Economic Wisdom to Apply in Your Twenties

Chapter 56

Chapter 7 Section 4 Making Big Money Starting from a Small Business
A few years ago, Xiaona, who immigrated to the United States from Shanghai, planned to start her own business because she couldn't find an ideal job and her funds were very limited. "Starting from scratch" is too difficult for Xiaona who is not familiar with the place where she lives, so Xiaona thinks twice and decides to buy a ready-made business.

According to the market at that time, if you want to buy a corner convenience store with a weekly turnover of about $5000, you will need about $3 to $4.But Xiaona only had 1 U.S. dollars in her hands at the time, which was only enough for her to find a store with poor business but potential for development.

Fortunately, Xiaona has a unique vision, and soon found a small shop with low price and great development prospects.In fact, the poor business of many small shops is not due to lack of business opportunities, but due to poor management.Some convenience stores cannot increase their turnover because there are too strong competitors nearby.And some stores are because the variety is wrong or too old, or the storefront is too dirty and messy. These types of stores are stores with long-term potential.In addition, some stores are located in developing areas, for example, new residential complexes are being built around them, which is also a factor that may increase the business volume in the future.

After a year and a half in business, Xiaona sold her corner convenience store.When she bought the store, the weekly turnover was only more than 1000 US dollars, but after the operation was reorganized, the weekly turnover had risen to about 3500 US dollars when she sold it, and the result was 4 US dollars (excluding the inventory price). sell.In one and a half years, Xiaona earned more than 3 US dollars, and during this year and a half, she still had a certain monthly operating income.

This incident inspired Xiaona a lot. She felt that it was obviously much easier to make money by running a small business than running a small business by herself.Then she bought another convenience store of the same nature for $3 and sold it two years later for $6.She also used $1 to open a corner convenience store in a newly developed area, which she sold for $4 more than a year later.In just 8 years, she has changed hands in 6 convenience stores, and the profits she has made are considerable.

For young people in their 20s, life has just begun, but they often have big dreams.Although I still lack business experience and don't have too much money in my hands, I want to achieve big business and career.In fact, this is a misunderstanding.We have seen too many successful people achieve great achievements when they reach the pinnacle of their careers, but we ignore that they all started from small businesses.

In fact, every big business must have started small.You might be able to learn from the experiences of Cortana's peers in the United States.

Xiaona told us from her own experience that only those who do well in small businesses can have enough capital to start bigger businesses.Of course, "sufficient capital" includes not only capital accumulation, but also preparations for business vision and thinking.If a small business is done well, it can accumulate more experience for the future, and even if it fails, it will not be like falling into a big business with heavy losses.

In economics, as the scale of enterprises expands, the unit cost decreases, that is, the long-term cost curve shows a downward trend, and there is a "scale effect".With the expansion of production scale, enterprises can use more advanced production technology and carry out more favorable professional division of labor, and can more fully develop and utilize various production factors, including some by-products in the purchase of production factors and product sales. has more advantages.

However, economists will also remind you that the effect of scale does not mean that bigger is better.For a specific production technology, blindly expanding the scale will encounter the "diseconomies of scale" effect.Large enterprises also often require more investment, and the expansion of scale will lead to an increase in the organizational level and management scope of the enterprise, thereby reducing the labor and capital efficiency of the enterprise.If the increase in output is less than the increase in input, there is "diminishing returns to scale".There are even many companies seeking superficial scale expansion, they merge and acquire, streamline layoffs, manipulate stock prices, and even blatantly falsify, creating "false prosperity", and eventually have to lose.

Although for every entrepreneur, they hope that their business will grow bigger and bigger and become an influential large enterprise, but we rationally look at the objective reality of "haste makes waste".The "bigger" of an enterprise is often associated with "stronger"."Bigger" does not mean "stronger" for an enterprise. "Bigger" reflects the expansion of business scale and diversification of business fields, which is the expansion of external forms; "strengthening" means the consolidation of foundation and competitiveness The enhancement of the body is the accumulation of internal force and internal strength.If an enterprise wants to "be bigger", it must first "be stronger". Like a bird, no matter how lofty its ambition, it must have full wings if it wants to spread its wings and fly high. Wisdom, otherwise the higher you fly, the harder you fall.

If the market is compared to a forest full of dangers and dangers, the enterprises in the market, if they cannot be the king tiger in the forest, they should be a monkey.A small and medium-sized enterprise that is unable to compete with large companies should not play the role of a tiger, but be willing to be a monkey, because monkeys also have the flexibility of monkeys.For example, small and medium-sized enterprises in Wenzhou, Ningbo and other places, their business thinking is: small boats should not compete with big boats to catch small fish in the sea, but catch big fish in small rivers-these small enterprises that are not large-scale, they Not a lot of money at all.

Wisdom Trivia: Economies and Diseconomies of Scale for Retailers

Note: Before reaching the critical point A, the scale expands, the cost decreases, and the profit increases accordingly. When the economy of scale is reached in the AB range, the scale of the enterprise expands, and the profit increment slows down. When reaching point B, the scale expands, and the profit no longer increases. , in the BD interval, the scale expands, the cost increases, and the profit decreases accordingly, entering into diseconomies of scale. After reaching the critical point C, the scale expands, the scale of the enterprise expands, and the profit decreases significantly, entering into an obvious diseconomies of scale.

(End of this chapter)