Posted by: kandersen | May 10, 2012

Starting A Business – Things to consider

It seems that every once and a while someone will ask me about how to start a business and I am usually hesitant about giving a thoughtful answer. Usually the first question that comes to my mind is what makes them think that I am any kind of expert other than they know that I own a company. Owning a business does not make anyone an expert and I claim nothing of the sort as I learn new tricks all the time.

This blog is by far no where a complete guide and assumes that the reader has some brain to know the subtleties of all the back end crap that goes along with running a business (advertising/marketing, sales taxes, employer tax ID#, Inventory tracking, P & L, AR, etc, etc.) So for what its worth I thought I would write down some of my thoughts on the matter here for, its really a loaded question that really needs to be re-worded so that the correct answers can be given.

After giving the question some thought I realized that the question really should be “How do I succeed in a business”. Starting a business is really not a huge deal or undertaking. I mean really, goto the city or county where you reside and throw a few dollars, get a business license and your now “in business”. Of course this piece of paper in no way will automatically put you on the road to prosperity by itself.

As with anything the devil is always in the details.

Living in a smaller community, over the years I have seen many a business come and go. Some successful, some with little or no fanfare. Just proverbial flashes in the pan and then there are those which are like zombies, Just barely hanging on. Even in metropolitan areas there are business that can be classified into these 3 groups.
EDIT: Actually there are 4 groups where the fourth group is the one off’s those businesses that became wildly successful (microsoft, google, coca-cola, etc) Those are always lofty goals to strive for but the law of averages prove that very few entrepreneurs will ever attain those goals. Not saying that you cant or wont, Im just saying the odds are against it.

So you want to start a business. I have heard the statement that you should do something that you love to do anyway or at least that’s what my grandmother used to say. But I have a couple of thoughts on that. First off no matter what you “love” to do, given enough time doing it, it will turn into work. I dont care what it is. Eventually it will become old. That’s what made the hobby fun in the first place. Being able to walk away from it for a few weeks, Not having it tied around your neck 16 hours a day.
The second thought is that most things people love to do are hobbies and hobbies are quite limited on the customer base which you will be serving for the particular area. Severely limiting your overall customer base will hurt the business if not completely set it up for failure.

Know your customer

Ok, Im not saying that a hobby business is doomed to failure, but if your considering that route you need to know who your customer is going to be. If your planning a brick and mortar business, IE a shop on main street USA. Then you need to take advantage of the census data to know how many people live there. www.zipskinny.com is really informative to give you some idea of how many overall consumers you could have. Further research may provide you with some information as to how many of the population would be interested in what you have to sell them.

I could make examples of good and bad hobby business but as a general most hobby business turn into exactly that a hobby. They usually perform low on the profit margins, have difficulty paying their own way and the business owner namely you end up working for free. Its a typical zombie business that an owner invests a huge amount of time to keep the lights on. In most cases the thought that it will eventually turn around or perhaps the added sales at Christmas time provide a glimmer of hope towards better days. Regardless of the personal feelings the business becomes a burden. One that is a lot like keeping grandma on life support when deep down you know there is no hope and plug should have been pulled a long time ago.

So this leads to the big question of. Do you want to make money or do you want a hobby? Obviously you would like to make money. Making that money does come with some risk. If your going to risk your time and money opening and operating a business you should try to think of a plausible idea. Something that would appeal to the widest spectrum of customers possible. Some business idea that can compete with a big box store or provide NEEDED services that few or nobody else provides. Ideally something simplistic and “cookie cutter”. When I say cookie cutter I mean a product or service that is easily replicated or sold with minimal effort on you or your employees behalf.

A lot of people tend to gravitate towards specialty shops. They sell wedding dresses, tobacco, sell designer clothes or something along those lines. Which is fine if you have substantial overall population that the fraction of which will actually darken your door instead of grabbing something “doable” at a lower price from a big box store. here again, if you dont understand your customer you could be heading down a primrose path. I have lost count of how many businesses I have seen come and go. Some of them were the most stupid/redundant/useless ideas I ever seen. Here again tied back to a hobby or personal interest manifested into a business idea.

Asking your friends if XYZ store/shop/service is a good idea most friends will say yea! because they dont want to hurt your feelings. Most friends would say yea Bob, I always wanted a local store to buy pottery at. A public survey or even a few cold calls can give you an indication of how your product or store will fare in an certain area. Your friends may become your customers and you may understand them but your friends will not be enough of a customer base (unless you have a lot!) to keep you in business.

Know your competitor

Keep your friends close and your enemies closer. said the old proverb. Business is not unlike that in the respect that you need to fully understand who your competition is. Because if you have competitors your planning on going up against you will need to know their caliber. Look at their products, services, prices, customer service, Years in business, if they are busy, etc. With the information gleaned you can make a more educated decision if you wish to go head to head with them. Unless they are total incompetent its usually not a good idea to goto war as the new kid on the block it can be a hard boat to row.

The Business Plan!

A business plan is not just a tool you cook up to get money from the bank. A business plan is the actions you will need to draw up to start, run and the often forgotten part, exit. The simple truth is that most businesses fail within the first year. So you will need to have an exit strategy of how to shut down and dissolve the debts etc. A serious entrepreneur usually has had multiple businesses that failed and failure is a good thing. You learn from them and what not to do next time. Its nothing to be ashamed of, you just need to learn from the experience and then be able to apply that knowledge next time. You wont find that knowledge in any school. Other than the one of hard knocks. All you can do is to plan as well as you can to have the best shot of success.

When writing a business plan, make sure you are honest with yourself. You can cook a business plan to show all sorts of wild and exotic figures but unless they are based on fact your just lying to yourself. Here is where knowing your customer, knowing who your competing against and doing as much study about that particular business comes into play. Once completed you can then decide if that is the business you want to get into.

Best Of Luck!

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