Category: Startup

“A Startup is a team of entrepreneurial talent developing new innovations, in identifiable and investable form, in progress to validate and capture the value of the created innovation – with ambition to grow fast with scalable business model for maximum impact.”

A startup is a venture that is initiated by its founders around an idea or a problem with a potential for significant business opportunity and impact. Often the actual development starts even before that with a search of an idea or a meaningful problem worth solving and building a committed founding team aligned with shared vision to make that vision into reality.

Aim of the initial founder(s) is to establish a committed co-founder team with necessary skills and abilities to be able to validate the initial problem/solution fit and product/market fit, before scaling it to significant company and self sustained business.

So in addition to innovation process itself, from idea to value generating product and business model, startups also need to have a strong and committed founding team and develop both of these together into a real growing business and organization that captures the value being created as a great company.

A great company is a self sustaining entity that is no longer dependent on any single individual or other organization, where all necessary knowledge, values, strategies, IPR etc. are permanently embedded to its existence in a way that it can continue to operate, improve and build value for customers, shareholders and other key stakeholders, while remaining financially stable by the value of solutions and products it creates.

​”Startup is an organization designed to search for a repeatable and scalable business model.” – Steve Blank

Entrepreneurship vs. Startups vs. SME’s vs. Scaleups

Few things are as important as common understanding and definitions. Without knowing exactly what specific terms mean, and how they apply to given situations, little discourse startup or ecosystems development can take place. In developing startups and startup ecosystems, there are still many terms that are misunderstood or misused.

As the term startup is not an officially defined term anywhere in the world, there are several things to take into account when choosing a definition for a specific use case in an organization, city ecosystem etc., to keep it logically aligned in other commonly appearing definitions and by comparing it with use of other often associated terms, for reasonable and logical separation also for those trying to understand the use and meaning of the term when looking from outside in.

​Entrepreneur is an individual, startup is an entrepreneurial team. However often times media likes to highlight individual entrepreneurs over teams and also many team members may prefer not to be so visible, even the business needs faces and can benefit from the media visibility. It also starts to be commonly understood that startup is not a smaller version of a big company, but an “organization formed to search for a repeatable and scalable business model” so being in process of creation and growth, where growth is not only measured simply by traditional business terms like revenue or profit until possible or feasible, but also by market share, number of active users etc. even with a free product or service.

​For these reasons startups can also not be categorized simply by the size of the company ie. SME, Mid Cap or Large corporation, by their resources ie. number of people, profits, assets etc., or the age of the company. Startups are commonly considered to be anything from few co-founding people and an idea, in some cases even without having registered a company yet, – to several years old company with tens or even hundreds of people, regardless of making or not any profits or revenue yet for several years, while focusing on building the value and scaling the opportunity of the company in other ways (market position, assets, reach, scale, recognition, brand, etc.). That said, sometimes startups also prefer not to call themselves as startups when it suits their needs, like in some cases when they want to appear more stable or mature, ie. in the eyes of significant customer.

To mix things even more, there is another related and relatively new term that have started to emerge in recent years that is “scaleup”. While this can be logically described to be a company at scaling phase, there is an aspect to consider, that it’s not limited for a startup company that have reached the scaling phase, but can be also used for an older company that have found a new scaling mode as a result of new product/service and/or new owners with new growth ambitions and/or business model.

At the same time, due the fast development of technology, internet, software, open source concepts, API’s, app stores and other platforms, crowdfunding, ICO, etc. startups are no longer as dependent on requiring risk capital in form of venture capital, business angel funding, equity crowdfunding etc. to make a “funding round” or even to make an “exit”, as something that is required for building a successful startup. So while a successful funding round can be one type of positive indicator along with other validation signals, it should not be mixed as requirement or measure of actual success, but just as single milestone.

Choosing the external investor route is optional strategy choice among others. That said, it makes sense to build the business also to be investable, to have that option available in case that strategy would turn out to be the right one to choose at some point. As anything an investor would look for in a startup, is also good for business in general as well.

​All things considered the topic about “investors” and “search for investments” are disportionately over represented in startup ecosystem support targets compared to all other things that are key factors for success of a startup.
“Being newly founded does not in itself make a company a startup, the essential thing is growth. Nor is it necessary for a startup to work on technology, take venture funding, or have an “exit.””  – Paul Graham, Y-combinator
Startups are “optimal” vehicles to validate and bring new innovations to the markets. Especially more disruptive innovations. Startups encapsulate all but only relevant things for what’s needed to build new innovations with minimum “wasted resources” combined with maximum drive & motivation.

Startups create most of new jobs, attract international talent and foreign direct investments. “Over the last twenty five years, almost all of the private sector jobs have been created by businesses less than five years old. Between 1988 and 2011, companies more than five years old destroyed more jobs than they created in all but eight of those years.” – Source: study by Kauffman Foundation and the Institute for Competitiveness & Prosperity.​

History of the startup terminology

Regardless of innovation and entrepreneur being older terminology and yet still also being often mixed or misunderstood with terms like inventions and small business owners, those are still already much established terms than “a startup” – a term that originated from US. in late 70’s and became popular in the late 1990’s as part of the technology and internet hype and bubble that eventually bursted around year 2000.

Startup (ie. startup company sometimes also known as upstart) term emerged to describe and identify a new or early stage company with higher than usual growth potential due technology it was developing. This meant that for that growth potential to be possible, it was relaying to new technology and since 90’s also to internet as the high growth enabling factor. These startups were known as internet startups or more broadly technology startups, and as such the term “startup” is still mainly referred as “technology startup”.

The term was needed and as such created by venture capital industry, that used the term to separate these specific type of new growth potential companies from traditional entrepreneurship, generally new companies and small businesses, where the main factor for this separation was the “scalable fast growth potential”, at the time mainly associated or enabled by technology and in late 90’s by spread of internet. Due where the term have originated from, the term is also the reason why the term is still so strongly tied with investors and risk funding and also tied with technology mindset.

Once there was this new definition for a “category of new businesses” created, like with any such definition, many other aspects started to be considered and validated over time by VC’s about “what makes a good startup”, where one crucial factors was the founding team and the structure of the founding team, specifically from the attitude and skills perspective. This meant that in addition to business idea and growth potential with technology as an enabler, a key separator for identifying potential investable startups, a founding team setup with complementary skills have become to be considered as one of the (if not “the one”) key investability factors.

“Ideas are cheap. Execution is everything. It’s all about the people,’ I only invest when I think I have found the right team for the right business.” – Chris Sacca

Over few decades, many of these startup requirements by startup investors have been further “iterating” via validated success and failures of various types of startups mainly captured as personal experienced by investors and serial entrepreneurs. As well as further iterated by development, growth and maturity of the “startup” as a model and ecosystems around it, by other actors like business angels, incubators and accelerators, as well as new startup oriented tools and methodologies, such as business model canvas and lean startup.

These factors combined growing interest towards startups and “startup model”, together with wast knowledge sharing and social media tools and channels, have made the collective learning and iterative refining process of “what makes a good or potential startups” and ongoing and further accelerating process.

While this defining progress is globally spreading, ongoing and there are quite many views and opinions about what is “a startup”, there are however already enough collective and mutual “consensus” to define what a Startup is and what it is not to make the term useful. Compared to much older related definitions of “innovation” and “entrepreneur”, startup is starting to be equally well understood for the meaning of the term as the other two.

​Also, while technology still plays a major role in startups, as digital technology itself have become more affordable, available and commonplace in general, – technology itself is not the key factor anymore in most cases, but what is done with things that technology have already enabled. As such, it’s logical that startups are being referred more commonly just “startups”, to help make separation to non growth oriented new SME companies, as high impact startups or innovative startups, especially in the areas or among people, where startup as a term is still less familiar or relatively new in context.

Therefore a better way to identify and evaluate the potential of a startup, is from the key parts they are composed ie; team, innovativeness and growth ambition and from their current development phases on their journey, instead of type, size, age, or funding rounds, for best provide the type of support they need in their current stages and going forward.

Conclusion

Regardless of the terminology, the more there are entrepreneurship and innovation, the more there are startups. And the more there are startups, the more there are great companies, scaleups and positive development in the economy and society at large. And that’s why developing a healthy startup ecosystem is a holistic exercise.

1. Your Current Position

Most of you reading this book will have some employment situation you are trying to remedy. There are many, and we will go through what each means and how it may impact your life as an entrepreneur. The key thing is to analyze and acknowl­edge what your own personal situation is, and what you’re trying to get out of becoming your own boss.

1.1. Unemployed

The unemployment rate in the United States in 2008 was rising, hovering at a bit over 6 percent. This means that about 6 percent of you are not working, and many of you want to be. There is a phenomenon in economics called the “natural rate of unemployment,” which means that a segment of the population doesn’t want to work and therefore isn’t unemployed by definition. However, economists have argued for years over what the “natural rate” really is, and some even argue that there is no such thing, given ample opportunity and pay.

If you are unemployed, there is probably no better time for you to pursue your own business—unless you are actively looking for a job and have a mortgage payment due next week. If that is the case, you may have to find a corporate job with some flexibility so you can still start your own business on the side, and eventually make “it.”

1.2. Underemployed

What does it mean to be underemployed? It means you want more work than you have now, and this may very well apply to you. Numbers on underemployment aren’t widely collected or considered very accurate because if you have a job you are not unemployed, which is the number economists focus on.

If you are underemployed, you might be working part time but really need to be working full time. You might be a part time administrative assistant wanting full time work, or you might be in a part time job working for an employment agency and looking for a full time position. You may have dreams of owning your own business, but with family obligations and your part time job you’re struggling to find the time.

This actually may be the most ideal situation to be in; you are in fact earning something—hopefully enough to pay the bills—and you can use the time you would be spending looking for a job becoming the next great small business owner. All it takes is an idea, a plan, and some courage.

Additionally, lots of workers may have full time jobs, but feel underemployed because the cost of goods and services they purchase, like fuel and clothing, have gone up, so their current job no longer makes ends meet. Having a full time job and not being able to pay the bills is extraordinarily frustrating. The “out” for you may well be becoming your own boss, even starting while you still hold down your day job.

Certainly the costs of getting to work and preparing for that day job are rising. You may be seriously concerned about the rising costs of living or commuting to work—or you may just flat out be tired of wasting one to two hours per day stuck in traffic. Being your own boss means working from wherever you think best—whether that’s from your home office in your PJs or from your own corpo­rate skyscraper.

It is very important to note where the survey respondents said they were when they made the switch to self employment:

• 63 percent were employed when they took the leap to their own business
• 26 percent were underemployed and wanting full time work
• 10 percent were unemployed

1.3. Worried About Losing a Job and Conflicting Obligations

Still yet, you might be fully employed but seeing your company, well, struggling to maintain its employment level. You may be working for a large financial institution and have a nagging feeling that you’ll be losing your job very shortly, or you may just feel insecure with a frustrating boss, cost-cutting, and a business looking to make the company more “efficient”—often by cutting positions.

Often those most at risk are middle management, who are said to add less value than senior leaders or worker bees. You may have time during your day to begin your own business without quitting your job. Try to think of what you do during the day and see if you can carve an hour or two out of it to begin your new busi­ness. The goal? Not to rely on “the man” (or “the woman”) anymore—but on yourself instead!

You may also be torn between conflicting obligations—family and work—and have a corporate job that is getting more demanding with 24/7 response times, all made possible due to our lovely society driven by BlackBerry devices and cell phones. Perhaps you are just tired of this, and you want to set the rules. Who can blame you? I did the same thing.

2. Doing the Math

Any new business owner is going to run into financial barriers, questions, con­cerns, and the like. You will need to do some detailed math to really determine how profitable your business can be, but the following four issues are those you need to consider immediately because they can be incredibly costly and unpre­dictable. In this chapter, we will walk through many of the things that frighten people—in particular, taxes—in detail.

2.1. Insurance Basics

You will need to insure your business. This may be as simple as filing for corpo­rate or limited liability corporate (LLC) status so that your own personal liability is limited. Still, you may need actual insurance for your business. You should talk with an insurance advisor as well as an attorney to know what your potential risks are. They vary greatly based on what type of product or service you are selling, and even based on your location (some states may protect you more than others and some areas may require certain coverage when others may not). For my own business, I have one umbrella policy that lists each of my corporations and my sole proprietorship tacked on to my general homeowner’s insurance. It has cost me about $800 per year but it covers all of my assets, including my rental policies. This is often a good and inexpensive route to go, but be sure you are fully protected. Some companies will require more insurance than others and some are higher risk than others.

2.2. Tax Basics

Your taxes and the way you file will change when you become an entrepreneur. You will be filing a Schedule C for your business (or another schedule if you run a real estate business with rental property or a farm). You will likely want to talk with a tax planner who can help you understand the ramifications of tax changes. You no longer have a company withholding money from your paycheck, so you have to do this yourself. Your tax rate will vary based on your income, so talking with a planner is your best bet here. You do get some benefits, particularly if you work out of your home, such as in home office deductions including utilities and maintenance, prorated based on the square footage your home office takes as a percentage of total square footage. Again, a tax planner can help and is unconditionally advised.

Let’s start with the average corporate worker in California. The numbers may change slightly depending on your state—some states have state income tax and others don’t, some offset income tax with higher sales tax while others have no or low sales tax, and still others have higher property tax while some have little or none at all—so your own situation may be different. This is a good example to go from, though.

I’ll compare two situations that are nicely laid out on answers.google.com in two scenarios.

Let’s look at an employee making $120,000 in an annual salary, with a $20,000 bonus, for a total of $140,000, and a contractor making $140,000 in 1099 income. Sounds great right? The Google Answers column clearly spells out the answer here for the employee:

The employee will pay about $29,000 to the IRS, $10,000 to the State of Califor­nia, $8,400 for the employee’s share in FICA/MED, and $600 to State Disability Insurance, or SDI. (The employer is paying medical and dental insurance.) This means the total tax is about $48,500, which is about 34 percent tax in total.

Now let’s look at a contractor contracting him or herself out in the city of Los Angeles—someone who is self employed but earning his or her living off con­tracts from other companies.

The contractor will pay about $33,280 to the IRS, $12,800 to the State of Califor­nia, $16,570 in FICA/MEDI, $1700 in SDI, and $700 to the City of Los Angeles. This is a total of $70,450.

In this scenario the contractor is paying about 42 percent tax where the employee pays 34 percent.

But—and it is a big but—every single thing that person did as a contractor— advertising, driving, meals, travel, toll roads, paying for his or her own health insurance, and so on—comes off the taxable income, thereby reducing the amount he or she is taxed on by a substantial amount.

This is the real benefit of being self employed. By filing your taxes on a Schedule C of your standard 1040 tax return, you are transferring your business income to yourself and paying income tax on it. But you are first deducting expenses, so you are only paying on the net gain.

Some states have insanely high tax rates; California, for instance, is almost 10 percent for some tax brackets. One option to discuss with your accountant is how to officially do business in another state or incorporate your business so you can pay corporate tax, which might be lower. In some cases, becoming an S corporation could lower your tax, but an accountant needs to go through the details with you. For a great article from the IRS on whether you are officially a contractor or employee, visit www.rs.govarticle0,,d=99921,00.html.

If we take this a step further, as a self-employed business you have an even better situation!

Many things are deductible to a small business owner that are not available to an employee. Here are a few:

• Home office expense
• Car and mileage expenses
• Advertising
• Utilities, on a prorated basis for the area you work out of (if it’s your home)
• Contract laborers
• Business parking charges, tolls, etc.
• Home office equipment
• Business travel
• Business meals
• SEPs and IRAs

Many of you won’t have businesses where you are a contractor, but instead you will be selling something. You will still set up your business the same way and any large customers (those who spend over $600 with you) may send you a 1099 at the end of the year, which is the same thing contractors get.

So imagine this:

You earn $170,000 in net income. Your cost of goods sold is $25,000. Your con­tract labor and equipment rental is $20,000. Your professional and legal fees are $5,000. Your home business write off, including utilities, is $3,000. Your meals and transportation costs are $9,000. You bought a Treo, some computers, a new laptop, and gifts for your clients, for a total of $10,000. Your taxable income drops to $98,000, so you’re only being taxed on that amount. This means your effective tax rate will drop to below what an employee who makes $140,000 per year is paying! Depending on your state, you will get tax breaks for various small business incentives; but assuming you don’t and you pay the same percentage as the contractor, you will still pay $41,000 in taxes. This is less than any other scenario and doesn’t include even a frac­tion of the items you get to write off.

2.3. Healthcare Costs

When you leave your Corporate America job, you will probably be given an option to pay for COBRA (an extension of your health insurance) for a few months. Unfortunately, a few months is inadequate, so you should proceed as though you don’t have it and work through your solution.

You will be able to find self-employed insurance policies, and if you belong to a group, you might find even better deals through that group. For instance, the National Association of Realtors offers realtor’s insurance through their group plan, even if you don’t work for a realtor company. Look into these options, but look first into worst case scenarios for insuring you, and your family, if this applies to you.

If you are already unemployed, lack of insurance is something you have to handle anyway, so it isn’t a new risk or a new issue. Just be sure you have some estimates ready to go so you don’t get sticker shock. Amazingly, there are some inexpensive plans out there.

Here is a table to show you some costs in California and New York, with one child and one nonsmoking healthy spouse (note that I often choose the two most expensive states so you can see how “not so expensive” it really is):

HMOs offer drawbacks compared to PPOs—for instance, an HMO usually requires a doctor’s referral to see a specialist, whereas a PPO plan usually allows you to go to one directly. However, PPOs are usually more expensive because they often have a very high deductible as you can see in the table. You need to decide what you and your family ultimately need, and weigh prescription costs, too, which can quickly add up and eat up many unexpected dollars in co-pays.

See also if the company you ultimately go with allows for a self-employed flexible plan, which can allow you to take some of your expenses pretax.

Many people are surprised to learn how inexpensive healthcare can be. Preexisting conditions, obesity, and being a smoker are all things that will impact your quote, so living a healthy lifestyle certainly helps. Check with healthcare providers before leaving your insurance carrier to be sure any pre­existing conditions won’t disqualify you from coverage.

2.4. Your Personal Break-Even Point

Whether you are unemployed, underemployed, or looking to leave Corporate America behind by quitting the full time job that you joyfully go to each day, you need to find your own personal break-even point. While you may want more freedom, you have to decide what you’re willing to pay for it, both in time and money, while you get your business up and running.

It can be hard to quantify feelings; researchers have been trying to do it for years. Writing down the pros and cons, weighting them based on how important they are to you, and then determining how well your new business ranks will help you come up with a proportion of satisfaction. I will supply you later with an example of how to do this, walking you through the quantification process step by step. It isn’t as hard as it sounds and it can actually help alleviate worries to get your concerns into numbers and see how the math adds up.

3. Final Thoughts

You are probably contemplating starting your own business because you are either unemployed, underemployed, or underutilized (your skills and talents just aren’t being used to their maximum). Maybe you’ve always wanted to start your own business but felt there were too many complications. Starting the business is easy—maintaining it is a bit more of a challenge; you’ll be able to accomplish both—keep faith, keep focused, and enjoy the ride!

Source: Babb Danielle (2009), The Accidental Startup: How to Realize Your True Potential by Becoming Your Own Boss. Alpha.

1. Benefits of Working for Yourself

The benefits of working for yourself are phenomenal and potentially endless. There are vastly more benefits, in my view, than drawbacks. Like many of you may decide to do, I quit my day job with a new home and heavy mortgage, less income from my new Accidental Business than anticipated, and a new marriage with additional costs and heavy home obligations. Still, the benefits of working for myself significantly outweighed the downsides. Personally, I was tired of the layoffs in information technology; tired of the constant boss changes that left us all wondering if we would be replaced by the new boss’s best friend from his or her former company. This, in many respects, was more stressful than quitting and “going for it” on my own. After careful analysis, you may come to the same conclusion.

So what are some of the benefits?

1.1. Stable Income

Did I just say stable income? Yes, stable. Why? Because you are setting your salary, not some random corporate representative from human resources in con­junction with an accountant who wants to cut costs.

How much are you worth? I don’t know—you tell me! Do you want an annual 5 percent raise? Give it to yourself. Do you want to run the financial show? Run it. You can actually have a more stable income by being self employed than by working for Corporate America.

1.2. No More Job-Loss Fear

One of my initial fears, leaving Corporate America behind and pursuing my dreams, was that I would lose contracts—the key to keeping my business alive. But what was more likely? That, due to a failed project or a missed deadline or office politics, a new boss would come in and would be accompanied by inconsis­tent, seemingly confusing changes that were not communicated to the rest of us, leaving anxiety running rampant? Or that I would be so complacent as to lose contracts and either not get them back or not replace them?

I finally decided to bet on myself, and I am glad that I did. Looking back, I wouldn’t change anything, except maybe not waiting so long to take that first step (or leap, as it were). However, the timing does have to be right, and I will help you figure out whether or not it is. Begin by thinking about what an ideal time would be for you. Figure out what is ideal and what isn’t—and what is an excuse for procrastination. Ask yourself what your job-loss fears are, and what you can do by being your own boss to mitigate them.

1.3. Additional Income

The additional income that comes with being your own boss, in my view, is the icing on the proverbial cake. The maximum amount of income is purely based on your business model, your ability to adapt to change, your effort, your decisions, your relationships and networking, and your business planning. Are you getting the picture? The additional income you can earn is literally entirely up to you. You may just want to earn what you’re making now but be your own boss and have some additional freedom, in which case, fine—the goal setting is yours to do. But the possibilities for financial freedom are truly endless.

It is a mazing how quickly you begin a business and then cannot stop thinking of ways to expand it. It seems that from the very same day the concept begins, the planning doesn’t stop and you are constantly, sometimes hourly, coming up with ideas on ways to make more money.

1.4. Freedom

Ah yes, freedom—that thing we all so cherish, yet seem to freely give up when we happily sign onto new jobs as employees. Many of us have even been guilty of going out and celebrating this relinquishing of our freedom as a great new job with outstanding prospects, only to be disappointed in the feeling of being chained to our desk or BlackBerry. Maybe you have a six-figure job (or more) that you love and you have no reason to want more freedom—but chances are this isn’t your position. Freedom, as defined in this book, is the ability to make your own decisions and make changes as you see fit, when you see fit. Freedom comes from being your own boss, and setting your own agenda.

1.5. Flexible Hours

Do you want the ultimate in flexibility with regard to your hours? Being an entrepreneur might be exactly what the doctor ordered. Yes, you will need to work a lot to be successful—who doesn’t? We rarely hear of stories (aside from in infomercials) where an entrepreneur brags about how little work he or she did to make that half-a-million dollar business streamlined and efficient. But while you may need to put your time in, you will have flexibility in when you do so. One of my primary motivators for having my own business was my insomnia; managers weren’t happy about my odd working hours and my decision never to hold a
meeting before 9 A.M., despite knowing there was a solid chance I hadn’t gotten to sleep until 6 that same morning. So what happened after I started my own gig? I work more hours, but my hours work around me. This is a substantial dif­ference, and in my case a medical necessity. I set my working hours and stick to them. I still don’t schedule meetings before a certain hour—only now that time is 10 A.M. This has led to less stress overall and a feeling of control over my own workload and schedule, which was and continues to be vital to me.

