Testing your Start-ups New Business Idea

Testing your Start-ups New Business Idea

Welcome to The Start-up Business Guide. Join our mailing list to receive 3 free chapters.


Starting a new business is an exhausting and potentially expensive process (in time, as well as money). So how do you make sure you have the right new business idea? How do you test your business idea?

In this short video, The Start-up Business Guide co-author Jacob Aldridge explains the simple process he recommends to every start-up business founder.

Not every idea is a good one. And if you follow this process, even the best ideas will be improved by feedback from your target market.


Click here to buy your copy and immediately access all 50 Chapters plus our suite of Bonus Features.

Break Even Formula

Break Even Formula

Welcome to The Start-up Business Guide. Join our mailing list to receive 3 free chapters.


When starting and growing a business, there are many critical numbers: your revenue, your profit margin, and how much cash you have in the bank are three figures that immediately come to mind!

And when I talk to existing business owners, they are usually clear about those pieces of financial information. A number that they’re less clear about – but which is just as important – is their Break-Even Point on a monthly basis. 

In other words, do you know how much money your business needs to generate this month in order to Break Even (i.e., cover all of your expenses, so neither losing money nor making a profit)? 

Knowing this figure gives you a specific target when planning any of your revenue or growth plans. If you know how much the business costs to run each month, then you have the first monthly sales goal for example.

If you’re not yet in business, you might think this is an easy figure to calculate, but the reality is that some of your monthly expenses are fixed and some are variable – they are linked to how much revenue you bring in. In this chapter, I combine that information to share with you the formula to help a business understand where that Break Even Point is and therefore what your formula is for profit.

Break even = Fixed Costs / Gross Profit Margin %

Step 1) First, you need to understand your business’s Fixed Costs. These are the expenses you have to pay no matter what – things like your rent, most of your staff, a lot of overheads, leases, software and so on. These are going to be the same each month same regardless of whether you sell a dime’s worth of actual business services or you sell a million bucks’ worth!

(This figure is sometimes called “the cost of opening the doors”. Just by opening the doors to your business each month, you are committing to this amount of expenses.) 

Step 2) Once you understand those Fixed Costs, you then need to separate out the Variable Costs within your business. These are costs that you will only incur when you sell your product or service – almost by definition they are a percentage of your revenue.

As a side note, I say almost by definition because if you find that your Variable Costs in and of themselves exceed the actual revenue that you generate from that product then you’ve got a dog of a business! That means it costs you more to sell your product than you bring in in revenue, which means you’re going out of business backwards. 

I’m not a believer in “Loss Leaders”. I can certainly understand that some products or services may have a lower margin, but you don’t want to create a business where for every dollar of revenue you generate your Variable Costs are more than a dollar. Partly, this is because the Variable Costs are going to sit on top of the Fixed Costs, those overheads that you can’t get out of and have to pay every month regardless. 

While there are exceptions for well-funded venture capital companies, again this is risky for the average start-up business founder. Eventually, you want your business to turn a profit. 

Once you know your Fixed Costs and Variable Costs, you can project your revenue and profit forecasts much more accurately. Your Variable Costs are a percentage of revenue, so you can start to calculate what extra Variable Costs you will incur for every extra dollar of Revenue. 

Some businesses may have a Variable Costs of just one or two cents on the dollar – they’re heavy on fixed overheads like professional staff who are paid a salary no matter what. Some business have Variable Costs that are much higher – they’re selling a product at a low margin like retailers. 

If your financial reports, especially your Profit and Loss Statement does not separate out Fixed and Variable Costs then you will struggle to discover (which is the point of this chapter) where exactly your Break-Even Point is. 

Step 3) This is the easiest step! To calculate your ‘Gross Profit Margin’, just subtract your Variable Cost Percentage from 100%.

If your Variable Costs are 60% of your Revenue … then your Gross Profit Margin is 40% (100% – 60%).

Step 4) Because your Break-Even Point is calculated by adding the Variable Costs on top of the Fixed Costs, and working out where Revenue crosses the line.

Revenue starts at $0. Fixed Costs starts somewhere higher – say $10,000. Variable Costs also start at $0 (if you have $0 revenue), but they get added on top of the Fixed Costs. 

So say your Variable Costs are 60% and you generate $10,000 worth of Revenue. This means your total costs for the month are $24,000 – $10,000 in Fixed Costs and $4,000 (40% of the $10,000 Revenue) in Variable Costs. Your Revenue is climbing, but so is the total amount of your expenses.

Your Break-Even Point is where the Revenue line would cross those Expenses. In this example:

Break even = Fixed Costs / Gross Profit Margin %

Break Even = $10000 divided by 40%
Break Even = $25000

You need to generate $25,000 each month in order to break even.

(And you can double check this math. If you did $25,000 in revenue then your Variable Costs would be $15,000 (60% of $25,000). That would leave you with $10,000 left, which is used to cover your Fixed Costs.) 

Everything that your business generates over and above that Break-Even Point is profit. This is the situation where all of the Fixed Costs have been met, where you have exceeded the runway on those Variable Costs and moving forward you continue to grow the margin as a percentage over the top. 

As you can see, understanding where your break-even point is gives you a specific target each month. You ideally want to hit that target as early as possible in the month, so that you can exceed and build out that profit. For every $1 of revenue above Break Even Point, you are creating a Net Profit (i.e., the money you get to ‘keep’) equal to the Gross Profit – it goes ‘straight to the bottom line’.

