Provided by My Own Business, Content Partner for the SME Toolkit
The most common serious mistake made by entrepreneurs is not choosing the right business from the very beginning. This session will provide you with important evaluation techniques to decide which business is right for you.
- Characteristics of a Successful Entrepreneur
- Step-by-Step Approach
- Decide if you really want to be in business
- Decide what business and where
- Decide whether to start full-time or moonlight
- Selection Strategy
- Things to Watch Out For
- Suggestions For People In Transition
- Required Activities
- Comparative evaluation
- How to evaluate a specific business you have in mind
- “For” and “Against” list
- Get completely qualified
- Decision Time
- Top Ten Dos and Don’ts
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Characteristics of a Successful Entrepreneur
Guts:“Guts” mean you must have an entrepreneurial instinct, which includes an overwhelming desire to have your own business. You must have the guts and dedication to be completely devoted to your goal. Incidentally, devotion to your goal is much more likely if you have a love for your intended business. Life is too short to start a business that doesn’t give you satisfaction and joy. And, through good times and bad times, you will stick with something you love.
Brains: While appropriate educational credentials are important, entrepreneurial “brains” means more than scholastic achievements. To become a successful entrepreneur, you should have a working knowledge about the business you plan to start before you start it. Common sense, combined with appropriate experience, is the necessary brainpower. Prudence, follow through and attention to detail are very important.
Capital: Every business needs money of your own plus sufficient cash to maintain a positive cash flow for at least a year. In a future session, operating entrepreneurs will learn how to forecast future cash requirements through cash flow control. Many businesses can be started on a very small scale with a small investment. Then, as the business grows and you gain experience, cash flow from your business can be used for growth. In some cases, you don’t need starting capital to hire other people because you might start by doing everything yourself. The “do it yourself” start is a good way to learn everything about your business and also makes you better qualified in to delegate work to others in the future.
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Decide if you really want to be in business:
You are putting some (not all, hopefully) of your net worth at risk. You may run the risk of becoming eccentric, meaning creating a life that is out of balance, with working hours taking away from other family or pleasurable activities. There may be levels of stress you have not experienced as an employee.
Decide what business and where:
Once you are satisfied you have the characteristics of a successful entrepreneur and that you definitely want to be in business, then you must decide which business is best for you and where to locate that business. Selection strategy is covered later on in this session. Also, see our home based business session for those considering operating a business from their home.
Decide whether to operate full-time or moonlight:
There are some interesting advantages and some pitfalls in operating as a moonlight business. (That is, a business you start in your off hours while still working at your current job.) More often than not, the advantages of starting as a moonlighter outweigh the risks:
You avoid burning your bridges of earnings including retirement, health and fringe benefits and vacations.
Your full-time job won’t suffer if you maintain certain conflict of interest disciplines, including compartmentalizing your job and business into completely separate worlds.
You can avoid conflict of interest with your job by choosing a business that is appropriate for moonlighting, such as single products, real estate, specialized food, e-commerce, direct marketing or family-run operations.
There are great advantages for operating a family business. If you are a moonlighter the family can run the business while you are at work. You have a built-in organizational structure. You can teach your kids the benefits of being in business.
But there are also some pitfalls to consider in starting a moonlight business:
There is a temptation to spend time at your job working on your moonlight business. That is unfair to your employer and should not be done under any circumstances. (You may need a family member or some trusted person to cover emergencies when you are at your job.)
Another problem may be competing with your employer, which is not right. Think of how you would feel or handle this employee if you were the boss.
Any kind of conflict with your regular work can jeopardize your job and your moonlight business.
Overwork and mental and physical exhaustion can also become a very real problem for moonlight entrepreneurs.
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Operating the wrong business is the most frequent mistake that start-up entrepreneurs make. Here is a checklist to help you to evaluate if you are in a potentially successful one or to reassess the business you are in:
- If you have not yet selected a business, take your time and wait for the business that is just right for you. You will not be penalized for missing opportunities. The selection process takes a lot of planning and your experience and complete knowledge is vital for your success.
