Category: Starting Up

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Starting Up

Small Business Form – Partners or Associates?

In the late 1990’s, I started my own business. At the outset, I planned to be a principal in a firm with another gent, but circumstances at the time persuaded us to start off as separate entities and wait a while before joining forces under the same roof as owners of a company. As time went on, we both discovered that running our own operation was a great way to be – so much so that we never officially joined forces. We simply stayed working together on various projects, but remained legally separate as two different companies.

Let me go over some of the benefits of being associates rather than business partners. As first blush it may seem that there isn’t much difference. In many ways that’s true, but as always, the Devil is in the details, so let’s take a look. Here are five major points to consider before you dive into being a partner with someone instead of simply remaining associates who work together.

1. Funding – the single focal point of many problems in life is money, and it’s no different in the world of business. When you’re in a small partnership, you’ll likely be funding the operation from separate sources – one from each partner. When to fund, how much, where to hold the resources, and how best to protect them from unnecessary risk are all issues that need to get resolved with your partner. There is much opportunity for disagreement.

If you’re funding your own operation, there isn’t anyone you need to consult with or disagree with when it comes to funding. Nor is there anyone to help you share the blame for underfunding the enterprise or putting your investment at undue risk – it’s all on you. It may make your business life a bit more intimidating, knowing that you’re the only one calling the shots, but I find that’s so much easier than trying to argue with someone about how to finance a startup operation.

2. Expenses – again, another issue about money, but this time it’s about spending it wisely or foolishly. There are a multitude of issues regarding business expenses, including what kind and how much office equipment is necessary, how travel expenses will be handled, and what kind of investment will be made in business development. One partner may want a company car, the other might want cherry wood paneling in his office. The list of potential disagreements goes on and on without end. One person’s investment may be seen by the other as simply a luxury or item of prestige that doesn’t contribute to the bottom line.

If you’re on your own, you can spend like a sailor on leave, or pinch pennies until they scream. It’s much easier for you to implement your own set of values with respect to spending money if you’re the only one in charge of the purse strings. By far, the most troubling aspect of any marriage has to be household finances. It’s no different in a corporate partnership – you’re “married” to your partner and you suffer or succeed according to how well you’ve selected your partner.

3. Flexibility – it’s one of the things that we all cherish in both a service provider and a product provider. We all enjoy folks who can “work with us” and accommodate our interests. When you’re in a partnership, you need to check with your partner (s) about any number of things before proceeding. It might be associations, proposals, production commitments or travel schedules. There will always be something that reduces your flexibility to respond to customer needs. The larger the organization, the more difficult it is to be flexible and responsive.

As a “one-zee” you work for your customer directly and can be as flexible and responsive as is necessary to meet their needs and capture their loyalty. The idea of flexibility extends beyond simply serving customers. It also includes being able to team with other associates as necessary. Getting together as a team and offering customers a combination of small business resources is sometimes an exciting way to be responsive in the marketplace. Again, if you’re tied up with one or more partners, this slows down decision-making and can complicate matters, thus interfering with one of the main advantages of being in business for yourself – flexibility.

4. Changes in interest – another eventuality of being in business with others is that at some point there will be a shift in interest. One or more members of your joint venture might experience a change of heart, various personal distractions, a life-changing event, or any other shift in interest that alters the understanding or intentions on which you based your decision to go into business with another. Such perturbations can place quite a strain on the relationship that you have with your partner(s).

If you stay with a sole proprietorship model, as interests among your associates change, you can easily change the relationship that you have with your associates. Changes in relationship can include finding other individuals or business organizations to associate with. It’s not so easy with a partnership because, as you’ll recall, you’re essentially married to your partner(s) in business. Changing a relationship in such cases may involve a buy-out or lawsuit to settle the matter.

5. Dumb moves – not exactly a legal description of what your partner in business might do, but an apt description nonetheless. Whether it’s signing a contract, hiring employees, extravagant spending, inappropriate employee disciplinary action, engaging in unethical behavior, establishing precedence with your customers, or compromising the trust of your organization, sometimes your business partner can make a dumb move that places you in an embarrassing situation, or one where you can lose a valuable employee, associate or customer.

Again, as a “lone ranger” in the business world, you have a degree of insulation against dumb moves that others make because you’re at least one giant step removed from your associates. Not only can others not represent you without your consent, but it’s much easier to distance yourself or terminate a relationship with an associate that turns out to be a consistent liability rather than a dependable asset.

Not everything is rosy in the world of working on your own, but from my perspective, it’s a good place to start. Based on my experience, I was convinced to stay on my own and opt for associates instead of risking the entanglements of being a co-owner of an enterprise. My decision to stay on my own has served me well. I find one can still benefit from the advice and counsel of close associates, yet maintain sufficient distance when things go wrong – and sometimes they do, through no fault of your own.

