From Paycheck to Pay Dirt: Blazing Your Own Trail As a Business Owner
Eric Beverding had been a club auto-racing fan for years, thanks to his wife, Dacia Rivers, a lifelong race car enthusiast. Beverding was working in production at a boutique political advertising agency in Austin, Texas, when he and Rivers finally decided to place their bets on their hobby.
Although they knew they wanted to start a club sport track, they also knew they had to be sure that the area would support such a business.
"My wife's family is in automotive retail, and they had customers telling them over and over that they were tired of driving and having to spend the night or spend a thousand dollars to go away for a weekend to a track to have fun in their cars," Beverding says.
He looked at the radius of influence for the few club-based tracks in the area and found that the nearest one was still far enough away that it wouldn't affect his location. He was right. He and Rivers opened Harris Hill Road (H2R) in June 2008 in nearby San Marcos, Texas.
It takes guts to leave a steady job with a big paycheck to launch an entirely new venture. Babson College entrepreneurship professor Dennis Ceru cautions that there are some solid best practices that should be followed before jumping ship from steady employment into uncertain waters.
"There are multiple steps in really assessing the markets and what customer-driven needs you're trying to solve with your business," Ceru says. "The determination of whether it's a business or not revolves around your idea and revenue model. Can it be a sustainable business?"
Such an assessment becomes all the more challenging when the business is somewhat unusual and not at all related to your day job.
While Beverding was a racing hobbyist, he knew little about running a track. So he went into the field and talked to as many people as he could. And when he left his job at the ad agency he went to work part-time for his father-in-law in automotive retail. This allowed him to bring in some income as the track was being built, as well as to make contacts who might eventually become customers for his racetrack.
That kind of startup intelligence is available from a number of places--and is something that Sarah Prevette deals in daily. As founder of entrepreneur advice site Sprouter.com, Prevette is in the business of helping budding business owners find the information they need. On Sprouter, experts in marketing, finance, startup basics and other areas are available to answer questions free of charge, mostly as a way of giving back after achieving their own success, she says.
Other sources of information, guidance and benchmarking include trade publications, industry associations, prospective customers, SBA-sponsored organizations like the Service Corps of Retired Executives and Small Business Development Centers and even competitors. VocationVacations is a Portland, Ore., company that arranges for would-be entrepreneurs to test-drive many so-called dream businesses before they take the leap.
"However you do it, it's important to learn from others' knowledge and mistakes," Prevette says. "A lot of entrepreneurs tend to isolate and do things on their own, trusting their own opinions above all else. You need to get out there and realize there's a community that can help you find success."
After plans to open his off-Broadway, one-man play fell through, Greg Henderson did what many actors in need of a paycheck do: He started temping. He landed at financial research and credit rating giant Moody's Investor Service in New York City, and within a few years was a manager in the firm's corporate communications department.
The money was good and allowed him and his partner, Joseph Massa, to buy an apartment in Manhattan and a small cabin in the Catskills. But after years of long hours and distance from Massa, who had begun staying full-time at the cabin to work as a real estate agent upstate, Henderson wasn't happy.
One weekend, the two discovered a run-down Catskills motel that had been on the market for six years. The structure included 11 units attached to a house built a century earlier on two acres of land near prime ski country. They were convinced this could be the perfect place for city folk to escape for skiing and relaxing in the mountains.
It took a year of chewing on the idea, saving and planning before the duo decided to sell the Manhattan apartment and purchase the Roxbury, N.Y., motel--aptly named the Roxbury--in 2003. There, they put their theater set-building skills to work, handling much of the renovation themselves and furnishing some of the rooms and the lobby with décor from their former New York City digs.
Since its grand opening in 2004, the Roxbury has become a well-known upstate getaway, attracting national media attention from the likes of New York magazine, National Geographic Traveler and the Today show. It has undergone two expansions, added a spa and now has 27 units, including some two-bedroom, lofted suites to accommodate families.
In his book, 6 Secrets to Startup Success, John Bradberry points out that one common mistake enthusiastic entrepreneurs make is to dismiss or underestimate competition. Doing so could lead to spending time, money and resources developing a solution to a need that is already being served. Instead, he says, look at the true need or desire of the customer and ask some hard questions:
- What problem or need are you addressing?
- Who is your core customer?
- What is the overall market opportunity (number of customers and sales potential)?
- Who is your competition?
- What advantage do you offer over that competition?
"I call [these questions] the ‘market scrub,'" Bradberry says. "If you can answer them honestly and thoroughly, you'll have a good idea of whether your business idea is worth pursuing."
When Lee Zalben quit his job as an advertising executive to open New York City-based Peanut Butter & Co., the peanut butter sandwich shop he had dreamed up while still in college, he had no experience with the food business, but plenty of experience with profit and loss statements. That familiarity with finances helped him determine his startup costs, break-even point and how much he would have to sell to make a living.
Incorrect estimates of startup and operation costs trip up many new businesses, Babson professor Ceru says. He advises organizing a detailed plan of costs and revenue from the business launch until the point where it is expected to earn a profit. He calls the difference between the startup investment and the profit-making stage the "hole," which needs to be filled with one of several types of capital or investment, such as personal resources, loans or investment from family and friends, commercial loans or outside investment from angels or venture capitalists.
Beverding knew his racetrack wouldn't be fast-growth enough to interest venture capitalists or most angel investors. Instead, he turned to friends and family. In exchange, five family members own partnership stakes, and his father-in-law purchased the property on which the track is located.
Henderson and Massa used the proceeds from the sale of their Manhattan apartment, as well as personal savings and sweat equity to purchase and renovate the Roxbury. Once the business began to make money, bank loans financed the two additions.
Zalben came up with his $100,000 in startup costs mostly through savings and credit cards. Yet even with his financial expertise, he admits his projections weren't perfect.
"I took my best estimate and added 25 percent more to it. In retrospect, I should have doubled it," he says. "Everyone learns the hard way that it costs more than you think it will."
Of course, sometimes the best-laid plans go awry. Beverding's track opened at the beginning of one of the worst financial crises in history. In response, he and Rivers shifted their business model to include corporate and driver education events and specialized team programs, which broadened their revenue base. Business slipped a bit, but still met fourth-quarter 2010 and first-quarter 2011 projections.
Similarly, Zalben shifted his vision from being the peanut butter sandwich shop king to becoming a peanut butter wholesaler. "Producing a product seemed to be a much more effective way to grow with less risk, less capital and potentially a lot more upside," he says.
The Peanut Butter & Co. wholesale line launched in 2003 and is now sold in 15,000 stores throughout the U.S. and Canada, including Wal-Mart, Kroger, Target and Whole Foods Market. With exports to the U.K., Japan, Australia and Hong Kong as well, the company rakes in more than $10 million in annual revenue.
There are no guarantees for success, author Bradberry says, but by taking advantage of the seasoning and experience you have, being aggressive in finding out what you don't know about your business and being careful with money, you can significantly increase your chances. Lastly, be smart about ensuring there is truly a market for your products and services.
As Bradberry puts it, "An idea isn't great until the market says it is."