The 7 Deadly Mistakes?

7 Deadly Mistakes of Aspiring Entrepreneurs

Copyright 2015

Disclaimer This book is intended for informational purposes only. This book includes information, products, and services by third parties. The use of recommended Third Party Material does not guarantee success and/or earnings related to you or your business. Publication of such Third Party Material is simply a recommendation and an expression of the author’s own opinion of that material. Links to Third Party Resources may be affiliate links, meaning the author may receive compensation if a service is ultimately purchases from such a link. No part of this publication shall be reproduced, transmitted, or sold in whole or in part in any form, without the prior written consent of the author. All trademarks and registered trademarks appearing in this book are the property of their respective owners. Users of this guide are advised to do their own due diligence when it comes to making business decisions and all information, products, and services that have been provided should be independently verified by your own qualified professionals. By reading this guide, you agree that the author is not responsible for the success or failure of your business decisions relating to any information presented in this book.

©2015 Jerry Ilao. All Rights Reserved.


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Introduction W HY AM I SHARING THESE M ISTAKES? Before anything else, we’d like to clarify why we are sharing these common mistakes. It’s definitely NOT to scare you or to discourage you from aspiring to be an entrepreneur. In fact, we want you to succeed by being aware of these mistakes so you can prepare yourself properly. Most of the time, we find that the literatures about entrepreneurship focus too much on the good things of being an entrepreneur. This time around, we want to balance it out by sharing some of the things you need to watch out for. Ok lang ba yun? Again, our intention is not to scare you, but to prepare you for the exciting journey ahead. These pitfalls can be avoided and we will share some quick tips on what you can do to prevent each of them. What is important is that you stay focused on your goal and believe that you can achieve it and be a millionaire someday. Kayang-kaya yan, tama ba?! :)


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ABOUT M E Jerry Ilao is a Certified Public Accountant (CPA) and Certified Internal Auditor (CIA) by profession. His love for business started when he was a kid, selling old toys to his classmates. In college, he was an academic scholar and despite his financial constraints, he graduated Valedictorian and Magna Cum Laude of his class in 1999, garnered the highest overall grade of his Class and was selected as M ost Outstanding JPIAn of the Philippines and a finalist in the Top 10 M ost Outstanding Students of the Philippines (TOSP). After passing the CPA board exam, he worked for Procter & Gamble (P&G) for 7 years. During this time, he tried to engage in different part-time businesses. He started with a boutique, moved to a mobile carwash, then after that, set up a weekend restaurant in Naga City (Bicol), his hometown. But all of those businesses closed within a year of ope ration, bringing with them his 5 years’ worth of personal savings worth P1M. Still unfazed with his business failures and determined to eventually succeed in business, he said to himself “Pasasan ba at tatamaan ko rin yan!”. In 2005, he tried his luck with his 4th venture, an ink refilling business he named Ink All-You-Can. It was during this time that he finally struck luck with business. Filipinos loved the savings and quality they got from using the products so the company quickly grew. From a home-based business, it became a full-fledged operation within just one year. In 2007, after 2 years of doing the business part-time, he became a “certified leapreneur” when he finally took the leap of faith and resigned from his corporate job to focus on his growing business. Ink All-You-Can was able to penetrate the key SM Supermalls such as SM M all of Asia, SM M egamall, SM North Edsa, SM Fairview, SM Southmall, etc. offering quality inks and great service to its customers.


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In 2010, Ink All-You-Can reached another milestone when it sought the help of Christian Bautista to be its Brand Ambassador. Today, Ink All-YouCan is a major player in the alternative printer ink industry, employing more than 100 people with close to 20 branches nationwide. In 2012, after realizing the absence of helpful technologies catering to Small Business Enterprises (SMEs), he set-up MobileOptima, Inc., together with his wife, Rio, to focus on developing world-class business solutions for SMEs. He combines his 15 years of experience as an entrepreneur with his experience as a co-founder of a tech start-up, to bring unique insights and solutions to SMEs throughout the Philippines. He is the current president of the Association of Filipino Franchisers, Inc. (AFFI), a non-profit organization that was established in 1997. AFFI has been organizing one of the biggest Franchise and Business Expo in the Philippines for the last 14 years and has been at the forefront of educating entrepreneurs how to franchise their business. Now, he realized that the mistakes he made in the past are very valuable to employees who also wanted to escape the corporate world and become a successful entrepreneur. So instead of keeping these lessons to himself, he decided to share it to everyone else who likes to start a business. That’s the reason why he founded www.leapreneur.com, a website dedicated to helping employees become full-time entrepreneurs (or what he calls Leapreneurs)!


