The Entrepreneur's Starter Kit: Were You Thinking This?
While you are considering answers to the questions in the first installment of The Entrepreneur's Starter Kit, be on guard for the following, usually misguided, assumptions many people make as they approach the idea of starting their own business:
One business is like another, right?
Wrong. Businesses share many elements, but the devil is always in the details. A retail store is an entirely different operation than an Internet-based service business. It is essential to know what you don’t know. Don’t assume that your current skills can be applied to any business; this is arrogant and foolish. Take the time to learn to adapt skills and acquire new skills needed for your chosen business. This is why business coaches recommend that entrepreneurs focus on a business they know something about. Stay close to home; stick to the kinds of businesses that are close to your skill set.
You will learn on the job.
Walking into a new business assuming you can wing it is tantamount to disaster. You may as well take your hard-earned cash and throw it away. If you have researched franchises, no matter what industry they are in, you will see that consistently the keys to success are the mandatory training program and the requirement that a franchisee have management (read business) experience.
The one exception to this rule is a small home-based business, starting part-time with little capital at risk while still holding a full- time position with an employer. You can take your time because you are under no pressure to make a profit and pay yourself to sup- port your family and household. You can make mistakes, experiment with your website, and learn as you go.
You can turn your hobby into your business.
This certainly has happened, and sometimes successfully. But the odds are against you. Try to understand your motivation in this situ- ation. Are you really interested in a business, or do you just want to spend more time with your favorite activities? Are there really enough potential customers to monetize your recreational activity? The IRS takes a dim view of people who insist that their hobby is a business and then take the tax relief offered to a legitimate business.
Everyone will want this!
Famous last words. One of the biggest mistakes is to extrapolate from survey or census data and conclude that the market for your product or services is huge. Most businesses appeal to a special- ized market, and even if so-called interested parties run into the millions, it does not mean that you can reach them effectively and cheaply, and it does not mean that they will sign up and buy.
Take the situation of two partners who found the “perfect” property from which to run an upscale garden center. The infor- mation they received from the buyer told them that the average family income within three miles in all directions was in excess of $72,000. This seemed ideal, until reality showed them that much of the census tract was made up of young families with one income and one stay-at-home spouse, along with retired people living on fixed income. Even if everyone in the area did like their garden goods and services, many could not afford boutique prices and would instead head for the nearest big box store.
The Internet also fuels this kind of fuzzy thinking by making it appear that everyone is online and therefore a potential customer. If that were true, the art of search optimization and keyword/concept utilization to get customers to your site would not be needed. And even if these potential customers buy, that is no guarantee that they will buy again. Repeat customers are one of the strongest elements in a successful business—and why businesses work so hard for customer loyalty and brand recognition.
You can do it better, faster, and cheaper.
The parallel to “everyone will want this” is the notion that the com- petition is weak, ineffectual, or technologically backward and you have the better mousetrap. Once operating, you may be surprised how ingrained the competition is, no matter how much you shout that you are better, faster, and cheaper. Buyers are reluctant to make changes if they are generally satisfied—one of the biggest reasons it is so hard to take customers away from competitors. Unless your competition has consistently mangled the customer experience, you will find it very difficult to divert their customers to your products or services. And then you have to deliver to keep those customers happy. And don’t think you can do it by price alone. Unrealistic pricing is one of the big reasons small businesses fail.
All this planning is a waste of time.
Why write a business plan? You know what you are going to do. In some cases, you may have been in this business a long time and you have thought of everything. These are, of course, the famous last words of an ill-prepared and unrealistic entrepreneur. Even the tiniest start-up needs a plan. It does not have to be a lengthy, overly formal document. It could be a detailed outline. But if you are going to put money into it or at some point you hope to interest a partner or an investor, and certainly if you plan to go to the bank for a business loan, you must have a proper planning document.
The bank will not give you a loan, so why bother?
