Business Overview
Congratulations! The decision to start your own business can be one of the best you will ever make in your life. Owning your own business should be an ex-hilarating, inspiring, grand adventure; one full of new sights and experiences, delicious highs and occasional lows, tricky paths and, hopefully, big open skys.
But to ensure that your business journey will be a fruitful one, it is im-portant to understand all that becoming an entrepreneur entails. Therefore, in Part I, especially in this chapter, you will get a broad overview of business and its many forms and possibilities.
Pros and Cons
Many people start their business adventure dreaming of riches and free-dom. And while both are certainly possible, the first thing to understand is that there are tradeoffs when you decide to start a business. Difficult bosses, annoying coworkers, peculiar policies, demands upon your time, and limits on how much money you can make are traded for independence, creativity, opportunity, and power. But by the same token, you also swap a regular pay-check and benefits for no paycheck and no benefits. A life of security, com-fort, and regularity is traded for one of uncertainty.
There are definitely pros and cons to starting your own business. To be more precise, the benefits of starting a business include:
- Control. Even if you like your boss and your job, the possibility re-mains that you can be laid off at any time. That boss you like so much can be transferred. Your company can go bankrupt. So one advantage of starting your own business is that you are more in control of your work and career. And while that may be comforting, you should also realize that with that control will come increased responsibility and a new set of demands. As the boss, the buck must stop with you. You are the one who has to meet payroll. You are the one who has to make sure that clients and customers are happy. You are the one who must hire and fire the employees. It is not always easy, and you can bet that there will certainly be times when you will look fondly back on your days as an employee, when you had far less responsibility and control.
- Money. Many people choose to start their own business for the sim-ple reason that they think that they are worth more money than they are making or they want the chance to provide a better life for their family. There is usually a limit to how much money you can make when you are an employee. The good news is that when you are the employer, the entrepreneur, the boss, there are far fewer limits. That can be a good or bad thing; you may make a fortune, or you may go bust. If this kind of uncertainty appeals to you, good, because it is what you will be getting if you start your own business.
- Creativity and independence. If you feel stagnant in your current job, you won’t feel stagnant for long if you start a business. Running your own business may require you to be the marketing wizard, salesman, bookkeeper, secretary, and president all rolled into one. It is a hectic life. But you may not mind that. It’s kind of like the Calvin and Hobbes cartoon in which Calvin’s mother tells him to make his bed. Calvin decides to build a robot to make the bed for him. When Hobbes asks, “Isn’t making the robot more work than making the bed?” Calvin answers, “It’s only work if someone makes you do it!” The same holds true when the business is yours—it often doesn’t feel like work be-cause no one is making you do it.
- Freedom. Working at your own business gives you the flexibility to-decide when and where you will work. You decide your hours and place of business. The freedom that comes with being your own boss, where no one can tell you what to do or how to do it, may be the best thing about being an entrepreneur. But there are also downsides to starting your own business:
- Uncertainty. As indicated, the life of an entrepreneur is not necessarily an easy one. Is it fun? Yes. Is it challenging, exciting, and spontaneous? You bet. But it is not easy. The hardest part of being in business for yourself is that there is no steady source of income; a paycheck does not come every two weeks.
- Risk. What is an entrepreneur? An entrepreneur is someone who is willing to take a risk with money to make money. Not all entrepreneurial ventures are successful. The willingness to take a smart, calculated risk is the hallmark of a smart entrepreneur. But even calculated risks are still risks. You could make a million or you could go bankrupt.
- • Lack of structure. Many people like the structure of working for someone else. They know what is expected of them and what they need to accomplish each day. This is not true when you work for yourself. The work is very unpredictable.
You need to consider carefully both the risks and rewards of entrepre-neurship before deciding to jump in. It is easy to become infatuated with the idea of owning your own business. But if you are going to do it right, if you are going to be successful, you need to take emotion out of the equation. You have to begin to think like a businessman, consider the risks, and make an in-formed, intelligent, calculated decision.
Do You Have What It Takes?
Considering the pros and cons of this venture is not enough. Making the decision to leave your job and start a business is monumental. Even if starting a business seems like a great idea, despite the drawbacks, the question re-mains: How do you know if you are cut out to be an entrepreneur? Do you have what it takes? In order to assist you, answer the questions in the fol-lowing quiz. It will help you evaluate your qualifications.
As you answer the questions, be sure to be perfectly honest. There is no need to get every question “right.” Businesspeople come in all shapes, sizes, temperaments, and skill levels. Thus, no test can determine if you are per-fectly suited to be an entrepreneur. But this test will help you realize some of the skills necessary to start your own business. You will only be hurting your-self and your business if you pretend to have skills you don’t possess
If you answered “a” on more than half of the questions, you have the personality needed to run your own business. If most of your answers were “b,” you’re likely to encounter more trouble than you may want.
