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Beating the Odds

More Tips for Startup Success

6. Reduce Turnover Costs
To replace an employee lost to turn-over, it costs from 50 percent to 300 percent of that employee's annual salary, says Ravin Jesuthasan, managing principal and global practice leader of HR consulting firm Towers Perrin in Chicago. Costs are less for lower-level employees and highest for senior executives, says Jesuthasan, but in any case, turnover is no bargain.

It's a costly problem for Scottevest, which Jordan blames partly on his location in a sparsely populated area and partly on frustration with an intractable problem: "You hire someone and don't think they'll work out, so you don't train them well," he says. "It becomes self-fulfilling." He's coped by outsourcing, hiring well-trained, motivated contract workers all over the country.

Jesuthasan says you can reduce turnover costs by training and cross-training employees thoroughly and developing career paths to keep them engaged. He says, "It's proactive, deliberate, conscious management of talent as opposed to [dealing with an employment problem] after the fact."

7. Finance Yourself
Many a startup entrepreneur has asked a bank for a loan only to leave shaking his or her head with the newfound knowledge that banks won't readily loan to companies that aren't established. Breaking this paradox requires starting small with whatever you can raise from other sources, growing gradually and building up both assets such as accounts receivable and your own personal equity in the business, says Zacharakis. "That positions you to be attractive to banks," he says.

You can also rely on your personal credit. Jordan seeded Scottevest with a home equity loan, reasoning that an SBA-guaranteed loan would require his house as collateral, and the home loan took less paperwork. Toney borrowed $100,000 for startup marketing against her co-op. She used her credit to help the company's credit as well. "I invested in some computer equipment for my company, but used my own personal credit," she explains. "Then the company gets its own business credit."

8. Raise Your Net Profits
The average sole proprietorship returns just 21.5 percent of revenue as net profit, according to BizStats.com. But startups can boost profitability by picking industries with better-than-average margins. "Emerging industries where demand exceeds supply typically have very high profit margins," Zacharakis says. "Think of the PC industry in the early years."

Jordan maintains much higher than average margins, he says, by being the exclusive supplier of patent-protected products and, most important, marketing direct. "We have very high profit margins," he says, "because we're selling direct to the consumer and don't have a middleman."

9. Put a Banker on Your Side
Minority- and women-owned startups are significantly more likely to be denied credit, the U.S. Government Accountability Office reports. One way around this obstacle is to find a banker you can relate to and develop a personal relationship. "I had a female banker who completely believed in me," Fitzgerald says.

Recruiting a banking advocate can help you overcome a lot of red tape and inertia. Fitzgerald cites one occasion when The Book Report needed a credit line of $25,000 more than the bank would offer. "[My banker] went to the mat for me and said, 'Just do it,'" Fitzgerald says. "That was pretty cool."

10. Balance Work and Life
After starting a business, entrepreneurs are often challenged to maintain a life. A 2005 survey by Wells Fargo Bank and The Gallup Organization found that 57 percent of small-business owners work six days a week; 20 percent work seven days. The average workweek was 52 hours, and 14 percent took no vacation. But entrepreneurs can beat stress, says Rebecca Macieira-Kaufmann, executive vice president and small-business segment manager for the San Francisco-based bank, noting that 67 percent were content with their work-life balance, and 84 percent would do it all over.

Involve family and friends to create a support group, and join organizations such as your local chamber of commerce or the National Association of Women Business Owners, where you can find kindred spirits, Macieira-Kaufmann says. Build work-life balance into your business plan by knowing your work tolerance and picking a suitable business. "If the industry norm is working seven days a week," she says, "then you need to know that going in."

You can also fashion a business that encourages balance. Jordan started his company in Chicago, where he'd formerly worked as an attorney, and moved west to ski, bike and hike. He works fewer hours--although still a lot--but enjoys himself much more. "While most people are at their desks," he says, "I'm on the ski lift in the afternoon, typing messages on my BlackBerry."

Mark Henricks is Entrepreneur's "Staff Smarts" columnist.
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This article was originally published in the April 2007 print edition of Entrepreneur with the headline: Beating the Odds.

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