By Keith Hovland
How would you answer this question? “I want to start my own business to …” or “In starting my own business, I would like to …”
There is no “right” answer to this question, but if your answer includes something about hating your current job, working fewer hours, being able to tell people what to do, or taking vacations in Hawaii, you may be giving yourself a “red flag” that you should address in really thinking through why you want to start your own business.
Since 1991, I have been actively involved in the launch phase of six business start-ups. Four of these businesses are still active today; one was sold to a competitor and one was discontinued. As a means of helping others who may be thinking of starting their own business, this BLOG is dedicated to sharing some of the lessons that I have learned in working with these six business start-ups.
In my lifetime, Facebook®, Dell®, Google® and Microsoft® have gone from start-up companies to household names. Most of us, in starting our own business would earnestly desire to be like one of those success stories.
An article on www.ask.com estimates that over 145,000 new businesses start up every year. They further estimate that of that number, 80% fail within the first year2. If we do the math, it would mean that 116,000 of the 145,000 start-up companies do not continue operations into the second year. (Italics added.)
If we want to be part of the 20% of the companies that don’t fail in the first year (and you wouldn’t be reading this BLOG if you weren’t one of those hoping for success), we can improve the chances of our success by thinking through why we are intending to launch our own business and how we plan to do it.
Some of the basic questions are as follows: Why am I going into business for myself? Do I really (really, really, really) have the guts and the staying power to see me through the tough times? Do I have adequate financing? Do I know how much it will cost to go into business for myself? Will I self-finance? If I borrow, where will I borrow and how much do I need?
However, there are other questions, too. A friend of mine holds a senior position with an established financial firm, but the company was facing a merger and he was facing the possibility of having to move out of state. One day, he confided to me that he thought that it would be really fun to have his own company where he would be cutting grass for people. He probably had done this work as a teenager and had visions of pushing a mower (or riding on a mower) on a nice sunny day in the summer, getting a tan and working himself back into a specimen of physical fitness. However, he wasn’t thinking of the fact that you only cut grass for about 4 months in the summer in Minnesota, that it would be very hard to line up enough customers to stay busy all day, every day, and that you can’t cut grass when it rains or when you have an equipment breakdown.
Obviously, some people have been able to make a living cutting grass, and they have developed a business model that has enabled them to be successful. My purpose for sharing this story was not to talk you out of cutting grass for a living, but rather to begin to introduce some of the realities of owning your own business.
Some of the additional questions would include “What is unique about what I want to do?” “Is the business that I want to enter a crowded field already?” “Who are my competitors? “Are my competitors big companies or small companies?” “Where will I get my customers?” “Will I get my customers by taking them away from other existing businesses or will I develop my own new customers?” “How will I market my products or services?” “Am I able to everything by myself or do I need to hire employee(s)?” “How much will I need to pay my employees?” “Can I get enough customers soon enough to tide me over until my business becomes successful?” and “What are the barriers to others entering this market?” (In a future BLOG, we will more fully discuss the topics of “Barriers to Entry” and “Hiring Employees”.)
Whether you seek outside financing or intend to self-fund the launch of your own company, the development of a business plan is a must. (www.sba.gov has a great template for a business plan.) The questions outlined above are not easy to answer, but until you are able to think through and articulate responses to questions like these as you outline your financing, staffing, marketing, and competitive niche in your business plan, you may be launching without adequate financing, without fully understanding the level of competition that exists already, and/or may not be able to sustain charging enough (or selling enough) of your products and services to be profitable.
While the completion of a business plan will not guarantee the success of your new company, it may help you clarify the exact market niche that you want to pursue, may help you decide to wait until you have more stable funding, or even possibly may help you decide not to start your own company.
As I write this BLOG, I would like to close with one final thought – if you are planning to take the plunge into starting your own business, and if you are in a relationship, make absolutely sure that your significant other fully supports your vision of what you want to do. If one partner has been spending money freely, and now all extra funds have to be pumped into the new business, the strain on your relationship can become unbearable. It is not “Good” or “Bad”, but some people are the risk takers in our society, and others abhor risk and cannot bear of thought of going without a steady paycheck. If you and your partner cannot agree that both of you are ready to take on the risk associated with launching your own business, you may want to hold off until you can make the launch with minimum risk or until your partner is able to fully supports you in this new venture.
For the past 22 years, Keith Hovland has been active in launching a computer consulting company, a web site development company, a company manufacturing high end chocolates, a lawn sprinkler irrigation and landscaping company, a drain cleaning company and a marketing consulting company. Now semi-retired, he remains as a active adviser for a drain cleaning company and a marketing consulting company.
Reference: 1. http://www.ask.com/question/how-many-new-businesses-start-up-each-year