About the Author:

Clair Schwan is a sole proprietor who started a successful  management and technical consulting business in the electric power utility industry. He has never been so happy and successful as he has been on his own, calling his own shots, and recognizing that there is really only one boss, his customer. See his advice regarding small business startup and operations at Sensible-Small-Business-Ideas where it’s clear that the only business you’ll really ever be part of is your own.

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Entrepreneurs Entrepreneurship Starting Up

Small Business Success –Avoid Letting Your Big Customer Sink Your Business

Image provided by www.2-small-business.com

Article Contributed by Jim DeLapa

A huge customer for a new small business can be both a blessing and a curse.  The positive side is more obvious—the business establishes an early recurring source of revenue. Since revenue is the lifeblood of any business, what could be wrong with that?  Nothing, if you don’t stop there.

Any new small business owner will tell you that there is never enough time to do everything he or she knows they need to do to grow their business.  In addition to fulfilling customer orders, there are personnel issues, the website and other marketing activities, and an unbelievable number of administrative tasks that must be done even if they don’t help to grow the business.

It seems perfectly logical to focus on just that one big customer when keeping up with that customer’s orders is taking all of your time.  After all, you have too much work to do now.  Why go out and look for new customers?   Wouldn’t it be better to just take care of the business you have?  The answer is ‘absolutely not.’ Don’t fall into that trap.

Of course you want to take care of your big customer.  But you cannot stop there even for a short time.  Doing so becomes a habit and a way of life for too many small business owners.  Remember, if you only have one customer, no matter how big, you don’t have a business, you have a job. Eventually it will become clear that you have no leverage and no control even over the fate of your own company.

To drive this point home, imagine that your new business gets off to a great start.  You land that big customer that everyone would want and you take care of them like no other.  Your business grows, you’re hiring people, taking on more office space, profits are strong and you’re living the American dream.  Then, after three years, they still account for 80% of your business and suddenly something changes. For any of a hundred reasons, you’re notified that your number one customer will be your customer no more.

Within 90 days, you lay off more than half your staff, take a pay cut and are negotiating with an unsympathetic landlord to take back some of the office space.  As you sit in your office alone at night with your head in your hands, you say to yourself, ‘If only we had gone after other customers when we had the chance.’   This story and this pattern are far too common among small business owners.  It leaves previously successful small business leaders feeling betrayed, humiliated and defeated.

Regardless of your success with any given customer, it is essential that you build a broad base of customers as if your business depends on it—because it does.   To ensure that your team gets behind this goal include “number of new customers” as a metric in your incentive compensation or bonus plans.  As the business owner, delegate less important tasks and stay involved in both the ‘big’ customer account and the effort to bring in new customers.

Building a small business on a diversified base of customers is a winning long term strategy.  In doing so, you’ll even out the ups and downs in revenue and profitability.  This will serve you well if you ever seek a small business loan or line of credit.  You’ll be creating a business with a higher valuation and one that delivers stability and peace of mind to its employees and owners.  Make sure your small business plan includes a commitment to building a broad base of customers.

About the Author:

Jim DeLapa is the founder of GreatBusinessPlans.com, a leading provider of small business plan assistance for current and future small business owners.  DeLapa has launched and invested in numerous successful startups and played an active role in nurturing two of those from inception through being acquired by publicly traded firms.

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Starting Up

Starting a Business — A Five Step Reality-Check to Evaluate Your Own Idea

Article Contributed by Jim DeLapa

One of the most frequently asked questions we receive is, “How can I be sure my new business will succeed?” Sadly, there is no crystal ball that can accurately answer that question. However, if you are serious about starting a business there are five steps you can take that will begin to give you a clearer picture. By following these steps you will gain tremendous insight into what lies ahead. Whether this reality-check convinces you to dive in, or hold back, you’ll be well served by what you learn. While we are huge proponents of founders developing a well written business plan, the steps below can be followed even before you start your small business plan.

Step 1: Write a simple elevator pitch to see if your business idea is compelling to others. If you haven’t created an elevator pitch before, you can stitch together the essentials very easily. Write a one sentence answer to each of the following questions. What problem will your company solve for its customers? Who has this problem and how large is that group? What will make your business unique so that customers will buy from you instead of a competitor? Finally, what are your qualifications to run the business? If you force yourself to write and re-write the very best one sentence answers to each of these questions, you will have the elevator pitch you need for this purpose. Now, try out your elevator pitch on 10 people you trust and respect to get their feedback and reaction to your well-formed business concept. This is the warm up for steps two and three.