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ABOUT LEAPRENEUR I’ve already mentioned “Leapreneur” in the previous page but we haven’t actually defined it yet. Afterall, it’s the website’s name so it might be good to know what it actually means. Leapreneur is a word I personally coined from “Leap of Faith” and “Entrepreneur.” You won’t see it in the dictionary yet because I just invented it. However, I do hope that someday, more people will use it and it will be included in Wikipedia, as a word that originates from the Philippines.  The way I define Leapreneur is “an employee who took the leap of faith to become a full-time entrepreneur.” So if you have a part-time business and are still working as an employee, you are not a Leapreneur yet. You will only become a certified Leapreneur once you have taken the leap already by resigning from your job to become a full-time entrepreneur. Most of the entrepreneurs I know are Leapreneurs. They started as employees first where they gained experience, then after few years, they started a part-time business before finally taking the leap as full-time entrepreneurs. This is the path that I recommend because it’s safer, especially if you have no background in business yet. Here are some of the key benefits of becoming an employee first, before starting a business: 1.) You learn important skills and discipline that will be very helpful when you start your own business. 2.) You can use your savings from your salary as capital for your business. 3.) You build a network while working for a company that will be a huge advantage later on. Unfortunately, despite being the preferred way of starting a business, there is no specific guide for employees on how to really start a business. Most books, trainings or seminars that are currently available are too generic that don’t really address the unique situation and needs of employees who want to be entrepreneurs. So this ebook is my own humble contribution in inspiring more employees to become Leapreneurs.


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ABOUT THE 7 DEADLY M ISTAKES Some businesses are inherently riskier than others. However, firsttime entrepreneurs don’t realize this until they have actually handled the business. More often than not, they just look at sales and profitability as the only components for measuring the attractiveness of an idea, when there are other considerations beyond these. Let me tell you my own story. Like most entrepreneurs, I am also the type that when I have a new business idea, I get so excited that I cannot stop thinking about it. I tell all my friends and officemates (who unfortunately don’t have any experience in running a business) and they tell me they all like the idea. But then I talk to my entrepreneur friend and… boom! He tells me, “Trust me, it’s not the business you want to be in.” Point blank, he advises me not to pursue it. It’s like being splashed with cold water on your face. One minute, I am feeling so high, excitedly and passionately talking about my new-found business idea – the business that I believe will finally make me a millionaire; then, the next minute, I am falling off a cliff and hitting the ground after consulting with my entrepreneur friend. I do not understand why he is against it. To me, it seems to be the perfect business idea! Frankly though, I did not follow all of his advice. I was so passionate about my idea that I did not want to let it go. So being the stubborn person that I am, I went ahead and did it anyway. Later on, after losing money, I found that he was right all along. So I thought to myself, how did he know that? How can I see things from a millionaire’s mind so that I don’t miss the important aspects of the business? Time and again, the words of wisdom from seasoned entrepreneurs such as “Hindi porke’t marunong ka magluto, pwede ka na magtayo ng restaurant” or “Hindi

dahil

marunong

ka

maglaba, pwede

magtayo ng laundry business,” rang into my head. 7 Deadly Mistakes of Aspiring Entrepreneurs

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ka

na

After failing in three different businesses and talking to hundreds of entrepreneurs over the course of 15 years, I have finally observed a pattern with how different businesses work and what makes some businesses easier to manage than others. Aside from the common sales and profitability issues, there are key aspects of the business operations that catch first-time entrepreneurs off-guard. In this mini-course, we will share with you the Top 7 things that firsttime entrepreneurs usually fail to consider when they analyze a business idea. Aspiring entrepreneurs usually overlook and take these important things for granted, only to knock them out once they are already running the business. How do we know? Before we became successful entrepreneurs, we also fell into the same trap when we were just starting our business. We want you to avoid the mistakes that we did by sharing them with you now. So pay close attention to save yourself from losing money.