The type of flexibility you need will depend on your own situation. Many people are morning enthusiasts and do their most creative work then; others travel so much they forget what time zone they’re in or what time it is at all (this is my life these days). Many want the freedom to schedule their meetings, work, and appointments around their children’s plays and to work when they are most cre­ative (2 A.M.?). You will indeed get this flexibility as an Accidental Tycoon.

1.6. Bringing Your Passions to Work

Every single day when you go to work for yourself, you will be doing what you love and, if you play your cards right, loving what you’re doing. This means that your passions don’t have to be left at home. Let’s say your passion is knitting— albeit probably not common, it is your passion nonetheless—so you decide to build your fortune around knitting (and yes, it can be done!). When you went to your 9 to 5 job, you most likely had to stop knitting unless it was your break time. In your own business, your passion is your business—or should be! Rather than leaving your passions checked at the office door, you’re taking them to work with you each day.

1.7. Pride of Ownership

Those of you who own your own home after renting for a while know what I am referring to here. Whether it’s paying off that car and owning it, paying off that college degree and owning the diploma you worked hard for, or owning your own business, there is a pride that comes with ownership that is hard to describe to those who don’t own what is most valuable to them.

If you think homeownership creates pride, imagine knowing that paying for that home does not come from income your boss gave you in exchange for hours, but from your own hard work, your ingenuity, your contributions, your dedication.

The feeling is nearly impossible to describe, but when you reach that destination, no matter the hours you put in, the sense of pride of ownership is overwhelming. I remember my first tax return at the young age of 16 that included my first Schedule C for $10,000 in the computer consulting that I had done in my small business, California Computer Concepts. It was more than I had made doing anything else (like working fast food) and the feeling I got when I fixed company computers and became their hero for the day (by getting their business back up and running) was like nothing else. It was then that I got hooked on self employment.

1.8. Earning Potential

Your earning potential is perhaps the greatest reward for many people, particu­larly if you are underemployed or tired of working for Corporate America and taking whatever they give you—waiting for that December review to see if your pay increase will even keep up with inflation or cost of living.

With your own business, your earning potential is whatever you want it to be.

Do you want to make a million a year gross? Net? No problem. Set your own goals. You will find ways to grow your business that allow you to reach these goals and successfully manage your thriving business. You may even find your goals changing as you get into your work, adjusting downward if family time begins to take higher priority, or upward if you find yourself more into your work than you thought—or if the kids go away to college. The key is to set your sights and go for it, and then adjust if you need to. I will never forget the HAM radio club and BBS owner (I am surely dating myself here, as this was the early days of the Internet, accessed by the 300-baud modem into what was known as a Bulletin Board System) telling me one day, “You’re very bright, but don’t set your sights on a $300,000 per year job. That is tough. $100,000 is more realistic.” I’d love to see that guy again now!

Don’t let anyone tell you what is or isn’t realistic. Whatever limit you are willing to work toward is “realistic.” You may not start off with your dream salary—in fact, chances are you won’t. But with some creativity and some time, you will find ways to branch your business out to earn something equivalent to what you’re willing to put in. Some people will tell you that luck is always involved, and perhaps a little bit is, but I believe in the value of making your own luck.

What about our survey participants? For those who left Corporate America, they were asked what drove them to that decision. They were given the opportunity to select more than one reason, and their responses were …

• Flexible hours, taking the cake at a whopping 72 percent!
• Higher earning potential, at 46 percent.
• Following personal dreams, at 36 percent.
• Long-term wealth potential, at 30 percent.
• The desire to do something new, at 28 percent.
• The cost of commuting was a factor for 22 percent of respondents.
• Being a “born entrepreneur” was a factor for 22 percent.
• The time of commutes was a factor for 18 percent.
• Wanting to be at home with young children came in at 18 percent.
• Seeing an employer do a bad job in the same industry registered with a full 10 percent.
• Illness was a factor for 4 percent.

What about other responses? Some noted the difficulty in finding a satisfying job in Corporate America, underemployment, not wanting to make others rich, wanting to travel whenever they felt like it, being in control of their own destiny, job loss, and flexibility.

Do any of these sound like you?

2. Downsides to Working for Yourself

Okay, so we’ve run through a plethora of upsides to working for yourself, but the reality is that many of you may not have pursued your dreams because of the downsides, or what you perceive as the possible problems as you begin working for yourself.

These downsides shouldn’t be downplayed—they are relevant and important and probably quite valid. Chances are they are based on your own life situation and therefore they need to be addressed. Here are some of the most common things I hear, and how to overcome them.

2.1. Feeling of Instability

The first day I didn’t report to Corporate America, a feeling of sheer panic set over my body—a series of what ifs. What if my clients didn’t renew my con­tracts? What if I couldn’t grow my business as fast as I thought, or needed? What if I couldn’t pay my mortgage? What if …? These thoughts plagued my mind, and several times I almost thought of taking back my resignation.

The truth is, you will probably feel a sense of instability for a while—this is particularly common in the early growth stages of any new business. You need to have confidence in your idea and in yourself, and this comes from doing the homework neces­sary to know that your plan is viable. It also helps (although is in no way a necessity, but based on your individual situation) to have six months’ worth of liquid capital in the bank so you can pay bills for six months if you need to go back to Corporate America before trying out a new job. Another option is to switch to part time work that will give you time to start the new business and begin generating buzz and income before you quit the rat race for good.

Your own life situation will change how you react to this variable. For instance, if you have children and a hefty mortgage, you might choose the latter option; whereas if you are single, in your twenties, and can rent from a friend if things go sour, you may end up dropping everything and just going for it from day one.

Don’t let this worry keep you from your dreams. The more upfront planning you put into your business, the less likely you are to experience financial instabilities. You also need to plan your income, track your revenue and expenditures, and keep expenses low at startup. I’ll go into all of this in later chapters.

2.2. Potential for Failure

Sure, you could fail at this new business. The business could end up failing you, either due to circumstance, poor planning, lack of interest, or procrastination— or something entirely different. The market could drop out of your perfect new product or service. The world could collapse into a black hole tomorrow. But the upsides are huge, so you need to weigh them against the potential for failure.

I found the best weapon against this fear was a contingency plan; hence starting my business a few months before quitting my day job. You will find a balance that is right for you by exploring your needs versus your desires and striking that just-right equation. Remember: The more you plan, the lower your chance of failure.

Part of the fear you may feel at some point in the process isn’t necessarily fear of failure, but fear of success! Yes, you read that right. Many of us, at some point in our lives, are afraid of success. I can almost hear you asking yourself, “Who’s afraid of success, and why on Earth would they be?”

George Will once said that “the nice part about being a pessimist is that you are constantly being either proven right or pleasantly surprised.” Many people, unbeknownst to themselves, are in some ways pessimistic, especially with regard to their own success, which ultimately becomes their largest hurdle. They believe so little in themselves, and in their own abilities to achieve success, that they never see ideas through to resolution, or perhaps don’t even take that pro­verbial first step.

Although the work required to reach your goal may be great, success is nothing to fear and will only be achieved by those who put in the time and energy required. I’m not saying that success is guaranteed, but I can tell you without reservation that failure is guaranteed if you give up on your dreams.

2.3. Unforeseen Costs

Probably a new business owners’ worst nightmare is the unforeseen startup or other costs that drain your savings account in the first two months while you aren’t yet generating revenue. It is absolutely vital that you do your homework to know precisely the type of costs that will be required of you and to plan, at least for the first two years, for every foreseeable cost—no matter how far fetched. Later in the book I’ll give you some tools for rating the risk of an unforeseen cost, which will help you determine the probability of it occurring and therefore the probability that you will have to face the issue, and how costly it will be if you do.

Again, planning helps to mitigate this factor. If you can line up one or two con­tracts before you go live, it might set your mind at ease. Assuming everything will cost at least 20 percent more than you are initially estimating will cover you in case of mistakes.

2.4. Potential for Long Hours

Finally, you’ve left Corporate America—no more 80-hour work weeks! Wrong! The most successful businesses are those that are based on great, feasible ideas and those that also have great effort put into them. Very few people make it on luck and good timing; most of us put in a lot of hours to be successful. The potential for long hours is there, so you will need to ask yourself the fundamental question: “How many hours do I want to work, and if I reach that number, do I want to hire an employee or bring in a contractor to get more work done, or just limit my income potential?” Remember that you don’t have to grow your business—if you’re happy with its success and would rather work less and just maintain, that is completely your call.

When my own business ran into this issue, I found that bringing in contractors to help was a great solution—it allowed me to grow my business with my core activities while my contractors took care of routine work like faxing, letter writing, mailing, handling packages and packaging for my eBay store, and so on. Since my business was essentially four businesses, there was plenty to keep contractors busy. This also allowed me to focus my energies on my passions and not on busy work.

2.5. Lack of Vacations

This one is probably a harsh reality, too. Unless you have an Internet-based business that runs itself or unless your business grows so fast that you can hire employees to run it while you’re gone, chances are, for at least the first couple of years, you’re going to have limited vacations—or if you take them, you’ll be taking your laptop with you. I personally believe this is a fact of being an entre­preneur and one it is best just to accustom yourself to early.

Another option, if your business doesn’t require you, is to hire contractors and let them run your business while you’re gone—but much like new parents who keep calling home to check in with the sitter, you’ll likely be constantly checking in with whoever is babysitting your business.

Still, I have found that no real vacation in over five years is taking its toll on my mental health; in my sixth year I have vowed to make myself let my contractors do my business for a week and leave for seven days that I am sure will fly right by.

2.6. Difficulty Building Your Business

Difficulty building your business is definitely something you should be concerned with. It isn’t easy to get those first contracts, and then turn the first few into many—and then those many into enough to pay the bills and grow your business.

As you develop your plan, though, you will also develop a strategy for handling this problem; you will find checks and balances to validate your progress and let you make adjustments before things become crucial or life altering. In this book we will work through strategies for building your business and your brand early, and then we will look at how to springboard quickly off that effort.

2.7. Work/Life Barriers

Ah, the lovely sound of children crying while you’re on a conference call. Work/ life barriers, particularly if your office is home-based (which it might be, at least for a while), is not an easy thing to handle.

So what do you do to overcome this? Set clear boundaries. In fact, this is so important that I will cover it in an entire section within the book. Managing work/life balance and making certain your office is nothing more than that—an office—is crucial to your success, and your sanity.

Contrarily, on the home front, you need to find a way to shut out work when it’s always waiting for you in the room down the hall, yet not become complacent taking two hours each morning to water the plants and trim the grass before working. I’ll offer you many tips throughout this book on how to balance your work and life at home, making sure work gets done—but not too much! Many of us still struggle with this and, after substantial growth, we have had to get offices outside the home to handle this conflict.

Source: Babb Danielle (2009), The Accidental Startup: How to Realize Your True Potential by Becoming Your Own Boss. Alpha.

Small business owners are often put off by lots of myths—the unimaginable consequences of owning your own business. I hear every excuse or reason from “I don’t want to pay so much in taxes” to “I can’t afford to start a business” to “if I go into business for myself and things don’t work out, I’m damaged for life.” None of these are true! In this chapter we will explore the common myths, and the real truth behind them.

1. Common Myths of Self Employment

There are so many myths out there regarding your own business that it is nearly impossible to list them all—it could be a book in and of itself!

Here are some of the most common myths I hear from my students and those I consult with about starting their own businesses, and most importantly, the truths behind the misconceptions. You can­not always believe what you read, particularly online. Usually those with the most unusual stories are the most apt to tell them. They aren’t the most common situations in many cases and you shouldn’t let them scare you. Arm yourself with good information and then proceed systematically for the best results.

1.1. ”My Taxes Will Go Up”

They may, if you make very little and suddenly start making a lot—but are you going to complain if that’s the case?! Under our current tax policy, being your own boss has incredible benefits because everything you do related to your busi­ness is tax deductible. Talk with a tax planner, not just a tax preparer, to under­stand the ramifications. You might be as pleasantly surprised as I was to learn that my six-figure day job cost me more per year in taxes than my small business does now.

When I say that everything you do for your business is tax deductible, I mean exactly that. Every ream of paper, every pen you purchase, marketing and adver­tising costs, taking your clients out to dinner—the list goes on. Yes, that’s right, taking your clients out for a dinner in which you discuss business or advance your work and relationship with that client is completely deductible.

1.2. ”My Healthcare Costs Will Skyrocket”

If I could have a dollar for every time I have heard this one! Repeat after me: “Not all employer plans are great and healthcare doesn’t have to cost an arm and a leg.” If you have a preexisting condition and have trouble getting insurance, you should contact insurance carriers and get coverage before you quit your job. However, most business owners don’t have trouble finding health insurance. I was able to get a Blue Cross HMO plan that covered everything I needed, with low co-pays, for under $200 monthly. If you have a spouse who is employed, consider adding yourself to his or her plan during open enrollment, or if you’re still a student, consider jumping onto your parents plan if you can, or perhaps even better yet, look into getting health insurance through your school—if it is offered.

I will be bluntly honest about the fact that what your new business is will affect your ability to gain adequate medical and health insurance. A person starting a SCUBA diving search and rescue business will have a considerably more difficult time in securing health insurance compared to a person opening up a flower shop. The same holds true for disability insurance. This is simply due to the level of “danger” to the person(s) within the business, but is no different than securing health insurance through an actual employer if you SCUBA dive five times a week. For some time, insurers didn’t want to offer insurance to online professors!

While it doesn’t make sense to us, statisticians behind the insurance companies make decisions that don’t always favor small businesses.

There are also alternatives to going through traditional channels to find insur­ance. Keeping with the SCUBA diving example, you can find “SCUBA friendly” insurance carriers through organizations like DAN (Divers Alert Network— www.diversalertnetwork.org). This holds true with other industry-specific organizations, too. If you are a real estate agent, for instance, and are a member of the National Association of Realtors (NAR), you can at least get a group rate, which will lessen your costs. It isn’t as good as an employer plan and will gener­ally require health tests and screenings, but it is better than nothing.

There are many ways to get healthcare that don’t involve buying it for full price. For instance, if you are a Sam’s Club member, you can get group rates. Lots of organizations have such options; real estate agents have the National Association of Realtors (NAR), AARP offers specific rates; AAA offers alternatives. Look around and see what you can get with existing or new memberships.

1.3. ”I Won’t Have a Fallback Plan”

This one is entirely up to you. You may not have a fallback plan, or you may not want to venture into your new world without one. It all depends on your level of acceptable risk. A fallback plan may be as simple as six months’ worth of bills in savings to allow you two months, should your business do nothing in the first four, to find a Corporate America job until the next idea comes along and you can try again. It might be as simple as keeping your day job until you have a few contracts. It might mean cutting costs to nearly nothing while you’re in the startup phase, if you have the ability to do that. Really, life circumstance will ultimately dictate how you respond to this.

1.4. ”If My Business Doesn’t Succeed I’ll Go Into Bankruptcy”

What did you do before your business? Can you not do it again after a six-month or one-year sabbatical? Enough said.

If you are currently unemployed, you can always get back into whatever industry you are currently looking for employment in or are qualified to be gainfully employed in. If you are underemployed, no doubt you can go back to part time work should you need to. The key is to be comfortable with the risk you are tak­ing and the potential success of your new business. A business failing is not the end of the world, nor should it be. Many of the world’s greatest entrepreneurs have started businesses that have failed, before hitting it big with the one that skyrockets them to success. This is of course something that this book is going to help you avoid—by teaching you the lessons that individuals and groups learned through trial and error. Some people are able to learn from others’ mis­takes but others must make them on their own before the lesson settles in.

1.5. ”I’m Not Procrastinating; I’m Just Waiting for the Right Time”

Again, I’d be a multimillionaire if I was paid each time a procrastinator told me this. No, you are procrastinating! There will never be a perfect time for anything! Start doing your research, get the business started, and when the right time hits you’ll know it, because you will know enough about the market, the product or service, and the clientele to know when it’s time to launch a full-on assault.

Procrastination is one root of failure. I can unequivocally say that everyone I know who has failed in their own business venture has an excuse—but almost all of them boiled down to procrastination and laziness. What you make of your life and your business world is entirely up to you. Part of your goal here will be to make a solid decision—yes you are going to be successful and you are going to do this—and then we get to the details. That commitment is vital—no excuses. Once you make the commitment to yourself, try making it to others, too. I have found that this imposes a self-guilt that keeps you on the right track as others ask about how your business venture is coming.

There are many reasons why people fail, but procrastination is a big one. I would hate to think of myself as an 85-year-old person without many good years left, thinking of all the things I woulda, coulda, shoulda done. If you’re reading this book, I’m sure you are in the same boat. If you have a few obstacles thrown in your way, figure out what they are, determine the path to overcoming them, write it down, then do it. Go out there and try it! If you believe in it and think it could work, do some homework and then just go for it. You can figure out how to calculate risk factors and protect your family in the process, if that is a concern.

1.6. “The Internet Will Kill My Profits—Everything Is About Price!”

In today’s Internet age, many people want the best price, and who can blame them? You want the best price, too, right? Any electronics store worker will tell you tales of people coming in to compare products, see what camera they want, then go online to get the best price, save on tax, find free shipping, and delay gratification for a week.

Sure these people are out there, but do you know what many of us hear most often? “Why is there no service in America anymore?” and “Why don’t airlines just charge me $15 more and give me a real meal again?” Or “Why did that online company only save me 10 percent and when I had to return an item, charged me a 30 percent restocking fee?” Some segment of the population will only care about price, but this may not be your target market anyway. What you need to do is determine what your target market is, what that demographic cares about and wants, and then hit it—nail it out of the park. If your demographic is primarily concerned about price, I suggest your business be a product-based site that offers, well, you guessed it—the best price. This is all outlined in Chapter 5 on business plans, so for now just get the basic concepts down.

If your business idea is founded on a service or services, then people do still weigh what “bang for the buck” you are offering; so at this point, it is a combina­tion of price, quantity of service, and quality of services. You will also need to be clear about return policies and think about the reasons you will accept returns. This all leads to the general consumer experience. The consumer experience can never be taken back, and word of mouth, whether you are a brick-and-mortar or online store, will kill your business or make it thrive.

1.7. “If I Leave Corporate America, I Can Never Go Back”

This is the equivalent of saying that once you leave school, you can never return. There simply is no truth to this myth … none … zero. Some senior leaders do say that they look for consistent work experience on a resume. Is entrepreneurial work not consistent work experience? Did you not learn more, even if your business fails, in the three years trying than from your ten years in Corporate America? Consider that studies have shown that many Generation Xers actually want lateral moves within organizations, not promotions, because they want to learn enough about business that they can leave Corporate America one day.

How will these individuals explain a gap in their employment and do you think it will hurt them if they can answer the question “What did you do the last three years?” with the answer, “Marketing, demographic research, sales, advertising, business planning, getting seed money, and starting a business, which I sold last year?” Perhaps some managers won’t accept this answer, but not most. And perhaps those are the managers you would not want to work for anyway. Just a thought!

Since quitting Corporate America, I have had no less than five job offers, about one and a half per year, to go back and do what I was doing before. You have lots of contacts even if it may not feel like it. Everyone from old bosses to new business partners may want to work with you in “Corporate America”; you can always go back to working for someone else should you need or ultimately choose to. This is one reason it is important to maintain your relationships and not burn bridges.

Many bosses see the entrepreneurial spirit as a good thing—a benefit to the organization. Now granted, you may have to convince him or her that you’re not going to leave again in six months to pursue another dream/idea/gold vein, but you can certainly talk about the incredible experience you gained during your absence and how you will apply that to the position that you are going to work hard for, back in the corporate world.

Remember, you’re not quitting your job to do nothing and sip cocktails by the pool! You are leaving to go to work and apply all you have learned.

1.8. ”I Need a Lot of Money to Start”

Unless you want to start your own bank, this is not true either (and even in that case, you may get investors to help you). Many (dare I say most?) businesses that I have either helped launch or witnessed the launch of started with less than $10,000. Many Internet businesses start with even less, as the most primary of needs for this type of business is something most of us already have—a computer and storage, which come cheaply these days.

Throughout our time together, we will go through a thorough review of as many potential startup costs as possible, but there will be, of course, some that are only related to your specific model and market. You will need to identify those and then plan for them through careful research and analysis.

1.9. ”I Can Never Grow This Business”

This one may actually have some validity behind it, but whether or not it is accu­rate is dependent on you and your own choices, and your upfront research about the environment you are venturing into.

If you’ve chosen a business model that presents little to no room for growth, than this “myth” is actually a fact. If this is the case, it doesn’t mean you cannot earn a living, you just may not enjoy the thrill of a high growth model. Some people like just getting by and not working much, though. You will find ways to grow, particularly as you begin to find new demographics and market segments that are interested in your product or service and that you can sell to. Nearly everything is “growable” with enough creativity and flexibility on your part.

1.10. ”I Need a Business Degree-Time to Go Back to School!”

This is also just flat-out untrue. Have you ever heard of Bill Gates? Yeah he’s an uncommon example, but many entrepreneurs (some experts say most) got the “bug” and either dropped out of college or never went, although many do go back later. Yes, you will learn about profit and loss, financial statements, and investing in B-school (business school). But you won’t learn everything, and you won’t necessarily learn the real life lessons that you may have gained by being employed in the real world, by being underemployed, or even by being unem­ployed. This is all valuable life experience you will bring to the table. You will also create a network of business partners who undoubtedly will know what you don’t.

Another example taken from real life is Albert Einstein. Although Einstein was always intrigued with math and science, he often grew so bored with school that he just stopped doing his work and consequently failed math in college. So even if you didn’t excel in school, this potentially has no bearing on whether you will be successful as an entrepreneur.

As a side note on success, since I just mentioned it: success is subjective. What is “success” to you is not going to be considered success to your neighbor, your
friend, your parents, or your significant other.

One of my goals is to live in a house in a particu­lar area, in which the average starting price is a whopping $5 million mortgage. Until I can get there and pay cash, I will not be successful. I have known people who would be very happy living in a $400,000 home on a lake where they can fish and have the grandchildren over. In both cases, success is dependent on the person experiencing it.

It’s also important to note that the definition of success changes with life circumstances. In our teens and twenties, that definition is often drastically different than in our 30s, 40s, and beyond. Also, our life experiences change the definition of success. Perhaps success before children is working eight hours per day and making $100,000 per year so you can still have time to party. Then you settle down, get married, and have a child—now your definition of success is time with the baby and a college education for Junior.