If this is your view, then you clearly do not hear the hundreds of commercials sponsored by the banking industry. Not only will they lend money, but many banks participate in programs through the Small Business Administration that back loans to small businesses. Often the banks have little, if any, risk. Having said this, the recent banking crisis may affect availability of funds and interest rates charged. Be prepared to be flexible, and have a strong concept.
Ask friends and colleagues about banking relationships. Visit a bank near your business and talk to a commercial loan officer. Establish a relationship and rapport long before you may need a loan. The obvious start is to open a basic business checking account, make sure that you never go below the prescribed balance, and never, under any circumstances, overdraw the account. Keep in touch by e-mail or another visit or two. Be sensitive about the loan officer’s time, but remember that she is in the business of making loans. She wants to add high-quality loans to the bank’s portfolio.
Be prepared to sign loan documents that make you personally responsible for loan repayment if the business cannot meet its obligations. The lender wants as much collateral for a business loan as it possibly can get. Never, absolutely never, put up your home or condo as collateral for a loan.
You don’t need to be computer-savvy.
In most cases you need the basics to run a business—something like Word, Excel, PowerPoint, and a business accounting software package such as QuickBooks—along with an e-mail application and web browser, plus services such as Skype, Go to Meeting, SurveyMonkey, LinkedIn, and, of course, Facebook and Twitter, to make your communications inexpensive and seamless. If you do not even know how to turn on a computer, keep your day job. If your computer skills are weak, ask your kids, your spouse, your neighbor, or a friend for pointers. Or check out continuing education courses at your local community college. Just be sure to find some avenue for learning the basics.
As your needs change, you will learn more about the software and the Internet systems you use. All software has help screens and technical service help desks. Be careful, though—some charge by the hour, and the costs can run up quickly.
Life will go on as before.
This may be true if your business is part-time. But if your plan is to have an active, sustainable business, this will absolutely not be true. The reality is that neither time nor money (nor perhaps personal energy) will allow for life to go on as it was. Couples or families may be used to a comfortable summer vacation; you may have to substitute small camping or road trips instead. Plans to improve the house or go back to school may have to be postponed. There typically is not the income to cover extraordinary expenses and fund a start-up business. Something will have to give.
Accept, and discuss with your family, the fact that you will miss baseball games and ballet recitals. Younger children don’t distin- guish between play time and work time; if mom or dad is around, it’s play time. Plan to explain, as best you can, why you are around the house more often or why you are working from home now, and set boundaries for your interactions with them.
In the third installment of this series we'll examine the risks and rewards of entrepreneurship and provide an assessment checklist.
Small Business Administration
The Small Business Administration has excellent resources that can be used to help you sort through the myriad questions and problems you will face when you are planning a new business. Visit the SBA website and use the navigation bar at the top to locate and click on Starting & Managing a Business. There you will find tools and templates to help you get started.
The website About.com is a rich resource with several excellent short articles and tips. Use the links on the Starting a Small Business 101 page.
Internal Revenue Service
The IRS has all of the essentials a small-business owner needs to understand and manage tax liabilities. Its page be very useful, especially for starting, operating, and closing a business. From this page, you can also find information particular to small businesses by clicking on “Small Business/Self-Employed” on the navigation bar at the top.
SCORE is a nonprofit associated with the Small Business Administration. Its volunteers offer free business counseling.
View the full list of articles in this series excerpted from the book The Entrepreneur's Starter Kit: 50 Things to Know Before Starting a Business by Paul J. Christopher (2012, Huron Street Press, an imprint ALA Editions).
This article is excerpted from the book The Entrepreneur's Starter Kit:50 Things to Know Before Starting a Business by Paul J. Christopher (2012, Huron Street Press, an imprint ALA Editions).
Please note that unlike the majority of content on the @ your library website, The Entrepreneur's Starter Kit:50 Things to Know Before Starting a Business is copyrighted material and is not available for reuse under Creative Commons license.