Ready Or Not?
One common characteristic of Gen E business owners is that they don't mind taking risks. On the contrary, they thrive on risk. But the successful ones learn not to take just any old risk: They make sure their business idea is solid, and then they do all the research and preparation they can to give it an opportunity to thrive.
Consider John Shriber, 29, the owner of Apartment Source, a 1995 start-up that e-mails customers lists of available apartments in a particular city. In 1995, the Internet had not yet been anointed as a reliable venue for business, but Shriber never doubted he'd make a bundle using it. He knew firsthand what a chore apartment-hunting was, so he borrowed $19,000 from his dad to launch his fledgling business--and never looked back.
With the luxury of hindsight, Shriber knows he took the right risks. Today, Apartment Source boasts three locations and well over $2.3 million in annual sales.
For every Michael Dell or Bill Gates, there are thousands of smaller entrepreneurs like Shriber. These unheralded businesspeople are the backbone of industry around the world, and the two things they all have in common are a great idea and a burning desire to succeed. Without the requisite fire in the belly, you may find it hard to follow through when debts pile up and your initial efforts are greeted mildly by the public. Without the equally critical market idea, your business will fall flat despite all your gumption and borrowed capital.
So what do you need to succeed? First, a great idea, preferably one that will revolutionize your industry and thereby propel you into the exclusive ranks of thirtysomething billionaires. But if your idea isn't quite that great--and how many are?--a good one will do, one that is well-researched and focused on a defined market. Then you simply need to execute it well. Without good execution, even the most brilliant idea will wither on the vine.
However, a company's execution is only as good as the makeup of the entrepreneur driving the business. Younger Americans who have successfully created their own businesses share traits that separate them from their peers in Cubicle Nation. Such traits include an encyclopedia-like knowledge of the market they're entering and an understanding of the sacrifices needed to run a good business, both in terms of time and financial outlay.
When you open your own shop, you can forget about nightly powwows at the hip pub next door with your fellow associates. More likely you'll spend your p.m. hours alone, crunching numbers, talking to suppliers and wondering what to do about the incompetent marketing director you hired to streamline your business.
The popular conception of young entrepreneurs as hard-charging, take-no-prisoners risk-takers isn't that far off the mark. But most also develop rigid discipline and realistic expectations. You may choose this journey freely, but know that your life is going to change in many ways, not all of them positive.
In the early years, you must develop an immunity to bad cooking and sleepless nights. Maxing out your credit cards and stringing together a good chunk of your financing from family loans will do that to you. The thought of missing a payroll deadline creeps into every young business owner's mind.
So take a deep breath and look long at the seemingly healthy creature staring back at you in the bathroom mirror before you commit to going solo. In six months' time, that face may be unrecognizable--a haggard, disheveled shell of your former self who would sell his or her vital organs to medical science if it meant you could make payroll. Then, once you've decided you can live, indeed thrive, in that situation, you need to consider failure. That's right: You need to understand what will happen to you if your business goes belly up within a year or so and you've logged so much debt that the Federal Witness Protection program is starting to look good. Figure out how far you're willing to go, and when you'll jump ship if it doesn't work out.
According to Dun & Bradstreet, the two most common reasons a business doesn't succeed are: 1) The business is poorly managed because the owner lacks the necessary skills, and 2) the owner underestimates how much money it will take to get the business off the ground. If you've decided that you're suited to running your own business, then the remaining issues can be broken down fairly easily. To determine whether your business will go boom or bust, ask yourself the following questions:
1. Have I blanketed my industry, or does my research consist pretty much of taking notes during silly TV shows like When CEOs Attack? Perhaps the only way to find out if customers will be banging down your door is through demographic research. Researching your market to recognize and understand your customers' needs, as well as to find out what your competition is doing, are the first steps a young entrepreneur must make.
The stakes are higher when you're a solo voyager. A Coca-Cola can absorb a disastrous idea like New Coke and move on. Not you. If your gamble on liquid metal widgets doesn't pan out, there's no "Widget Classic" to back you up. In fact, you're likely out of business--and up to your hips in debt and liquid metal widgets nobody wants.
So take your great idea to the library, the Internet, industry trade shows and any other knowledgeable resource and bone up on what the market for your product or service looks like. Who are your likely customers? Where are they? Do they need to drive to your place of business, or can you easily deliver to them? How much will they fork out for your product or service? Who are your competitors? How will you stand out from them?