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Failure To Consider Pilferage Unfortunately,

the

risk

of

pilferage

is

very

real

here

in

the

Philippines. Ask any entrepreneur who have been in business for more than 3 years and he will have his own story to tell. When your business is prone to pilferage, it’s very tempting for your employees to take advantage, especially when they know that you have not set up the appropriate controls yet or when they know that you have no idea yet what the “normal” sales should be. Some examples of businesses with high risk of pilferage or misdeclaration of sales are: a.) Quick-service businesses like spas, barber shops, etc. b.) Businesses with inventories that are hard to measure or count like ink refilling, restaurants, fruit shakes, etc.


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c.) Businesses with inventories that is easily replaceable from other sources like groceries, clothes from Divisoria, office supplies, etc. d.) Businesses that don’t normally issue Official Receipts. It doesn’t matter if you earn 20% from every product you sell. If your employee pockets one (1) item, you need to sell 4 additional items just to pay for the cost of the lost item. This is a very real threat, even if you treat your employees well. I guess there will always be bad apples in a basket. I have experienced it and my fellow entrepreneurs have all experienced it, one way or another.

A friend of mine started a lugaw business. He was selling unli-lugaw for P15 only. It was supposed to be a profitable business because he said that the cost of the lugaw was just P3. During the first few weeks, sales were good. He was hitting his sales objective so he was very happy. After the first month, sales began to decline. When he asked his staff about it, his staff told him it was because fewer customers come in, maybe due to “sawa na or naumay na sa lugaw.” Since my friend was managing the business part-time and still has his fulltime job, he was not in his store during weekdays to monitor all the transactions. However,the strange thing was, he noticed that every time he spent a day in the store, sales would more than double. Weeks past and the sales continued to decline, but improve every time my friend was in the store. Later on, he found out that his staff was pocketing the sales instead of declaring them. Due to the losses and frustration, he eventually closed his lugaw business. 7 Deadly Mistakes of Aspiring Entrepreneurs

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I will share with you why I hate T-shirt business and why carts and kiosks in malls are thriving more than ever. It's a lesson that I learned the hard way.


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Cost of Managing Inventory One of the first things you have to check when evaluating an idea is how many inventory or items you have to keep and sell. Managing inventory is such an “understated” and often most-neglected part of evaluating a business idea. This is because most first-time entrepreneurs want to sell anything and everything to supposedly “increase sales.” But the reality is, having more inventory also means higher investment, more items to track, and higher risk of pilferage that often don’t justify the minimal increase in your sales. This is the main reason why I hate T-shirt business. Here are the reasons why increasing your number of items to sell is not necessarily good for your business: a. Inventory is tied-up capital – If you have a lot of items to manage, you have to make sure you have enough stocks for each item. This will eat up your 7 Deadly Mistakes of Aspiring Entrepreneurs

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cash, which is the most important asset you have when you are just starting out. b. Additional expenses on storage and monitoring – If you have to store the inventory in a warehouse, that’s an additional expense. Also, monitoring them and doing inventory counts are necessary expenses. c.

Higher risk of running out of stock - Determining the right balance of

inventory to keep is hard, especially if you don’t have an automated system. One wrong move and you will lose sales because you ran out of stock. Imagine if you just sold one item like Siomai, it would be very easy to manage. d.

Higher risk of pilferage and obsolescence – If storing your inventory is

not hard enough, the risk of pilferage also increases dramatically as the number of items increase. Some inventory might also become obsolete which is an additional expense for you. e.