1.11. “Exports Won’t Help My Business” or “Exporting is Too Hard”

Have you taken a look at the 2008 U.S. gross domestic product, or GDP? What saved the GDP in the first two quarters of 2008 from going negative? Exports!

As the dollar weakens (and this can be for several reasons; other currencies strengthening or the Federal Reserve lowering interest rates, making the value of the dollar weaker compared with currency of other countries), other countries’ interest in U.S. products is surging, in part because their relative cost is going down, particularly in emerging markets like Brazil, China, and India. You may find a significant source of your income and product or service interest is actu­ally coming from overseas buyers, especially if you are offering a product at a lower price than what they would be charged if they purchased the same or simi­lar product “at home.” Watch out for knockoffs, though, which might damage your business in other parts of the world. In Africa for instance, people knock off items as simple as a toothbrush and its container, or shoe polish to make an extra 30q by using a name brand’s name. Some areas won’t care if your product is authentic, but selling an inauthentic product is bad all the way around.

Is it hard to accommodate those customers that require currency exchange? Not really. If you use a credit card company, they will do the currency exchange for you automatically. Just be sure they’re translating the currency in such a way that doesn’t reduce your earnings. A quick call to the merchant company you are using will help you make this determination. You can ask your merchant account (usually this will be with a major bank) how they do currency translations and then compare and contrast this to others when you select a provider.

With the growing online presence of major carriers such as UPS, FedEx, DHL, and the like, shipping is easier than ever. If you use the United States Postal Service (much improved over the past five years in the area of reliability) and print labels online, you don’t even have to stand in line at the post office to ship your packages! Simply put them in any 24-hour drop box. Recently, the USPS made shipping even easier by allowing you to leave items with preprinted labels for your mail carrier—meaning you don’t even have to leave home to ship those items. All you need to do is print the labels, affix the labels to the items, and place them by (or in) your mailbox, and your mail delivery person will take them when he or she drops off your mail.

Note: Although this is convenient, you should only do this if your neighborhood would be considered secure, as there is a risk of anyone walking by taking your items before the mail person gets there. Another alternative is to watch for your carrier and hand the items to him or her personally.

Other major carriers, like UPS and FedEx, are also offering free pick up for packages shipped online, particularly with a business account; so as you are printing your labels, you can also schedule them to come pick up your items for free—a time and money saver.

Another fascinating fact on imports and exports: the Small Business Administra­tion (SBA) estimates that small businesses will account for a full 3 0 percent of exports in 2008, to total over $1 trillion. That’s right, one followed by twelve (12) zeros. Now that’s a lot of money, all from small businesses—like the one that you are on your way to starting.

1.12. “Most Small Businesses Fail”

This is a common myth, that most small businesses fail. Many do, but it isn’t quite “most.” If we compare them to mid-sized and larger businesses, surely more small businesses, percentage-wise, experience failure. This makes sense due to resources, expertise, availability of credit, and capital.

What are the facts regarding failure statistics? After four years, about half of small businesses are still in business. That number may be better odds than your chances of keeping a day job or finding employment, according to the Research Foundation. The faster that a business grows in the first year or two, the less likely it is to fail. This may be indicative of strong demand, which we know keeps small businesses flourishing. Yet another reason to play well and plan fast! Another quick fact for you: Only about 25 percent of new firms last less than two years—pretty good odds.

1.13. “Small Businesses Don’t Contribute Much”

Tell this to a small business owner and see what type of reception you get! If you are the type of person who wants to make a great contribution to society and to the country but believe that small businesses don’t contribute much, this section is precisely for you!

Companies with less than 500 employees produce about 50 percent of the goods and services in the entire United States economy, according to the Small Business Administration. In some industries, like equipment and machinery repair, or laundry and dry cleaning services, this is even higher—about 80 per­cent. (As a side note: If you’re thinking of starting one of these businesses, this statistic means that competition is more stiff in these areas.) Small businesses also produce anywhere from 60 to 80 percent of all new jobs, also according to the SBA. Which companies are adding most to this growth? Those with fewer than 2 0 employees! Still think you wouldn’t be making your mark?

This country was literally built on small businesses. Look at it this way: even companies like Microsoft, Google, YouTube, or any other conglomerate started at some point, and started at a relatively small size, compared to what they are today. Everyone has to start somewhere. The important thing to remember is that you have to start!

1.14. “If My Business Is Small Enough, I Don’t Have to ‘Legalize’ It”

Watch out for this myth, as it can get you into a lot of trouble—legal trouble and financial trouble, that is.

Registration of your company is not based on size. If you are a business of one, as I was for a while, you still have to register and you need to run your business under a legal name.

The same is true if you don’t collect much in revenue. If you collected $80, you need to file a return. If you lost money, the government will help compensate you for the loss and the risk. If you had bottom line earnings, then you owe Uncle Sam. You still need to file a Schedule C on your 1040 tax return each year. To be sure you are following all of the applicable rules, consult with your accountant and/or attorney.

1.15. “I Can Get a Grant to Start My Business”

Yes and no. There are grants out there, often offered through state (not federal) governments as well as some organizations. These are not readily advertised, but they do exist. The grants that are available are usually offered to those wanting to start or expand a small business and are often in fields like healthcare or hous­ing for the underprivileged.

Furthermore, they are not as easy to obtain as walking up to the state building’s door and asking for money. There are many requirements, regulations, criteria, and oversights to adhere to.

Unfortunately, this isn’t college and money isn’t as easy to get as it was for stu­dent loans and grants—and the government rarely intervenes in small business funding. It does, however, help offset failures; if you lose money, you can get tax

refunds as compensation for your risk and for the jobs you created. If you need funding, your best bet is a local bank or a Small Business Administration loan.

Some small businesses with really interesting or unique ideas and a killer busi­ness plan are fortunate enough to get venture capital funding, but this is another myth—that it is easy to raise funding. I would not count on it (though in this book I will tell you the basics for trying). Note that even SBA loans are just funds guaranteed by the government; the SBA isn’t the organization actually lending you the money.

Here is some more information to separate fact from fiction regarding loans. As I said, the SBA doesn’t directly lend money, but acts as an agency of the govern­ment to guarantee loan programs. There are three primary loan types offered through the SBA: the 7(a) loan program, the 504 loan program, and the micro­loan, or the 7(m) loan program.

The 7(a) program is the most flexible and allows qualified small businesses to get financing even if they have been turned down by other channels, like your local bank.

The 504 program offers fixed-rate, long-term financing for machinery, real estate, or equipment needed for expansion or modernization. The loan is very specific in what it can be used for; if you don’t fit this bucket, you don’t qualify.

Finally, the microloan, or 7(m) program, is for small businesses and not-for- profit child care centers and provides only short-term financing and working capital specifically for particular items: inventory, furniture, fixtures, machinery, equipment, and supplies.

Also, remember that not all banks will look at SBA-guaranteed loans the same. This is yet another myth related to SBA loans. SBA loans are based on the prime rate plus some specific margin, and this can change depending on the bank. Each bank may have a different interest rate. Loans can be approved very quickly by the SBA, often within 48 hours. You also don’t need to be a market dominator to get an SBA loan. You do not need a lot of collateral, either, and it is often wise to look at these loans before other types of funding because, in many cases, they are the easiest to secure.

The promptness with which you can secure SBA funds depends on the type of business you have, the tax records you can supply, sales data, and how much you need to borrow; so it can take months (but that is unusual).

1.16. “I Will Get Rich-QUICK!”

Can you get rich quick? Of course, and there are those who have! Keep in mind, though, that it is a short list, while the list of those who had to put in long days and late nights to reach a high level of success is much longer, and continues to grow. I’m on the latter of the two lists myself, and everyone else I know is as well.

How many people do you know who are super wealthy and made it by making someone else rich—through say … a day job? Probably not many, unless you regularly socialize with CEOs. Unfortunately, the media and infomercials pro­mote this type of unrealistic information and the masses fall for it every time. If they didn’t, you wouldn’t see the same false information on your television daily.

Many entrepreneurs are savvy enough to know that even if they can take their business “big time,” sometimes keeping it small for years is better. The founder of Restoration Hardware knew this, and was able to grow his business slowly and methodically until it reached annual sales of about $100 million.

Chances are better that you will get wealthy with long hours and dedication— and of course, something useful to the general consuming public or businesses.

In closing on this topic, know that I am not telling you that you can’t hit it big overnight, as you very well may—it does happen, but also realize that if it doesn’t happen like that, you shouldn’t throw in the towel and give up. Keep at it, work hard, and your business could be the next Restoration Hardware. Just keep in mind that you need to constantly check your plan against your actuals and make adjustments if needed. The only bad plan is the unrevised, never visited plan.

1.17. “Only Born Entrepreneurs Make It”

This is an interesting, common myth because there are so many social and psychological elements tied up here. There has long been a debate in social sci­ence over whether leaders are born or made; whether the characteristics that make leaders successful are present inherently from birth and their success rate is dependent on how well this is nurtured and accepted, or whether they are made through education, hard work, and perseverance. Perhaps the answer is in a nice combination of both, tossed in with a bit of risk aversion. This is a ques­tion not yet answered by science and may never be, as there are many aspects to the human mind and behavior that may never be able to be tested or explained. What I do know is that the most successful people run with ideas and don’t wait around for others who are slowing them down (including potential business partners).

What we do know, in the entrepreneurial world, is that there is no such thing as a “born entrepreneur.” Certainly some people are born with more aggres­sive traits, have more self confidence due to personality or circumstance, and are more or less risk averse, and these types of traits will aid in determining subsequent success and failure. But anyone with an idea, vision, and dedication, coupled with thoughtful decision making and the willingness to act, can be successful.

1.18. ”I Will Have More Free Time!”

This is a very grey area. You can have more free time. Then again, you may have less—depending on the amount of success you are trying to achieve and based on the amount of effort you put into your new dream.

If you are making the decision to quit your day job or leave the unemployed line for more free time, you are making a grave mistake. If this is the case, chances are your business will be one of those among the 25 percent that fail in the first couple of years in business.

Yes, you will have additional freedom, in the sense that you will select how your days will be planned, who you will hire or fire, what products and services you will offer, and so on. But you will most likely not have more free time if you’re giving your business your all.

Every growth strategy, every bit of implementation, every new contract is all about you and how well you sell it, how well you put it into practice, and how well you make it work. This is exceedingly time consuming, probably even more so than you are imagining it to be right now.

You need to go into your new business realizing you will be spending your free time thinking of new ideas—and when they come, you’ll want to jump on them immediately. The excitement and enthusiasm is literally so contagious that it’s nearly impossible not to. If you find yourself thinking of new ideas at midnight and doing nothing about them, you probably aren’t cut out for this.

In starting and running your own business, you will have more freedom—but part of that freedom is the freedom to fail. Is that why you’re going into busi­ness? Probably not.

1.19. ”I Won’t Have to Work as Hard (or Put in as Much Overtime)”

Unless you have a huge amount of startup money, enough to open with an abun­dance of employees, this couldn’t be further from the truth! In most cases, even if you do start with a full house of employees, you will still be required to work hard, through long days and late nights, to be successful. You will not only be the driver of your business model and plan, but you will be the executioner, final decision maker, planner, and the face of your new business.

As my business grows and gets busier, the busier I get. I cannot just hire out all of my work or I’ll lose one of the things that makes my business unique—me. You may be in the same situation depending on what your job is. If you are a consultant, for instance, people are probably paying you for your expertise. While you can outsource or hire people to handle some of the writing, analysis, auditing, and so on, ultimately you are still the face of that consulting service that they hired. Other businesses are more conducive to hiring out—for instance, call centers or customer service people.

As your business grows, it will require more of you and more strategy, more cash, more input, and more responsibility. The more successful you are, the more that will be required of you—it really is as simple as that.

1.20. ”I Need Small Business Credit to Get Loans”

How many times have you heard young people say “It isn’t fair, I have to have credit to get credit!” To some degree this is the case in the private sector with individual credit, but thankfully your business does not need credit to get a small business line. In fact, in my first month of business, Bank of America issued two credit cards, under my businesses tax identification number, totaling $7,000 in credit lines. More came later, after I had proved my ability to make my payments on time.

Now there is a grey area with this myth. In some cases, when a small business loan is really a personal loan gained under the premise of starting a new busi­ness, your personal credit will matter, but not nearly as much as it does for, say, a home or automobile purchase. Often your personal credit will guarantee your business credit, which can make it more difficult to get home and auto loans as it will show a higher debt-to-income ratio. Keep this in mind before securing your business debt, and shop around banks to see who will perhaps give you a lending hand without the personal guarantor.

1.21. “Being a Franchisee Is Safer and Less Costly Than Starting My Own Business”

So you want to open a McDonald’s, a UPS Store, or something similar because you think franchising is an easier road? It isn’t! It is often more costly; in many cases you will have limited product offerings based on what the company requires and in most cases you will pay heavy costs to get up and running. If you really want to be a franchise, dig into the details deeply and you might find out that it isn’t all it’s cracked up to be.

The only benefit that I have ever seen of franchising is the fact that it is very easy and results in a quick startup. Generally, you write the company you are fran­chising from a check, and they give you all that you need to be successful—sans you, of course, and your new team.

You may have to find the location, or have the location already acquired, but after that, the company usually takes care of the rest: from design and construc­tion of the location to furnishings to equipment and supplies, even extending to training on how they want the business run and what additional local laws you will be required to abide by. Not all franchisors will provide full service; some provide tips, a name, and some software and let you out on your own. Often the level of assistance is tied to the price. For instance, I recently looked at buying into a franchise of a tanning company rather than starting my own. I looked up one in particular, and the $30,000 franchise fee was for the name only. Others provided equipment and a team to train you for two months for less money, but the name was not as reputable or as well known. Sometimes with a franchise, you are merely paying for name recognition.

Another option, of course, is for you to open your own business and then offer franchising yourself. An acquaintance of mine recently did this and in a matter of months had a completely franchised business, charging $20,000 for the advice, the name, and some equipment. You can make money as a franchisor or franchisee—but some people won’t feel the same about their business if they buy into someone else’s idea and pay money for it. This is something that you need to keep in mind.

In some cases, if you buy into a franchise you may have to pay a percent of profit—you will be continuously paying part of your profits. In other instances, you will be required to pay a fee for the life of your business. When the company upgrades, you must upgrade. When they change logos, you must update your logo. Many of us don’t like the idea of giving up that much control.

Another negative aspect, as previously mentioned, is the fact that you are limited as far as the types of products or services you can offer, depending on which products or services are approved to offer through the franchisor. A related issue is the price which you charge for these products or services. You are often bound to the national promotions being run, current “suggested” prices, and so on.

There are upsides and downsides to this pricing situation. On one side, you are limited to the “approved” suppliers that your franchiser has agreements and contracts with. This means that you are forced to go through a certain supplier for your products, who may actually be charging you more than what you would pay if you purchased the exact same product through a different supplier. Let’s say you franchise a McDonald’s, and they only approve Supplier A. Supplier A charges one cent per hamburger patty. If you had started your own fast-food res­taurant, and were able to “shop the competition,” you would have found Supplier B, who for the same (or similar) product, charges one cent for three hamburger patties. There are upsides and downsides to everything.

The downside of this pricing deal is the fact that you are limited to what you can charge your customers for a certain product; oftentimes you will have to follow nationwide or regional marketing campaigns. However, the product or service may be worth more or less in some regions than in others. Smart franchises know this and allow you to make adjustments; others are more rigid. If you want to buy into a franchise, pay careful attention to those types of details.

2. Final Thoughts

So now that we’ve covered some of the basic ideas of entrepreneurship, what you need to consider before moving forward, and even debunked some com­mon myths, what do you think? Do you have what it takes? I believe that we all do, with the right motivation and the right tools for success. Throughout the remainder of this book, I will unload a plethora of research, personal knowledge and insights (and plenty of stories), tools, and more motivation than you may be able to handle. So what are we waiting for? Let’s get started and get you one step closer to becoming the next Accidental Tycoon!

What did our survey respondents have to say about flexibility compared to Corporate America? A whopping 89 percent, nearly 9 out of 10 respondents, said that owning their own business provided more flexibility than Corporate America—6 percent noted it was about the same, and only 4 percent said less flexibility. One enthusiastic responded by saying that “more flexibility is an understatement! ”

Source: Babb Danielle (2009), The Accidental Startup: How to Realize Your True Potential by Becoming Your Own Boss. Alpha.

You Have an Idea, Now What?

Chances are, you are picking up this book because either you had an idea and weren’t sure how to implement it, or you are intrigued by the idea of becoming your own boss and want to learn how to realize “the American dream.” In either case, you will need an idea to run with, to analyze, and then, potentially, to market.

If you already have an idea in mind, then you’re in a good position to begin analysis—determining the sources of your revenue streams, setting realistic start times, identifying your initial strat­egy, determining who to talk with and how to evaluate your goals and strategy, deciding who your target demographic will be, and figuring out how to analyze your startup costs. If you fall into this category, proceeding through the rest of this chapter will be easier for you.

If you don’t already have an idea, or you aren’t sure what you want your new business idea to be, now is the time to start brainstorming. I always recommend thinking about what gets you excited. What are you passionate about? What do you do now that you’d gladly do for free if you didn’t have to worry about finances (e.g., paying bills)? What do you enjoy doing with your time when you have a moment of it to spare? Analyzing your passions and brainstorming what they are is the first step in beginning to find your new business.

You can turn your passions into profits, but first you have to know what those passions are. This goes for those of you who already have your business idea, as well. Make certain it is something you are passionate for and about, and if it isn’t, then perhaps you should reconsider a new idea.

To facilitate this search, I recommend taking some time for yourself—to really connect with what brings you joy in life. Try sitting, alone, and think about what makes you happy. Try going for a walk in the park or along the beach—what do you want out of life and what makes life enjoyable? Whatever helps you think clearly and undistracted, do this, and jot down everything that comes to mind.

Now at this point, use a branch-out method that will help you see how you could potentially turn your idea into something profitable. I’ll walk you through a scenario. Say you enjoy shopping—immensely. When you have an hour of free time it is best spent at the mall finding bargains. Now what if you routinely know how to shop to get designer goods for 90 percent off? What if you created a discount boutique and resold these items at half off? Perhaps you even had an eBay store to accompany the brick and mortar or on ground store? The potential for large profits here is astounding, albeit with a relatively easy startup. This is a small example of the way to begin turning the things you love to do into ways to make money.

One way to try to conceptualize your business is to draw a picture of your work, and to “branch out” your next steps from there. To create this map, place shop­ping at the center of the bubble. Draw lines from the bubble, and write words or short phrases that come to mind when you think of shopping—perhaps eBay, “hard to find items,” “antiques,” and so on. Use this as the basis for your brain­storming. Often this is the most effective and fastest way to brainstorm and still be able to maintain a sense of your original ideas. Also, in the process you may find other ideas you hadn’t thought of—perhaps even another new business!

The following is a pictorial reference of what I am referring to, although it is a very simplified version.

Source: Babb Danielle (2009), The Accidental Startup: How to Realize Your True Potential by Becoming Your Own Boss. Alpha.

To begin any project, you need to decide on an initial strategy for developing your business. This involves many things, from deciding when to quit your day job (or stop looking for a job if you are unemployed), to when to commit full time to your business, to how to get your first customers.

Your initial strategy also needs to have an analysis of your costs, your risks, your personality—everything bulleted in the feasibility section of this chapter.

Your initial strategy also needs to include the method you will use to “roll out” your new business, and you need to add information about methods of advertisings, and don’t forget the initial “blitz” campaigns that really get the word out early and fast.

1. Initial Strategy

Your initial strategy needs to be well developed and needs some thought. I have literally started businesses in one day—all in 12 hours; business plan, vision statement, mission statement, filing a fictitious business name statement, setting up a bank account, and template-based website. These weren’t my most success­ful endeavors, though. My most successful endeavors were those that required time to start: time to think, strategize, research, launch, and market.

So what do you think about? For starters, what do you really want to do?—What will captivate you enough that you can do it full time and be content, even happy—happy enough to stick with it when times get tough?

After you know what you want to do, it’s time to begin setting up the stages of your business—setting a plan of short-term goals. For example, in one year I want my business to be generating $20,000 in revenue. (You will determine your profit margins later.) Another short-term goal might be: “I want to spend one hour per day—my lunch hour—marketing my business until I have five clients, then I will quit my day job because this will net me $50,000 a year.”

2. Realistic Time to Start

A realistic time to start goes beyond when you would like to begin business and moves into when you feasibly can do business. There are many things that might impact your ability to begin, such as …

• Familial obligations.
• Startup costs—if they seem out of control, see what you can do to get control.
• Difficulty finding initial clients—you may need to get super creative here!
• Limited time to devote early on, due to job or family constraints—not devoting time early on can kill a great idea very quickly.
• Caring for sick parents or family members—for most individuals, this will obviously take priority over a new business, so if you are facing this, it might not be the best time to start. But it certainly doesn’t mean you can’t brainstorm.
• Financial constraints that go beyond startup costs, like a rising mortgage payment, and so on.
• Difficulty leaving your day job.
• Religious days—Do you not work on a specific day of the week? Is this going to hinder your success? Theoretically it should not, but what if you take Sundays off and, as it turns out, your clients want most of their busi­ness conducted or service performed on Sunday?

■ Recreational obligations (softball practice, etc.). Sound silly? Low prior­ity? An individual I used to know actually let his small business fail to not let his softball team down for those three months while spending it on the softball field!

First, you’ll need to identify what your short-term goals are, then work backward to determine how long it will take you to get there. If your one-year goal is $100,000 in revenue, and you are planning to charge $10,000 per client for your new solar panel, you will need to sell 10 of these per year. If your profit margin is 50 percent, you will net $50,000.

If your day job pays you $75,000, then you can plan on being able to quit your day job in about 18 months, since that is when your business would, all things staying equal, be able to sell about 15 per year, netting the same pay.

You may have available time that you didn’t even think of. One technique I like to use is to create calendar items (what I call calendaring) every single thing that I have to do in a day with the time it takes me to do it. When I was working a day job and planning to leave Corporate America, I calendared my day job. I tried my best to keep my working hours to 10 per day at my day job, and I took my full hour lunch, often sitting at Starbucks, working on my laptop on my side jobs. Then after work was over I’d use time I scheduled in to do additional work on the business. Soon, in about a year, I found I was needing to schedule about seven hours per day for my side job. Calculating my pay and realizing it just barely exceeded my Corporate America job, I knew I could quit, as I had eliminated my quitting as a potential financial burden.

Now there is a not-so-obvious issue here—and that was that I was used to get­ting paid double! I had my salary from my day job, and my contract wages from my side job (which my employer knew about and supported—another thing to consider). As I increased my “moonlighting workload,” I had become accustomed to making double my income and I hadn’t even realized it! Once I had officially moved on, I now had to live on “half’ of what I was used to making, even though it was the same as it was just a few months earlier at my day job alone.

