Starting a Business

Opening a business and being one’s own boss is as much a part of the American dream as owning a home. In fact, being self employed or an entrepreneur is gaining a great amount of attention in this country’s economy. Citizens of this country are blessed with the freedom to start a business and enter an endless number of markets.

However, opening and running a business is not as easy as many make it seem. If you have flipped channels in the middle of the night, a funny looking man with question marks on his clothes lure others into the idea that there are numerous funds available for people to start their own businesses or that you can earn thousands working from home. This gentleman along with other copy cats are selling you untruths in order to sell their own books.

Business service providers, like the Innovation and Entrepreneurship Center, wish there were easier ways to finance a business like the infomercials suggest. However, the reality is there are no free grant funds for people to start or grow their businesses. There are a small number of technology grants available to companies willing to engage in research and development for departments of the Federal government. These grant funds are highly competitive and come with many strings attached to the funding.

Moving forward on a business, the entrepreneur needs to be prepared to address the financial needs for the business. The entrepreneur needs to be able to sustain their personal finances first before moving toward opening the business. Rarely is a business profitable as quickly as the entrepreneur may think. Planning to sustain his/her personal finances is the first step in starting the business.

In the planning process of opening the business, the entrepreneur should prepare conservative financial statements. These financial statements should identify how much capital is needed to start the business. If the company requires more funds than the entrepreneur has, then he needs to seek outside financing to help open the doors. Usually, a business will seek out a business loan to help pay for the materials, inventory or equipment needed to operate the business.

The first place an entrepreneur should look for additional capital in starting their business is through what is commonly called “friends, family and fools (fff).” This form of capital is the easiest to find and obtain. After seeking support from friends or family, bank loans are often sought after. If your business is entering a fast growth industry and your capital requirements are great, then venture or angel funding may be needed.

Regardless of the type of capital source the business seeks, the entrepreneur needs to prepare a business plan, sound financial statements, and form a solid management team for the business. In addition to preparing the business for capital, the business owner must prepare their own financial worthiness. A good credit score or a cleaned-up credit report will be needed for the business.

The first step towards understanding business capital comes with learning as much as possible about the options, opportunities and the requirements of money and one’s business. Utilizing resources like the Small Business Development Center or the Innovation and Entrepreneurship Center are good places to start.

Start-Up Mistakes

With the help of Jonathan Sapir of Silver Tree Systems, below is a list of common business start-up mistakes. While some of mistakes listed may not apply to you, some of them are relevant. Plenty of challenges arise during the life of a business, avoiding as many of those challenges as possible will save you time and money. Learn what not to do before your own money is involved.

1.   You think that your product must be awesome because your buddies are telling you it is the greatest thing since sliced bread.  Unless they are willing to hand over cold cash to use your product, they are just being supportive and nice. Additionally, do your buddies represent the real market you are trying to reach?

2.  You are finding that your product is so versatile it could solve just about any problem.  This is a clear sign you don’t have anything worthwhile. No single business, not even Wal-Mart, supplies the needs of everyone for everything.

3.  You have found a client, but in your euphoria you have forgotten to ask yourself if this client is an anomaly.  You need to make sure that the client represents a real market, otherwise you are just building a custom solution. You need to be thinking about future customers.

4.  You keep coming up with ideas for all the many different ways you can make money with your product. You can sell it to Wal-Mart, Amazon, Google etc.  If you are not focused on something specific, you are dead.

5.  You choose to work with clients that don’t have a lot of money.  Sure they like your product, but they can’t afford to pay you enough for it, so why focus on them?

6.  You choose to work with a small client first instead of one that will be able to help you get more clients later on.  Just because Joe’s Fish & Chips is using your product doesn’t mean Motorola will be impressed enough to try it.

7.  You think you can’t work with a “real” client early on because it’s too risky.  But you aren’t selling them the product – you are selling them the idea of the product.   If you can’t sell them the idea, you are never going to be able to sell them the product.

8.  You start building the product before you have a (real) client identified.  Again, if you can’t sell the idea, you are definitely not going to be able to sell the product.

9.  You think you can’t sell the idea until you have a product.  This is a major killer – you think that as soon as you have feature X or Y, you can start showing people your idea. One more time – if you can’t sell the idea, you can’t sell the product.

10.  You don’t want to stop or throttle development when you aren’t really sure you are on the right track.  You just want to keep on going, because you just know that soon the product will be so awesome that it will dazzle everyone with its brilliance.   If people aren’t buying the idea, you better stop wasting money now until you have figured things out.

