10 Tips To Start A Better Business
Written by Matthew Blackwood - Friday, 29 August 2008
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Starting a Business can be exhilarating and equally exhausting. I have heard numerous stories of individuals who started business only to get discouraged, disillusioned, and quit. I need only refer back to several previous entrepreneurial endeavors that I embarked on.
The excitement level in the initial stage was so profoundly “giddy” I thought I might literally be able to walk on the moon. I had vision but no system with which to process the venture. Simply put, I was a train with no focused track to run on. Sure, I had a general idea of where I wanted to be but it was not broken down into specific and measurable goals.
So, hopefully out of that embarrassment and frustration I am that much wiser and more patient. Therefore please indulge me as I share with you 10 keys that I have found to be critical before you start your business. The reason that I preface the statement with the term before is because it is often extremely difficult to change gears once you have started down a path. Not because it has never been done before, but there are many factors from market variables, to cash flow, to human skill sets, that determine ability to shift gears. So here we go with some cautionary signs if you will.
Determine and be able to articulate why you are in business in the first place?
Some people refer to this as a mission statement. I like to think about it as a “reason for being.” Without getting to philosophical it is important to determine what drives you. If you are unable to do this then when the going gets tough what will keep you going. This personal mission or reason for existence is ultimately what will ultimately serve towards the institution of a business culture. I was speaking to someone about business perks and they mentioned the fact that EBay employee’s work sometimes back to back, eight hour shifts and yet remain in good spirits. Curious I asked that person, “How do you mean?” They responded, “There are amenities such as massage chair’s and tanks with fish that are there to create low stress work environments.” This environment comes as a result of a mission statement that EBay embodies in terms of how it feels about its employees.
How will you operate your business?
Will it be a retail business with POS (Point of Sale transactions, MOTO (Mail Order/ Telephone Order) or strictly a web based business? This is important because it will determine not only what “processing systems,” will be implemented but the associated costs. With POS transactions where Visa/Master Cards are being processed directly there are less associated risks. With web based or Moto transactions there are greater associated risks and therefore securing business loans and being classified as either a low, medium, or high level risk company comes into play.
How will you handle your payroll?
Will you have independent contractors, employees, or a mix of both? This is important because payroll and how you process it, will determine tax categories and associated write off’s. With independent contractors there is less overhead expense (insurance, taxes) but also liability issues. Do they carry their own million dollar E & O (Errors and Omission Policy) or do you as a company assume liability if they provide sub-par service and litigation ensues?
How will you market your business?
(Door to Door, Commercials, Radio)? As soon as you file a DBA, like the day…no more like the millisecond after you complete the paperwork you will walk outside and the phone WILL ring. It is uncanny how solicitors somehow are able to track you down the moment you open shop. So it is important that you do your research beforehand otherwise you may be sold “yellow page advertising” when a direct mail campaign may yield more immediate results.
I remember a while back I had a radio show, “Industry and Life Forum” the radio time slot was very affordable, however it was not effective. When I look at the ROI, I honestly cannot see any verifiable results other than the intangible feeling of personally creating a show that offered me another venue for communicating to business owners.
If you will have a bricks and mortar establishment how will you decide where to set up shop?
I am sure that you have heard the phrase, “location, location, location” right? The reason why this is important is because it is extremely difficult to advertise your business in an area where traffic is not already present. That is why businesses will pay higher lease amounts to claim a stake in the more affluent areas, where people will spend money. Otherwise you will spend a significant amount of money trying to draw people to a location where they usually don’t go.
How will you manage the distribution of your products, services?
Will you have a warehouse, will you drop ship? This is important due to the fact that the distribution of your products, will determine your overall success. Timing is important, if a customer purchases a product and the receipt of that product is not timely and the condition excellent then repeat business is unlikely. As matter of fact there is also the possibility of returns and chargeback’s. There are pro’s and con’s to having products on hand as well as internet based sales. The term Click and Mortar is a hybrid business that utilizes both internet based sales and retail sales. The ability to capture both markets works for some industries and associated businesses. But again these are the questions that ultimately you will have to answer in terms of risk and associated reward.
How will you finance your business? Will you pursue grant funding, angel investor funding or the traditional bank loan? Angel Investor funding is a great way to go if you are able to secure it. This is money that traditionally does not have to be repaid back. Having said that many angel investor’s today, are looking for a piece of the business or long term profitability options. Grant funding is also an option but along with angel investor funding these are competitive and difficult to secure. Most businesses don’t qualify for a traditional bank loan without exhibiting excellent credit ratings, and or having collateral to secure the loan.
With the economy slowing down and the cost of living going up it is getting harder to get significant loan amounts. Therefore, micro loans are often an alternative and usually don’t cover all associated long term costs necessary to operate the business. So as a business owner, you are going to have to prioritize spending accordingly and make difficult but necessary decisions.
How will you articulate your contingency plan?
If the market is not receptive to your offering what will you do? Although having a positive outlook is important it is equally important to recognize that success is sometimes measured by a sensitivity or awareness to what is and not what you want to be. Does that make sense? In other words if your business plan so carefully articulated, spiral bound, and passed around like a newborn child does not work will you know it? Will you react like the titanic and go down with the sinking ship? Hopefully you will have sense enough to have a contingency plan that says if x y and z do not happen then I will do s.
At least that way you work as hard and efficiently as you can but you are always conscious of the warning signs and are at least able to have a choice if and when the time comes. Although bankruptcy or selling the business is usually not the highlight of a business often it is a necessity in order to protect the valuable assets and associated ownership interests. The bottom line is don’t wait until you are too far into a process; plan those things out before you are emotionally committed beyond the point of return.
What is the timeline for break even and achieving profitability?
Again this question re-validates the previous statement. There must be a hard commitment to achieve profitability by a set timeframe. Otherwise you will soon be submerged under a tidal wave of financial debt without being able to react properly. Does that mean that by setting a timeline for profitability you will ensure its end? No but I would rather have clear and measurable numbers to aim for. Too many businesses are dogmatic about creating a very positive financial forecast to impress investors and secure funding, but once the honeymoon is over there is no re-evaluation or “real talk” moments. And the end result is as predictable as you can expect.
Is a start-up, franchise, or the purchase of a currently declining business the best way to proceed?
Often when a business files bankruptcy there are hard assets such as equipment, proprietary information and systems, and other business related resources that can be purchased for pennies on the dollar. So just because one owner or corporation was unable to successfully turn lemon into lemonades does not mean that you cannot take a failed business and make it profitable. Maybe you have better management skills. This is also the logical reason why acquisitions occur and also why people by failing businesses.
If perhaps they have the ability to adjust the business model, change locations, or provide an infusion of cash flow, who knows? Franchises sometimes provide a guideline that will work for you. But remember there is a difference between purchasing a Subway franchise and a Peter Pizza Franchise. Name recognition speaks volume and if you don’t have it then it will be a harder sell. Not an impossible one but a harder sell. If you do decide to pursue the “Franchisee” route then do your homework. You might get luck and secure funding through the seller/authorizer of the franchise purchase.
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