Surviving Your First Year
Nothing can quite prepare you for the rigors of starting a business. Here's how to stay ahead of the game.
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Serial entrepreneur and author Walt Sutton likens a new businessto a baby. Care for it, nurture it, protect it, and it can be themost rewarding and fascinating experience of your life. Leave italone for a minute, and-well, let's not think about what couldhappen 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, yetthe rewards make the risk and responsibility worthwhile. Anyone canstart a business, but how well-prepared you are is often directlycorrelated to how well it turns out. And hey, you even get to pickout a name.
But like baby's first year, your first year in business canbe a new and confusing time. So how can you prepare yourself foryour first year in business? First, do your homework.
Preparing for the Big Plunge
"The biggest mistake [first-time entrepreneurs make] issomehow believing that what appears to be a good idea will carrythe day financially," says Sutton, who started four businessesduring a 23-year period and wrote Leap of Strength: A PersonalTour Through the Months Before and the Years After You Start YourOwn Business. "There are many, many good ideas thatdon't become financial successes. In the long run, if you wantto make a business out of your idea, it's got to really makemoney."
So how do you determine whether your brilliant idea will bringin the bucks? Research, and lots of it. After Michael Trott woke upfrom a dream with a business idea in his head, he and his wife,Angela, didn't run out and start it right away. Instead, inJuly 2000, Angela took leave without pay from her job to doresearch on the idea-Timeless Message LLC, an e-commerce companythat provides personalized messages in keepsake bottles, which theyfulfill and ship in their home in Potomac Falls, Virginia.
Likewise, Julee Wasserman spent 10 months preparing to launchJulee's Gorge Tours LLC, an event-planning company that unitescorporate planners with the local lodging and sport outfittingcompanies in the Columbia River Gorge National Scenic Area, a50-mile stretch that straddles Washington and Oregon. She enrolledin a 10-month community college program, where she learned to dothe proper research and plan for her fledgling business.
Finding the Money
Next step: Obtaining funding. You have several options, andunfortunately, none of them is easy. Should you try to fund it outof your own pocket? Ask relatives for a loan? Try your luck at thebank?
Wasserman chose the first option by making a huge commitment toher business: She sold her house for start-up funds. "Idecided that I would get rid of my house because it was the onlyway I could do it," says Wasserman, who now works out of aone-bedroom apartment in Hood River, Oregon, the main town in theGorge 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 familyfor loans. "When you borrow money from family, then yourfamily is your business partner at lunch, dinner, Thanksgiving andChristmas, whether you want them or not. And they may knowabsolutely nothing about your business but want to give all sortsof advice," says Janet Attard, author of The Home Officeand Small Business Answer Book and founder of BusinessKnow-How, an information site for SOHOs.
Next option: Going to the bank. Angela Trott cites this as herbiggest challenge. The couple began their business by using all ofthe above methods and more: personal funds, credit cards andborrowing money from Angela's mother. But when they needed alarger infusion of funds, they sought help at the bank."Having never done this before, we thought, 'Gee, if weshow the bank we invested this much money, bought the inventory andstarted this, they'll be proud of us and want to give us moremoney because they'll see we're responsible.'Wrong," says Angela. Luckily, they had been working with theirlocal Small Business Development Center, which helped them applyfor a SBA-backed loan, which they received in the nick of time fortheir Valentine's Day 2001 launch.
Before you open a line of credit or call dad for a loan, Suttonadvises you go slow: "Start small enough so that the risksaren't so large, you can't face them. Why not start parttime on a small scale, go through two or three iterations byyourself to see if it really does make a 20 percent return on youreffort? If it doesn't, you haven't lost too much. It'sa lot better than borrowing $25,000 from somebody and it notworking."
Attracting Your First Clients
Another way to bite it in your first year: Spend way too muchmoney on ill-fated marketing campaigns that yield no customers. Howcan you avoid that? Again, research and starting small.
"Spend some time really defining your market," advisesDeniseO'Berry, a small-business consultant who works with clientson strategy and operations issues. "I see way too manybusiness owners using the 'splat' approach-just hoping thatsomething will stick. They end up wasting time and money."
Angela and Michael Trott didn't exactly use the"splat" approach, but they did lose out with anunsuccessful marketing campaign. When they first launched, they dida series of local radio commercials for Valentine's Day, whichproved to be a success. So for Mother's and Father's Day,they did the same thing, plus a cable commercial. But this time,neither one worked. "There wasn't a specific call toaction," says Angela. "We really lost big on Mother'sDay and Father's Day."
So what did work? "We had to figure out the best way tomarket our Internet product, and lo and behold, it was theInternet," says Angela. They began advertising on sites wheretheir romantic gifts would feel at home-LovingYou.com and TheRomantic's Guide-and saw their site traffic soar.
Julee Wasserman found one of her best marketing tactics-localtrade shows geared to corporate event planners-through research.After visiting the shows, she then calls new contacts to ask if shecan give a 10-minute presentation. "If I hadn't done thosepresentations, I wouldn't have had any business at all. But Iwas going there, putting a face to the business, being reallypersonalized and selling them on it." She also obtains newclients through referrals, and some trickle in to her Web site.
Attard offers these other ways to market your new businesswithout spending too much money:
- Call your friends and see if they know anyone who might needyour service.
- Keep in touch with former employers who may be potentialclients.
- Network in your community.
- Read your newspaper to find out who's doing what and whomight need your services, then send individual letters tothem.
- Partner with other businesses.
Surviving the Change
Finally, you've got to deal with a whole new mind-set. Youare the master of your own fate, and that's a heck of a lot ofresponsibility. And since you've decided to start this businessin your own home, you've also got to deal with many of thesenew issues alone.
Peers are an oft-forgotten but essential part of work-even whenyou're a solo flier. "You need to create some society inyour work life that you weren't required to createbefore," says Sutton. "And there's a lot of richnessif you recognize this and then go out and do it. I know people whohave put together the equivalent of informal coffeehouse supportgroups for themselves."
Another homebased trap to watch out for: working too much. Trottenjoys working at home (though she's not alone, with herhusband as a partner and her brother-in-law as a full-timeemployee), but "it can be very tiresome because I'm aworkaholic," she says. "I'm like, 'If I couldonly get this one more thing done,' and the next thing I knowit's 11 o'clock at night."
So how do you know when to say when on your work day?"There is so much to do. It can truly be overwhelming,"says O'Berry. "Break it down into bite-sized pieces,tackle those things that will help grow the business, and outsourcethe rest. Set business hours, communicate those hours to customers,and live by what you have set up."
- Freebies from the government. The SBA and its programscan be a godsend to new entrepreneurs. Check out SCORE, SBDCs and your localSBA offices formore information.
- Trade and business associations. Trade associations areessential for industry-specific information like licensingrequirements, market research and suppliers. Find yours through theWorld Directory of Trade and Business Associations (Gale Group) atyour local library.
- Mentors. Both Wasserman and Trott swear by theirmentors. Wasserman found hers through a community college course,and Trott's is her husband's former military supervisor,who is also an entrepreneur.
- Community organizations. The chamber of commerce, theBetter Business Bureau and other like organizations can providenetworking opportunities, the chance to find mentors and more.
- Local colleges and universities. You can findinformation on executive education programs here, or inquire atyour local college to find out what programs and courses theyoffer.