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.
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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."
Expect the Unexpected
"There are a lot of start-up costs-entrance fees to trade
shows, gas and food when you spend your day meeting with people,
having your Web site built and hosted, company vehicle, mailings,
phone costs, business cards, brochures-that I don't think
people even think about when they start a business." -Julee
Wasserman |
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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?
Expect the Unexpected
"You want to treat yourself as a business, not an employee.
You've got to price each job so you make a profit on it. You
think, 'This is so much more per hour than I would make at a
job,' but you're not counting benefits, overhead costs,
things like that. If you price too low, you may automatically be
discredited because [potential clients] will think you don't
know what you're doing because you don't charge
enough." -Janet Attard |
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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."
Originally published in the December 2001 issue of HomeOfficeMag.com
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