Serial entrepreneur and author Walt Sutton likens a new business to a baby. Care for it, nurture it, protect it, and it can be the most rewarding and fascinating experience of your life. Leave it alone for a minute, and-well, let's not think about what could happen to it out there in the cruel world.
Yes, starting a business can be a lot like having a baby. It's one of the most harrowing things you can do in life, yet the rewards make the risk and responsibility worthwhile. Anyone can start a business, but how well-prepared you are is often directly correlated to how well it turns out. And hey, you even get to pick out a name.
But like baby's first year, your first year in business can be a new and confusing time. So how can you prepare yourself for your first year in business? First, do your homework.
Preparing for the Big Plunge
"The biggest mistake [first-time entrepreneurs make] is somehow believing that what appears to be a good idea will carry the day financially," says Sutton, who started four businesses during a 23-year period and wrote Leap of Strength: A Personal Tour Through the Months Before and the Years After You Start Your Own Business. "There are many, many good ideas that don't become financial successes. In the long run, if you want to make a business out of your idea, it's got to really make money."
So how do you determine whether your brilliant idea will bring in the bucks? Research, and lots of it. After Michael Trott woke up from a dream with a business idea in his head, he and his wife, Angela, didn't run out and start it right away. Instead, in July 2000, Angela took leave without pay from her job to do research on the idea-Timeless Message LLC, an e-commerce company that provides personalized messages in keepsake bottles, which they fulfill and ship in their home in Potomac Falls, Virginia.
Likewise, Julee Wasserman spent 10 months preparing to launch Julee's Gorge Tours LLC, an event-planning company that unites corporate planners with the local lodging and sport outfitting companies in the Columbia River Gorge National Scenic Area, a 50-mile stretch that straddles Washington and Oregon. She enrolled in a 10-month community college program, where she learned to do the proper research and plan for her fledgling business.
Finding the Money
Next step: Obtaining funding. You have several options, and unfortunately, none of them is easy. Should you try to fund it out of your own pocket? Ask relatives for a loan? Try your luck at the bank?
Wasserman chose the first option by making a huge commitment to her business: She sold her house for start-up funds. "I decided that I would get rid of my house because it was the only way I could do it," says Wasserman, who now works out of a one-bedroom apartment in Hood River, Oregon, the main town in the Gorge area. "So I did, and it wasn't tragic. I miss it, but I think it was a worthy choice."
Another option-one many experts advise against-is asking family for loans. "When you borrow money from family, then your family is your business partner at lunch, dinner, Thanksgiving and Christmas, whether you want them or not. And they may know absolutely nothing about your business but want to give all sorts of advice," says Janet Attard, author of The Home Office and Small Business Answer Book and founder of Business Know-How, an information site for SOHOs.
Next option: Going to the bank. Angela Trott cites this as her biggest challenge. The couple began their business by using all of the above methods and more: personal funds, credit cards and borrowing money from Angela's mother. But when they needed a larger infusion of funds, they sought help at the bank. "Having never done this before, we thought, 'Gee, if we show the bank we invested this much money, bought the inventory and started this, they'll be proud of us and want to give us more money because they'll see we're responsible.' Wrong," says Angela. Luckily, they had been working with their local Small Business Development Center, which helped them apply for a SBA-backed loan, which they received in the nick of time for their Valentine's Day 2001 launch.
Before you open a line of credit or call dad for a loan, Sutton advises you go slow: "Start small enough so that the risks aren't so large, you can't face them. Why not start part time on a small scale, go through two or three iterations by yourself to see if it really does make a 20 percent return on your effort? If it doesn't, you haven't lost too much. It's a lot better than borrowing $25,000 from somebody and it not working."