I'm 20, so my life isn't full of much experience like many of the posters here, but I'd like to share how I lost $10,000 in the past few years from a failed business.

When I was 9, I used a modem for the first time.

I was taught how to by my brother Dien, way back then in 1989.

Back before the internet, back before the WWW, back before Sowpub.

So what did people connect to back then, if there was no internet to connect to?

I connected to things called BBS's -- bulletin board systems -- that were computer systems you could log on to, have an account on, and mail other users and do other things.

Some had multiple lines, so you could talk to anyone else logged on.

You had to pay money to log on to most BBS's with multiple lines.

Anyhow, I grew up with these things, and continued to log on to them for most of my life after 9.

In highschool, I decided I really wanted to run one.

Problem was, I was a highschool student, and these things cost a fair bit to set up! (well, for a highschool student)

There's the big computer costs, the software, the telephone lines, all the modems....

But eventually when I reached 1st year of University, I gathered the money to start it.

$10,000 it cost all up. I borrowed some, and convinced some friendly family members to enter into a partnership.

I thought it was great. I had done the analysis before hand, I had been diligent.

I worked out all the costs of setting it up, all the costs of keeping it running.

I looked at how much other similar places charged, put my prices just under theres, and realised that with the number of users I had, I could make a good profit.

And I did.

The first month it was up I pulled in $1200 in subscriptions, which was around $800 after monthly costs.

$800 in one month is pretty good on a $10,000 investment!

Or at least I thought it was.

The next month the profits went down.

And then down again.

And down again.

I was losing customers! But why?

The reason was, I had entered the market and gained customers by undercutting the prices of my competitors. And since then, they had lowered their prices more.

I had to lower mine to keep up (we were all running similar systems, with no competitive advantage).

After around 6-12 months of doing this, all the BBS's I knew of were losing money, and I was amongst them.

But I persevered. I kept going on, trying to attract more customers, and I kept on losing money.

It took me a good year before I finally shut the system down.

By that time, I had lost roughly $10,000 from the venture.

And why? Because I never looked into the future when looking at the investment from the beginning.

I never tried to look at what competitors would do and how it would effect my pricing and my profit.

I only looked at the HERE and NOW, and not the FUTURE.

So what's the moral of the story?

(1)

When looking at business situations, don't just look at how much you'll make TODAY, but look at how much you'll make TOMORROW also.

If you're making high profits, what's to stop someone else doing the same thing for lower cost and eliminating your profit?

It generally helps to have some competitive advantage -- whether that's in lower costs, higher skills, a strong brand name, or the like.

And look at all your business and investment decisions in this light.

This is useful both for your personal business endeavours, and I find it very useful also for analysing stockmarket investments.

(2)

When you realise that you're losing money and it's unlikely that it will change, then CUT YOUR LOSSES.

I failed to do this when I let the system run at a loss for a year.

Simple maths would show that even if I gained more customers, at the current prices it would be very very unlikely for it to turn a profit.

And with the market environment, it was very difficult to raise prices.

So, I should have gotten out earlier.

Anyhow, hope you enjoyed the post :)

- Thomas.