Law of diminishing returns – As you increase the items you sell, the profit

contribution from each additional item will continue to decrease. Selling more items often results to minimal increase in your sales. Given all the costs of managing inventory that we just discussed, you will reach a point where you will stand to lose if you add more items.

If you analyze these factors, they are one of the reasons why carts (like Siomai, French fries, or Corn) and kiosks in malls are thriving more than ever. They just concentrate on one or few products, instead of selling a whole lot of items. Because of this, they just need 4sqm or 6sqm, thus, their rental is significantly cheaper than a full store. Do you agree?


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Let’s say that you are considering two (2) business ideas. Idea #1 is to sell printed T-shirts with your own designs. You have around 100 unique designs. Total projected monthly sales is P100,000.

Idea #2 is to sell whitening soap in 5 variants. Total projected monthly sales is also P100,000 per month. W hich one will you choose assuming everything else is equal? Obviously, it’s Idea # 2, right? Your operations will be much simpler if you can get the same sales and income by just selling 5 items rather than 800 items. Wait a minute, you might ask “Where did you get the 800, it’s just 100 designs.”

Assuming 100 designs, you have to cater to different sizes like small, medium, large, and X-large. So your 100 items are now 400 items and that’s only for men’s sizes. If you also cater to women, that’s a total of around 800 items.


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In next section, I will share with you the Number 1 problem of an entrepreneur I met who sells donuts. He has more than 100 branches already and his problem might shock you.


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Cost of Spoilage, Expiration, and Out of Style So you want to know the Number 1 problem of the entrepreneur who sells donuts? It’s spoilage! Food products are generally harder to manage because of this factor. Highly perishable products require higher level of skills and experience so that’s why I don’t advise this type of business for first-time entrepreneurs. As an example, I have a friend who is a franchisee of “Kambal Pandesal.” He said that to keep their pandesal fresh every day, they have to throw all the left-over or unsold pandesals from the day before. They cannot sell them anymore. In fact, unsold pandesals are already factored in their financials. As a result of this, his daily profits is largely influenced/determined by how many excess breads they have to throw away at night. What a waste! My first business, the boutique, was also killed by this mistake.

I

thought that if I buy clothes at P200 in Divisoria, it will be good enough if I am 7 Deadly Mistakes of Aspiring Entrepreneurs

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able to sell it at P400. Little did I know that I will not be able to sell my entire inventory so I had to factor that cost of“unsold stocks.” Moreoever, after few months, “laos na yung design” so nobody wants to buy them anymore. On the contrary, having a product that doesn’t easily spoil, expire, or goes out of style, lessens your headache. For example, my inks can last for 3 years so I can stock up without having to worry about products expiring.

A fellow entrepreneur who is in the donuts business shared with me that they have to collect all unsold donuts the following day. This is also to keep their donuts fresh every day. Given this, his forecasting must be very good because if they produce more than what is needed for the day, unsold items will be scrapped. On the other hand, if they produce less than the demand, they can run out of stock and lead to customer dissatisfaction, a damaged brand reputation and lost revenue.

To make things worse, they have more than 100 branches so forecasting the sales of every single store is extra difficult. Once the product is scrapped, his expenses are not only the cost of the product, but also the delivery expense to the store, the retrieval cost back to the commissary, and the disposal of those products. This is truly a very complicated business not meant for a first-time entrepreneur.


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Next, I will share with you one of the most common mistakes of first-time entrepreneurs

and

how

a global

company

with

Billion

Brands desperately failed in the Philippines with the very same mistake.


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Dollar

Too Optimistic About New and Revolutionary Products This

is

one

of

the

most

common

mistakes

of

first-time

entrepreneurs. They often look for a revolutionary product that will change the world. They think that they always have to find an innovative product that absolutely nobody is offering yet. Once they find something new and be the first one to sell it, they think that money will just roll to the bank. The fact is, it’s a little more complicated than that. It is a little tricky because you want to avoid businesses with either no competitors, as well as those with too many. An industry with no existing competitor means that it is a new industry. While this is good because you don’t have any competitors, it also means that nobody knows about your product yet. So you will have to spend more on education, marketing and building the industry.


