Thoughts on Starting a Business.
Prepared by: Alan Walsh, Owner, Huntington Consultancy
There’s great interest these days in becoming an independent entrepreneur. I get a lot of questions from people seeking advice or help. I’ve written on this topic before, but once in a while I like to update my thoughts and suggestions. Here are some I hope you’ll find useful and pertinent.
Before you spend a penny:
Unless you have the “hot new widget” that the world can’t live without for another second, you’ll have to work at building a business. No problem. Good businesses have been built on such mundane activities as plumbing or retail. But you don’t want to go in half-cocked to any new venture.
There has to be a need.
An old saying goes: “Find a need and fill it”. In plain English, you must have demand for your products or services to be successful. Sometimes you can “create” that demand with clever marketing, but in most cases you must seek it out the old-fashioned way; and the clever marketing usually has a short shelf-life.
You won’t be operating in a vacuum.
In addition, you’ll probably have competitors for that demand; some of which have been in business a long time and who have honed their competitive skills. They may have skill and experience taking on and defeating other competitors. You don’t want to be their next victim.
Understand the environment you’re walking into.
Don’t go into a new venture without having some comprehension of the demand, your competitors, and what your strategy will be to win the market share you want. There’s a lot of info out there for the taking if you take the time to seek it out. For instance, the federal government tracks a great deal of data on products, industries, regions, demographics, prices, and other pertinent info. It’s free to the public. Go get it. A little internet surfing can uncover other useful data. All it takes is time. Much better to invest time doing things correctly up front than spending it, plus your money, trying to fix a mess later.
Learn before committing.
Understand your demand, your competitors, your operating regions, and any other data that will play significantly into your success or failure. In other words, grasp the business environment around you before jumping into it.
Let the research guide your thinking.
Something else to think about is how well suited you are to the enterprise you’re considering. You don’t want to be doing something you hate; especially if it takes a while for the business to get fired up. You’ll become your own worst enemy. Pick something you love, or can at least tolerate. The experience will be more meaningful. Don’t you want to have fun with your new business? No matter what you choose, there will be tasks you don’t like. For instance, there will be back office administration to be done. You may hate that kind of work. It has to be done, and done correctly. Who will do it? Consider this before committing. Don’t deliver nasty surprises to yourself for lack of foresight.
Don’t create a partnership you’ll regret later, or experience pain getting out of.
If you’re thinking about partnering with a friend or family member; think very carefully about it. I highly discourage it. Such partnerships have a nasty habit of going bad for a variety of reasons. If you just have to do it, draw up a partnership agreement that allows for a friendly (or at least minimally non-hostile) breakup without destroying the business. The bad breakup of a business partnership can be worse than divorce; and a lot more expensive. It can turn family against family, and kill friendships.
Draw on your expertise, or buy someone else’s.
What knowledge do you have that’s applicable to your business? Most people pick something they have some expertise in. If you have no particular specialty, you might want to consider a franchise where you will receive basic training. You’ll have to buy in, and you’ll have to surrender some profit & freedom, but you’ll get support and it works for many.
Knowledge is power.
These and many other thoughts should be considered and addressed before you spend a single dime on your new venture; otherwise you’ll probably just be throwing your time and money away. Starting a business is not a game. Treat it seriously out of respect for yourself and your immediate family.
Now we get down to the part where most people hit a wall: MONEY!
Most of the people who contact me need investment money for their business ideas. Many think I’m going to wave a magic wand and hand it to them. I always ask them three questions up front:
- Do you have any money of your own to put in?
- Do you have a business plan?
- What will you live on until the business becomes profitable enough to support you?
Really? You want someone else to fund your entire venture? Good Luck with that!
If the answer to question 1. is “No”, you’ll have a hard time getting anyone else to invest. Investors like to see you taking risk right alongside them. Why should they take all the risk? Project yourself into their shoes. Would you give someone money for a venture that they won’t even invest in themselves? It always amazes me how many people don’t grasp this basic fact of human nature.
Your desperation is no motive for an investor to give you their money.
Let’s say you’ve started a venture and already invested all your money. If you have no positive track record to show yet, it’s as if you’re starting from scratch with no money. In fact, questions will be raised about your failure to-date. Not a great situation in which to be asking for someone else’s money. Again, put yourself in their shoes. Where’s the investor’s motivation? They don’t care about how desperate you might be. They only care about protecting their own money; and making more money.