11.  You think that just because your product can solve a generic problem like “collaboration”, you have a sure-fire winner.  You have to ask yourself how your product really stacks up against the competition that is already out there and why people would buy yours, and if they would, for how much.  Often, the current solution being used is simply good enough, and even if yours is significantly better, no one is going to buy it.

12.  You underestimate the power of a penny over free.  If something is free and barely does what you need, you will stick with it versus something that’s much better but requires you to pull out your credit card.

13.  You think that just because someone says they would definitely use your product that they actually would use it – or that they would pay to use it.  Talk is cheap.

14.  You think that just because people say they would pay for your product (and actually mean it), they would pay enough to keep you off food stamps.

15.  You think that just because there is a company making money in your field, there must be a lucrative market that you too can take advantage of.  But there may not be room for more than one successful product in this particular area.  And the incumbent has a much better chance than you do of succeeding. 

Business Research

Researching Company Success

Just as cash flow is the lifeblood of a business, no business is going to go far or succeed at any great length without research. Research can be frustrating, time consuming and a bit mysterious if the entrepreneur does not take steps to prepare themselves to do the research they need.

The first step is to identify what needs to be researched. Do you need information on competitors, customers, industries, the economy, regions, marketing or advertising strategies, intellectual property or demographic data? Before getting started, write down the questions that you are trying to answer with your research.

The next step should be to identify people you can call first to get to the information you are seeking. This is considered primary information. Talking with customers or potential customers is critical in obtaining their feedback on your product or service and should be your first approach. Customers can give more than just mere feedback on what your company is offering. Customers can also give you key information on the industry, why they buy from you over the competition, what prices they are willing to pay, what you can improve, and keep your company on its “toes” by helping you stay competitive.

Beyond customers, call vendors, Chambers of Commerce, other industry leaders or people in your network for information or ideas for your company. If the first person you call does not have the answer to your question, then ask them for a referral to someone they know who could answer your question. Typically, it will take up to five phone calls to find the person with the information. If you find yourself afraid to call others for insight, ask yourself when will you be comfortable doing this?

After you have exhausted your time on the phone, seek out information from the internet. Limit the amount of time you spend on the internet. As great as the internet is, it is an open invitation to procrastination or a black hole of time gone by without finding your answers. When looking at internet sources, seek out information on the author of your source, who they work for, what are their credentials, etc. You want to seek credible information, not information that you think will support your idea.

After you have taken the time to gather information both data driven and anecdotal, you need to review the information with an open mind. Taking industry information and team it up with economic data and customer feedback and see how it applies to your company. Where do you stand; what is the message that the information is painting for you; and what improvements do you see that need to be addressed?

The idea of research is to make sure that your idea, product and/or company are a worthwhile endeavor. This decreases the risk factor you face with your business by giving you solid information on who your customers are, which vendors are best to work with, where to sell your product and so forth.

Market research is not a one-time event. Companies need to engage in this activity regularly, since the business world is constantly evolving and changing at increasing rates. Company leaders, Presidents, CEO, and managers should engage in consistent reading and information seeking. The traditional “executive suite” is an invitation to being left behind. Get out, get engaged, and get the knowledge you need to lead your organization forward.

Harvest Time

Every business has a beginning, and every business owner needs to know how they want to end their time in the business. Like the cycle of life, entrepreneurs invest time in giving birth to businesses, yet they spend little to no time planning the end. Few entrepreneurs think far enough into the future to include plans on how they want to harvest their business, which takes as much planning and attention as the beginning.

“Entrepreneurs are like farmers, they plant their seeds and work hard to ensure a healthy and plentiful crop. What they need to remember is to create a plan for harvesting or exiting the business. Farmers need to know how and where they are going to sell their crop. Likewise, entrepreneurs need to have a vision for when and how they would like to exit their businesses.”

Regardless of how long the entrepreneur wants to stay in the business, there will be a point when he or she will leave. Whether through selling or retiring the business, each business needs to be as prepared for that day as the first day. Three basic approaches to the exit include passing the business down to heirs, selling the business or closing the business.

Many entrepreneurs start businesses in the hopes that they will be able to pass the business down to their children when they are ready to retire. There have been many famous companies that have passed the family business down through several generations. While passing one’s business down to the next generation sounds easy, planning needs to occur in order to ensure a smooth and successful transition. Business owners need to prepare the next generation with the skills and knowledge needed for a good succession.

In preparing a succession plan for a family owned business, there are organizations devoted to assisting the business owner and his family for a successful transition. The Family Enterprise Center located at the University of Arkansas – Fort Smith is dedicated to assisting family owned businesses through multiple generational issues. Additionally, there is a national nonprofit, the Family Firm Institute, who provides information and research concerning the family company.