Talk to industry experts or indirect competitors; they may surprise you with their candor. Contact the SBA or your local chamber of commerce, which can put you in touch with local entrepreneurial organizations. Take a class on marketing and business at the local community college or university. The information is out there; it's up to you to find it.
2. How much cash do I need to launch my business? How will you react when you don't see a paycheck for six weeks? Six months? Will you roll with the punches, or will you suffer a nervous breakdown, waking up in a padded room, clutching classified ads in one hand and a frantically assembled resume in the other?
Yep, it's all about the Benjamins. Benjamin Franklins, that is. Estimating how much money you'll need to operate your business and how much you'll need to live on are crucial exercises. Once you've developed a crackerjack business idea, you have to figure out how much your start-up is going to cost--and only then can you consider where and how to get outside financing.
"Knowing your costs is the key to financial planning," advises one young entrepreneur who owns a string of ice-cream parlors. "My original estimates were that it would take $30,000 to equip my first ice cream shop and another $12,000 to install plumbing, electrical and other improvements. I budgeted another $8,000 for signs and furniture. I cut my $50,000 estimate on shop fixtures down to $12,000 by shopping around and located some used equipment for $7,000."
You'd be prudent to anticipate the opposite: Your tidy $12,000 budget can balloon in an eye-blink to $50,000. Be wary of hidden start-up costs, and overestimate what you will spend. Building a new office or revamping an old one can be fraught with zoning laws and environmental rules. One manufacturer managed to fund his organic fertilizer company, but was derailed when officials demanded that he include $150,000 worth of antipollutant protectors in his plan.
3. Who will fund my great idea? With money, you're in the game and in control. Without it, you're living in a one-room apartment on the seedy edge of town, surviving on Top Ramen and warm beer.
Well, maybe that's an exaggeration--the beer doesn't have to be warm--but you get my point. Capital is the lifeblood of your operation. Your strong will can keep you from giving up even in the darkest hours, but lack of money will ensure that the doors to your business will be closed and locked in the morning.
Fortunately, many young entrepreneurs can get away with hitting mom and dad up for a loan to buy some computer equipment or to lease some office space. However, if you do hit up Mom for a loan, make it a point to pay her back as quickly as you would a banker. Maybe even quicker. Family ties are tight, but money has snapped the strings of many a familial relationship. In the event you do take a loan from a family member, a formal loan arrangement with contracts and lawyers involved is not just a luxury; it's a necessity.
Your other options for seed money are banks and venture capitalists--and whether you need a $30,000 bank loan or you're hunting in the $250,000-and-up range, be prepared. Both a bank and a venture capitalist expect to see a detailed business plan, and they'll review it with the meticulous eye of an IRS agent combing through a drug lord's tax return. "The business plan is a reflection of how committed someone is to an idea," says Bob Crowley, chief investment officer at the Boston-based venture capital firm Massachusetts Technology Development Firm (MTDF). "If someone doesn't want to sit down and hammer out a business plan, I don't want to talk to them."
4. How will I know if I've made it? No one will arrive to place a crown on your head, but you'll know in lots of little ways. Phone calls to suppliers will get returned--quickly. Phone calls to customers will be taken instead of screened. And phone calls from the phone company looking for bill payments will stop altogether.
One sure-fire way to know that you've made it is when you stop studying the competition, and they start studying--and copying--you. That's what happened to Rick Klotz, 26, a skateboard fanatic disgusted with current board fashions. (He found he couldn't get into clubs with the duds he was skateboarding in.) In 1990, he rolled out his own line of hip, streetwise clothes that were loose enough to skate in and cool enough to pass muster with the velvet-rope cognoscenti guarding L.A.'s hottest watering holes.
Klotz knew he'd made it when copies began popping up in the clothing lines of major manufacturers like Gap and Levi-Strauss. Ironically, some of the chains he used to make fun of were now coming out with their own Klotz-inspired versions of skate 'n' club wear. Achieving that level of success had a surprising result. "When they caught on," Klotz admits ruefully, "it just wasn't as fun anymore."
Reprinted with permission from Gen E: Gen-eration Entrepreneur Is Rewriting the Rules of Business--and You Can, Too! by Brian O'Connell (Entrepreneur Press, $17.95, www.amazon.com)