As someone who has started several businesses over the past 25 years, I can testify that it is everything it is supposed to be. It’s not for everybody. Someone once said that “ninety-nine percent of the people in the world should be working for someone else. I tend to agree, which is why I wanted to dedicate this newsletter to starting your own business. If everyone who has talked about starting a business actually did it, the whole nation would be self-employed! But most people would rather fantasize about it than actually try to make it happen.
The first thing you have to do is examine your motives and, in so doing, determine whether you are a dreamer, or part of that 1%. If you want to start your own business because you are “sick & tired” of being told what to do; because you want more “freedom”; or, because you are unappreciated or feeling undervalued, forget it. These are not reasons for starting your own business; they are reasons for running away from your present job. If you want to “make a lot of money”, that’s probably not a great reason either. That is a fine and worthwhile goal, but if it is your prime motivation it is not going to be enough to get you through your lean years.
Before starting my own first company, I worked as a Construction Manager for a high-end residential builder. I had just made a major life/career change from working in the Nuclear Industry building power plants. Both careers paid well and I received a great many perks, but I knew I didn’t want to spend my life building someone else’s products. I loved designing and building and working with clients, but they were someone else’s clients…not mine. The security of the weekly paycheck was not going to be enough to keep me working for someone else. I was cautious and apprehensive, but I was more intimidated by the thought of wasting my time and energy building a career I wouldn’t enjoy. I couldn’t afford not giving this new venture a try.
This, I believe, is at least part of the motivation of most people who successfully start a new business: a feeling that if they never tried they would regret it. It is what gives you the momentum to get out the front door, to cut the corporate umbilical cord, and what makes it possible to keep going, even when everything else makes you feel like turning back. Starting a business is a financial and professional commitment. But even more, it is an emotional one.
There are so many moments in starting a new business when the negatives outweigh the positives that any feelings of satisfaction are very small compensation. There are times when it is the emotional commitment alone that keeps you going.
Starting a new business is no time for self-deception, yet it is quite tempting to get caught up in your own notes, business plans, and prospectus…in the romance of your own words and numbers.
In business, there are no guarantees. There is no way to eliminate all the risks but you can improve your chances with good planning, preparation, insight and introspective thought. I find it best to start with the introspective thought.
Begin by evaluating your strengths and weaknesses as a potential business owner. I have compiled the following seven questions that I suggest you ask yourself and answer honestly:
- Are you a self starter? It is going to be up to you to develop your own projects, organize your time and follow through on all the details.
- How well do you get along with different personalities? Business owners need to establish good working relationships with a variety of people including customers, vendors, bankers, staff and professionals such as attorneys, accountants and consultants.
- How good are you at making decisions? Small business owners are required to make decisions constantly, often quickly, independently and usually under pressure.
- Do you have the physical and emotional stamina to run a business? Business ownership can be exciting but it is also a lot of work – 12 to 14 hours a day, 6-7 days a week. Can you handle it?
- How well do you plan and organize? Poor planning is responsible for most business failures. Good organization of finances, inventories, schedules and production can help avoid many pitfalls.
- Is your drive strong enough? Running a business can wear you down emotionally as well. Burn out comes quickly with much responsibility. A strong motivation will help you survive slow downs.
- How will your business affect your family? Start-up years can be hard on family life. Family members need to know what to expect and you need to know you can depend on their understanding and support. You should all expect a lower standard of living for a while.
You should be able to “state your business” clearly and succinctly and in 25 words or less. Is it a “hard” idea (a new product or one that fills a clearly defined void) or a “soft” one (certain consulting businesses, and already crowded industry, or an idea that isn’t all that indistinguishable)? The danger, at the beginning, is that everything is still fiction and that fiction can block your ability to ask the following questions and provide the necessary hard-core answers:
- What are the connections? How does your idea connect to the market, to the times, and ultimately to the people who will become your customers or clients? What edge does your idea have over the competition?
- Why won’t it work? What are the immediate problems likely to be encountered? Are they insurmountable, and if they are not, how do I go about solving them?
- What makes me think I am the one to make it work? The new businesses that are likely to succeed are the ones that have some relation to what you are already doing for someone else. In my case, my first business what not so much a new business, rather it was an extension of what I was already doing…only my way - and better!
- What is the “do-ability” quotient? A good idea requiring reasonable expenditures may still be wrong because it is next to impossible to do, or, even if it can be done, the time required to execute it is far too much. Sometimes, even your best conceived ideas can have you end up working for fifty cents an hour.
Many new venturists are preoccupied with all the money they are going to make rather than about how they are going to go about making it. Set realistic goals by setting realistic steps – discrete, “do-able” actions, each of which connects with the next one in some logical progression.
START SMALL AND KEEP IT SIMPLE
At some point you have to walk through the wall to get to the other side, But don’t just do it…wait until you have a good idea of what you are going to do next. If you can’t get “there” from “here” in a number of very specific steps, then you probably don’t have a viable business concept yet.
I am a great believer that the more up-front money a new business requires the less chance it has of ever getting off the ground. I am prejudiced of course, having started my last business with a capitalization of less than $1000.00. I am also aware that there is an entire industry of venture capitalists out there that do nothing but fund new businesses. The mere existence of this industry has created a kind of entrepreneurial myth – that there are all these people out there waiting for the opportunity to give you money and you just haven’t met them yet! If and when you do, you will probably find that they are not as eager to part with their capital as you might have anticipated, or, if they are, they will want to extract a large piece of your business in return for their faith in you.