If you have several “c” answers, then you are not quite ready to start your own business. But that does not mean that you can’t get ready. While certain aspects of entrepreneurship are innate (the willingness to take a risk, for example), many are learned (such as knowing how to conduct market re-search). If the results of this quiz tell you to slow down, that is good. You can always take business classes, read more books, or listen to business tapes in order to learn more. Another option would be to get a partner who has the skills you lack. There are many ways to start your own business, and if you are not ready now, it does not mean you will never be ready.
Getting Started
Step 1: Personal Evaluation
You need to begin by taking stock of yourself and your situation in order to figure out which sort of business is best for you. Why do you want to start a business? Is it money, freedom, creativity, or some other reason? What do you bring to the table? What skills do you have? What industries do you know best? Would you want to provide a service or a product? What do you like to do? How much capital do you have to risk? Will it be a full-time or a part-time venture? Will you have employees? The answers to these types of questions will help you narrow your focus and pick a business. The rest of this chapter will help you do that.
Step 2: Analyze the Industry
Once you decide on a business that fits your goals and lifestyle, you will need to evaluate your idea. Who will buy your product or service? Who will be your competitors?
Step 3: Draft a Business Plan
If you will be seeking outside financing, a business plan is a necessity. But even if you are going to finance the venture yourself, a business plan will help you figure out how much money you will need to get started, what tasks need to be done when, and where you are headed.
Step 4: Make It Legal
Once you form your business, you also need to get the proper business licenses and permits. Depending on the business, you may have to deal with city, county, or state regulations, permits, and licenses. This would also be the time to check into any insurance you may need for the business and find a good accountant.
Step 5: Get Financed
Depending on the size of your venture, you may need to seek financing from an “angel” or from a venture capital firm. Most small businesses begin with private financing from credit cards, personal loans, help from the fam-ily, second mortgages, savings, etc. As a rule of thumb, in addition to your start-up costs, you should have at least six months’ worth of your family’s
Step 6: Set Up Shop
Find a location. Negotiate leases. Buy inventory. Get the phones installed. Have stationery printed. Hire staff. Set your prices. Throw a grand opening
Step 7: Trial and Error
It will take a while to figure out what works and what does not. Follow your business plan, but be open and creative. Advertise! Don’t be afraid to make a mistake. And above all, have a ball—running your own business is one of the great joys in life!
Picking the Right Business
You already may know which type of business you want to start. If so, you get to pass Go, collect $200, and skip this section. But if you are not yet sure exactly which sort of business is right for you, then read on.
There are few times in life when the stars align themselves just right to allow you to go into business for yourself and pick the exact business you want. Usually, money is tight, the time is wrong, your wife is pregnant, or some other reason is preventing you from choosing the right business. Con-sider this a rare, golden opportunity and choose your business with care.
How do you go about choosing a business? There are many ways. Some people do something they know how to do well, and that’s usually a fine idea. The main consideration for others is that their business has a high profit mar-gin; again, not a bad idea. Still others want a business that is hot and trendy. This is not such a great idea.
There are always businesses that you can start on the cusp of a wave. A few years ago, you might have considered an e-commerce Web site. While this is still not a bad idea, it is definitely harder to make money in cyberspace these days. The problem with this idea is that waves crash. Starting a business based on a trend can be a recipe for disaster.
Instead, you should ask yourself the following five questions. The answers to these questions will be much more helpful than any list of hot businesses.
What is something that I do well that I like to do?As in life, we tend to succeed and do well when we are engaged in something that we really enjoy. Your business should be no different. Richard Branson started Virgin Music, not because he thought music would be hot, but because he loved music. Bill Gates started Microsoft because he loved working with computers. As the title of a book says, do what you love, the money will follow.
2. Is there a market for this business? Let’s say that the thing you love doing is gardening. Well, there is no shortage of businesses that revolve around that concept, such as nurseries and landscaping. But what if the thing you love most is nineteenth-century Danish architecture? However interesting it may be to you, you don’t have a business if no one is willing to pay you for your expertise. So you have to be realis-tic—there must be a market willing to buy what you want to offer. Chapter 5 discusses how to do this in detail.
3. Can I afford to start this business? Some businesses are very inex-pensive to start, most notably, home-based businesses. Others can be quite expensive. A nursery can easily cost $75,000 to create and stock. Buying into a well-known franchise can cost over $1 million. In ad-dition to picking a business that you like for which you have a mar-ket, you also must make sure that it is one you can afford to start. This is discussed in detail later in this chapter.
4. What will distinguish my business? Your business must offer some-thing unique if you are to attract customers. After all, they already shop somewhere else. Why will they choose to buy from you? You must offer better quality, cheaper prices, a more convenient location, better service, a unique product—something that makes you stand out from the crowd.