- A common problem is not having much money to start a business. Surprisingly, there are a number of businesses that require no money at all.
- Don’t tackle or pursue businesses that may be too challenging. It is better to identify a one-foot hurdle than try to jump a seven-footer.
- Try to identify a business that has long-term economic potential. Follow Wayne Gretzky’s advice, “Go to where the puck is going, not to where it is.”
- A big mistake can be an error of omission. This means you may fail to see an opportunity that is right in front of you.
- Keep in mind that as a general rule specialists do better than non-specialists. Wouldn’t you be more inclined to take your sick cat to a veterinarian whose practice is limited to cats rather than to a general practitioner?
- Operate a business that will grow in today’s and tomorrow’s markets. Many small retail stores are no longer in business because huge stores such as Wal-Mart and Home Depot provide more choices to the customer and often at a cheaper price.
- Follow the advice of Chairman Warren Buffett, of Berkshire-Hathaway Inc. and the most successful business picker in American history. Mr. Buffett looks for businesses that focus on a “consumer monopoly” with pricing power and long-term predictable growth prospects.
- Businesses to avoid are “commodity” businesses where you must compete entirely on price and in which you must have the lowest cost to survive. As Mr. Buffett has said, “In a commodity type business you’re only as smart as your dumbest competitor.”
- Most service businesses have pricing power. Pricing power means that you will not need to have the lowest price in order to secure business. Your customers will be willing to pay a fair price for a better product or service.
- Should you bet on a business you don’t know when you can bet on a business you do know?
- If you are manufacturing a product, consider the pros and cons of contracting out production to a low-cost supplier. In other words, operate a “hollow corporation.” A “hollow corporation” is a company that subcontracts manufacturing and packaging.
- If your business is based on marketing an invention or patent, keep these ideas in mind:
a. First check to determine if there are any issued patents similar to your idea. You can secure information from the U.S. Patent office at www.uspto.gov.
b. Be cautious about getting involved with firms that ask for up-front fees to market an invention.
c. No matter what you hope for, you will need a product to test, to show and to solicit feedback.
Things to Watch Out For
- Do not let over confidence short-circuit you from analyzing your business carefully. You must not fear hearing the negative aspects; it is much better to be aware of them and face them early on.
- The lure of high rewards. They will come if you have selected the right business and if you understand every aspect of the business before you open its doors.
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Suggestions For People In Transition
More people than ever are victims, or are about to be victims, of downsizing: also known as “reduction in force”, “made redundant”, or “your job just went overseas”. Scary questions begin to arise: Where do I go from here? How am I going to make my mortgage payment?
For a laid-off worker who doesn’t have bright prospects for replacing his or her job, there is a possibility not to be overlooked – Why not go into business for yourself? For those still in jobs but fearful of losing them (the signs are usually evident), there is the possibility of starting a moonlight business now while still working.
It is worth repeating: The most common mistake — and the most costly one — is not selecting the right business initially. This is the time for soul-searching for operating entrepreneurs.
IF YOU HAVE NOT YET DECIDED ON A BUSINESS, DO THIS:
- On the top of a blank sheet of paper, write an activity you like to perform (make this the heading). Do a separate page for each activity or interest you have.
- On those same sheets list as many businesses you can think of that are related to that activity.
- On the same sheets, list all the products or services you can think of that are related to that activity. Use your imagination and think of every possible product or service you could perform.
- Make a list of businesses that do better in bad times (one may be appropriate for you). Some examples might be pawn shops, auto repairs, and fabric stores.
Let’s assume you end up with three potential businesses: towing service used car sales and auto repairs. You can now make a comparative evaluation using the following checklist (or better still your own checklist) with a 1-10 scoring system. This kind of analysis can help you gain objectivity in selecting your business.