Step 2: Talk to would-be customers to find out if there is a true need for your product or service. When you are thinking about starting a business, you obviously feel there is a void in the marketplace. Don’t wait until you open your business to find out if the need for another business is real or imagined. Armed with your elevator pitch, go have face-to-face discussions with future customers. You are not going to them to sell, or pre-sell. You are doing market research. After describing your business by generally following your elevator pitch, go into “ask and listen” mode. To get the information you are seeking, ask questions like, “How are you currently meeting your needs for (insert the products or services your company will provide)?” Listen carefully—this is the voice of the customer. In step one, you spoke to friends and respected colleagues. In step two, you are talking to people who currently buy products or services like those you will be selling. Select individuals who will be focused on the content of your ideas and less concerned about simply wanting to be encouraging.

Step 3: Become an expert on the competition. Identify 5 other companies that are already doing what you plan to do. Learn as much about them as you can. One of the best things to learn is if they expanding or shrinking. You want to be entering a business where the market and demand is growing! Take everything you learn and ask yourself what it says about the opportunity for your new business. If you can’t find any companies that already do what you’re planning to do, there two likely reasons: 1) There is not enough demand to support a business; 2) You didn’t look hard enough. The third possibility, and the one most often cited incorrectly, is that a genuinely new opportunity has been discovered, one that nobody else has ever thought of, and so there is no competition. Rarely is this the case.

Step 4: Develop a rough estimate of your breakeven costs. Think about the process of engaging the customer to the point of making a sale. What are all the things that you must have in place to make that sale? Do you need an office? A building? A sign? Computers? Phone service? Special equipment? Employees? Will you need to take a salary from the business from its inception? How much will you spend on marketing so that customers find out about your business? List all of the major items and estimate their costs for the first full year. Divide this number by twelve to see your total monthly fixed expenses.

To calculate their breakeven sales number, some types of businesses must also take into account their “cost of sales” or the additional cost that is incurred for each sale made. In a pure service business, such as consulting, there will be little or no “cost of sales.” A consultant sells his or her time. The breakeven revenue for this type of business would be the total monthly expenses calculated above.

Other businesses, such as restaurants or retailers have to take into account the cost of the goods they sell. For example, consider a company whose total monthly expenses are $10,000. If they sell picture frames for two times what they cost, they will need $20,000 in revenue to break even. The first $10,000 will pay for the picture frames and the next $10,000 will cover the base costs of the business.

Knowing your total costs and breakeven revenue requirements are essential in evaluating a business idea. As intended, this is a rough estimate which you can carefully refine if your business idea passes all your tests.

Step 5: Identify the person responsible for selling (and that person is probably you). Too many people start businesses without really taking into account how much will need to be sold, and who will be responsible for selling. In hindsight they say things like, “I always loved to cook, so I started a catering company.” “I worked as a carpenter for 10 years, so I decided to become a general contractor.” Upon starting their businesses, the chef and the carpenter immediately had the same goal–to become “salesperson of the year” in their respective businesses. When you start a new business, the business will fail or succeed based on whether or not you hit your sales targets. Regardless of who is doing the selling, the responsibility for seeing that the company sales goal is met falls on the founder. If you can say, “I am ready to be responsible for driving sales in my new company” then you have passed step five of the reality check.

Summary. If you take the time to put your business idea through the five-step reality check you will be well on your way to answering the question, “How can I know if my business will succeed?” You will have gathered all of the essential information to make an informed decision about starting the business. Next, take the foundation developed in the five-step reality test to start developing your business plan. You’ll find that the things you’ve already learned will give you a great head start.

About the Author

Jim DeLapa is the founder of GreatBusinessPlans.com, a leading provider of small business plan assistance for current and future small business owners. DeLapa has launched and invested in numerous successful startups and played an active role in nurturing two of those from inception through being acquired by publicly traded firms.

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Starting Up

Writing a Business Plan? Start with a Great Introduction

Article Contributed by Jim DeLapa

When it comes to writing a great business plan, most soon-to-be-new business owners struggle with the same question: Where do I start? In this case, the age-old answer to that question is the best answer, “at the beginning.” The most important part of your business plan is a well written introduction.

If you are seeking investors or a small business loan, your introduction must hook the reader so that they will feel compelled to read the rest of your plan. The first thing a lender or investor will want to know is what problem your business will solve for its customers. That is what businesses do—they solve problems for customers so convincingly that customers willingly give them their money. The first objective of your business plan introduction is convincing the reader that people will actually give you their money to do for them what your business will do! An example will help to go through the steps.

If you were starting a lunch deli, shift your focus away from the savory breads, top quality meats, cheeses and vegetables. Focus on the problem you will solve for your customers. “Downtown workers struggle to find quality food, at a fair price, with a convenient location that lets them get back to their offices in fewer than 30 minutes. These downtown workers don’t want to hassle with driving and parking just to get lunch. They are simply not willing to spend an hour out of the office in the middle of the day.” That’s the problem and it begs to be solved!