As a final caveat, there are other ways of calculating this, and there are other more complicated elements like knowing your ‘Cash Break-Even Point’. As we will see in a later chapter, a good accountant will always pay for themselves when it comes to helping you to grow your business and may be useful in calculating a more complicated model that provides you with more accurate data.

Hopefully, however, you’ve seen how just using those three simple elements (Fixed Costs, Variable Costs, and Revenue) can help you calculate this number for yourself and ensure you consistently have that desirable fourth element: Net Profit!


Click here to buy your copy and immediately access all 50 Chapters plus our suite of Bonus Features.

Top 3 Priorities of a Start-up Business

Top 3 Priorities of a Start-up Business

Welcome to The Start-up Business Guide. Join our mailing list to receive 3 free chapters.


Every business moves through the same lifecycle. EVERY. Business. 

Understanding the business lifecycle, as it applies to your business and where every one of your clients is situated, is so fundamental an entrepreneurial skill that the lifecycle sits at the very top of the Contextual Business Plan in our book.

In this video, we want to focus on you: What are the Top 3 Priorities of a Start-up Business?

If you find this video valuable, then you will love the extra videos we have as Bonus Features in our book. These go into detail about the behaviors and priorities of businesses after Start Up. We dive deeper into each of the next three phases in the life cycle: Scale Up, Step Up, and Sell Up.

Wherever your clients are in their businesses, one of these will have immediate relevance. Watching each of these will help you better understand, service, and sell to your customers.

But start here at the beginning, with the excitement of new enterprise, and the Top 3 Priorities for a Start Up business. 


New business owners have a choice: they can pay to learn from the experience of others, or they can pay to make the expensive mistakes themselves. A copy of our book The Start-up Business Guide is the best investment you’ll make in the success of your business.


Click here to buy your copy and immediately access all 50 Chapters plus our suite of Bonus Features.

A formula for more revenue

A formula for more revenue

Welcome to The Start-up Business Guide. Join our mailing list to receive 3 free chapters.


The question we receive more than any other is “What do I need to do first to start my business?”

The biggest thing you need to do is to start making money. In this short video, co-author Jacob Aldridge explains the 4 parts of the Formula for More Revenue.

Many new business owners focus on Part #3 – converting opportunities to clients or customers. And while that’s important (our book includes multiple chapters on that very step), it’s only one part of the equation.

You can be exceptional at closing sales, and still fail in business if you don’t have enough activity, the right nurturing program, and a plan for how to increase the lifetime value of every customer you win.


Click here to buy your copy and immediately access all 50 Chapters plus our suite of Bonus Features.

At Last, The Secret To Write the START-UP BUSINESS GUIDE in 2020 Is Revealed

At Last, The Secret To Write the START-UP BUSINESS GUIDE in 2020 Is Revealed

Welcome to The Start-up Business Guide. Join our mailing list to receive 3 free chapters.


Our belief is that entrepreneurship – starting your own business – has things in common with swimming and with sex: You can’t learn how to do any of them from reading a book. At some point, you just have to jump in, see what it feels like, and practice until you improve.

So why did we write a book about something you can’t learn from a book! Because, like with swimming and sex, we want you to be safe when you plunge into the exhilarating world of owning your own business.

You are about to embark (or maybe you already have) on a grand journey, perhaps the most exciting and rewarding of your life. It is only once you are on that journey that you can truly understand what entrepreneurship is all about – the great times, and the terrible burdens. No book you ever read can replace that first-hand experience.

As adults, we learn from experience. Our belief for start-up business owners is this: you can either learn from your own experience, slowly and expensively; or you can learn from the experience of others, avoiding the common errors and accelerating towards your outcomes. This guide is designed to bring that experience from others.

What you will learn through all 50 Steps we discuss comes from our own experience as business owners, and more valuably from interviews with and insight from more than 1,000 other small business owners who were once in your shoes.

Sometimes we quote them directly; other times we are more direct with our guidance, or explanation of key concepts or tools that you can use in your business.

We can’t guarantee you success in your venture, but we will improve your odds of success. We believe that the only way to truly fail in business is not to take risks, not to jump in to the pool and start swimming.

Because even if your first business, this beautiful baby you are thinking of bringing into the world, doesn’t succeed – that doesn’t make you a failure. In fact, it makes you even more valuable as a business owner, even more prepared for another attempt.

Congratulations on choosing the entrepreneurship path. Thank you for choosing to use our guide to help you through the earliest, most precarious part of that journey: Start Up. As start-up guru Paul Graham wrote, “If you can just avoid dying, you get rich.”

The wealth in your business – both financial and lifestyle – comes after you make it through the Start Up phase. On average, this takes a business three years: three years of riding the rollercoaster of emotions and cash flow until consistency sets in and you can feel relaxed.

Our goal in this guide is just the first year, the first 12 months. If you can “just avoid dying” in the first year, you are much closer to the third year, and then beyond. Of course, much of the advice and experience we share is designed to help you build your business for the long term right from the beginning.

We believe this guide will be a tool through all of your Start Up phase and beyond.

For now though, there is just one simple first step you need to make.

Decide to jump. Commit to no more thinking about starting a business, talking about the possibility with your friends, or going to events as an aspirational “wantrepreneur”.

Commit to doing.


New business owners have a choice: they can pay to learn from the experience of others, or they can pay to make the expensive mistakes themselves. A copy of our book The Start-up Business Guide is the best investment you’ll make in the success of your business.

Click here to buy your copy and immediately access all 50 Chapters plus our suite of Bonus Features.