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On the contrary, industries with too much competition are not advisable because you will also have to spend more to build your own brand and become known or to stand-out amidst the clutter. Some examples of these are Siomai food carts, internet cafes, ink refilling stations, etc. Either way, you will have to spend more. So you would like to be somewhere in the middle, i.e. in an established industry with manageable number of competitors and no clear market leader yet.

If you have a revolutionary product or creating a new industry, it normally takes years to educate the market and change their behaviour. Oftentimes, firsttime entrepreneurs don’t have the financial resources to fund this kind of business idea. I remember Procter & Gamble introduced a revolutionary product called “Fit - Fruit and Vegetable Wash” back in 1999. It’s 100% natural and effectively removes pesticide residues. It had a lot of potential, a big marketing budget and was even endorsed by Ms. Dina Bonnevie. Unfortunately, changing consumer behaviour takes a lot of time and money. Even though the product was good, it’s something that was new and not part of the regular grocery budget of Nanays. I remember comments from customers saying “Pwede ng tubig, libre pa.”

After more or less 2 years, the product was discontinued by P&G in 2001. On hindsight, if they introduced it this year, when everyone is going “organic” and very health-conscious, it would have been much more successful. Maybe it was 15 years ahead of its time and not even a giant company can save the product. So think twice before committing to your goal of “changing the world.” Let the Apples, Googles, and Facebooks of the world who have deep-pockets, do the heavy-lifting. As for you, look for ideas that you can easily execute and sell fast while learning your way as an entrepreneur.


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Up next, I will share with you the secret that I discovered when I started an ink refilling business that most computer technicians back in 2005 had no idea about. It could have spelled disaster in my company had I not discovered how to fix it.


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Knowledge and Skills Required What are the secrets of the trade? What makes the formula work? How come that donut is so fluffy? Knowledge about the product and the industry can make or break your business. That’s why you will be in a good position if you have that knowledge, especially when you have “trade secrets” or a “special recipe or formula” that can serve as the cornerstone of your marketing and sales efforts. This is your competitive advantage that cannot be easily stolen from you. All businesses have its own intricacies and sometimes, you’ll only know it when you get there. Aside from that, competition will always come and introduce upgraded products. You have to know the product and the industry above anyone else in order to respond well.


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Of course, you can always study the ins and outs of your product and industry to catch up, though it may take some time. Just hope that your competitors are complacent so you get enough leeway to catch up.

When I started an Ink Refilling & Continuous Ink System (CIS) business back in 2005, I initially thought that it was an easy business because installing the Continuous Ink System seemed pretty straightforward. Just to be sure, I used my product first for two (2) months so that I knew exactly how it worked before offering it to anyone. I heavily used my printer installed with the Ink System to print my flyers and other marketing materials. Then, one (1) month after, my printer suddenly stopped. It was not printing or moving and just had a blinking red light. I was very afraid and thought that my product damaged the printer. I then went to computer stores that sold ink and talked to their technicians. Unfortunately, as I was describing the problem, I sensed that they were clueless regarding the issue. After much research, I discovered something that most technicians at that time did not know. It turned out that printers have an internal counter of the number of prints or inks used. When it reached a certain number, it would stop printing unless you reset the counter inside the printer.

Since most people were using original inks that time, almost no one was reaching the maximum count because inks were very expensive. In my case, I used the printer heavily because my inks were very affordable. As a result, the maximum count was reached. Thankfully, I was able to get hold of the software to reset the counter and my printer was back again. Otherwise, I could not sell my product without a solution to that problem. Nowadays, a lot of people know about this counter and can even reset it on their own. But ten (10) years ago, it was a trade secret that almost no one knew. 7 Deadly Mistakes of Aspiring Entrepreneurs

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Next, I will share with you why I would rather choose a business with 30,000 income to start with, rather than a stable business producing P50,000 income for years.