Your next objective is convincing the reader that there are a sufficient number of people who have this problem to sustain your business. The exercise varies depending on the type of business you’re starting, but it all comes down to knowing the size of the market you can reasonably hope to reach. For our deli friends, this might be stated as, “There are over 6,000 office workers within two blocks of our planned location. With phone in ordering and delivery service we will have the opportunity to reach all of those customers five times a week.”

Next, preview your unique selling proposition to the reader—tell them what makes you different. You’ll be able to delve into the competition later in the plan. For now, just let them know how your business is unique in the eyes of the customer. Let the reader know in a convincing manner that your business will not be a “me too” business in a crowded market. “Our deli will be the only ground level restaurant with both dine-in and over-the-counter takeout serving baked or cold cut sandwiches on freshly made bread, within six square blocks of the Triple-Towers.”

Finally, speak briefly about your credentials for operating this business. Again, you’ll be able to go deeper in the management section of your business plan. For now, let them know you are the right person to be operating this business. Our deli friend might simply say, “After growing up and working in the family restaurant business for more than 15 years, Joe Hamm our founder is an expert with customers, vendors and employees.”

What has the introduction accomplished? We’ve identified that there is a problem to be solved. We’ve established that there is a big enough market to support the business. We have clarified that our deli will stand out in a crowded downtown environment. Finally, we’ve let the reader know about the credibility of the founder.

More importantly, we’ve done what every good business plan’s introduction should do. We’ve left the reader hungry for more. The only solution to that problem is for them to read the rest of the plan.

About the Author

Jim DeLapa is the founder of GreatBusinessPlans.com, a leading provider of small business plan assistance for current and future small business owners. DeLapa has launched and invested in numerous successful startups and played an active role in nurturing two of those from inception through being acquired by publicly traded firms.

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Entrepreneurs Entrepreneurship People & Relationships Starting Up

Could You Succeed as an Entrepreneur? Look for These Signs

Entrepreneurs have a knack for seeing opportunities where others don’t. If you see 2010 as a good time to start a business despite the recession, then you may have an entrepreneurial perspective. Now you need to know if you have some of the other characteristics of successful entrepreneurs.
What helps entrepreneurs these days is that virtual business models put more emphasis on talent and less on administration and infrastructure. After all, e-commerce solutions can give you an instant storefront presence and credit card processing services can handle your receivables, and SEO can give you access to online customers with a minimal up front investment.
So now all you need is the right set of skills and characteristics. Consider whether you have the following ingredients of successful entrepreneurship:
1. Talent.
You should be able to identify at least one area of ability that makes you stand out from the crowd. This can be anything: technical expertise, sales skill, marketing insight, or logistical know-how. Since small businesses are talent-driven, you have to start out with the belief that you have the raw material with which to compete and succeed. It helps if your skills happen to be in areas with growing demand, such as health care or computer technology. If you have medical knowledge or a skill such as Web design, you may have a little wind at your back.
2. A new or different perspective.
“Me-too” businesses have a tough time making a mark, especially during a weak economy. Your business should be founded on the idea that there is a better way to do things. Ideally, you should have enough experience in your chosen industry to be familiar with the normal way business is done, and to have developed some unique insights as to how that can be improved. Being able to clearly articulate a differing perspective should be central to your business plan. In turn, it should also become the vision you communicate to everyone you hire, and the selling proposition you use to pitch potential customers.
3. A business network of connections and affiliations
Experience is valuable not only for knowing how other companies do things, but also for helping you form a business network that will get your new company up and running more quickly. Remember, people–especially business-to-business customers–can be reluctant to do business with a start-up. You should have some contacts who respect you enough personally to take a chance on your new business. Of course a network of contacts can also help you identify potential investors, suppliers, and talented employees. If you need to build your network think about joining a business community of interest.
4. A war chest.
Don’t start your business venture unless you have identified sufficient funding to not only get started, but to keep your business running through the inevitable lean months at the beginning. Many businesses are forced to go under just as they would be starting to gain some momentum, simply because they underestimated the amount of time it would take for profits to start rolling in. Funding can be from your own savings, outside investors, or loans. Of course, external sources of funding are harder to come by in a recession, but you can use techniques such as virtual offices to reduce the need for this type of funding.
5. Ability to take risk.
You should start any new business with a commitment to succeed, but an acceptance of the risk involved. Entrepreneurs are often people who are willing to trade a sure thing working for someone else for even a risky chance at running their own show.
6. An eye for complementary talent.
Once you start hiring people, you should think in terms of rounding out the team rather than looking for people just like yourself. It can be a mistake to have too many would-be leaders in one organization. If you have an independent and visionary outlook, you might do well to complement that with a strong administrator who can take care of the details.
7. Persistence.
Not only does it take a long time for a new business to gain traction, but entrepreneurs often don’t succeed on their first try. As long as you have confidence in the first two items on this list–your talent and your unique perspective on the business–you should be willing to keep trying.