This sounds like a good problem to have, but it is tough to go from making X dollars to X divided by two, regardless of how you got there! So the key is to plan
early: save all the money you make from your business to reinvest in your busi­ness. Try to avoid getting caught up in the excitement of the paychecks, and save that cash so you can use it as first-year startup money, or to pay the bills if you have a bad month.

If you are underemployed or unemployed, you will have more time to devote to your busi-ness. Keep in mind that some states, once you earn a 1099, will ask for unemployment money back. So talk to an accountant about this, or at least do the legwork yourself if you don’t have the funds available for professional advice. Contact the department that handles your unemployment (or other subsidies that you may be receiving).

3. Identifying Basics

There are lots of basics you will need to identify before you start your business. First, you’ll need to know what genre of work you want to be in. At some point you’ll need to narrow down to the specifics. You will need to determine what you are an expert in. You will need to determine how much time you can devote early on, as we just discussed. You will also need to determine who your custom­ers are, and how much of a product or service they buy. You also need to do one very important thing—come up with a budget. What is the minimum you need to live and pay the bills, and what will your business easily earn? Not so easily? With some effort?

4. Your Go-Live Day-Making the Decision

The day I quit my job was the best day of my life. I’ve been laid off before due to budget cuts (information technology management is notorious for it), but quit­ting my job? Not going back on purpose? I never thought that would happen! I dreamed of the day, but I was always too nervous; I always thought I wouldn’t be able to make it on my own and the income would be too variable. The income is variable, but it is terrific to be in charge of my own destiny.

You will need to determine your own go-live date—and it needs to be data driven—based on when you can afford to go live, and when you think you have enough excitement about your business generated—enough buzz, in marketing speak—to take it into full swing. If you just opened up a boutique for gifts (for instance, a very successful one around the corner from my house had the most
unique gifts and charged a pretty penny for high quality items, then wrapped them—and catered to a high-end clientele), you will want to get the storefront ready—for months even before you open—and let everyone possible know about your new business. This is all about creating buzz and anticipation; building up the momentum and the “I can’t wait until that store opens” feeling. The more excitement you can create before you even open, the more loyal a customer base you will create.

The day you decide to say “I quit!” and hand in that resignation that day will feel like no other. While you can celebrate, the standard two weeks that ensue need to be carefully planned and impeccably executed so that you are earning what you planned for on day one, week one, and month one.

5. Service or Product

One of the decisions you will be making as you work through your business planning is whether you want to offer a product or service. These need not be mutually exclusive; many successful business owners offer both. For instance, when I was running my first computer consulting business, I fixed computers for small businesses onsite with a guaranteed four-hour response time, day or night. But they often needed parts, so I sold them equipment, too. They needed it fast, so they were willing to pay a substantial markup.

In the days when computer parts were a commodity and a standard markup was 5 percent, I was paying retail and still marking them up 50 percent. I wasn’t being dishonest with customers—that is a quick way to lose them. I would tell them that they could go to Best Buy, buy XYZ parts, and save some money, or I could go get them and here was the bid. Over 95 percent of the time, they wanted my expertise in selecting the product and I got the service sale—and the product sale. This was one of the few businesses where my product profit margin exceeded my service profit margin, which is opposite of how it usually works!

Whether you decide to go with a product, service, or both is highly dependent on what you want to do with your time (and on what your passion is). In the beginning, you may be the only service provider. If you are going to be a land­scaper, do you want to be out there digging up concrete? Do you need a crew? If so build this into your cost plan. If you are going to repair computers, it might just be you—you better love repairing computers or you will be one unhappy camper. Services usually generate higher profit margins, and you can decide how much you are worth per hour, provided what you’re offering is something people are willing to pay that price for.

Products are good because they’re usually low maintenance (except for dealing with warranties and so on), but the profit margin-unless you are selling a prod­uct with a generally higher profit margin that is not a commodity—is generally lower.

If the product can be quickly and easily found on the Internet, you might want to bundle it with service or find something else-unless you can sell a lot of these widgets. Anything sold en masse means your margins will be lower. For instance, if I want to buy a cell phone, I can go to many online providers, even eBay or Craigslist, and have many options. The profit margin is low because of the competition. If I had a unique product-wine rated by the feedback of other users, for instance—people might be willing to pay for my atmosphere (if I was an onsite location) or my knowledge as an online club member (for a web version of the same sort of company), and loyalty can be generated. People often pay a bit more because they are loyal to one place or another. But there is a fine line. You don’t want to be so overpriced that people go elsewhere.

Many successful entrepreneurs bundle products and services. I was once strictly in the service business, but I found myself answering the same questions over and over. One common one was “What are some schools’ human resources addresses I can use to get jobs?” Realizing that sending custom e-mails to people for limited money was time consuming and not worth it, I created an online product for sale and a document that is sent out to individuals. This is one way you can tie product and service together, but if you want to maintain a brand they need to be complementary.

Source: Babb Danielle (2009), The Accidental Startup: How to Realize Your True Potential by Becoming Your Own Boss. Alpha.

After you’ve decided that you want to make the jump, you need to figure out if your plan—the one you have by now fully documented, including short-term goals—will work. To do that you need to talk to people—lots of people—and you need to get the advice of experts—lots of experts! You also need to do your homework. Again, check the feasibility section of this chapter—read and re-read it—because it is important that you’re able to answer those questions, and that the answers favor your business.

1. Who To Talk To

One way to find out what people are buying and how much they are paying for it is to talk to others in the business. For instance, if you are a wine expert and want to sell wine (and your expertise) on a website or even at a wine-tasting bar, you can visit wine-tasting bars, see what is on the menu, what the traffic (how many people are entering the place) looks like on various days and times of the week, and who is frequenting the place. Lots of people visit the competition to see what they’re doing to replicate it. This is one good place to start.

You also need to talk to a tax advisor who can help you plan. A financial planner isn’t a bad idea either if you have excessive obligations or if you are going to take a significant cut in pay early on. You might also want to talk to the Small Business Administration (SBA) and see what kind of financial assistance is avail­able for individuals like yourself—entrepreneurs looking to make a living for themselves.

2. Evaluating Whether Your Idea Is Marketable

Another thing you’ll need to do is determine how marketable your idea is. Here are some questions to get answers to:

How easy will it be to reach my target market? Will it be as easy as placing an ad in your local newspaper or journal, or will it require an ad campaign? Will it be beneficial to join social networking websites to advertise, or will it require a simple flyer posted at the local coffee shops?

How will my idea be received by my target group? This is a question that is a mix of both intuition and research. Even if the research that is conducted points to an acceptance of and strong demand for your products, services, or both, this doesn’t automatically mean that you are guaranteed success. Similarly, just because the research indicates that you are “doomed” if you proceed with your original idea doesn’t automatically mean that you will fail. This question is highly subjective, and will require both adequate research as well as a “sense” of the wants and needs of your target market.

Who is already doing what I will be doing? This is where research and investigation into your soon- to-be competition comes in. Who’s already selling the same products? Who’s already providing the same services? What are they charging, where are they lacking, where can you improve their so, evaluate their website. What are the pros and cons?

What can I bundle with my products or my services to make them more appeal­ing? Bundling is similar in marketing nature to “upselling” any product or service, but with some distinct differences. Upselling is selling a secondary or complimentary product, based on the sale of one product or service. We see this in its simplistic form in the now well-known phrase, “Do you want fries with that?” In more high end forms we see things like necklaces with the purchase of a watch; even recently a free compact car with the purchase of an SUV! You can figure out profit margins and make accommodations based on them.

Bundling is different than upselling in the sense that you are combining two or more products, services, or both that will increase the potential of the initial sale. For example, many cable television companies are now bundling their cable TV service with cable Internet service and telephone services. Often the goal of bundling is to make something simpler for the user—a single bill, for instance, for three utilities. By advertising the “package,” you may be more likely to attract a wider customer base, instead of waiting for a customer to sign up for cable TV service and then trying to sell the additional services through direct marketing.

This concept can cross the product-or-service divide. For example, if you were offering window washing services, you could advertise the inclusion of a supply of window washing liquid (your own cleaner, for instance) for those smudges in between window washing visits. Carpet cleaning companies often do this.

You could also offer a package of window washing and plant watering and maintenance.

Perhaps the most important question is, “What is it that people want that they aren’t getting?” Wal-Mart answered this question with “low prices,” and then figured out how to offer them; among other ways, by buying in such large bulk that they were able to put price pressure on suppliers and beat their competition. Apple answered it by offering products that were “cooler” than the others and by selling products to kids in schools so they would be used to their gadgets and computers at a young age. Samsung answered this question by maintaining tight family control over its operations and creating high-quality goods with great dis­tribution. Toyota answered this question by offering a quality product at a great price. eTrade answered it by creating the guaranteed two-second trade and excel­lent online service. eBay answered it by disintermediating the market—removing the middle man and letting buyers and sellers work together in a huge global marketplace—and offering a platform for feedback and payments.

Have you noticed that “generics” tend to not do so well? What does Sears offer besides tools you can get elsewhere? What does Kmart offer? Do you want to be a company that has to fight and face bankruptcy each quarter? What does Ralph’s offer over Stater Bros? What does CVS do to lure prescriptions from Wal-Mart? What does Maxtor do to make their hard drives the choice over others? You may have an answer if you’re brand loyal to one of these companies, but in general, you won’t see high profit margins or incredible growth out of these businesses. The key is that you don’t want to be a generic anything unless you are running a low profit margin high volume business.

Figure out first what your customers want, then figure out how to offer it. It is kind of like writing a dissertation—you need to figure out what isn’t out there before you can figure out what you need to offer.

3. Determining If Your Idea Will Supplement Your Income

One major decision you will need to make for the long term is whether this busi­ness is going to supplement your income or be your only source of income. If it is supplementing your income, figure out how many hours you want to spend on the business, and how much it will supplement your income by. Also determine for yourself if you will want to take this full time as the primary or sole source of income in the future, or if you want this to be a part time business forever.

If this business will be a supplement for the long term, you don’t need to be as strict with regard to planning. You might find yourself launching the business and only breaking even for a year or two (if you are lucky), knowing that in time it will be profitable. This goes back to personal needs and decisions.

4. Determining If Your Idea Will Be Your Only Source of Income

If this business will be your only source of income, you need to be very serious in your planning. You need to know precisely what your bills are and what your business has to cover. The main difference between the business being your only source of income and a supplementary source, of course, is that the business needs to pay you a salary, so you need to cover not only your business’s expenses but your own, too.

Try to limit your own personal expenses by getting rid of unnecessary debts before you take the plunge. Convert debt to lower-interest credit cards, for instance, remove as much revolving debt or as many variable rate loans that could change unexpectedly as possible, and then figure out what you need to make yearly. Remember that you need money to reinvest, and even if you have a well run business, you’ll still have costs you don’t realize but which creep up and get expensive, such as bringing on help when you need it, postage, ads, and so on.

5. Time Constraints—Do the Underemployed Have Time?

You need to figure out what your time constraints are for your business before you start it. We discussed some things earlier in this chapter that might affect your free time, like family and work.

If you are underemployed, you might have enough free time to still work eight hours a day on your business, but you’ll need to be willing to commit to a very long work day for awhile. Beginning a new business is no picnic. If you want this business to fill an employment gap and then eventually take over as your only job, you’ll need to work harder. This is why I am a big fan of scheduling your day, and making certain to schedule in time to think of new ideas, too.

6. Getting Startup Money When You Are Unemployed

Although your being unemployed could be a warning sign to some lenders, investors, or both, if you are unemployed or even underemployed, you may still be able to find sources of startup money.

Banks do loan money to new startup businesses that have a business plan that is well laid out, pending you have adequate credit to minimize the risk that the bank will be evaluating. We dive into this in depth in Chapters 8 and 10.

Other sources are investors that are interested in high returns. It will cost you in high interest, but if you are confident in your numbers and know you can pay it back, it might be worth the risk.

Another option is small business loans, grants, or both through the Small Business Administration (SBA). Contrary to popular belief, the federal govern­ment does not loan money to startup businesses or entrepreneurs, nor do they give out grants. Any government funding that you may have heard of, or hear about, is coming from the state and local levels, and the criteria for these pro­grams is very strict and can be difficult to navigate. Even these sources of fund­ing, however, are not directly allotted and dispersed through the SBA.

The SBA deals with private and public lenders to assist small business owners acquire financing, usually through guaranteeing the loan itself. Obviously there are numerous requirements and chains of command that need to be negotiated,
depending on the loan program you are applying for, but if you fit within the criteria set, this is usually one of the most attractive financing choices. SBA- guaranteed loans are often easier to secure, compared to soliciting your local financial institution on your own, and will often fund you with much lower interest rates. To learn more about the SBA’s loan programs, visit sba.gov/ services/financialassistance/sbaloantopics/index.html.

The SBA also deals with grants, although not necessarily as the grantor. The SBA’s website specifically states: “Please note that the U.S. Small Business Administration does not offer grants to start or expand small businesses, though it does offer a wide variety of loan programs. While the SBA does offer some grant programs, these are generally designed to expand and enhance organiza­tions that provide small business management, technical, or financial assistance. These grants generally support nonprofit organizations, intermediary lending institutions, and state and local governments.” In other words, unless you fit a very specific group, with very specific needs, you will not qualify for a SBA- brokered grant. For more information on the SBA’s grants, visit sba.gov/services/ financialassistance/grants/index.html. (Small Business Administration, 2008)

Source: Babb Danielle (2009), The Accidental Startup: How to Realize Your True Potential by Becoming Your Own Boss. Alpha.

Every business has startup costs; how much and what type will depend greatly on what you’re going to do for a living. If you are going to be office-based or you’re going to have a storefront, your costs will differ than someone who is going to run an Internet operation. Here are some basics for you to consider:

1. Office

Whether or not to have an office is a difficult choice. I was chatting with a multi­billionaire gentleman who is quite famous, and he was remarking how he used to have a highly impressive office, but then realized (paraphrasing here), “Heck, I just want to wear my shorts all day, why do I need this office?” and converted his living room into his office. Even his employees, when he has them, work from there—or from their own homes. I’ve had both—a home office and an outside office. I’ll describe each and give you some of my personal pros and cons.

When I was running my computer consulting business, I was a “kid.” I say this because I was in my very early 20s, and I had started it in my teens. I decided one day that I wanted a place to store equipment and I wanted my contractors to have a home base—I wanted a desk, and I wanted legitimacy. I think legitimacy was the biggest reason I wanted to move my office out of my laptop!

One of my clients happened to own the office building where his practice was and he offered me a suite, five rooms for $300 a month. In today’s money this would be about $550—still a really good deal. It would come complete with a sign on the door—and a sign on the street in the business complex. I was a legit business! I moved in, they paid for new carpet (talk about lucky), and I bought IKEA furniture, a few file cabinets, some whiteboards, some entryway furniture (that I never used, because not one client came into my business), and I was happy. I left work at lunchtime and then again after work and I’d go to my office, do my work, pay my contractors, answer calls that had come in, schedule appointments and work for the next day or week, run quotes, and pick up equip­ment. I staged new systems there, had my “ghosting equipment,” hardware that copies computer hard drive data running with a very strong up-time, and my contractors worked from there. I paid nearly nothing in rent.

This was a bad move! Why was this bad? Because I didn’t need it! Not one person ever came to my office but my team, and my team could stage their com­puters from anywhere. My work was onsite—I went to my clients. That was the entire idea behind my service—so I didn’t need the not-so-fancy office with new carpet. I moved out about two years later and moved back into my laptop. While it wasn’t nearly as fancy or nearly as “legit” feeling, I got to keep an extra $300 per month for myself and pump it back into my business. (The constant barrage of solicitors stopped, too—they couldn’t knock on my laptop!)

Years later, I began another business—online education and real estate consult­ing. While they sound highly dissimilar, they have more in common than one might think. I taught online—one class or so here and there—for about ten years. One day toward the end of my doctorate, my dissertation chairperson said, “Hey I do this full time.” I was shocked. He really taught online and made a living at it? I thought to myself, “Wait, he lives in a lower-cost area than I do; I pay nearly double the tax he does. I’d have to do double the work.” Turns out, I have double the energy and half the family commitments (and I can type really fast!).

So began the quest for a few additional schools to add to my income and fill up my free time, eight years after my first online teaching job. After less than a year and a Ph.D. almost finished, I had equal pay from schools as I did from my day job. To my astonishment, I was winning quality awards—in both of my careers! Obviously the quality of my work wasn’t suffering. What if I added to my workload? So I did, and so I left—my day job, that is. I eventually decided to market my additional expertise—my advanced concepts of statistical models and my expertise in technology, management, real estate, entrepreneurship, and so on—and decided to design courses, further expanding my offerings. I began writing books about what I was seeing in the market—again an expansion. Then the television appearances started, the expertise began to flow, and the research I embarked on more than doubled. Products were added to my list, and the product/service mix was working very well. But guess what? This was all done from my home office—the loft in my 2400-square-foot home.

The lesson here? I was too focused in my early days on what it meant to have an office and not what it meant to have a business. I was looking at what would make me feel good, not what I needed. In the right career, working from anywhere would make me feel good. I toy now and again with the idea of renting space in a gorgeous tower off the 405 freeway, but then I remind myself that it would all be for show.

I did find a nice compromise, one you might find useful yourself. I moved into a new home last year, a bit larger, with a casita—a guest house. The guest house is … yes, you guessed it, my new office. It’s a building apart from home, giving me home/work separation, but a low cost one—and a tax write off to boot!

2. Technology

As with anything in life or business, what you need depends on what you’re doing. The same goes for technology. I am an online professor primarily, an author and a speaker, and an analyst. What am I using as my home PC? A machine I built seven years ago. I’ve upgraded parts as they’ve died off (that old IT business expertise comes in handy once in a while, like when I try to figure out just where the smoke is coming from in the grey box under my desk), but I have a (very) fast Internet connection, a large monitor, a comfortable chair, and an old—a very old—PC. My websites are stored on some virtual server some­where in who-knows-what-country, and they are reliable and cheap.

If you’re going to host a site like eBay or Amazon, you obviously can’t do this. You need to analyze what you do need. How many calls will you make? Do you need a fax? Will a free electronic fax do? Can you use a cell for all your calls? What sort of backups do you need? Do you really need QuickBooks, or will your bank offer you a small business service that lets you invoice clients and handle payroll online?

Once you get a good list, figure out what it will cost and then set a budget and stick to it. Try not to get sucked in with all the bells and whistles. You probably don’t need Blu-ray on that work computer!

3. Staffing

To staff or not to staff—the age old question. You may want to begin your busi­ness with just you—for a while, you may well be your business. If you’re going to hire staff, though, you will need to consider all costs involved. In each state, this will vary greatly. The U.S. Department of Labor has some great resources that will help you determine the cost for employees. Here is how they break it down (keep in mind that this is for workers of all categories; these are averages includ­ing highly skilled workers with doctorates all the way down to the lowest skilled, most uneducated workers)—the key to take from this section is how much more it will cost you to employ someone than just their wage.

Overall in the United States, a worker earning a salary of $18.67 per hour (aver­age for December 2007 in private industry) cost the employer an additional $7.75 in fees, resulting in a cost of about $26.42 per hour.

In the Northeast, the average salary is $20.99 per hour, with an additional $9.20 in costs, for a total average of $30.18. In the West, this is $20.05, with an addi­tional $8.22 in costs, for a total of $28.27. In the Midwest, it is $17.93 with an additional $7.71 in benefits, for a total of $25.63. Finally, in the South, it is $16.99 in wages and $6.65 in benefits, for a total of $23.64.

In nearly all cases, benefits are running about 30 percent or more for employees! Some benefits are legally required, some are not. In some states, for instance, you must provide healthcare and in others you don’t. Legally required benefits are Social Security, workers’ compensation, and unemployment insurance.

These average around $2.50 per hour per worker. Note that these figures assume straight time, and no overtime or bonuses. (U.S. Department of Labor, Bureau of Labor Statistics, 2008)

What is the take-away lesson here? Having employees isn’t cheap. You may only need moderately skilled workers who you can pay less than the average; remem­ber that these numbers include the highly educated and senior professionals.

There is another option, and that is contractors. There are rules, though, about contractors that you need to strictly abide by!

Initially it is up to you whether you want to bring someone on as a contractor or as an employee. But this is subject to potential review by the IRS and state work­ers’ compensation and unemployment compensation agencies. The IRS is most likely to classify a person as an independent contractor if she …

• Is capable of earning a profit or loss from an activity.
• Provides her own materials and tools needed to do the job.
• Is paid by the job.
• Works for more than one company at a time.
• Pays her own business and travel expenses—you don’t reimburse her for mileage, and so on.
• Pays and hires assistants.
• Has flexible working hours.

There are common law rules according to the IRS, too. Does the company control or have the right to control what the worker does and how the worker does his job? If so, he may be considered an employee. Does the business provide tools and reimburse for travel and mileage and expenses? If so, he may be an employee. Are there written contracts or benefits like vacations, pension plans, and insurance? If so, he may be an employee. There is no magic bullet that makes a person an employee or a contractor. The entire relationship is taken into consideration, including flexibility and control. The IRS does offer form SS-8, Determination of Worker Status for Purpose of Federal Employment Taxes and Income Tax Withholding, available in the References section of this book. (Internal Revenue Service)

If you are going to hire contractors, you must require a W9 form from your contractors, which is a taxpayer identification number and certification. You can get the W9 form online at www.irs.gov/pub/irs-pdf/fw9.pdf?portlet=3. Then you file a simple 1099 MISC form at the end of each year. The money you pay them comes off your taxable income and you don’t withhold taxes from them.

Life is a bit more complicated with employees. You must withhold federal income tax using form W4. Publication 15, “The Employers’ Tax Guide,” available on the IRS website, will walk you through this. Grab Publication 15A, “The Employers’ Supplemental Tax Guide,” while you’re there.

Social Security and Medicare taxes pay for benefits that workers and families receive under the Federal Insurance Contributions Act, or FICA. You must pay a portion of these as well. Social Security tax pays for benefits under the old age, survivors, and disability insurance part of FICA. Medicare pays for benefits under the hospital insurance part of FICA. These also need to be withheld and you pay a matching amount yourself, which adds costs.

You will have to file quarterly Form 941, the Employers’ Quarterly Federal Tax Return.

You will have to file Form 944, the Employers’ Annual Federal Tax Return.

There is yet another tax you must pay on your own: the Federal Unemployment Tax, or FUTA. This pays unemployment compensation to workers that lose their jobs. Employees don’t pay this at all! You, the owner of the company, pay this entirely. You report it on Form 940.

