Starting a new Business - A Flight into the Unknown

Where I live - Joseph, Oregon - there's a group of people who want to start a new art school.  They're starting a new non-profit group, working to bring in people from other places to teach, want to buy two older buildings, and want to do all of this at the same time with virtually no money.  This is a good example of how to start a new business with an immense amount of risk.

Are all these ideas worthy?  Sure.  Why not?  Yet, that's not the question.  One good question is what are the priorities?  What do you really want to do?  What do you really want to accomplish?  What is your primary purpose?

Start-ups need cash reserves.  Start-ups don't have a track record which significantly complicates budgeting.   Under such conditions, budgeting is a shot in the dark.  Because of the great many unknowns a start-up faces, there's a need to build in a lot of ability to flex with circumstances you really have very little idea about.

Not only are costs challenging to scope, they are probably easier to scope than revenues.  This is especially true when there is little hard data that can be used to firm up the revenue forecasts.  Now, people will say "oh, that's not really that much of a problem.  There's other places that hold art classes and we can just use their experience."  There's a host of reasons why that view is dangerous.

Extrapolating from the experience of other's - which is what that argument amounts to - is problematic.  There's a good deal of statistical discussion on this issue - extrapolating beyond your data.  By it's very nature, extrapolation is a journey into the unknown.  It might be the best you've got.   Here's the thing though, you need to look at the broader circumstances of the experience of others and compare those circumstances to your own to come to some sense of how relevant their experience is to your new enterprise.

I'm not saying it's a wrong path to travel down.  Rather, that you need to be cautious as you travel down that path.  I've seen people who are really just grasping for confirmation grab onto whatever data they can get their hands on as justification for what they want to be true.  Whether it's actually true or not is another story, and people who question such approaches are sometimes treated as inconvenient pessimists.