No Business Plan.. No Money.
If the answer to question 2. is “No”, you’ll have virtually no luck raising money; and in this economic climate, even if you have a business plan, it had better be really good. You’ll be competing with a lot of people for a very limited supply of investment money; and only the sharpest, who have done their homework and preparation, will succeed.
You’ve gotta’ eat!
If you have no answer to question 3., don’t even think of starting a business. You’re just dreaming. Most businesses take time to become profitable. Without an outside income source, you’ll just eat up your own business – literally – and fail.
This stuff is important. Don’t try to half-ass it.
If you’re serious about starting a business, but your expertise in these matters is weak, seek professional help. The huge bone-pile of aborted and failed ventures is filled with people who tried to “muck it through”.
Okay, so you’ve done your research, carefully thought out your business, written your business plan, raised your money, and lined up your temporary living income – and now you’re ready to actually get your business fired up & running:
- Start small
- Pace yourself
As a new business owner, you’re going to make mistakes. I virtually guarantee it. Do you want them to be small, inexpensive mistakes?.. or large, costly ones? Start small and give yourself a chance to grow with your business. Make your initial decisions & commitments deliberately and with thoughtfulness. If you rush in, you will likely rush to failure.
Operate mean & lean.
Don’t throw a lot of money at the business initially. Start with the absolute minimum investment required. Squeeze every penny and make your investment work as hard as possible for you. Grow the business from it’s own profits. If you build a decent track record, investors will seek you out. By then, you’ll probably be knowledgeable & seasoned enough to expand.
- Don’t buy where you can rent or lease
- Don’t acquire anything you don’t absolutely need
- Conserve cash for unexpected challenges, or new opportunities that arise
- Don’t succumb to frivolous temptations
- Make your money generate money
If you have an outside investor, they’ll be watching carefully to see what you do with their money. If you don’t have an outside investor, act as if you do.
Don’t let your business enslave you.
The next piece of advice is hard to follow when your business is new.. but try to avoid getting involved in something that makes you its slave. You’re going to become stale. You’re going to wear yourself out. Once in a while you need to walk away and let someone take charge for a short time. Besides, if you spend your whole life at the business, what was the point of starting it in the first place? What will your quality of life be like? Do you want to just work your life away and drop dead on the job?
AS THE BUSINESS GROWS:
Assuming you’ve got your business up & running, and have experienced some initial success, you’ll now face a new set of challenges. You’ll hit new plateaus. New problems & obstacles will present themselves. Situations will develop requiring new knowledge & expertise. This is where a lot of entrepreneurs get into trouble.
Ego is one of the biggest killers of new businesses.
It takes a certain amount of self-confidence, ego, and risk-taking tolerance to start a new business. This is good. But no one knows everything. I virtually guarantee you’ll run into challenges you’re not properly armed for. Don’t let your ego get in the way. Seek help. A small investment in professional help now can save you tons of money down the road, or help build profits exponentially. Likewise, keep an open mind to those around you. Your employees, customers, vendors, and others will impact upon your business. They might offer you “better mousetraps” if you’re receptive enough to see them. In my opinion, ego is the biggest killer of young businesses. People will stick with their stubborn perceptions right up to the day they are forced to close their doors; and then wonder why they failed. Turnaround experts make tons of money by taking control of your business away from you to do what is required; then they hand it back to you to screw up all over again. Don’t get caught up in that self-destructive trap.
The day will come when you must let go and delegate.
Finally, the day will come when your business has grown to the point where you can’t micro-manage it alone anymore. This is another area where entrepreneurs often get into trouble. When you feel yourself getting pulled in too many directions, it’s time to let go and delegate some of it to others. Many just can’t bring themselves to do it. Hire wisely, delegate, let them do their job, and manage by results. If a hire doesn’t work out, deal with it promptly. Don’t let the problem fester. Those businesses where the owner can’t make this transition usually fail.
Don’t take my word for any of this. Lots of studies have been done on this topic, and there’s plenty of data out there to support my opinions. This is not “rocket science”, and my perspectives are not unique.
I can go into a lot more, but these are the key thoughts that come to mind. I have a great deal of respect for entrepreneurs, and wish you all well. If I can help, give me a call or send me an email. I’ve built four successful businesses myself, and have helped many others with theirs.
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