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Is Your Business Replicable or Scalable? In the previous section, I said that I will share with you why I would rather choose a business with 30,000 income to start with, rather than a stable business with P50,000 income for the last 2 years. And the main deciding factor of choosing one business over another could be replicability and scalability. What do I mean by replicable? For me, it simply means that you can expand your business by easily replicating your efforts to get the same results, like putting up a new branch or franchising your business. Scalable, on the other hand, is usually used for digital products where the business has the potential to multiply revenue with very minimal incremental cost like software downloads and ebooks. Imagine that a business with a projected P50,000 monthly income now will be so much more attractive if you could multiply the business 10x later


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on. It is for this reason that franchising becomes a very attractive way of replicating your business. Think about this. If you earn P30,000 for each store but you have 100 franchisees, that easily means P3M per month! That’s why it’s important that you also think about the opportunity to expand the business later on, not just the potential income now. Some businesses, however, are harder to replicate or scale than others, especially if the business operation is heavily dependent on one person or the circumstances of the business success cannot be replicated to other areas.

I normally pass by Kalayaan Ave. when I have a meeting in Makati. Recently, I noticed that the houses in front of the PhilCare Building along Kalayaan Ave. started to set-up their own eateries. I thought it was a perfect idea because the employees working in Bonifacio Global City (BGC) could eat home -cooked meals at affordable prices. With the continuous development of that are a by MegaWorld, those eateries will surely have a growing captured market. Now, if you are the Nanay who owns the eatery, you might earn more than enough income from the eatery to sustain your family’s needs. But if you want to open up branches and expand to other areas, it will be much harder because the business scenario will be totally different, e.g. you don’t have free rent, a location that’s just few meters away from offices, a growing captured market, etc. What business ideas do you think are harder to replicate?


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For the last part of our eBook, I will share with you the sales strategy implemented by the Telcos here in the Philippines and why you should never fail to consider it in your business. I will also share with you simple tips on how you can continue selling to the same customers so you can keep on earning. :)


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Are You Offering Consumables? Entrepreneurs know that that hardest thing in a business is to get customers. That’s why big corporations spend a lot of money in advertising and building their brand in order to capture more customers. Based on study, it is 7x more expensive to sell to a new customer than to sell to an existing customer, taking into consideration all the costs involved, from advertising, promotions, personal selling, time spent explaining the product, up to setting up new accounts. Thus, one of the quickest ways to grow your business and make it sustainable is to continue selling to existing customers. This is pretty good for service businesses like spas, barber shops and laundry shops, as well as those selling consumable products like food, water refilling stations, grocery items, and inks.


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On the other hand, some products or services tend to be one -time purchase or the buying cycle is long, like houses, appliances, cars, and website development. It takes a long time for the customer to buy again from you so you have to find new customers all the time. And that simply means, more cost for you.

Selling consumables is a lucrative business, especially if the income from consumables is high. I remember in the early 2000s, mobile phone SIM cards were very expensive. They cost hundreds of pesos. However, few years after, I think the Telcos realized that selling SIM cards was just a one -time income for them. So now, they sell SIM cards for as low as P10.00 because they know that the profit is not in the SIM cards, but on the load (or consumable) that the customer will buy. In fact, you can even swap your SIM card from other network for free. This underscores the fact that giving away SIM cards to hook customers to buy call/text loads can be profitable. If you think about it, when you have a Globe SIM, you are locked to buy load only from Globe, not from Smart.?


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I hope that you will not put to waste what you learned here. Change can only happen if you execute what you learned. It’s time to take action! Good luck! By the way, it doesn’t stop here. As a FREE Member of the Leapreneur Community, you’ll also get access to the Leapreneur Insights where I interview successful entrepreneurs weekly to learn how they started and what tips they can give to aspiring entrepreneurs. We will continue to share with you valuable tips and insights as well as motivate you to follow your dream and take the leap. Lastly, if you like this eBook, check out the full edition of the “Leapreneur – How to Take the Leap from Employee to Entrepreneur” and I’m sure you’re going to learn a lot from it!


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The 7 Deadly Mistakes?

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