You must deposit withheld income taxes and employer and employee Social Security and Medicare taxes, minus any Earned Income Credit payments, by depositing electronically or delivering a check, money order, or cash to a bank­ing institution that is an authorized depository for federal taxes, or by using the electronic federal tax payment system available on the Internet at the IRS’s web­site. It is discussed in great detail in Publication 15, under the How to Deposit section. This is one thing the IRS makes it easy to do—pay them!

You also must prepare a Form W2 each year, on the last day of February for paper forms and March 31 for electronic forms. You can do this online using the Social Security Administration’s online W2 filing system (www.socialsecurity. gov/employer).

4. Vehicles

This consideration is more pertinent if your new venture is service based, but even product-based businesses could be affected.

Rehashing an earlier example, if your idea is for a landscaping business, even if you are planning on being a sole proprietor, you will likely need a truck, and perhaps a trailer. If you are going to employ a crew (or more than one), you may even be considering a “fleet” of trucks. There are many aspects to this that need to be considered.

First, if you already own a truck, and you are planning on only using your personal vehicle, you will be allowed certain tax advantages. Similarly, if you don’t own a truck (or opt not to use your own vehicle), and you want to buy or lease a “work truck,” you will be eligible for some different and/or additional tax benefits. For example, if you lease a truck, your lease payment now becomes a business expense, as do your insurance payments and the costs of fuel and main­tenance. You will not necessarily be eligible for the same tax advantages if you are using your own personal vehicle. You will need to consult with an accoun­tant, not merely a tax preparer, for an interpretation of the full letter of the law. It is advisable to consult with a tax professional before making this decision.

5. Insurance

I don’t mean only healthcare insurance (as I discuss this in the next section), but the other types that are often not considered, and which generally fall under the main category of “business insurance.” These include professional liability, busi­ness liability, general liability, umbrella liability, workers’ compensation, etc.

Here’s a quick breakdown, based on an injured party and insurance plans that cover the injured party:

If you’re feeling a bit overwhelmed, you’re not alone. Insurance is often overlooked for this simple reason. Here is a bit of a further breakdown from Microsoft’s website, which you can read for yourself at www.microsoft.com/ smallbusiness/resources/finance/business-insurance/protect-your-business-7- types-of-insurance-coverage.aspx:

Business owner coverage. Otherwise known as “catch-all” cover­age, business owner insurance provides damage protection from fire and other mishaps. Owner coverage also offers a degree of liability protection.

Property insurance. This can augment the property coverage offered by business owner insurance. Property insurance covers damage to the building that houses your business, as well as to items inside, such as furniture and inventory.

Liability insurance. In our litigation-looped society, this may be as important a form of coverage as you can get. It covers damage to property or injuries suffered by someone else for which you are held responsible. This can take in a range of disasters, from the postal worker who sues you for a dog bite incurred during a delivery to your home business to the clumsy customer who scorches himself after you make your complimentary coffee just too darn hot.

Product liability insurance. You might want this form of coverage if you make a product that could conceivably harm someone else. For instance, catering businesses worried about some dicey-looking truffles or Brie would do well to tack on this coverage.

Errors and omissions insurance. This coverage is particularly important for service-based businesses, offering protection should you make a mistake or neglect to do something that causes a customer or client some harm. A good example is doctor’s medical malpractice insurance, which practicing physicians are required to carry.

Business income insurance. This is disability coverage for your busi­ness. It ensures you get paid if you lose income as a result of damage that temporarily shuts down or limits your business.

Automobile insurance. This last item should come as no great surprise. If your business uses cars or trucks in some manner, you have to have this type of insurance for collision and liability coverage. (Wuorio, Microsoft, 2008, retrieved from www.microsoft.com/ smallbusiness/resources/finance/business-insurance/protect-your- business-7-types-of-insurance-coverage.aspx)

Other types of insurance may be necessary or unique to your particular business. For instance, a book author or consultant may want to carry a policy that will protect them from libel, plagiarism, or negligence lawsuits. For professionals in the medical field or legal field, professional liability or malpractice insurance is important. The cost of insurance can have a significant impact on your bottom line, so find out what you really need to be protected and what your umbrella policy covers.

One thing that should be clear from this section is that you should never, ever settle for insurance you know to be inadequate, such as $300,000 in property insurance for a shop worth well over half a million dollars. You need to find a good insurance agent who you can trust, and make sure that he or she helps you get the right type of insurance plan(s) for your particular needs. Spend some time in choosing your agent. You need someone you can be comfortable with on a long-term basis—someone who will advise you well so that you can spend your time on your business, not worrying about the fine print of the coverage.

6. Healthcare

Ah, healthcare. Although mentioned in the previous section, it can get so confus­ing and is so often misunderstood, I’m devoting a section to it all on its own.

We hear companies complain all the time about how expensive it is to provide healthcare. We already ran through the costs for individuals and to insure your own family, but what about employees?

The price will depend on which state you live in, how healthy your employees are, and how many people you are employing, among other things. Allied Quotes at www.alliedquotes.com provides small business health insurance quotes, so you can check them out. Shop around—you will be amazed at how drastically different prices are.

You should know that health insurance, in general, is the most expensive employer-paid benefit. Many companies are cutting back by either providing lower quality service or increasing co-pays or both. The cost of healthcare is rising at a rate nearly twice that of inflation. Most small businesses in America don’t provide healthcare. For instance, in California, full time workers at small businesses account for over 20 percent of the uninsured. As of April 2008, more than half (56 percent) of all small businesses don’t offer healthcare because of the costs (SurePayroll Survey at www.surepayroll.com/spsite/press/releases/2008/ release041608.asp). It is also important to note that you do not provide healthcare to contractors. One way many employers are handling the healthcare issue is to give a self-insured healthcare credit to employees, requiring them to buy a plan and helping them offset the cost with a check each month.

Source: Babb Danielle (2009), The Accidental Startup: How to Realize Your True Potential by Becoming Your Own Boss. Alpha.

There are four primary types of business models and many sub­types. Your accountant can help you determine which one is best for you; even if you use this book and do your own research, you should run the ramifications of your choice by a tax accountant or legal advisor (I recommend both), because individual circum­stances, like personal write-offs and other legal implications, can drastically change the outcome of your selection from a tax perspective.

Additionally, each method of structuring your business offers various types of protection for you and/or your family, should your business be sued or be negligent in some way.

What did our survey participants choose for their business structure? Nearly half, at 48 percent, chose a sole proprietorship. Next, at over one quarter (26 percent) was a limited liability corporation. 10 percent have an S corporation, 6 percent have a partnership, 4 percent have a C corporation, and 6 percent noted “other.” Those others noted that their business was unstructured or that they weren’t sure they needed a structure and didn’t know there was such a thing.

1. Sole Proprietorship

The first and perhaps easiest of the four structures is a sole proprietorship. A sole proprietorship is the method many of us use to begin with, until we get big enough to form some kind of formal corporation, or unless our liability from the start is substantial. There are many examples of substantial liability, but some are: businesses teaching people how to fly small planes and get their pilot’s license; day care facilities, restaurants, and so on. Anything involving more risk than you care to assume on your own should possibly be put into a corporate format. Also, if your company manages property or owns a building or premises in which someone could be hurt and sue for damages, consider other options than a sole proprietorship. Another case in which you would want to consider a structure other than sole proprietorship is any time that an individual must drive for you and they are your employee, like a pizza driver.

A sole proprietorship is easily established. You will need a name and a business checking account, and you will report income on a Schedule C with your Form 1040 for your personal taxes.

First things first! Find the name that best suits your business. Go to your local government, which will usually be your county—most counties have the information on their website about “how to start a small business.” They will usually require a small business license, which can range from $10 to $500 per county. After this, you need to establish that the business is, in essence, you. Entrepreneurs do this through a DBA, or “doing business as” request. To do this, you file a DBA form through your county, which will usually require that you publish the name in some media form (usually small town newspapers qualify, and the government will most often give you a list of papers and prices) for a certain number of weeks, which again varies by county or city. In my experience, it could be as little as one week or as long as two months. (Be prepared—many companies scour these parts of newspapers to start sending bulk junk mail, usu­ally arriving within three to five days of when you first publish!)

After the DBA is established, you bring the business name certificate and business license, along with identification, to a bank. Show them your documents, and establish a business checking account. Essentially this method will work for all types of corporations, too. Remember, it is essential to keep personal and busi­ness funds separate, regardless of what business model you choose. If you need cash to cover business expenses, you need to write yourself a check and document it as owner’s equity (or document it based on the advice of your financial planner or accountant). Most accountants are well versed in the common bookkeeping software most of us use, so if you run into any concerns, most will assist you with how to make the entries into your own system.

After you have your business checking account and business license, you’re free to do business—just be sure to keep your business and personal expenses sepa­rate. I like to use NeatReceipts Professional to scan all of my business receipts and automatically categorize them into IRS buckets—the lines the IRS uses in Schedule C. Using this method saves both time and money come tax time, as not only am I having to take up less time during my annual session with my accoun­tant, but I am also saving personal time when preparing for that appointment, which in turn allows me more time to work and lets me focus less on administra­tive stuff.

If you are in a riskier business or want to start off as a separate corporation, look into other options, which are discussed later in this section of the book on corporations.

2. Partnership

A partnership is essentially set up the same as a sole proprietorship with one exception—you have a partner. Each of you owns a named percentage of the business, which is also reported on a Schedule C with your Form 1040. This is very similar to a sole proprietorship, in that it offers little to no protection from risk, but it is very simple and straightforward to set up.

When you fill out the business registration forms with your county, one of the check boxes will be for a partnership. Generally the same rules and procedures are followed regardless of the county, city, or state, and both names go on the business checking as “DBA.” Keep in mind that you cannot take a person off a checking account once it is opened, so if your business partner leaves, you have to reopen your checking and refile both the business license (some counties and cities will let you do a business modification) and a new DBA form, since your partner is no longer doing business under that name.

There are obvious risks here, like your partner leaving or having a medical crisis, and not having full control over your business. Everyone has her own rules, but (after hearing too many horror stories) I personally believe—no partnerships. Save them for marriage, and perhaps private lending. There cannot be two kings (or two queens)—someone needs to have the final decision. That is only my opinion, however, and many former business school peers or friends have suc­cessfully started partnerships with no issues.

In this scenario, since risk is passed off to both parties, you are assuming the same percentage of risk as you own in the business. If you have a 60/40 split, the part­ner with 60 percent assumes 60 percent of the risk, unless otherwise documented.

Also remember that your accountants will need to work together, or if you are preparing taxes yourself, be sure to read the IRS’s rules about how to file for partnerships.

Note that partnerships are not limited to two persons. In most cases, you are allowed one or more additional parties, which will lessen the risk potential of each involved party, pending a fair split of responsibility and ownership.

3. Corporation

There are two primary types of the basic corporation—S corp and C corp—each with its own pros and cons.

A corporation in general has one big advantage, and that is limited liability due to you and your business being two separate entities. In essence, your business is now its own living and tax-paying being. Upon structuring as a corporation you will receive a tax identification number or Employer Identification Number (known as an EIN), which is similar to your own Social Security number. The corporation will be required to pay taxes to the IRS just as you are. Another advantage, speaking of taxes, is the corporate tax liability (which is often less than personal tax liability) and a true separation between business and personal taxes (although this can be a grey area with an S corp, as it is considered a pass­through structure).

Generally, corporations file quarterly taxes, making life a bit more difficult for the entrepreneur, especially if you’re just starting and don’t have much to report. You will usually make estimated tax payments as a corporation. For more infor­mation, see IRS Publication 505, consult with your tax professional, or both.

Structuring your business as a corporation as a way to separate taxes is a tricky situation, however, as the IRS considers an S corp to be a “pass-through” entity, meaning that all of the tax liability will pass through to your personal bottom line. I cannot stress enough that you should consult with a tax professional, accountant, and legal counsel prior to making the decision to structure your company. At the very least, consult your state tax laws, the federal IRS tax laws, research thoroughly, and consult with your local SBA office.

Double taxation, according to Investopedia, is “A taxation principle referring to income taxes that are paid twice on the same source of earned income.” Investopedia continues with the following explanation:

“Double taxation occurs because corporations are considered separate legal entities from their shareholders. As such, corporations pay taxes on their annual earnings, just as individuals do. When corporations pay out dividends to shareholders, those dividend payments incur income tax liabilities for the shareholders who receive them, even though the earnings that provided the cash to pay the dividends had already been taxed at the corporate level.” (Investopedia, 2008)

Note that you probably won’t have shareholders beyond yourself and/or your business partners in the beginning. Also remember, though, that you don’t have to be a public company to offer shares of stock. Plenty of private companies have stock available for sale.

Remember that you can always become a corporation later on down the road and start off the easier way by becoming a sole proprietor (it is far less paperwork and less difficult to file taxes), unless you will have a significant level of risk immediately upon starting your business, or you are looking to turn a substantial profit and you will have substantial startup costs.

4. Limited Liability Corporation

A limited liability corporation, commonly referred to as an “LLC,” is one way to limit your liability without creating a big headache come tax time. I have an LLC that is easily managed and is easy to file taxes for.

A limited liability corporation is set up to do precisely what it implies: limit the owner’s liability. It is reported like a regular sole proprietorship on a Schedule C with your 1040, and can provide the same benefits—like a home office write-off— that sole proprietors enjoy, yet will limit your liability because it protects you as an individual from your business. Two exceptions to this are farms and real estate rental properties, which require a Schedule F and E, respectively.

As an example of an LLC used to own and manage a real estate business, I use my own LLC to deed my rental properties into the business, rather than having them owned by me personally. Since real estate transactions are a bit different and my LLC has relatively little credit or positive net assets (and most banks won’t lend to LLCs to buy properties anyway), I buy the properties myself, then using a quit claim deed form, I “give them” to my LLC. My LLC files its own Schedule E, for real estate businesses and income-generating properties, and has its own Employer Identification Number. My LLC is free to hire employees as any corporation is, but if an individual is hurt in my property beyond what my insurance covers, my primary home cannot be touched nor can my personal property.

Are you protected individually with an LLC? Yes. But remember, all assets that your LLC owns are at risk. If you own assets that have to have insurance, be sure you add your LLC as a named insured. In the case of real estate investment properties, the mortgagee, the second lien holder, myself as an individual, and my LLC all must be specifically named insured on the policies. If you have an umbrella policy, talk with your insurance broker or representative about adding your LLC to the policy, too.

Overall, the pros and cons of an LLC are as follows:

One advantage to the LLC structure is that it allows for an unlimited number of members. If the LLC has just one owner, however, it will be taxed as a sole pro­prietorship. Also, the LLC model provides for limited liability for all members, which means that they are personally protected from any liability of the LLC and successful lawsuits, as well as from the LLC itself.

Some of the disadvantages include the fact that, as a member of an LLC, you are not allowed to pay yourself a salary, and the managing member’s share of the bottom line profit of the LLC is considered earned income, meaning it is subject to self-employment taxation, which can be higher than corporate taxes.

Source: Babb Danielle (2009), The Accidental Startup: How to Realize Your True Potential by Becoming Your Own Boss. Alpha.

Now that you know what your options are and will be consulting with experts about your own situation, we will move onto ideas and inspiration, the next step on your path toward entrepreneurship.

We’ve all heard our teachers tell us that there is no such thing as a stupid ques­tion or a bad idea! Perhaps our teachers were right all along. Some of the wacki­est ideas have certainly made people a lot of money. Do you think this isn’t true?

Read on! The most unique or creative (some would say stupid) ideas have really made it big!

1. The Worst Business Ideas That Made It

We’ve all laughed at the Pet Rock right? How much money did that inventor make, exactly? We know it was well into the multimillions. Unimaginable now, but many people scoffed at the notion of eBay or Amazon, too. Look who’s laughing now!

Crazy business ideas can catch on. If they didn’t, why would people pay for expensive nighttime infomercials that make people millionaires in a matter of months? I had two really bad business ideas that, embarrassingly enough, I will share here. They didn’t take off, but it goes back to the “throwing mud at the wall until some of it sticks” theory. What were my two ideas? The headband holder, which was really a paper towel holder, fixed so that it couldn’t roll. And? The small pet food dispenser: a coffee dispenser made for pet food. Yes, brilliant. It is amazing how excited we can get about these crazy ideas! I got the products up on eBay within hours, showcasing how well the headbands really were held and the pet food organizer really stored food. Oh well—two down, two thousand to go!

This is the stuff entrepreneurs are made of. Do you find yourself sitting there saying, “Hey—I thought of that already!” or “Why not use this device to do this? And then remarket it?” Yep, entrepreneur material. If this doesn’t sound like you now, don’t worry, ideas will come to mind. Of course, I cannot take all the credit for my two wacko ideas—a good friend and I nearly simultaneously found these “solutions” at the Container Store and got them for sale available online to the public almost immediately.

The point is, you will have some great ideas that go nowhere—and that idea you think really stinks just might be the one that sticks. Just run with it! See where it takes you and what happens. One day, something will stick.

So what are some other worst business ideas that actually did make it? In no particular order, here are a few:

1. Rescue Critters (rescuecritters.com). Want to practice K9 CPR? Rescue Critters sells animal rescue (CPR and First Aid) mannequins.
2. FlexPetz (flexpetz.com). Want a few days with a well-trained dog, but don’t want to actually own one? FlexPetz offers animal rentals.
3. Beach’n Billboard (beachnbillboard.com). If you want to advertise your business or event to the beach crowd, but don’t want a traditional billboard or plane-towed banner, contact Beach’n Billboard. They will sculpt your advertisement directly into the sand at the beach(s) of your choice. Talk about going green!
4. Santa Mail (santamail.co.uk). Even if you don’t believe in Santa Claus, your child probably still does. Keep the tradition alive with a cus­tomized letter from Santa. Contact Santa Mail today!
5. The Million Dollar Homepage (milliondollarhomepage.com). The genius Alex Tew came up with the idea for his million-dollar home page, which he allowed others to use for advertising, charging one dollar per pixel. He had one million pixels available … a million-dollar idea one buck at a time!
6. Antenna Balls (antennaballs.com). Offering everything from basic shapes and designs to custom decorations for your vehicle’s antenna, AntennaBalls.com was grossing over $1.15 million after only two years of operation.
7. Diapees and Wipees (diapeesandwipees.com). Tired of having to lug around diapers and baby wipes in a diaper bag that clashes with your outfit? Have no fear—Christina Leigh has the solution for you. Check out Diapees and Wipees for fashionable diaper bags created for fashion conscious moms-on-the-go!
8. Doggles (doggles.com). That’s right, even your canine friend “needs protection from the sun’s UV rays. Contact Doggles for sunglasses (and other pet supplies) for your beloved K9 friend.
9. Jewels et Jim (jewelsetjim.com). No more plain and unsightly medi­cal alert tags and bracelets. Now you can alert medical personnel of your medical history and issues without having to disregard the latest fashion trends.
10. I Want NY Pizza (iwantnypizza.com). The idea behind this business is just as the title states: if you want a traditional NY pizza, no matter where you may be, contact I Want NY Pizza and they will arrange the delivery!

2. Testing the Waters

Before going full-board with your idea, you might want to test the waters a bit. How do you do this? Run the idea by family and friends. Try selling a few of your inventions on eBay, Craigslist, or other free or nearly free sites. Set up a simple website that allows basic PayPal or Google Checkout. If, with some adver­tising and word of mouth, your idea is resulting in zero sales (as my pet food holder did), it is time to put your energies into something else. I prefer to put my energies into numerous projects at one time, so if one fails I am already onto the next, but many people very successfully take the opposite approach and stick with one idea for a year or two and then make a decision whether to take it big or start again.

If you have the resources, you can of course hire focus groups, but this will cost you some money. You can also collect research using online surveys with tools like www.surveymonkey.com and post the link to online forums where people who would buy your product “hang out online.” However, this isn’t quite the same as an in-person focus group. If you are trying to decide whether your new perfume smells good, for instance, you may need to go this route no matter what.

So let’s assume you do need a focus group. What are some firms you should check out? A great website that I have found is www.GreenBook.org. GreenBook is a company that provides comprehensive information “to buyers of market research services” (their slogan, in fact). Offering online research, quantitative research, qualitative research, interviewing, and even international research, GreenBook provides a great starting point for your research needs. Note that GreenBook is a directory of research providers, not the provider of the research itself. Through GreenBook you can search for marketing research groups by cat­egory. Additionally, you can also search your local yellow pages or contact your local SBA for marketing research companies in your area.

Source: Babb Danielle (2009), The Accidental Startup: How to Realize Your True Potential by Becoming Your Own Boss. Alpha.

1. Doing Business with Family and Friends

Many times the best ideas come to mind over a family dinner—and they belong to the family member or two or three who decide to run with it. Sometimes you need inexpensive labor, so you bring on the 17-year-old cousin you rarely saw to help with the business. Or sometimes you just want to keep profits in the family.

Lots of people go into business with family and friends. Restaurants are often family owned and run, as are dry cleaners, manicure and pedicure shops, and so on. This often works best with “communal” property, where the individuals all share expenses and the income “… goes into the household kettle of funds, which everyone involved can draw from.”

If you are an independent person with your own family—and your partner is, too—you might give this a second look before going for it. Many people have reported family tensions or even complete disconnects. Money is a very powerful thing—sometimes it’s best not to mix money with people you care about. I have a couple of personal stories to share here—while for the sake of keeping bound­aries, I refuse to go into business with my family or even discuss finances with them, there have been occasions where I’ve made mistakes, and friendships and even my marriage has suffered as a result.

The first mistake wasn’t so much my decision, but my husband’s. Just after we married, I was going through files (to throw them away—not much excites me more than cleaning out cabinets! Hmm … business idea—note to Palm Treo!) and found some documents about an investment in a movie company for what I consider a substantial amount of money, but my new husband did not consider it “a big deal.” He had invested in a family member’s C-list (at best) movie—neither of them having any movie experience. The family member involved was a mort­gage broker on top of it, so my skepticism about his ethics are questionable to say the least.

When I asked my husband if he had been paid back, he said that the deal had “gone south” and he wouldn’t be paid back. I was furious! This seemed like such an obvious waste to me. That was money we could have used toward the pur­chase of our new home, our wedding, our retirement. I am still shocked that this particular family member would even ask my husband to invest in something with such a high level of risk, with no documentation whatsoever about what their recourse would be if they didn’t get their money back. To this day, I have never thought the same of that individual—because I’d never ask for an invest­ment in something so ludicrous, I have had a hard time understanding this other individual’s thought process—or lack thereof. Did it create marital tensions? Definitely—particularly when I informed my accountant and subsequently wrote it off as bad investment debt, as per my accountant’s instructions. (Too bad we can’t screen for this stuff before marriage! Hmm … another business idea ….)

As you may already know I am also a coauthor, and I tend to be very candid and open in my writing. I think that sharing personal, human experiences with read­ers makes your work more usable, more informative, more real—and creates a human connection through writing.

