The Statistics • Every year two to three million small businesses are started. • The reality is that about 50% of small business fail within 5 years. • Knowledge of the business, sufficient capital, good experience, and a unique idea at the right time are just some of the characteristics of a successful business owner. • Although there are no guarantees that you will be successful, you can greatly improve your odds by becoming well-prepared for the task.
Be Prepared! • The key point to remember is that you should not start the business before you’ve done all your homework and you’re convinced that you are ready for the challenges, the responsibility, and the time commitment that go into starting your own business. • This class will take you through the process of starting a new business, from thinking up new business ideas, to evaluating the profit potential of a business concept.
The Pros • You have chance to make a lot more money • You’ll be your own boss and make all the crucial business decisions • You may be the boss of other people • You will have the chance to put your ideas into practice • You will learn more about every aspect of a business and gain experience in a variety of disciplines
The Pros • You will have the chance to work directly with your customers • You’ll be able to benefit the local economy, such as hiring other people • You will have the personal satisfaction of creating and running a successful business • You’ll be able to work in a field or area that you really enjoy
The Cons • You may have to take a large financial risk • You may have to work long hours and have little chance of taking a vacation • You may end up spending a lot of time attending the details of running a business and less time on those things you really enjoy • You may find your income is not steady and that there are times when you don’t have much income at all
The Cons • You may have to undertake tasks you find unpleasant, such as firing someone or refusing to hire friend or relative • You may have to learn many new disciplines, such as filing and bookkeeping, inventory control, production planning, advertising and promotion, market research, and general management
Special Pros and Cons of Home-based Busines • You startup costs will be lower • Your operating costs will be lower than if you were renting space and paying utilities • Your commute will be shorter • If your location is unimportant to your business, you can theoretically live anywhere and still operate your business • You may have more flexible schedule if your business can be conducted at your convenience or outside “normal” weekly business hours • You may run out of space at home, if your business grows.
Are You Ready? To be successful ---- to stay in business – you need: • A combination of hard work, skill, perseverance. • You need to understand the responsibilities of ownership: what’s involved in running a small business, and what are some of the roles you will have to play if you own a business. • Finally, you need to evaluate your skills and determine whether you have all the important ones you’ll need, or whether you can develop them or hire someone who already has them.
Many Roles of the Small Business Owner • Tax Collector • Manager/boss • Sales/marketing/advertising executive • Accountant • Lawyer • Business Planner • Bill Collector • Marker Researcher • Technology Expert • Clerk/receptionist/typist/secretary
Tax Collector • If you sell goods at the retail level, you’re responsible for collecting sales tax for various government entities. • If you have employees, you’re responsible for collecting payroll taxes from them.
Manager/Boss • If you have employees, you’ll be responsible for all of the human resources-related functions, including recruiting, hiring, firing, and keeping track of all the insurance forms, answering employee questions and complaints, and making the decisions about whether you should change the benefits package you offer your employees.
Sales/Marketing/Advertising executive • In addition to having to plan your marketing or advertising campaign, you’ll have to carry it out. You may write advertising copy, do some preliminary market research, visit potential customers, and make sure existing customers stay happy. • Depending upon the type of business you own, you may have to join business groups, attend various functions, and network with others who could help your business prosper.
Accountant • Even if you have an accountant, you’ll have to know a lot about accounting, since you’ll have to know which records to keep and how to keep them. If you don’t have an accountant, you’ll also have to prepare all of your tax forms, and you’ll have to know how to prepare and interpret all of your own financial statements.
Lawyer • Even if you have a lawyer, you’ll have to know a lot about the law. If you don’t have a lawyer, you’ll have to prepare all of your own contracts and other documents, and know what to do if potential lawsuit arises.
Business Planner • As time passes, you’ll want to make changes, perhaps to expand the business or add a new product line. If you want to make a change, you’ll have to plan it and execute the plan.
Bill Collector • When customers don’t pay, it’ll be up to you to collect from them. You’ll have to know what you can and can’t do and when to give up.
Market Researcher • Before you start your business, you’ll have to find out who your customers are and where they’re located. You may also have to conduct market research at various times during the life of your business, such as when you are considering the introduction of a new product.
Technology Expert • As a small business owner, you will probably come to depend upon your computer. You’ll have to fix it when it breaks, install upgrades, and load software; you’ll also have to keep up with the new products.
Clerk/Receptionist/Typist/Secretary • Even if you have clerical help, you’ll do some your filing, some of your mailing, and some of your telephone answering. If you hire someone, you’ll have to teach them what to do.
Do you have what it takes? • Successful small business owners know their own strengths and weaknesses. They build their businesses around their strengths and they compensate for areas where their skills are not so strong. • Strengths and Weaknesses Checklist
Strengths & Weaknesses • 20 points or less -- put off opening business for 6 months in the meantime do more research and develop skills. • Between 20-25 points – Spend more time to improve your weaknesses. • 25 points or more – You are mentally ready to start your business.
Essential Qualities for Owners • Willingness to sacrifice • Strong interpersonal skills • Strong leadership skills • Strong organizational skills • Intelligence • Management ability • Business Experience • Optimism
Willingness to sacrifice • You must be willing to accept the fact that, as a small business owner, you are the last one to be paid, after your vendors, the bank and your employees. • You must also be willing to sacrifice much of your free time, and may find it hard to take a vacation, at least at first.
Strong interpersonal skills • If you thought that getting along with your boss was tough, wait until you have to deal with suppliers, customers, employees, lawyers, accountants, government officials, and everybody in between. • Successful owners are able to work with all personality types, and they’re able to find out from their customers what they like and don’t like.