5. Can I make a profit? Whatever business you start, whatever product or service you sell, you have to be able to sell it at a price high enough to make a profit, but low enough that people will buy it. Set-ting this price is not always an easy task. Why do so many stores in expensive malls go out of business? Because often their overhead is too high, despite having a great concept. So before jumping into a business, crunch some numbers.
Although all of these issues are important, they should point toward one direction, namely, your passion. As you know, working with passion is one of the great joys in life. This is even more true when choosing a business. This busi-ness is going to become your baby. You will love it, care for it, nurse it along, and obsess over it. You will also be putting an extraordinary number of hours into it. You will be working at it all day, every day, hopefully for many years. Unless you love it deeply and are passionate about it, working so hard will be difficult
✎What Type of Business Shoud You Start?
Completing the following statements should help guide you to choosing an appropriate
business.
I am happiest when I ---------------------------------.
I feel excited when I ---------------------------------.
If money were not an issue, I would ---------------------------------.
The best advice I ever received was ---------------------------------.
The best thing I ever did was ---------------------------------.
Work is best when ---------------------------------.
Life is best when ---------------------------------.
My hidden talent is ---------------------------------.
My purpose is ---------------------------------.
I have the most fun at work when I ---------------------------------.
The skills I most like using at work are ---------------------------------.
What people admire about me is ---------------------------------.
I am best at ---------------------------------.
The training I had that can help me is ---------------------------------.
Making the Decision
Deciding on an area that you love is only the first step when choosing a business to start. The rest of the required analysis is much more left-brained, more analytical. It consists of two steps:
- Looking at how much you have to invest
- Conducting market research
Analyzing Your Start-Up Costs
As important as it is to choose a business you will love, the business you pick must be one you can afford. While Chapter 9 discusses many ways to get the money you will need to start your business, you probably already have a fairly good idea how much you will have to get started. Needless to say, the business you choose must fit within those parameters.
Essentially, there are two types of businesses: service-based businesses and product-based businesses. Of the two, service businesses are far less ex-pensive to start. If you open an accounting firm, for example, all you may need to get started is letterhead, an office, and a computer. On the other hand, if you want to start a computer store, you need to have inventory, shelv-ing, fixtures, and display cases, not to mention retail space, a security system, and a sales staff.
One of the first things you must do is analyze your start-up costs to de-termine if you can afford to start the business that you love. Again, Chapter 9 will walk you through the process of determining how much money you will need to get started, but as you go about deciding what sort of business to start, keep in mind financial considerations.
Conducting Market Research
The other aspect of choosing the right business is making sure that there is a need for the business you want to start. There are few things worse in life than putting a lot of money, time, and effort into creating a new business, only to find that there is no market for what you are selling. Chapter 5 will help you understand how to conduct market research.
The important thing is that you choose a business that fits your person-ality, is something you love, and can be successfully implemented with the re-sources available to you. If that means scaling your idea back a bit in the beginning, that’s fine. Once you get your baby off the ground, you can grow as much as you are able.
Overcoming Fear
- Remember that you can start slowly. Quitting a nine-to-five job oneday and starting a business the next would give anyone nightmares. You don’t have to do it that way if you don’t want to. Making a grad-ual transition gives you time to think, plan, and work on potential problems, which should help lessen your anxiety.
- Help is available. And much of this help is free. The Small Business Ad-ministration, your friends, Web sites, the local chamber of commerce, and business associates will be available to help you along the way.
- Plan. Nothing beats preparation to quell the panicky feelings thatcan keep entrepreneurs awake at night. “A well-thought-out business plan can go a long way toward helping alleviate start-up fears,” says Mark Sobel, director of Small Business Development at the StanleyEntrepreneurialCenter.
- Expect the unexpected. Unless you are blessed with unlimited mon-etary resources, starting a business means taking a financial risk. Al-though you may not be able to keep all problems at bay, you can accept the reality that being in business brings risks along with the rewards. That’s the name of the game.
- Put fear to work. Why view fear as a negative when it can be a pow-erful motivator? Fear of forfeiting a home to the bank has launched more than one laid-off employee on the road to self-employment, and fear of failure pushes many entrepreneurs to work around the clock to get their businesses up and running. Remember that most success-ful entrepreneurs have been afraid at one time or another.
- Build a support network. Talking to fellow entrepreneurs who havewalked the same path you’re about to embark on can help assuage your fears. Attend conferences, join associations, and talk with others who started as you did but who have moved on to the next step.
For ex-ample, you might have money in the bank, friends in the industry, a supportive family, a good attitude, a great idea, an awesome partner, chutzpah, or a good education.