If passing the company to a chosen heir is not desired, cashing out of the business through  selling the business is the most popular exit plan. Unlike preparing a successor for the business, an entrepreneur can sell the business in different ways.

The first option in selling a business is to take the business through an IPO (or initial public offering). Taking the business public where shares are bought and sold on the stock market is not an easy option. The business is subject to the rules and regulations of the Securities and Exchange Commission. This strategy takes time, strict business practices and the entrepreneur needs to be aware of the rules surrounding the sale of the owners share in the company. Typically, businesses that need large sums of funding to conduct research or are going through a rapid expansion phase are candidates for an IPO.

While very few business owners opt to sell their business interest through stocks, many business owners sell their businesses to another buyer as his exit plan. There are different types of sales, so business owners should consult with a CPA and a lawyer to ensure the proper due diligence and valuations are conducted.

Lastly, business owners can simply opt to close their business. Whether retirement has arrived or the business is not in a position to be sold or passed down, the entrepreneur has the option to end the life of the business.

While no one desires to draft their own wills, business owners seldom enjoy preparing for their exit from a business they have put so much time an effort into. Knowing how and when to exit the company allows the entrepreneur the goals and milestones needed to ensure a successful transition. Additionally, the entrepreneur strengthens the business foundation for future success.

Entrepreneurial Lessons

Many seasoned business owners lived through what is commonly known as “start-up screw-ups,” or common mistakes made in early business ownership. However, business owners of all maturity levels fall victim to several common business problems. The one common issue the IEC sees through business owners is a desire for easy solutions to business troubles. Unfortunately, easy solutions are often a dream. If owning and running a business were easy, more people would leap into ownership. In an effort to take charge of your business, Guy Kawasaki suggests the following five tips:

1.       Focus on cash flow. Cash is what keeps the doors open and pays the bills, so knowing how cash works along with your profitability is critical. You need to get your costs under control, understand how much it takes to break even and how much you need financially to keep the business alive.

2.       Make a little progress every day. Don’t believe in the big-bang theory of marketing: a fantastic launch that created such inertia that you flew to “infinity and beyond.” No more. Instead, focus on making a little bit of progress every day – whether that’s making your product slightly better, increasing your skill in one small way, or closing one more business deal. The reason the press writes about “overnight successes” is that they seldom happen -not because that’s how all businesses work.

3.       Try stuff. If you are relying on luck alone, you better re-evaluate that mindset. While luck is a big part of many successes, don’t get too upset when you see less qualified businesses succeed. Secondly, luck favors the people who try new things and take analyzed risks. Be patient, talk with customers and try different products or solutions.

4.       Ignore schmexperts. According to Guy Kawasaki, “Schmexperts are the bad combination of schmucks who are experts – or experts who are schmucks. When you first launch a product or service, they’ll tell you it isn’t necessary, can’t really work, or faces too much competition. If you succeed, then they’ll say they knew you would succeed.” If you believe in your products or services, try it.

5.       Never ask anyone to do something that you wouldn’t do. This goes for customers (“fill out these twenty-five fields of personal information to get an account for our website”) to employees (“fly coach to Mumbai, meet all day the day you arrive, and fly back that night”). If you follow this principle, you’ll almost always have a good customer service reputation and happy employees.

The Economy Blues

 

Lately, it has been hard to help entrepreneurs without talking about the economy and the roller coaster Wall Street saga. While the trickle down effects of the actions on Wall Street and Congress will be revealed in the coming weeks and months, business and consumer confidence has decreased sharply.

One entrepreneur likened this time in the economy to the movie “Airplane.” As the passengers are asked to prepare for an “emergency landing,” the passengers actually begin to panic. In this economy, you are going to see a lot of panic happening; however do not be discouraged by what is around you. Above all things, be aware of your market and industry, watch your profit and loss (P&L) statements, and continue innovating.

StartUp Nation shares in the confidence that is needed by business owners now. “Checking out the newspapers, magazines, and television news over the last few weeks, I think we are being told to ‘assume crash positions.’ But, we’re innovators and inventors, we don’t follow the herd. In fact, we lead the herd.” Business owners need to stay motivated and move forward.

As the public feels more stressed, it’s the entrepreneur’s job to stay cool, stay smart and keep working. If there’s going to be a solution to this economic recession, it will be the innovators who  continue creating that will carry the country out of this problem.

Now is the time to use your business leadership skills to keep your business going strong. Evaluate your expenses, operations and market demands. Like waiting for a hurricane along the coast, prepare now, make adjustments in your business now and revisit your strategic plans now.