Ready to be your own boss? These smart keys to starting your own business will make your vision of independence a reality.
You’ve decided it’s time to start your own business, but you’re worried you don’t have the assets, capital, contacts and experience necessary to get it off the ground. Relax. Now’s your chance—with time on your side—to lay the groundwork so your new enterprise can start off at maximum advantage. Sitting at the kitchen table with a laptop or pen and paper doesn’t cost anything.
Plan Ahead
The first thing to do is outline the opportunity. You need a strategy that covers not only opening the doors but bringing traffic through them for the first couple of years, with a wide range of contingency plans.
Your first step: drawing up a business plan. Why do you have to do this? For one thing, it becomes a guide to keep you on track and not distracted, but the real importance is getting you to think through the necessary steps and conduct research in the field you’re entering.
This doesn’t have to be a huge document covering every possible detail. You’ll need to describe the product or service you plan to offer, with some background on the industry. Other essentials include an introduction to your leadership team with mini-biographies and an outline and timeline of your strategy to start turning a profit.
In the business plan, it’s crucial to identify and profile potential customers and explain why they would migrate to you from existing commercial channels. What makes your offer compelling? What’s a likely percentage of early adopters?
You’ll need to test those assumptions. The New York Times outlines a smart next step: “Identify a list of likely customers and call them,” avoiding friends and acquaintances. The people you’ll call should give you an honest assessment, and you can get a wider-angle view through the use of online survey services like Constant Contact or SurveyMonkey
Your work here is a smaller version of what big companies do when they launch IPOs—and it means honestly presenting the full range of possible outcomes (even the negative ones) and a comprehensive assessment of the market you’re entering. If disruptive market changes loom on the horizon, mention them in your business plan. Just as writers producing book proposals outline the existing works on the subject, you’ll need to make a list of competitors along with the strengths and weaknesses of each. The deeper your understanding of the market, the better. You don’t want to be surprised by what should have been obvious.
Find the Funds
The next part is the hardest in at least two ways—most people hate raising money, and in the current economic climate it’s darned difficult. You’re probably going to have to reach beyond the comfort zone of friends and family (though don’t rule them out).
If you’re determined to own 100 percent of your business, it helps to have deep pockets—think of a worst-case figure for how much money you’ll need, then add some zeroes to it. Many great companies have been launched on a bold entrepreneur’s credit card. According to the Pioneer Institute, borrowing against your credit cards and loans from relatives are the two most common financing models for startups with five or fewer people. You’ve heard of a little company called Google? Sergey Brin and Larry Page started it in 1998 by spreading their modest costs across three credit cards. You can also borrow against your assets, but that’s risky—in truth, just about all financing is risky, and all new businesses are a gamble.
The crowdfunding revolution has created more avenues than ever to secure capital, but there is plenty of competition on popular sites such as Kickstarter and IndieGogo, so make sure you’ve created a pitch that will pay if you decide to go that route and be prepared to compensate your sponsors in at least some small way.
Assuming you’ve got the money, you’ll still have to decide what kind of business this is—a sole proprietorship, a partnership or a corporation—and file the necessary paperwork (either with a lawyer or by yourself). And you’ll need a memorable name that’s legally clear. The current trend seems to be colorful phrases that have nothing to do with the actual business—Pandora for a music service, Yelp for restaurant reviews and Uber for an online taxi service.
Love It or Leave It
Given the very real possibility of failure, does it help if your new venture is a labor of love? Absolutely, because you’ll likely be starting with a base of knowledge and enthusiasm that large companies in the field sometimes lack. But you can’t let your passion for the field create the illusion of a business opportunity where none exists. A classic example is the passionate cook who starts a restaurant in an over-saturated market.
Still, don’t underestimate the power of doing something you really care about. Dawn (a physician’s assistant) and Brian (a mechanical engineer) Riesett weren’t horticulturalists when they launched their Maryland-based Dreamland Christmas Tree Farm in 2004. “We knew nothing about Christmas trees,” Dawn told the Frederick News-Post. “It was a dream we came up with.” This was no walk in the park—the Riesetts had to learn about tree diseases, fungi and bagworms, which they had to pick off of trees by hand. Drought killed their seedlings one year. But they persevered and are still selling trees and wreaths today.
Learn from Life
Kimberly Catlett of Boise, Idaho, had plentiful business experience—she spent 15 years in management and marketing. But to find a great small-business idea, she needed only to look down at her very petite size 5½ feet. It was difficult to find shoes that fit, so she quit her job and developed the Bella Modi brand, which markets kits that allow the buyer to custom-assemble shoes into different styles.
Don’t defer your dream just because the money pile isn’t high enough. Ann Marie Sastry, a former University of Michigan engineering professor, had nothing but a concept and an eight-page PowerPoint presentation when she sat down to create her solid-state battery company, Sakti3. What she did have was conviction and clear goals. Finally, following years of after-hours work, she quit her tenured position to create next-generation cells for a receptive auto industry. The company has landed $30 million in venture funding, including capital from big players such as Khosla Ventures and General Motors.
Confidence is key, and it helps if you’re willing to gamble. “All you ever get is a reasonable chance to succeed,” Sastry says. “If you only do the things that are assured of success, you’d never do anything at all.”
Don’t Be Closed-Minded
A lesson we can glean not only from Sheldon Adelson but also from Elon Musk is to follow new opportunities wherever they may lead. Adelson might have stayed in computers, a subject he knew well, but in 1988 he saw an opening and bought the aging Sands casino for $128 million. A gaming empire followed. Similarly, Musk took his $165 million windfall from the sale of PayPal, and rather than starting another online business in his comfort zone, he followed a longtime interest and began SpaceX, then invested in (and took over) a struggling electric car startup, Tesla Motors. In both cases he combined business potential with personal passion.
Tesla is soaring now, but the business has had many setbacks and negative headlines along the way. Failure, as Musk put it in an interview, is always an option. If things are not failing, he reasons, you’re not innovating enough.
Do the lessons of billionaires like Musk also apply to people starting small, even part-time, businesses? Some do and some don’t. Raising money will loom as far more important for the fledgling entrepreneur, and establishing credibility without a track record can be a challenge. But any new business faces doubters, and Tesla’s success is inspirational on any scale.
The odds of your venture not making it are indeed fairly high, but don’t believe every negative thing you hear. The Small Business Administration reports that “about half of all new establishments survive five years or more, and about one-third survive 10 years or more.”
The longer you’re in business, the better your odds at staying in business. Getting over the startup hump is the critical challenge faced by any newly hatched entrepreneur.
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