there even longer.
Rearrange your workspace or maybe share space with another local business.
Store inventory in your neighbor’s garage for a small fee. (We kept inventory boxes in the bathtub of our San Francisco flat when starting out.)
Avoid signing a lease or upgrading your current lease until you’re fairly certain of the upside in terms of profit growth.
Hiring
Avoid employees - sounds crazy and I’m not saying avoid hiring all together. Just get as far as you can without a permanent employee.
Some entrepreneurs see employee headcount as a symbol of their company’s growth. But, make sure each employee is adding value to the business and truly freeing you up to do what you do best.
Like real estate, employees represent risk and big fixed costs. Before hiring full time staff, use freelancers, contractors, and part time workers to help you learn how they will add what you need to your operation. (The laws surrounding employees vary by state. Be sure to consult with a Human Resources Specialist and/or Labor and Employment Law Attorney to ensure you are not violating any laws.)
When you do hire an employee, understand their role and how they will improve the bottom line.
Vendors
No contracts - work with vendors and suppliers who do not require you to enter into a contract whenever possible.
A great vendor doesn’t need to force a customer into a contract because they deliver results consistently.
If you fall in love with a vendor and they’ll offer significant discounts or other advantages with a contract, then pull the trigger and fire the cannonball.
When you can, include a performance-based out clause in the contract so they’re incented to continue delivering results.
Inventory
Start small - buy the smallest increments you can when launching a new product.
Do this even if the cost per unit makes the gross profit less than desirable.
It’s more important to ensure your market likes the product, that you have solid, defendable marketing channels in place, and that you can back up the fulfillment and customer service.
If the item is a hit, increase the quantities in exchange for a lower cost per unit from your supplier.
Equipment
Have an out - once you pay for a piece of equipment, it may take a while to recoup the investment.
If things change in the market, you’ll be stuck with equipment that doesn’t generate the revenue you forecasted and will be out the cash it took to buy it.
Look for ways to try before you buy the equipment so you can fully understand the value it will bring to your business.
Consider smaller or less sophisticated equipment that you could sell later once you have evidence that a bigger model would yield even better results.
For entrepreneurs who aren’t backed by millions of VC dollars, it’s critical to avoid costly mistakes. One way to do this is by testing the waters before investing resources. Firing bullets, then cannonballs is an important skill to develop as a small business owner that can help you mitigate the risk surrounding major financial business decisions.