How to Evaluate the Business
Here are some questions to help clarify your thoughts:
- Is it something I will enjoy doing? As Harvey McKay has said, “Find something you love to do and you’ll never have to work a day in your life.”
- Also, if you’re doing something you love, you’re much more likely to stick with it through thick and thin times.
- My favorite activities are __________________________
- I like to serve people by ________________________________
- Will it serve an expanding need for which there is no close substitute?
- Can I be so good at a specialized, targeted need that customers will think there is no close substitute? For example, in California, nobody comes close to See’s Candies.
- Can I handle the capital requirements? learn a cash flow control method to forecast your future cash needs.
- Can I learn the business by working for someone else first? Our favorite example: if you’re planning to open a convenience store, for heaven’s sake go to work for a national chain first!
- One option for going into business is buying a business or a franchise.
- An entire session in our course Business Expansion is devoted to buying businesses. In many cases, buying a business is less risky than starting from scratch.
- Could I operate as a hollow corporation, without a factory and with a minimum number of employees? For example, if you have in mind marketing a line of furniture, you might consider outsourcing to a manufacturing vendor in China. Cost savings is often the prime objective, but you also free up your time and capital. The major risk is the performance of the vendor and your success in developing good relationships that provide mutual benefits.
- Is this a product or service that I can test first? Your concept of a successful product or service may not be in harmony with the reality of the market place. On a small scale, prove it out first. As Wolfgang Puck states: “I learned more from the one restaurant that didn’t work than from all the ones that were successes.”
- Should I consider a partner who has complementary skills or who could help finance the business?
Use a “For” and “Against” List to Evaluate your Business
Make a “for” and “against” list regarding characteristics of the business. On a blank piece of paper, draw a vertical line down the middle of the page and list on one side all the “fors” and on the other all the “againsts.” Sometimes this will help clarify your thinking.
Write down the names of at least five successful businesses in your chosen field. Analyze what these five businesses have in common and make a list of reasons for their success.
Talk to several people in your intended business. Don’t be afraid of the negative aspects of your intended business. Instead, seek out the pitfalls — better now than after you open your doors. Take notes if possible. Write down the information as soon as you can.
Analyze the competition that are not doing well and write down the reasons.
Get Completely Qualified
Before you proceed further in your business, get completely qualified:
- The best way to become qualified is to go to work for someone in the same business.
- Attend all classes you can on the skills you need: for example, accounting, computing and selling.
- Read all the “How To” books you can.
- Don’t be afraid to ask questions or seek help from the most successful people in your intended business.
To get the most benefit out of the remaining sessions of this course, you should either:
a. have decided on a business to start, or,
b. be operating the business that you think is best for you!
Featured Videos: Importance of Business Experience and Training
Top Ten Dos and Don’ts
THE TOP TEN DOS
- Live frugally and begin saving up money for operating your business.
- Learn your business by working for someone else in the same business first.
- Consider the benefits of starting a moonlight business.
- Consider the advantages of operating a family business.
- Objectively measure your skills and training against potential competition.
- Consider subcontracting to low-cost suppliers if you’re manufacturing a product.
- Test market your product or service before starting or expanding.
- Make a “for” and “against” list describing the business, you are in or considering.
- Talk to lots of people for advice.
- Make a comparative analysis of all opportunities you are considering.
THE TOP TEN DON’TS
- Quit your job before you have completed start-up plans.
- Consider operating a business in a field you do not enjoy.
- Risk all the family assets. Limit your liabilities to a predetermined amount.
- Compete with your employer in a moonlight business.
- Be in a hurry to select a business. There is no penalty for missed opportunities.
- Select a business that is too high a risk or hurdle. Go for the 2-foot hurdle.
- Operate a business in which you must have the lowest price to succeed.
- Neglect to learn the negative aspects of an intended business.
- Permit entrepreneurial self-confidence to outweigh careful diligence.
- Allow the promise of a conceptual high reward to deter reality-testing first.