Many new businesses never get off the ground, not because they were bad ideas, but because the fund-raising efforts failed. Many of these ventures perhaps did not actually require the capital the participants convinced themselves that they did. If they had been willing to start smaller they would have given themselves a fighting chance.
BE FLEXIBLE
Just as it is essential to know what business you are really in, it is equally important to be aware of what new business you might be in – of new directions and other opportunities which present themselves in the course of your doing business.
If you are tuned in and appropriately flexible, you may find that your original business is the tail and the new business it suggests is the dog. Presently, new divisions in our company have grown as a result of being flexible, the most obvious being our business consulting division. We discovered, in selling our business services (how to construct a Business Plan, how to structure a company, how to get a company off the ground) that we were tapping into a lucrative sector as well as providing an extremely valuable service to our clients. We took the practical experience we gained from growing our own business and applied it to building other’s businesses.
SHARE YOUR SUCCESS
In any business, new or otherwise, the idea is to take in more than you spend, but this is most painfully obvious when you are a small, new operation. Pay the people working for you as little as possible and sell them on yourself and your vision, and on their future and the promise that as the company grows and becomes successful they will make more than they could ever make elsewhere. I don’t think there is anything wrong with this as long as you hold up your end of the bargain.
If someone working for you makes a substantial contribution to the company, he or she is entitled to considerably more than just the satisfaction of a job well done. In business, one’s income is a scorecard. And while the company’s overall profitability must be taken into consideration; that is going to matter a lot less to that employee than it does to you. Whether such tangible financial proof comes in the form of a raise, a bonus or additional perks, it is important that people feel they are participating directly and commensurately with their contributions to the company.
DOUBLE YOUR OVERHEAD
I am currently working on a business start-up for a high-end apparel store. I asked my clients what they anticipated their overhead would be for the first year. They were starting relatively small and were attempting to finance the business themselves. They thought that after the initial start up costs and getting the business structured, that they could get away with about $75,000.00 as a first year overhead. I have advised them they would be wise to double that amount.
People fail to take into account all the hidden costs in starting up a new operation. It probably stems from a sub-conscious overzealousness to make the numbers work (or at least palatable). In any case, it’s easy to forget about withholding and Social Security taxes when you have become accustomed to having them automatically deducted from your paycheck. Pens and pencils and office supplies don’t cost too much, but supplying a business - even a small one – for a year, adds up.
Most businesses require some travel and some entertainment and that can get expensive. Utilities are extremely easy to underestimate. Last year our phone bill alone was over $6,500.00. Over the years, I have learned that if you double the hard operating expenses you originally budgeted you will end up with a reasonably accurate projection figure.
Many people who want to start a new business but can never seem to get out the front door have convinced themselves that it is just a matter of waiting until they have enough money saved up. For these people, $10 million would still be short of what they need. No amount of money in the bank is going to compensate for the loss of security that accompanies the loss of a paycheck.
In working out your Business Plan, if you find yourself allowing for the minimum conceivable amount in every expenditure column, your plan will probably never be more than a mental exercise.
PROSPECTUS VERSUS REAL LIFE
I would be happy if I never saw another prospectus. The only ones who end up believing them are the people who write them. The vast majority of the prospectuses I have seen reveal a warped time perspective. It is amazing how many people forget to consider the importance of cash flow in planning their first year. If the first sales are during the first week of business, very often the proceeds won’t be collected for 90 days unless you are a cash business. And so on for the second and third week’s sales. The result being of course, that the initial float required for the business is actually a multiple of what has been projected on paper.
It is also amazing how blatantly obvious people are in padding their numbers. Allowing for a reasonable margin of error in the numbers is one thing; assuming stupidity on the part of the person reading them is another. I have seen proposals for business ideas which I thought had merit but was so turned off by the projected income and expense numbers that I lost faith in the people doing the proposing. I offered to rewrite that portion of their business plan, but they were convinced they could live with the numbers. I suspect that these people didn’t really believe in the numbers, but they wanted their business so much that they were willing to deceive themselves and then try to con others into believing that the numbers worked. They attempted to get their financing based upon numbers that just wouldn’t work.
FEAR OF FAILURE
Fear of failure is at least as common as the desire for success. In fact, if properly harnessed it can be the energy that drives the wheel. But for many people it can become debilitating.
Learning to use fear rather than letting it use you is obviously not just a problem for the entrepreneur but for anyone in business. Therefore it seems like an appropriate point on which to end this newsletter.
Success is not automatic in any business. It depends on the owner’s foresight and organization. Fifty percent of all new businesses fail in the first five years. Underestimating start-up difficulties is the biggest obstacle entrepreneurs face.
Success can be yours if you are patient, confident, willing to work hard and take the necessary steps. Assembling a competent team of consultants, suppliers, financiers and legal advisors is worth every penny you will spend getting started.
There are many reasons not to start a business, but for the right person, great accomplishments are out in front of them. Your earnings and growth potential are far greater when you are calling the shots.
Be your own boss! Good luck and may God bless your venture. |