I have had three coauthors in my life. While all three wrote their halves of the books technically, my involvement was significantly greater than the 50 percent I will earn one day in royalties. I tend to go all-out with marketing, hiring publicists that are more than most mortgages and cars combined, updating the website daily, and so on—and my partners frankly don’t.

I realize this is a matter of personality and drive and perhaps a bit of internal motivation that leads me to never stop trying—and all three of course had families that came first (I am the only childless one, so I am certain that played a role). In fact, I’m not sure (beyond one who traveled a bit and tried to get on tele­vision regularly) what they did when it came to trying to sell our books. About a year later, one other coauthor stepped up and held seminars and forums that took some time to try to sell books and stepped up to help financially with some tele­vision media, but it was rough for awhile. I had to officially “let it go,” realizing that no one will care or be as involved as I am because of my personality type.

This type of situation can lead to personal tension between friends, family, and so on. I’ve been able to separate work from business now, knowing that it “isn’t their thing,” to work 80 or more hours per week to accomplish a goal. These were partnerships by agreement, not by business creation, but they resulted in the same downside nonetheless. One of my dearest friends and I got into a heated discussion with a lot of hurt feelings midway through one book. He is such a good friend that I decided not to ever write with him again, because I care about him too much to do that to our friendship. From this point forward, I will never write with a coauthor. It isn’t due to writing issues or their not supplying content and not being experts, but to the all-important promotion up to and after the release of the book.

This brings up a very essential point: find out, if you do intend to have business partners, how they see their involvement. Do they see it as a “full time part time” job like you perhaps do—part time officially, but one that will take 30 to 40 hours per week of your time? Will they sacrifice personal time like you do? Think of all these things before engaging with a partner. It may be hard to tell a friend or family member “no,” but sometimes it’s best for the relationship.

Consider these risks before you take the plunge with family and friends. It sounds terrific to work with people you already inherently trust, but trust me— there are downsides. Be prepared for them. Even the people you think are least likely to leave you hanging with a majority of the work may do so, as everyone works differently. If you are like me, and tend to work very fast and dedicate 18- plus hours per day to your work, partnering isn’t always the best idea because you may never feel like someone is pulling his own weight, even if he is just behaving like a normal person.

Understand your personality and assess others’ personalities, and if you still want to go for it, be very thorough in documentation, noting who will do what and when and how. Keep it in writing and have repercussions for an individual who doesn’t live up to expectations.

1.1. Pros of Family and Friends

There are advantages to family or friend businesses. One is keeping the profits with people you care about, which is a big one particularly if you become highly successful. The idea of working day-in and day-out with someone you really like or care about or love is another great benefit—laughing while you work is great! Sometimes the inherent trust that comes with knowing someone you go into business with makes it all worth it, too.

Another benefit is that of “backup.” Working with family and friends, you will never feel “alone” in your endeavors. Those who you work with are familiar to you and you are familiar to them, which means you will likely be able to step into each other’s roles more easily (particularly if you share information about your day jobs, should the need arise). You will also be there for each other in business as you are in your personal affairs.

Easily accessible resources is yet another huge benefit to starting a business with friends or family or both. Oftentimes when friends or family get together to start a business, they will pool resources, financially and otherwise. This is obviously much easier than having to hit the pavement with lenders on your own.

1.2. Cons of Family and Friends

I gave some personal examples of the disadvantages, but here are some more general ones. Resentment if the business doesn’t go so well, and it was primarily one person’s idea, is a big one. This can happen in any business partnership, but when the one that you begin to resent is your family or friend the tension and emotional burden is far greater. You may find yourself trying to figure out how to get out of the relationship on the business end, while maintaining it on the family/friend end. This flat out may not be possible.

Another is a 50/50 split of revenues without a 50/50 split of workload. This can happen with any business partner, but this again leads to resentment; and resent­ment at work is one thing—resentment that carries over into Thanksgiving din­ner is another.

Another big downside is if or when one person wants to leave the business, if the other cannot afford to continue or buy out the partner. While this can happen anyway, it is particularly difficult when family is involved. What if your brother whom you are in business with needs out to send his kids (your nephews) to col­lege? How do you say no without feeling terribly guilty later? How do you say no at all? What will this do to your relationship if your business was just booming?

Another downside is, particularly with spouses or family members you live with, never getting away from them. Everyone needs their adult time, their alone time, their time to get away from their loved ones or friends. Sometimes too much of a good thing isn’t so good. There can also be issues later, with regard to who owes who what, and how revenues (if there are any) should be split or reinvested into the business.

Remember, although it is counterintuitive, it is sometimes easier to share your thoughts and feelings on your new venture with a random business partner than with a loved one.

2. Home Based or Office Based?

Another major decision you will need to make fairly quickly on your path to entrepreneurship is whether you will be home based or office based. You can have both if you have a separate building on your property, such as a casita or guest house, but you may still feel like you never leave home.

I have had both a home-based and an office-based business. I can speak first hand about some pros and cons, and I’ll include some additional expert knowledge, too.

In our survey, a whopping 89.4 percent of respondents worked from home, and 8.5 percent worked from a totally separate office building. What did the survey respondents say about the difficulty in working from home? Fifty-two percent said it was not very difficult and 34 percent said it was not at all difficult, but 13 percent said it was very difficult. No doubt the type of business is driving these statistics.

2.1. Pros of Home or Office

The pros to working in a home-based office include a very (very) short commute and the ability to get to work quickly should the need arise. (This whole issue of no commuting could be by far one of the best advantages right now, considering the recent rise in fuel and other transportation costs.) If you have small children and need to be close to them or you are caring for another individual, a home office can be a great option for you. It also gives you a nice tax write-off for home office deductions.

The upsides to an office-based business is the feeling of getting away from work—when you leave the office and go home, you’re home—not at work. You can still write off your expenses associated with your business rent, utilities, and so on. It is easier to expand in an office-based solution, because usually you will have room to extend the suite, or add desks at the very least. You also get the feeling of ownership in a different way than a home-based business provides. There is something about walking up to a building with your company name on it that gives you a sense of pride and empowerment that, in my view, a home- based business doesn’t give you. Also, if you need to meet clients and customers, you automatically get additional credibility.

Another great benefit to working from home, which I take full advantage of, is no dress code. If you have the ability to conduct your business either primarily or entirely out of your home, you can wear whatever you want. I often spend a great majority of my day in my gym clothes—they are simply more comfortable to work in. If I need to do a web- or camera-based interview, most of the time the only things that change are the hair, makeup, and top part of my outfit. Sometimes my television hits that are remote (not in studio but from a remote facility) are done wearing a jacket and nice shirt with gym shorts.

The downside to this is that I don’t often get to see myself fully dressed in any of my many business suits, which makes me feel empowered and capable. Having to get dressed up in my fancy threads does provide me with a sense of accomplish­ment and success that I don’t get when I forego them for gym clothes. Of course, going out to events, speaking engagements, residencies, and in-studio interviews takes care of that problem right away.

Now that I work from home, I am generally much healthier as well. Even though I live part time on one side of the country and part time on the other side of the country, I have a gym in both places and it is up to me when I go. It is up to me what time I eat and what I eat. Rather than having to cram all of my personal errands and lunch into a one-hour block of time, I am not restricted to the local fast food stop. I can actually cook a healthy meal or take the time to go to a real restaurant, which in turn has provided me with an overall healthier lifestyle. Keeping with this same benefit, I can be much more flexible about when I visit the gym, and can go at a time of day when I feel strongest, rather than at a specific time my employer deems is okay. Any time I have a block of time free,

I can take the five-minute drive to my local gym and work out.

Are you a night owl? I am, which is why working from home is a great option for me. I can work until 2 A.M. and then sleep until 10 A.M., should I choose to.

I typically do my best thinking late at night. In fact, it’s quite late as I am writing this section. Not having to report to an in-office boss at a particular time allows me the option of working as late as I need or want, still being able to sleep in, as long as I don’t have any meetings, travel, or media spots lined up for the next day.

2.2. Cons of Home or Office

There are also downsides to both a home-based and an office-based business. For starters, home-based businesses don’t often allow you to disconnect from work. For years I was working in my loft; day-in and day-out, the loft in my home was all I saw for 10 or more hours on end. Yes it was convenient, but it was also convenient to go upstairs and check e-mail at 11 P.M., when I should be trying to unwind and head to bed because I had an early morning television interview the next day. A nice middle-ground solution for me was to find a home with a casita—I leave work and walk into the house, and it isn’t quite as easy to go into the office right before bedtime or at any point during the night.

Another downside to a home office is lack of expansion. Even in my new casita- turned-business-office, I only have room for two desks. Should I hire a third person, one of my file cabinets has to go—and it will definitely be a cramped space. I may be able to add on to the building, but that is expensive.

You may not also get the same feeling of really running and owning your own growing business at home that you would in an office building. Running your latest venture from home means that your client meetings may need to occur at Starbucks. I certainly don’t have room for a conference table and I don’t know many home businesses that do. I once recently went to a meeting at someone’s home where she had converted at least three of her bedrooms into offices for her employees and the conference room was the kitchen table. It didn’t feel the same discussing business on placemats with the kitchen appliances sitting next to us. You’d be surprised how much the setting of an environment actually impacts the actions taken—a meeting over a dining room or coffee table will often prove less productive than one in a boardroom, unless you exude great discipline and focus!

When you are working from home, it can also be hard to get into “work mode” if you don’t set a routine and stick to it. The first two years of doing my online teaching business full time, I worked in my loungewear or gym clothes, which often didn’t come off until I went to the gym around 6 P.M.—then back to loungewear. The only time I put on real human clothes was for conferences or for television segments.

It is also, of course, much easier to feel isolated at home, particularly if you are a business of one. As I stated earlier, the walls of my loft and my computer screen were all I saw for hours and days and months on end, with my only interaction with others being that of the random front-desk staff at my local gym, and my husband when he got home from work. Now that I have consistent contractors,

I actually have someone to talk to during the day, bounce ideas off, laugh with, strategize with, even have lunch with when time permits. Life is a little less lonely this way. They always say life is lonely at the top—if that is the case, I must have been on top! Since I wasn’t, suffice to say it can be lonely by yourself in your home office!

Office-based businesses also have their downsides—commutes, for one thing. Hopefully, if you do select an office, you select one close to home; but you may have to select one close to your clients, and the two may not be the same thing. Office-based businesses, particularly small rented suites, may also give you luxu­ries like a shared administrative assistant, cubicles if needed, conference rooms, mailing services, access to technology (fax machines, copiers, etc.), and so on.

An office is often more expensive, however, and is another added cost to your startup, which you may not be able to afford immediately. Sometimes entrepre­neurs start at home, and when they get too big they move into an office. This is a great alternative, particularly if accommodating your growing office needs would mean moving to a much more expensive home. However, you won’t have your work at your fingertips should you need it, and rolling into work in your pajamas isn’t quite as easy!

2.3. Tax Implications of Your Business Location

There are tax implications for both choices. Home-based business write-offs are determined, in general, by the percentage of your home that is used for business. Take the square footage of the business portion, and divide it by the total square footage of your home. This gives you a percent of the home used for business. Then figure out what percent of that is used purely for business and not for fam­ily sharing (like e-mailing). Here is an example:

2000-square-foot home

200 square feet used for office space

10 percent of the home is used for business purposes

Of that, you spend 60 percent of your time doing work things in that space and 40 percent of your time doing personal things in that space. Sixty percent of 10 percent is 6 percent—so you can write off 6 percent of your home expenses.

What are home expenses? Mortgage interest. Association fees. Insurance. Utilities that are commonly shared with the house. And so on. If you use a sepa­rate phone, that is fully deductible, too.

Again, talk with a tax accountant on this because home offices are one of the big­gest reasons returns get audited.

If you are an office-based business, then all costs associated with rent, utilities, and so on will go on various lines on your Schedule C of your 1040 tax return.

Source: Babb Danielle (2009), The Accidental Startup: How to Realize Your True Potential by Becoming Your Own Boss. Alpha.

1. Legal Advice

As you proceed with your business, you will want and need to get legal advice. When exactly to do that is up to you, but I recommend planning with at least a tax accountant. Remember, tax accountants aren’t bound by client confidential­ity. If you have potentially sensitive tax questions, a tax attorney is your best bet.

1.1. D.I.Y. Legal Work

There is a lot of legal work you can do on your own. A great resource that I have found to be paramount to the others I will list is www.business.gov.Business.gov provides information and resources that help small businesses comply with fed­eral, state, and local business laws and government regulations.

Some other great resources are:

Nolo.com: Nolo provides law forms and do-it-yourself legal kits and books for consumers and small businesses, including information on estate planning, business law, debt and credit, etc.

SmallBusiness.FindLaw.com: FindLaw’s Small Business Center provides information and resources for small businesses, including employment law, human resources, an overview of legal issues faced by small businesses, and more.

LegalZoom.com: LegalZoom was founded by renowned attorney Robert Shapiro, whom you may remember from the O. J. Simpson trial. LegalZoom provides all sorts of valuable legal forms and services for both personal and business use.

1.2. How to Get Sound Legal Advice

As you proceed you will undoubtedly run into questions that an attorney is best suited to answer. When (not if) this occurs, be sure you have already found an attorney to rely on. Make sure your attorney specializes in business and tax law for businesses. You don’t want someone inexperienced handling matters that could send you into financial ruin and incredible stress if not handled properly. I often ask colleagues and friends for referrals—if they have worked with someone successfully for a while, that makes me feel more comfortable.

By far the most important aspects of your choice of legal counsel are whether he or she is bar certified, experienced, and recommended by others in your line of work. You can check this status by contacting your state bar association and validate there are no complaints against the attorney. The attorney will most likely have his state bar ID number listed on his business card, which will make checking his status easier. You can find your local bar association’s contact information by searching online or contacting your local court system.

1.3. What to Ask to Find a Good Attorney

So what do you ask to find a good attorney? Well, first, as I mentioned above, you want to be sure he is board certified. You also want to make sure that he practices the type of law that you need advice on and/or representation in. For example, if you are involved in a real estate deal, you will need a real estate attor­ney, not a family law and probate attorney, and vice versa.

Next, you will want to know what type of record he has. How long has he been in business? Has he ever had any actions taken against him by previous clients during the course of his career? What is his win/lose ratio—if the need should
arise that a court case is presented? Don’t be afraid to ask for references; the selection of an attorney is a big deal. Remember, you often get what you pay for, too. If you live in a big city, consider driving an hour to the suburbs for lower costs but still quality practices.

Locating an attorney can be a daunting task, like finding health or life insurance, but there are some ways to make it easier on yourself. First, ask your friends, family, and colleagues who handles their legal work. Personal referrals can often prove to be the strongest methods for finding a good lawyer, and some lawyers may even offer a referral discount to both you and the referrer. If this doesn’t pan out, you can contact a lawyer referral service. Although there are hundreds (dare I say thousands?) of these services out there, in my view the most reputable ones are those that others recommend to you without bias—without getting paid for a click-thru or a link on their website. You can also call the courts and ask for recommendations. A simple call to the court clerk or county bar association will provide you with contact information for any local lawyer referral services, organized by type of law. Another benefit of this is the ability to receive informa­tion on reduced-cost legal services that may be available to you, depending on the situation.

Just like asking your friends and family, you can ask other business owners. If you don’t know any other local business owners, again, contact your local SBA office. They will be able to put you in touch with valuable resources, whether those are other business owners who you can inquire with or a listing of recom­mended legal counsel.

1.4. What You Need to Know to Move Forward

So what else do you need to know to move forward? You have an idea, an initial marketing plan; you’ve registered your business and have done your preplanning with an accountant and/or attorney. From here, you need to make some addi­tional decisions: How many resources (capital, human, technological, and finan­cial) do I need? Am I going to start slow or go all-out from day one? Am I going to quit my day job now, or wait for business to pick up? How much working capital do I have? And so on. Go through the checklists throughout this book. Once you’ve done so and can answer the questions, it’s time to begin!

2. Paying Yourself

As you begin your business, one of the first things you’re going to have to do is make sure you can continue to eat and pay the bills. If you quit a day job to start your own business, you will need to figure out how much you’re going to pay yourself. Chances are you aren’t going to be making the big bucks from day one, so you will need to preplan your needs and the minimum you can pay yourself now, and cover your expenses. Remember that you need to reinvest as much as you can in your business to help it grow. If you pay yourself a salary, you can reinvest the rest of the earned money back in the business. If you pay yourself all the earnings, then you will need to use your own money to build the business.

2.1. Determining Your Own Worth

This is a bit of a trick question, because you are your business! Your worth is invaluable, immeasurable. If all of your contractors and employees disappeared, your business would still run. Nonetheless, you’ll have to figure out what you are worth. In the early stages of your business, you will pay yourself the most you can afford while maximizing reinvestment and paying the bills. As you move for­ward and become more successful, you will need to assess your worth, allowing yourself a higher wage while still maintaining business needs. Again, it is very dependent on whether you still have your day job and what revenue and profit your business is making. This is a decision to make as you go. Most likely what you are worth isn’t what you’ll pay yourself—it will be considerably less until the profits of your business support what you deserve.

2.2. Deciding How Much You Should Pay Yourself

Deciding what to pay yourself and what to pay others is tough. You cannot promise wealth to these individuals because you don’t know the outcome of your business. If they work hard, you can promise you will do your best to match their earnings to their contributions.

Often the business owner ultimately profits less than lower-paid employees after bills are paid. Little discretionary income is common among small business owners, particularly in the first five years. Chances are you won’t be able to pay
yourself what you’re worth, but be sure your clients do. This will ensure your continued success. Pay yourself as much as you can, and need (so you can pay the bills), but as little as possible so you can reinvest.

2.3. Making Enough Money to Not Only Survive But Thrive!

Remember that your business goal isn’t to make enough money just to survive, but to thrive! Keep close tabs on your expenses and income and you can readjust your own pay monthly or even biweekly—paying yourself more in “good months” and less in “bad” or slow months. Be sure you compensate those who contribute greatly to your success, because money is a common motivator.

Source: Babb Danielle (2009), The Accidental Startup: How to Realize Your True Potential by Becoming Your Own Boss. Alpha.

1. The Basics of Business Planning

Details matter! You should be as detailed and as thorough as you can be when drafting your business plan. Although you can simply lay out a two-page plan on where you are, where you want to be, and bullet steps you need to take to get

there, it is in your best interest to be as thorough as possible, even to the point of writing out weekly activities and then keeping track of your success in accomplishing them. I generally choose the latter, even though it is time consuming initially. Once you get the basics documented, it is easier to maintain. If you are going to use your plan for any sort of funding—securing venture capital, hard- money loans, or even SBA-backed loans—you need to have a solid plan to present. You also need to be able to answer questions that will arise.

1.1. Basics

So what are the basics? Well, first you need to clearly state where you’re starting from—where are you now. This includes money, time, goals, direction, and who will be helping you, if anyone. You will want to document anything financial,

especially anything you need to look out for that could be a red flag for your business failing. Some examples of these red flags are income streams falling below a particular threshold or inventories not moving as you had expected.

1.2. Laying Out a Five-Year Plan—And Why Five Years?

We all hear of the five-year plan and the five-year business plan. In some indus­tries, like information technology, which experience rapid change, it’s tough to plan beyond two or three years. So why five? Five years is looked at as the standard for planning. Banks will want to know your five-year projections and investors will want to know their five-year returns. Five years is the point at which your business is considered relatively safe, so your initial plan should cover through that length of time.

There are many fantastic online tools, but the best one I have found is www. score.org/template_gallery.html. Score is a resource partner with the SBA, which, as we have already discussed, is a fantastic resource in and of itself.

Score calls themselves the “Counselors to America’s Small Business” They are a nonprofit organization, their mission being to educate entrepreneurs and to posi­tively impact the formation, growth, and success of small businesses nationwide.

Another great online tool is BusinessPlans.org, because of all of the samples of completed plans that you can view to get an idea of what you are shooting for within your own plan. BusinessPlans.org offers much more than business plan templates and examples. They also offer additional resources that you may be interested in, such as free business software, investor directories, marketing strategies, and even a newsletter to help keep you up to date with the rapidly changing entrepreneur environment. Their library has over 600 resources—all within a mouse click!

Yet another great online resource is MyOwnBusiness.org, because they literally walk you step-by-step through the creation process of your business plan, and other aspects of starting your first business. Visit www.myownbusiness.org/s2 for their section on business plans.

Please also refer to the Resources list, found at the back of this book, for some excellent tools and ideas. I recommend using a template to get you started. Even Microsoft Word Online has some good templates to begin with. You can down­load them directly into Microsoft Word and begin working on your business plan immediately.

1.3. Identifying Needs

Your plan will need to identify starting needs as well as needs to sustain your business through the first five years. Some business owners plan for three; this is okay, but five is recommended to maximize the potential for bank loans and investors. Why five years? We want to have a roadmap to fall back on. For example, when you are trying to decide whether or not to do something or to take action on a particular new venture within your business, you can quickly and easily decide yes or no by whether or not it’s in the five year plan. While plans change with markets, they don’t change without reason and can serve as a good guide.

What kind of needs will you need to identify? Here are some examples, although there are many more:

• Capital equipment. This is any major purchase, like computers, furniture, servers, copy machines, and so on—generally considered anything that will depreciate over time.
• Monthly expenditures until the business is self-sustaining.
• Office supplies (paper, pens, and so on).
• Office space rental costs, until the business is self-sustaining. If this is your home, it may be zero.
• Utilities, especially if you are renting an office building or office space (e.g., electricity, water, gas, cell phones, Internet).
• Services, such as legal services, accounting and payroll services, etc.
• Advertising and marketing, including your website! This is your monthly budget for advertising and marketing until your company is self-sustaining.
• Any professional and/or legal counsel you will need to start up and sustain your business until you are profitable.
• If your business provides a service, this is especially important to consider.
• Some office building or space rentals include nightly or weekly cleaning services. If yours does not, contracting an outside company for this needs to be considered, unless you will have time to clean house your­self. (Note that these costs also could extend to window washing and plant maintenance services.)
• Cost of capital (e.g., if you take money from a home equity line of credit [HELOC], the interest payments to the loan).

Note that although these suggestions are excellent starting points, there will be many that are specific to your business idea. Researching your own demographic, competition, and so on is highly advised to help in your business plan creation.

1.4. Calculating Revenue, Costs, and Returns

In your plan, you will need to estimate revenue, costs, and returns or profit. This can be the most difficult part of the plan. How, after all, are you going to know how many widgets you will sell? This is where your upfront planning and market testing comes into play. You can also get an idea, as noted in Chapter 4, by post­ing a few on existing sites like eBay and Craigslist and seeing how well they sell. If you’re a service business, you should have some idea how many clients you will have because you are already beginning to let others know about your new busi­ness and are tracking the response of interest you are getting.