Strong leadership skills • Successful owners understand that others may be looking to them to be led to the promised land. • Others will be constantly looking to you for the answers.
Strong organizational skills • Successful owners are able to keep track of everything that’s going on in their business and they’re able to set priorities and get things done.
Intelligence • We’re talking about street smarts and common sense. • Successful owners are able to anticipate problems before they arise and to take steps to avoid them and they know how to solve crisis if they occur.
Management Ability • Small business is all about managing relationships, with your customers or clients, with your employees, with your suppliers, with your accountants and lawyers, with your banker, and with your family.
Business Experience • If you lack experience in your type of business, go get it any way you can: volunteer at an existing business, or try to get a part-time or weekend job in the field.
Optimism • How will you react when business isn’t going as well as you expected? A pessimist may fold the tent, but an optimist will keep going. • Successful owners are optimists who are able to weather the rough spots.
Compensating for Undeveloped Skills • Once you’ve looked at your own strengths and weaknesses, and compare them with the traits you’ll need to have if you’re to be successful, the next step is to figure out what to do if you don’t yet possess all of those traits. • First of all, don’t despair, your options include hiring someone who can handle tasks you may not be good at, partnering with someone who has the traits you lack, or developing traits or skills yourself.
Compensating for Undeveloped Skills(examples) • If you don’t like to sell, you can hire a salesperson. • If you don’t like to do accounting work, you can hire an accountant. • Down the road, as you get farther along in setting up your new business, you may determine that the convenience of paying someone else to do the work is outweighed by the costs. But for now, all you have to do is identify whether someone else could do the work for you.
Compensating for Undeveloped Skills(examples) • If your list of things you don’t like to do includes items that you can’t hire someone else to do, such as working with others, the solution is not so easy. • Your best bet may be to partner up with someone whose skill set compliment yours.
Learning New Skills Another possibility is to develop the traits and skills yourself. There are at least 3 ways to do this: • Trial and Error • Take business classes • Locate your business in a small business incubator
Trial & Error • Also known as learning from your mistakes. • The downside to this approach is that most small business won’t give you much time or allow you to make mistakes. If you benefit with trial and error, it’ll usually be with the third and fourth new business you start.
Take business classes • At Vocational School or Community College • They offer classes at a reasonable price • Many entrepreneurs use THIS class as a stepping stone to success. • Accounting, Tax, Marketing classes.
Business Incubators • Locate your business in a small business incubator. • Incubators are programs that provide you with office space and access to office equipment and services in a nurturing environment, and frequently with personalized advice from the incubator operator as well. • Most are run by government-sponsored economic development agencies, but there are also some privately operated incubators.
Business Incubators (cont.) • For more information and location of business incubators near you call the National Business Incubator Association 740-593-4331 • Small Business Administration 800-827-5722
Researching New Business Ideas • If money were not an issue, you could contact a market research firm and have it analyze your community and find out for you where small business exist. • But if, as for most of us, money is an issue, you will have to gather the information yourself.
Researching New Business Ideas A good place to start looking for new business ideas is with the mainstream press: • Your local newspaper • The New York Times • The Wall Street Journal • Fortune Magazine • Business Week • Forbes • Time
Researching New Business Ideas • Look for trends that may be emerging, not just in business, but in our culture at large, that are creating needs for new products or services you could provide. • Talk to friends, relatives, business associates, and other small business owners about their ideas and their frustrations with existing products and services. • Look in yourself, you are a consumer, if you’ve wished that a particular service were available, chances are that others have to.
Niche Marketing • An approach that is more effective than tackling brand-new business ideas head-on is to look for ways that you can perform a service or provide a product that fulfills the special needs of a smaller subset of the customer population. • By specializing, you may be able to meet these customer’s needs much better than larger competitors.
Niche Marketing • To develop a niche, you should be looking for anomalies in the market. • An anomaly, in marketing terms is an unmet need whose time has come to be filled. To support a profitable business, the need must be fairly widespread or growing rapidly.
Niche Example 1 • Although people wanted to be able to send letters and packages overnight anywhere in the country, they didn’t think it was possible.
FedEx • Enter Federal Express • And presto a $500 million startup business serving and anomaly!
Niche Example 2 • John Smith was an accountant in a large accounting firm that occasionally did work for film companies that came to town for a shoot. John did some research and found that there weren’t any other accountant who specifically served the film market. • He also found that there were enough film companies that came to town each year for him to make a nice living serving only them.
Where are today’s anomaly? • One lies hidden in the social and business trends now underway. • A lot of working people would like hot delivered, home-cooked meals that vary each night. • Currently, no one believes that it’s possible…. • New Business Ideas Chart
Tips for choosing a new business • Eliminate any business you don’t believe you will enjoy owning. As a small business owner, you’ll be living, sleeping, and breathing your new business – You’d better enjoy that type of work! • Don’t forget that you will also spend time on tasks such as dealing with customers, haggling with suppliers, bookkeeping.
Tips for choosing a new business • If you don’t have a lot of money to start with, look for a business where you get paid up front and you don’t have a lot of startup costs, to avoid cash flow problems. • Look for businesses where you will have a lot of repeat customers or where people will need to keep buying supplies from you. It’s much easier to keep selling to the same customers than it is to continually be developing new customers.
Start from Scratch or Buying a Business? • If you think that starting a business from scratch is too difficult but still want to have your own small business, you have choices. You should consider either buying an existing business, perhaps from an owner who wants to retire, or buy a franchise.