After you calculate your estimated revenue (plan for a worst case scenario—better to have a pleasant surprise) you will need to calculate your monthly costs of oper­ation. I don’t recommend calculating this on a yearly basis because some things will be due monthly or even more often, like utilities and employee paychecks. You need to be sure you have working capital every month, not just at the end of the year. Try telling Sprint that you will pay next year and see what they say!

So you’ve estimated your yearly revenue and then divided it by 12 to get your estimated monthly revenue; assume that you will sell more of your products or services toward the end of that year than in the beginning, because people won’t be aware of your business right away. Then estimate yearly costs and divide by 12. Revenue minus costs is your projected return or profit—the bottom line.

Your bottom line may well be “in the red,” or negative, for the first few months— this is somewhat normal, depending on the type of business and how quickly your company grows. Even retailers often run in the red the entire year until Black Friday, or the day after Thanksgiving, which officially kicks off the holiday shopping season. Many retailers wait all year for Black Friday, so named because

it is when they go “into the black” and turn a profit for the rest of the year, making up for the losses over the previous 11 months.

You may have a black “year” and not a Black Friday—in other words, you may run in the red for quite some time, especially early on in your business. Just know what to expect and how long to plan running deficits for, so you can keep an eye on cash flows and know when you expect to turn a profit.

2. Getting Started

To get started collecting data for more than just the basics, you’ll need to think through everything you anticipate encountering over five years. As daunting as this sounds, it actually is rather simple, as long as you do your homework. This includes employee growth, unexpected demand for your product or service, unexpected lack of demand for your product or service, a recession, an economic

boom, high interest rates, low interest rates—your plan needs to be contingent on everything you can feasibly put into one document. Remember, this won’t just serve you for investments but will also be your personal guide to success.

As said by Gertrude Stein, “It is awfully important to know what is and what is not your business,” meaning you should start by having a mission and vision statement in your plan.

Your mission is what you will accomplish in your business, and your vision is what you see it doing, attaining, the goals you see it fulfilling. Your mission and vision are closely tied together because your mission should fulfill the vision you see for your company.

If you don’t know where or how to start drafting your mission or vision statement, or both, check out the article “Developing Effective Vision and Mission State­ments,” written by Jay Ebben. In his article, Jay details what makes a strong mis­sion and vision statement and what to avoid. You can find his column published on Inc.com’s website at www.inc.com/resources/startup/articles/20050201/ missionstatement.html.

2.1. Collecting Data for Your Plan

As you get deeper into your plan, beyond first year or year one-through-three financials, you will need to collect more data. This includes what your potential market base is, how much of that market you can reach with your plan for adver­tising and marketing, what it will take to achieve your goals, how high you want to aim, and so on. Remember the old adage about reaching for the stars—it is engraved on a plaque I earned in elementary school—“Reach for the Stars—If You Don’t Reach Them, You’ll Land Pretty High Up Anyway”—or something to that effect. It’s premise has held true for me throughout life and throughout businesses and change.

I am not suggesting by any means that you rely on luck for your business growth, but I am suggesting that you can make your own luck by taking every opportunity, meeting every possible person who can benefit from you (not the other way around!), and offering value to everyone you work with. If you help enough people, you will more often than not be paid back with endless help from others.

So what else is in your plan? Most business plans follow the following organization and include the following sections:

 Executive Summary

This section should be detailed, yet succinct. Your executive summary will usually be one to two pages in length, highlighting the important aspects of the business, the founders, and the plan. In essence, your executive summary should read like an overview of your plan as a whole. Just as you may read a movie review when determining which movie to see this weekend, those who receive your business plan (usually investors, bankers, loan officers, etc.) will read your executive summary to determine if the rest of your plan is worth reading through—does it peak their interest?

Description of Business

-Name

-Organization structure—this is where you will explain the legal structuring of your business (LLC, Inc., 401[c]3, etc.)

-Introduction of founders, owners, stakeholders, etc.—traditionally this section will include a brief but detailed biography of each founding member, including education, relevant experience, key connections, etc.

-Length of time business has existed (or what starting date the business will exist from)

-Accomplishments to date (if business already exists, as applicable)

Description of Product/Services

This is where you get to really boast about your new business. What are you offering? Why is what your offering different than everyone else’s? How much are you going to charge? What types of products/services will you offer in the future?

Note that this section can be included as a part of your “description of business” or can be a stand-alone section.

Marketing Plan/Strategies

-Industry

-Customer/target demographic -Competition (competitive analysis)

-Advertising and PR

-Location of your storefront (when applicable)

Suppliers, Contractors, Vendors, Etc.

Operations and Management

Who will lead your business, who will handle the day-to-day operations, who will work on forming strategic partnerships, who will work on expanding your client/customer base? These, and more, are all questions that will need to be answered within this section. You may want to state that resumes/CVs are avail­able for key managers—your investors/lenders will want to see what makes them “right for the job”!

Financial Plan

-Current standing and position: profits and losses

-Projections: profits and losses

-Need

If you are seeking funding, state here how much, with verifiable data that sup­ports your request.

Technological Plan (as applicable—recently becoming a popular section) -Computer requirements

-Peripheral requirements (printers, fax machines, scanners, etc.) -Backups -E-mail -Company-wide calendaring

-Remote access capability

-Disaster recovery plan

-3 to 5 year growth strategy for technology

-Web hosting

2.2. How to Get Information That Is Reliable

One of many things even managers of big firms grapple with is determining what information is reliable. I heard on a major news network this past year that even information from the Associated Press has to be fact-checked before going to a story with it—and it never used to be that way. We are not short on data these days, with everyone posting everything and anything on the Internet, so you need to know how to spot reliable and unreliable information. As a professor of statistics, I can shed some light on this, although I’ll spare you the scholarly verbiage and confusing analytical mumbo-jumbo.

First, look for bias within the analysis of the information. Does the researcher or the author have a reason to publish or print a specific finding or “fact”? If so, toss it out unless she was honest enough to list biases with regard to her research and what assumptions were made for the study. For instance, if you are reading a document on marketing and it is written by a company that provides small busi­ness marketing, it may simply be promotional material disguised as research.

If the information you are looking at is actual research, are assumptions and limitations listed? Assumptions and limitations are the basics of all types of research. Assumptions are the things the researcher assumed in doing the study and limitations are the things the study didn’t touch or reach. An assumption is something assumed for the research that may lead to bias. For instance, I may assume that the sample that I studied is representative of the population at large.

In my survey for this book, I assumed that people answered honestly and had no reason to lie. Limitations are things that limit the scope or results of the study. My study was web based, so that is a limitation. If a small business owner did not have web access, he or she did not get an opportunity to respond to my survey. If you read research material, look for these elements because they need to be well documented in any research you read.

The next thing to look for: What is the sampling rate? If you are looking at a survey that interviewed 20 people, you may not have a reliable survey. For social sciences and business, we generally look at obtaining 1016 or so participants when conducting a survey, which gives us a 95 percent confidence in the data the results produce. I won’t bore you with the mathematical equation behind this, but you should know that polling many more people than this doesn’t change the confidence level much, but polling fewer definitely does. A confidence level is how sure the researcher is that the results are accurate. Common confidence levels are 95 percent, 98 percent, and so on. These are also known as Z scores, but that is much more than you need to know for the scope of this book.

That said, you can have a valid and reliable survey with a small sample size if the sample that is tested is representative of the population. Look for studies with small samples to mention this in the limitations. While small samples don’t make the data necessarily bad or unrepresentative, they do mean that the researcher had to take special precautions and use specific tests to keep validity intact. If she didn’t, toss it out.

I used two words here that are key—reliability and validity. Validity is how accurate the information is with regard to its representation of the population at large. If airlines survey 30 passengers on one flight and try to apply the findings to flying in general, they are using a highly skewed, invalid sample.

In the airline example, they are also using an unreliable sample, because reliabil­ity refers to repeatability—if a new researcher ran the exact same study on that same population, would she get similar results? If so, it is reliable. If the survey is representative and repeatable, you have a reliable and valid study—the stuff that good things are made of!

Note: When it comes time to present your idea to lending institutions, venture capital firms, and investors (whether they are strangers or family and friends), being able to produce statistically valid and reliable data will greatly increase your chances of a successful meeting, as it shows a great deal of attention to your planning and an understanding of “the numbers.”

2.3. Creating a Plan That Works for You and Achieves Your Goals

Ultimately, the plan you create may be viewed by quite a few people, and you should get feedback on it. But remember that the goals should fit your goals— your lifestyle requirements and how fast you want the business to grow—which may not be the same as how capable the business is of growing. You may want it to grow faster than it can, or you may not want to invest the time it takes to make it grow as fast as possible. Bottom line—keep your goals in mind when you create your plan and pay particular attention to ensuring that they are aligned.

If you have data that doesn’t make sense, you can be darn sure the money lenders will notice and ask.

Source: Babb Danielle (2009), The Accidental Startup: How to Realize Your True Potential by Becoming Your Own Boss. Alpha.

1. What to Do When the Plan Comes Together

At some point during your writing, you will have time to reflect on where you’re at. You should have a flow chart or map that indicates what you need to do, including tasks as detail-oriented as you can handle or want to plan for. (This often depends greatly on personality type—as my husband will tell you, I would gladly make a list of items to be done and even write out the specific steps to get there, but that would drive him insane!)

Run your plan by others—other businesspeople or friends who you trust. If you show it to someone you don’t know and don’t completely trust, make sure that he or she signs a nondisclosure agreement. You can download many of these forms online, free of charge or for a very minimal fee. LegalZoom.com has some great agreements for a small price.

Once you think the plan is solid, it is time to begin marketing your plan for startup revenue, if you don’t already have it yourself.

1.1. Marketing Your Plan for Startup Revenue

If you do need startup revenue, a good place to start is your local bank or SBA office. In any event, no matter who you approach, they will most likely want to see a copy of your business plan, which is why you will want to have this done before starting your search for financial backing.

Regardless of who or where you ultimately get revenue from, you need to offer a return—even if it’s to family—and it needs to be in writing (remember my per­sonal story in Chapter 4?!). Even if the return doesn’t begin for three years, note it and document it and then follow through by ensuring that in three years you indeed get that return you assumed by pushing the limits of your business within your comfort zone.

1.2. Family and Friend Investors

Family are often where startup businesses get their money initially. Family members certainly are a good source of investment income, as are close friends. However, there are risks with both options. If your business goes bad, how much worse will you feel about losing your mother’s money than a bank’s? Also, if the deal goes sour, it could strain family relations, no matter how strong your ties were when the loan was made. Last but certainly not least, do you want your family bringing up at family dinners that they haven’t gotten paid, or asking, “So how is business?” when you are trying to enjoy Thanksgiving dinner—knowing what they are really asking is “When am I getting my money back?!”

A good source? Yes, absolutely. But weigh the pros and cons carefully before jumping into the business bed with your friends or family, or both.

1.3. Angel Investors

Angel investors are a certain type of investor that is greatly growing in popularity within the world of entrepreneurs. Unlike venture capitalists, who lend pooled money from others, angel investors, or “angels,” invest their own funds. Some angels invest on their own, while others may team up with other angels to create “angel groups,” which are exactly what they sound like—groups of angels that get together to invest in small businesses.

One of the largest pros to going through an angel is the fact that, since it is his or her own money that he or she is investing, you only have to convince that person (or that group of angels—depending on the situation) that your idea/business is worth the risk. When you approach a bank or venture capital firm, on the other hand, your presentation must not only convince the person you present to, but do so in such a way that he or she will turn around and convince those above him or her, who actually have control over making the final decision on whether or not to lend you the money.

One of the largest cons to angels, in probably about half of the situations, is that you are limited to the amount of money that the angel has allocated to lend. If you need $100,000, but your angel only has $75,000 to lend, you now need to search for someone else to lend you the remaining $25,000. One fact that you can take comfort in is that angel investors often know other angel investors, even if they don’t belong to a group. Keeping this in mind, if you can convince one angel to back you, and he or she knows another angel, chances are high that you will be able to convince their “angel friend” to jump on the bandwagon as well.

Angels and angel groups are now going online or virtual. You can actually search for angel investors online, no longer limiting you to the angels in your neck of the woods. Sites such as FundingUniverse.com are popping up all of the time, connecting angel investors and entrepreneurs across the globe.

1.4. Saving Up Your Own Money

You could, of course, start your business with your own capital, as many of us do—myself included! You can take a 401(k) withdrawal, for instance (be careful and talk to your tax planner on the ramifications of this), or a home equity line of credit (HELOC). Don’t forget to include repayments to your 401(k) or HELOC and interest as well as opportunity costs in the startup costs section of your busi­ness plan.

You could save up for a business you intend to start sometime in the future, too. Any long-term, high-return account would be great for this, such as a high- yield CD.

1.5. Starting Your Business with $10,000 or Less

It is possible to start a business with $10,000 or less. Many people do—I did, and I continue to start my new ventures with less than 10 grand! How? I use the 10 grand as borrowed money and then repay a small amount at a time. If you are really a risk taker, you can even take a cash advance on a credit card and pay the high interest to that credit card. Where there is a will there is a way. I’ve done it five times and regretted it once. Not a bad ratio for me, but it may be more than you are comfortable with, or you may have other financial goals and ideas. Figure out what works for you. You can start your business out of your home with a simple website, relatively inexpensive marketing, and lots of word-of-mouth advertising, while keeping your day job going at the same time until the business is running full speed ahead.

1.6. Making Sure Your Plan Fits Your Goal

I want to go back to this a bit again, because so many people I have worked with have downsized after years of success. This section has a lot of personal anecdotes and things I have learned along the way because many of these lessons have had a great impact on my life, including quality of life, happiness, and marital satisfaction.

As a personal example, a good friend of mine was on the same path with his busi­ness plan that I’ve taken for years. We were comparing our successes and both of us were moving along quickly, referring new clients to one another. I thought life was good, but he got fed up. At some point it got to be too much for him and he said NO MORE! He dropped most of his clients, kept two, downsized dramati­cally, and went on vacation. I dream of doing that, but my personality doesn’t allow for it—I won’t allow for it. I guess one could say that ultimately it isn’t what I want. For me, that was failure. For him, quitting those jobs and taking back his freedom was success. For me, buying a bigger house in the hills was one of many markers of success. For him, it was adding onto his existing home and having his own quiet home office where he could be with his child. What do you want?

I can’t stress enough the importance of your business goals being aligned with your personal ones. If they aren’t, both your business and you, including those close to you, could suffer greatly.

I am reminded by little things every day that one woman’s definition of success is not another’s: my family who have corporate jobs with no potential to expand earnings beyond a specific corporate salary (yes!), my friend’s 18-year-old sister who has “low aspirations” (but high for her) to earn an associate’s degree and be a mom, the family members who don’t understand or appreciate my lack of desire to replicate my DNA and have children at this stage in my life due to the interruption it would bring to my business, and so on. Everyone has their own personal priorities and you shouldn’t sacrifice yours. You may find however that they change over time.

Whatever decisions you make, you will constantly be tested and reminded that what is good for you isn’t so for everyone else. Also be prepared to take criticism. I hear the snickers and feel the lack of warmth from my extended family who

aren’t happy about the fact that we don’t have a bunch of little babies running around and all the cousins aren’t growing up together. Being the sarcastic one in the family, I played an April Fool’s joke on my family, saying that my husband and I were combining names to create one family name. We would become Babbica—a combination of both of our names. My husband’s family did not find this funny (although they play it off as though they did). While I justified the joke idea as being easier than hyphenating for those future babies they so badly wanted, they didn’t find it funny at all.

While this is a bit of an aside, remember that all the decisions you make in your personal life, once you’re tied with family in business, will take on a whole new meaning. If you join the two together, you have to watch your boundaries a bit more (and, in my case, your choice of practical jokes, too).

To be blunt, the point is—whatever makes you feel successful is what your plan needs to assume. Unless of course you get very big very quick and become a large-scale corporation—then what your shareholders want will matter more.

But that is another book for another day!

2. Keeping the Plan Updated and Relevant

If you don’t know where you want to go, you certainly won’t get there—unless you are darn lucky. You need to keep your plan relevant, current, and updated. Did market conditions change? A new competitor come on the horizon? Did your target demographic change their purchasing habits? Is the economy in your market sector not doing so hot? Update your plan and figure out what you’re going to do about it! A relevant and current plan is a useful plan. An outdated plan is useless to you, and to your team, should you bring one on.

Also keep in mind that if you have investors, whether friend or foe, they could request to review your plan at any time, so it also benefits you to be able to pro­duce a current plan. Keep your investors happy and stay in charge and on top of your business—running it rather than letting its last minute changes run you.

2.1. Don’t Be Afraid to Change Course!

This is an important lesson that I had to learn time and time again before it really sank in. Sometimes your career and business takes you places you hadn’t imagined or didn’t originally want to go. Your ultimate goals may even change entirely—don’t be afraid to change course. If you are enjoying what you are doing, if there is a market for what you’re doing (and it pays the bills), and if it falls in line with your personal vision and mission as well as your business mis­sion and vision, go for it!

This brings up another important point—we talked earlier in this chapter about your company mission and vision. But you need to have a personal one, too. Make sure the two align, or you will be miserable.

2.2. Revisit the Plan—Be Sure of Its Accuracy

Revisit every element of your plan from start to finish at least once per quarter; more often if you’re having unpredictable revenue fluctuations—either positive or negative. Be sure your contingency plan is updated, too, and be certain you are taking into consideration market changes that you have no control over, like exports, the value of the dollar, consumer discretionary spending (if that affects you), and so on.

2.3. Initial Phase Importance

It is extremely important that you plan out your initial phase—those first few months—with extreme precision. Know what you’re going to do then roll with the changes. Not doing so could throw you off kilter for a very long time.

3. Transition Time-Decisions, Decisions!

You have a plan, you have some startup capital, and you’re ready to transition to your new job. You may have been unemployed or underemployed throughout this process and you’re ready to tackle this new challenge. Whether you are underemployed or unemployed or just wanting to change jobs, it’s decision time! (Again!)

3.1. Move Slowly or Make the Switch All at Once?

First, are you going to move slowly into the new business or make the switch all at once? Obviously, moving slowly means you’ll have time (if you are employed) to continue earning a paycheck, but you’ll have less time to spend on your new business. Moving at once has the opposite affect: less money but more time for your business. Take into consideration personal bills, finances, and your family’s worries and concerns when making this very important decision.

3.2. Transitioning Into Your Business Plan

It is tough to not just begin one day typing e-mails to people to talk about your new business. Make sure you do your homework first, and put your business plan into action. Follow your first-few-months plan, marketing according to what you thought best. Update that if you need to—but remember that your business plan was written when you weren’t in the heat of the moment, which means you were probably of sounder mind then.

3.3. Putting Your Plan Into Action

Sometimes your enthusiasm becomes contagious and your plan has to be modi­fied to make that work for you. If it does, go for it. The most crucial step here is putting your plan into action. If that means leaving your day job, time to write the resignation letter. If that means launching the website, do it. You should be

doing everything in your plan listed as prelaunch. If you are unemployed, you should be doing that and more now! You should be bouncing your ideas off of family members, focus groups, really grasping the concept of your target demo­graphic, and working to immediately build a business—even if it’s only a web presence for now.

4. Quitting Time-Leaving Your Day Job

If you are underemployed and quitting your part time job or fully employed and also leaving it behind, you will already have planned your quitting time. If now is the time, don’t burn any bridges. Write a great letter of resignation, and even perhaps get your bosses on board (if you think they will be) ahead of time and ask them to allow you to even promote your new business. Imagine an e-mail blast to 10,000 workers telling them about your new adventures! Sometimes the best contacts are those you already have through other people and the networks you’ve built.

Send an e-mail to your officemates informing them of your decision—and your new business. A simple but effective template that I have used many times my­self is:

Dear <enter name>,

Let me start by saying how much I have enjoyed working <with, for, alongside, etc.> you. I have learned a great deal from you and I hope I have been able to offer the same.

Recently I made the decision to <insert decision>.

This has been a decision that I have spent many hours analyzing and feel that it is in my <my family’s, etc.> best interest to pursue. My final day with <enter company name> will be <enter date>. During my future endeavors, I plan to start a business doing <enter the business>. I hope you will join me in celebrating this moment that I have dreamed of.

I sincerely hope that we can remain in contact in the future. My contact infor­mation is: <enter contact information>

Please do not hesitate to contact me anytime. If you wouldn’t mind taking a moment to reply to this <e-mail, letter> with your latest contact information, I would surely appreciate it. Also, don’t hesitate to ask any questions you may have about this latest chapter of my life; I would love to answer any you may have. 🙂

Sincerely,

<your name>

4.1. Coping with Anxiety and Stress

This is going to be a high-anxiety, very stressful time for you. You will need coping mechanisms that preferably don’t involve things that will limit your ability to do your job or the time you can spend on it. Hitting the gym, eating well, meditation, and so on are all listed as common and healthy ways to combat stress and anxiety. Sometimes it helps me to revisit my plan and to document my income sources so that I know, in fact, that bills will be paid. I often even hold onto money for three months of mortgage payments to make myself feel better in case I lose a good contract.

As one of my dear friends writes in my newsletter column: don’t forget to laugh, don’t forget to spend at least a few hours a month with friends, and don’t forget to share your burdens and your success with others. It makes hard times that much less difficult, and happy times that much more sweet. If you’re like me, you rarely celebrate an accomplishment, feeling like it is a beginning rather than an end. I remember earning my Ph.D., hanging up from my dissertation defense call, and thinking, “Okay, delete ‘get Ph.D.’ from my PDA.” Guess what? That is exactly what I did, and moved on. I don’t even recall having a dinner to celebrate until I met a man that I would later marry—we celebrated about two months after my degree was officially conferred. If you are a go-getter, every success feels like one more step to the “ultimate,” whatever that is. Try to remember the accomplishments along the way, though, because it makes it easier to fight burn­out and to feel successful. That is important for your own mental health.

4.2. Setting Limits and Boundaries

Now is the time when you will be so excited that setting boundaries and limitations—especially with a home-based business—will be critical. Set them and stick to them. I don’t encourage type-A personalities to avoid their business after certain hours—some of us work best at 10 P.M. Just be sure you keep a balanced life or you’ll burn out, like my aforementioned friend who drastically changed his job after not having enough time with his family and friends.

Source: Babb Danielle (2009), The Accidental Startup: How to Realize Your True Potential by Becoming Your Own Boss. Alpha.

There are many ways to raise capital, whether you have a new business or you have a business that you want to grow and expand. It isn’t easier or more difficult to raise capital in either case, but the methods can be somewhat different.

1. Hard Money Loans

Hard money loans are often not so easy, and not so cheap in terms of interest rates and payments—but they are sometimes the fastest way to raise the money that you need.

A hard money loan can come at a high price—some say your dignity—as you ask what many call “loan sharks” to help you raise immediate capital while they ask interrogationlike questions and scrutinize your taxes and credit.

These loans also come at a high interest rate; it is not uncommon to see 15 to 25 percent (or higher) for a relatively short-term loan! But there is an upside, and that is fast money, which could ultimately make or break your business, depend­ing on the situation. For example, if you start a cleaning service and win the bid for a large retail complex, and they want you to start in one week, it will often take much longer than a week to secure the funds through a bank loan for all of the new equipment you need. A “hard money lender” may be willing to lend you the money within 48 hours; provided you pass the tests (like collateral) and have reasonable credit scores.

If you have strong reason to believe you will be able to pay the loan back fast, this might be an immediate good option.

So how do you find a hard money lender? You can talk with investment bankers who typically know of many. A good source I have found, believe it or not, are mortgage brokers. Their business often relies on them for down payment money, and so they may have a good supply of people to talk to.

2. Loans from Friends and Family

In the “old days” (one year ago) borrowing from friends and family wasn’t so practical and secure because your family member had no recourse—the loan wasn’t reported on credit (which if you are on time with payments, helps you build credit, too) and there were little assurances besides a promissory note and your word that the individual would get his or her money back. Talk about risky business.

In Chapter 4, I talked about a personal experience with my husband’s family member who ripped him off with a business venture. Due to keeping everything so informal, my husband had little recourse—then and still to this day.

Today, though, there is one particular online system that makes this transition easy, and that is Virgin Money. Virgin Money, created by Richard Branson—the same brilliant individual who founded Virgin Records, Virgin Atlantic airlines, and Virgin America airlines—came up with this novel approach to officially loaning money to your friends and family, and receiving money from your friends and family.

With Virgin Money, you can have the payments automatically made from a checking or savings account, and your family member can report the loan to your credit and even hold collateral.

Although Virgin Money will handle everything from student loans to retirement loans, the short and simple version of how Virgin Money handles business loans is this:

You find a friend or family member willing to lend you the amount of money you need to launch or grow your small business. You contact Virgin Money and they literally handle the rest.

Below is an excerpt from Virgin Money U.S. that helps to define what they do to help small businesses and consumers and to help with business loans. It costs between $100 and $300 depending on what you want them to handle, including credit reporting:

“Whether you’re looking to finance your friend’s startup, or expand your own business, use Virgin Money to manage your loan. We’ll provide the documents
and support you need. So read up on our products, give us a buzz, or have us send you a guide. Now let’s get down to business, shall we?

Virgin Money manages business loans between relatives and friends. Using us means that the business of your loan—legal documents, transfer of payments, year-end reporting—will be taken care of. (Which we think will come in handy, because, really, you’ve got enough on your plate.)

Virgin Money business loans are flexible, fast, and fit your financial needs.

When you use us, grace periods and deferred payments are easy. It’s up to you and your partner. You pick the terms; we create the documents and manage repayment. Not sure about lending? Need advice on how to ask for a loan? We can help. Request a guide. Call one of our specialists. We try to please.

Our goal is pretty simple. We want to make friend and family financing a real alternative for startup and growing businesses. We offer a top-notch small busi­ness financing option, protecting both money and personal relationships. Hey, we didn’t say it was a small goal. But we like to aim high.”—Business Loans (Virgin Money, 2008)

Sound easy? That’s because it is. Not only is going through Virgin Money easy, but it will provide both you and your investor(s) a sense of protection, and lessen the potential for any awkward moments, which can arise when combining friends or family and business matters involving money!

3. Venture Capitalists

Venture capitalists are groups of investors who come together with a common cause—their own business that invests in others’ business ideas. Many dot-com organizations were created and founded on venture capital (VC) money. VCs will require many things from you, but all of it is doable and VCs are a good source. VCs usually lend others’ money or pooled money, and not their own. If they lend their own money, they are referred to as angel investors and not venture capital­ists. VCs are usually much more strict and will have more significant guidelines and requirements than angel investors will.

First, you need a well prepared business plan with a one-page executive summary. Generally each VC group will have their own submission guidelines, which you can typically find on their website or have mailed to you by contacting them directly, should they not have a website. They will initially read the executive summary—and then the rest of the business plan if the summary is solid and piques their interest. To quickly expand on “piquing their interest”—I say this because even if your business plan is solid, if it is not a field of business that they typically want to invest in, they could turn you down on the basis of that fact alone. VC firms, like angel investors, will often only invest in a business that they “know” or know enough about to make an informed decision as to whether or not your plan and projections are viable.

What kills a VC deal? Many VC investors say that many business owners come in not even being able to answer simple questions like “How much money do you need?” or “Who is your target market?” You need to know your business! Like I mentioned a moment ago, the VC firms you present to most likely invest only in particular types of businesses, which means that you are dealing with an edu­cated bunch of people. If you don’t know your stuff, their confidence in you will drop tremendously, as will their willingness to back you financially.

So how do you find VCs in your area? A simple Google search to see who has funded similar types of business is a good place to start. My recommended search criteria are precisely this:

“venture capitalist AND <insert business genre>”

What do you need to do to prepare? First, you shouldn’t even think about approaching a VC firm without an extremely thorough business plan, chock full of market research, unless you have the cure for diabetes or something similar. Next, as already noted, you will need an executive summary—in some cases the venture capitalist will want to see only the executive summary before meeting with you about the rest of the plan. Each will have their own rules to live by.

If your business plan makes it past the initial review, you will likely be called in for an interview, allowing you to present your business idea as well. Make sure you walk into this meeting well prepared. Call it cramming, call it rehearsal, call it what you want—practice, practice, and practice some more. You don’t want to find yourself at a loss for words or without an answer to a question. Remember, there is a very high likelihood that they already know the answer to all of the questions they ask you. They are asking you to see if you know the answer.

Lastly, dress for success, even if this means you have to go out and purchase a new designer suit for the “big day.” Although it would be nice if the world operated under the theory of “never judge a book by its cover,” it simply isn’t so. Imagine if someone came to you asking for money wearing a tie-dyed shirt and gold pants, versus a nice three-piece suit.

There are some upsides and downsides to VC money that I feel obligated to men­tion, in the interest of full disclosure.

The advantages are as follows:

• The VC firm has a fairly constant influx of financial resources
• The VC firm will be able to provide highly trained and educated manage­ment and personnel resources
• You will have access to market expertise that you may not otherwise have available

The disadvantages are as follows:

• You will likely have to forfeit some managerial control, even to the point of not being a part of the management team at all
• You may have limitations, with regard to operations or growth, or both, placed upon you by the VC firm
• Your preferred exit strategy may not align with the VC’s idea of the best exit strategy

There are many other nuances to venture capital, and there are terrific web resources in the Resources section of this book on the topic. A great place to start your search for additional knowledge is www.AskTheVC.com. Another resource is the National Venture Capital Association, which can be found at www.NVCA.org. You can start your search for VC firms at www.VFinance.com, which is a directory of active venture capitalists.

4. Small Business Administration

The Small Business Administration, or SBA, doesn’t actually lend money, as we have discussed. But they are an invaluable resource to you, as they will connect you with lenders that specialize in small- to medium-sized business loans. The SBA acts as a guarantor to the lenders that they work with.

The SBA specializes in helping small businesses secure funding when traditional funding outlets are not viable or have been exhausted without success. The lend­ers that the SBA works with have considerably more lenient lending practices than your traditional bank, but this does come with the potential downside of not being able to secure the amount of funding that you may need. In this case, you may need to secure more than one loan.

Let me stress the fact that the SBA themselves do not have funds to loan. They match you with private-sector lenders, which are in turn guaranteed by the SBA.

Most lending institutions are familiar with the various SBA loan programs, so you can contact your local bank or credit union to inquire as to whether or not they offer SBA-backed loans. A more direct route to take is to contact your local SBA district office and request information on local lenders offering SBA loan programs. They will usually be able to provide you with a list of qualifying insti­tutions in your area. To find your local SBA office, visit sba.gov/localresources/ index.html.

You need to be prepared for your SBA loan application, too. You need to bring, at a minimum, your financial statements, business plan, personal identification, your business identification and documentation, as well as your business license. Various banks will require different documentation.

So what banks work with the SBA? Most major banks and even smaller ones that have business checking. Some of the larger participating banks include Bank of America, Citibank FSB, Wells Fargo Bank, Washington Mutual Bank, and many more. To find out what other programs and resources the SBA has to offer, you can start by checking out their website, at www.SBA.gov.

5. Bank Loans

Once you open up a business checking account with a particular bank, your chances of getting a line of credit or a bank loan for your business is much greater. Often this comes in the form of a business credit card, particularly one with a high limit and low interest for a period of six months to one year. For instance, I earned a line of credit on an LLC about one year after opening my business checking with a $30,000 line and 0 percent interest for 12 months. This is a great way to get seed money to grow your business. Some use this money to expand into another business venture; be sure you record this carefully for your accountant if you decide to do so, because that transfer of funds must be recorded in your accounting and tax files.

To get a bank loan, you will need an official business with your business docu­ments filed, and you will need to bring profit and loss statements. You may need to secure the loan with personal credit depending on how established your busi­ness is.

Source: Babb Danielle (2009), The Accidental Startup: How to Realize Your True Potential by Becoming Your Own Boss. Alpha.

1. Keeping an Eye on Economics

We already know that economic conditions—from home sale prices to the cost of money (the worth of the U.S. dollar)—affect us as individuals. But they also affect our businesses and in many cases, more so. In particular, taxes have a great impact, particularly on small businesses. Small businesses provide an incredible amount of jobs in America; while we would think preserving their viability would be paramount, it isn’t to all politicians. We often see politicians try to raise taxes on businesses, which directly impacts your bottom line. The smaller the business, the more impact raising taxes will have.

You need to watch conditions of the market; what is the consumer sentiment?

Are people spending? How is the gross domestic product (GDP) doing? Is it growing? If people are spending and have discretionary income and feel wealthy, they are more likely to spend money eating out, on clothing, and on more expen­sive or designer goods. You may have to adjust your business—from your prices to your marketing strategy—based on consumer sentiment.

1.1. The Impact of Market Conditions

Many people don’t realize how much impact the Federal Reserve has on the wealth of the nation. When the Federal Open Market Committee (FOMC, or Fed) adjusts the reserve requirements or the interest rates, they either contract or expand the economy. When they raise interest rates, banks are more likely to want to lend because they will earn more, but fewer people will want loans because they cost too much. Also, the higher interest rates are, the more people will invest money instead of spending it because the incentive to do so is higher. This is a contractionary climate, where we pull back spending and make the cost of money more expensive.

What impact does this have on your business? Plenty! First, if people want to put their money into a certificate of deposit (CD) this month because they can earn 8 percent, they’re less likely to buy your designer handbags or eat at your restau­rant. Also, if there is a higher opportunity cost to spending money (e.g., there will be less money to invest in a high-return environment), they’re less likely to spend money on goods and services. We know that even gratuities (tips to your waiter or waitress, valet, etc.) go down when we have a contractionary climate.

On the contrary, when the economy is in expansion mode (as it was in the early 2000s), money is cheap and people borrow like crazy and build like crazy. They expand their businesses with inexpensive loans, and people feel more wealthy. The downside to this, as we saw in the mid-2000s, is that the build-up can be a house of cards that crumbles, as the mortgage implosion showcases so well.

When the economy is expanding, people feel the wealth effect and they spend money more freely. In these years, GDP tends to climb and spending climbs. People build houses, build shopping centers, and invest a lot in their businesses, the cost of money being inexpensive. Banks protect themselves by offering variable rates—the rate plus a margin—but when the Fed changes its policy to be more contractionary, business owners often aren’t prepared and get hit with higher finance charges. This startles businesses back into contracting and not expanding as much.

Be careful and watchful of the economic environment in general. Watch what the Fed does with rates, the state of banks, and the health of the stock market.

All are indicators of not only consumer sentiment, but also the health of our economy in general. Watch unemployment rates; anything above 5 percent is considered above the natural rate and may be cause for concern. People without jobs are people not buying. This is also a time many people start businesses, as they are feeling overlooked by Corporate America.

1.2. The Impact of Taxes and the Political Climate

All politicians like to take our money and spend it. Individuals in surveys are less sympathetic to taxing a business than they are to taxing an individual, although most don’t realize how closely tied the two are. Even if you don’t enjoy watch­ing politics for instance, I suggest you find a half-hour or one-hour business show and watch it diligently each day; read a business newspaper or a business magazine and keep current on what is happening in the political and tax climate. Politics, economics, and government regulation affect businesses and you should be aware of what is happening.

You also may need to make forward-thinking adjustments to the type of corpo­rate structure you have if you see taxes increasing in the relatively near future (say one year out). If you are working with a CPA, ask to be on his or her busi­ness e-mail list. Most will send out quarterly e-mails with tax changes and cred­its. Sometimes you will see random credits people aren’t aware of, like a credit to buy a vehicle or the ability to write off a capital asset in one year, for only that year. This is all information you want to know.

As of 2008, the corporate tax rate ranges from 15 percent to 39.6 percent, depending on structure and amount of revenue. (Small Business Taxes and Management, 2008) You will want to work with your tax accountant or advisor to see how to best structure your business to keep taxes low.

2. Dollars and Sense

Every dollar you spend is a dollar you cannot reinvest in your business, its infrastructure, its employees, or its growth. It’s also a dollar you don’t have to give yourself a raise! It’s easy to go to the local office supply store or shop online and order 100 pens and pads of paper although there are plenty in the supply closet. Watch even small expenses very closely because that end-of-the-month credit card bill can sneak up on you, particularly if you give your employees

their own cards and allow them to make purchases up to a certain limit without your approval. Authorized users in some cases account for 50 percent or more of spending in a business.

2.1. Watching Your Pennies and Tracking Your Expenditures

The amount of accounting required to truly watch every penny and categorical expense can feel daunting, and for good reason. There are tools, though, to help you. Two that I personally have used since their inception are QuickBooks, by Intuit, and NeatReceipts.

QuickBooks (quickbooks.intuit.com) helps you track your income by category, client, and type; expenses by category, client, and even employee; outstanding invoices, accounts payable, accounts receivable—you name it. Many medium­sized businesses don’t even feel the need to “scale up” when they grow because the software is very powerful and can handle quite a bit of growth. It has par­ticular add-ins if you run a certain type of business that requires additional tools, like property management. Reports are run quickly and easily, and can be used to present to your team—to document or explain, for instance, why costs must be cut for the next period. You can also look at profit margins and profitability by client, by service, or by product, and so on. You can also run reports to show you which clients are delinquent and need to pay up.

NeatReceipts (www.neatreceipts.com) is a fairly new technology and business, but a great way to make tax time less of a nightmare. By scanning each receipt that comes in, you make audits less scary and daunting, and you can easily clas­sify your expenditures and know what you’re spending on a daily, monthly, or yearly basis. After scanning the receipt, it keeps and stores a PDF copy of the receipt so that you can simply transfer the information to your accountant or onto your tax return at the end of the year.

2.2. Making Investments

If you want your business to grow, you will have to invest in it. From websites to new computers, everything you spend on your business should be a “value add”— that is, it should add to the overall well-being of the business. This includes money spent on consultants, legal or professional help, software, hardware, equipment, and even major expenditures like manufacturing equipment, if that is your busi­ness type.

Like everything else you do in business, you must know what type of expense your purchase falls under. There are general expenses, and then there are capital expenditures and then assets that must be depreciated over time. The IRS’s rules are best to follow. You have buckets like office supplies, cost of goods sold, insur­ance, office expenses, utilities, and so on. You can also write off business use of automobiles using one of two methods: a flat rate amount or a per-mile rate. Be sure to keep track of your mileage at the beginning and end of the year, and keep a driving log indicating where and how you used your car for business. If you keep a log or hang onto receipts and label them, you can have an accountant sort through it or you can get a copy of a Schedule C from the IRS and see how they categorize items into specifics. This often helps with planning.

2.3. Calculating Returns on Everything from Staples to Furniture

It seems silly to figure out what the net benefit is to buying staples, right? One rule of thumb is to agree to spend X dollars on office supplies—no more. The truth is that everything has to have a return. Some are harder to quantify—like pens and paper—but are necessities. These fall under office supplies on your tax return. You might not stress so much about the little things, but do watch your expenses.

Bigger items are another deal altogether. A personal example—when I moved into my new casita-based office, I had to buy all new furniture. I wanted to feel like I stepped into a professional office; I also wanted to spend a little bit of money. I had to find a nice balance between the two. If your business is more image-driven, consider that when making purchases. If image is irrelevant and you do all your work on the back end, consider how you feel about your business space and if you want to be there. Sometimes that affects the bottom line, too.

Will your office help retain top talent? As frustrating as it might be to always pay for the office snacks, it is okay to set a monthly limit and spend that much money if it helps morale. On the other hand, you could offer a place for people to store their own goodies and reinvest in your business.

To calculate a return on investment, use a simple formula like this:

A = cost of the item B = value of the item to your business

If you divide A by B and you get a low number, consider whether it’s worth the purchase.

Some purchases are not quantifiable, like those that improve morale or make people want to be at the office and—hopefully—be working while they are there. Be careful of employees who “hang out,” eating and drinking your office-supplied snacks and Red Bull while not doing productive work. This is purely a cost to you. I had a boss once who would let us hang in the office late if we could show that productivity resulted. Often he’d treat us to lunch if we were far ahead of deadlines. Those small gestures went a long way for the team members who realized that he had to pay for those things out of his own pocket; therefore, they meant a lot to the team.

Source: Babb Danielle (2009), The Accidental Startup: How to Realize Your True Potential by Becoming Your Own Boss. Alpha.

You are already analyzing your numbers on a regular basis—running cost-benefit analyses regularly and analyzing your expenditures on a return-on-investment (ROI) basis.

But what do you do when the signs aren’t looking so hot? When your expendi­tures are greater than your income? You need to immediately look for ways to
cut back if you don’t believe the situation will turn around fast. Bring your team together if you have one, and ask for new ideas to bring in new revenue (and reward them if they pan out and are followed through on). If you have an open line of credit or can get one before even one bill is late (you do not want to dam­age your business or personal credit), and you know your business will be okay in the next 30 to 60 days, consider using the line and riding out the low tide.

But if you believe the short rainfall could be a drought, it is time to take action immediately. Cut all expenditures that aren’t necessary. Hopefully you have already been calling companies you do business with regularly (including utility companies) to be sure you are on the best rate plans, but if you haven’t, do so right away. Call all clients with balances beyond their due date, and cut back on staff hours if you need to. You may need to take on more of the burden yourself for a while, until the business is doing better again.

This is really time to reassess whether your projections are accurate and if so, by just how much. If they aren’t, you need to adjust them, and fast. Figure out if you’re on a path to destruction or if this is a temporary glitch by examining why business isn’t doing as great. The key is to act quickly, but don’t overreact if it’s a temporary problem. You may also wish to spend money, as counterintuitive as that is, on advertising, marketing, and public relations to draw in more business. Spend money where it makes the most sense and draws in the greatest number of potential customers.

1. Warning Signs of Financial Insecurity

What are some warning signs of impending doom and the need for quick change? Running a monthly deficit is a big one. Barely meeting payroll each month is another one. Paying employees a day or two late is a red flag. Not being able to pay yourself your full salary that month is another big one. Rapidly declining sales or other competitors and new entrants into the marketplace may threaten your business’s security and stability. Not being able to fund a great opportunity when it comes along, or consistently paying bills barely within the grace period, are other bad signs. Needing to put your personal money into your business account to keep your accounts in check is another, as is the cost of your services not keeping up with inflation, or people being unwilling to pay the same as they were in the past for your services. Lack of response to a good marketing campaign may also require attention, as it may mean you need to find another niche.

2. Raising Capital Quickly

Venture capitalists and even banks aren’t necessarily going to be fast in getting money pumped into your business. Often the fastest way to do this is to raise your price (if it won’t affect your client base negatively), downsize or rightsize (which is similar, but it is designed with a specific approach to be sure the com­pany needs exactly the staff they have), and raise capital through quick-to-get high interest credit cards. While these can be dangerous in the long term, they can get you through a hard time fast.

Another method which could be a fairly quick means of raising funds is to set up an initial public offering or IPO. With an IPO, you are selling shares, or interest, of your company. This won’t happen until you have enough cash flow that you can show value for stock holders.

If your business is growing quickly and you have a lot of interest in your company, you could sell and issue stock to those wishing to “get in on the deal.” For instance, some of the most common purchasers of stock through an IPO are employees and initial investors. Creating and selling stock is fairly simple and straightforward if you have already structured your business as a corporation, because in doing so, you established a certain number of shares when you incor­porated with the state.

Keep in mind, however, that in going about raising capital this way, you now have shareholders, meaning that you will have to take their votes and opinions into account when operating your business. Your board will have say over the direction of your business. As soon as you sell a single share of your company, you are obligated to turn a profit. This is referred to as fiduciary responsibility.

It is your responsibility to ensure that you operate your business in a manner that turns a profit, increasing the value of the shares that you have sold and issued.

There are many other obligations tied to issuing stock. I suggest you research this method deeply and consult with both legal and financial counsel before moving forward with this option.

Lastly, you can always form a strategic partnership with another business, whether a competitor or a complementary business. If you are the one who will benefit most from the partnership, you will most likely end up receiving the short end of the stick with regard to overall benefits of the partnership, but if it keeps your business alive or growing, it may be your only choice. An example of a strategic partnership would be if See’s Candies partnered with FTD. The joint marketing potential would be that if you purchased a box of candy, you would get a discount on a dozen roses, or vice versa.

3. Throwing Good Money After Bad

I have personally seen so many business owners throw good money after bad that it is nauseating. If you know something isn’t working, don’t continue to do it!

Taking that phone book ad resulting in one call every quarter with someone just checking on price (and more calls soliciting business than buy­ing anything) and then renewing the contract is an example of throwing good money after bad. Keeping that super-fast Internet connection when the fast one sufficed just fine (or you couldn’t even tell the difference) is another.

4. Knowing When to Change Direction

One of the most difficult things for any business owner to do is to change course, and to do it quickly before the situation becomes critical or results in late pay­ments to anyone, including yourself. When you need to change direction, it may be time for you to step away from your business for a few days, and even take a few trusted colleagues with you to strategize. Be candid with employees about what is going on and that you’re figuring out what the cause is. Ask them, too.

Many times, they’re working with the customer and you aren’t—they may know something they are too afraid to tell you. This is another reason why you need to keep the lines of communication open. Don’t wait until a crisis to communicate.

Your course shift may be dramatic and drastic, like an entirely new line of business, or it may be more subtle, like a small website change that will, for instance, accept Discover in addition to MasterCard and Visa. It may be as simple as advertising more, or as serious as a lack of demand for your product or service that will continue into the foreseeable future. I highly recommend you write down expansion ideas and new business ideas as you come up with them throughout your years as a business owner, and now is the time to crack open that book.

Should you need to downsize or rightsize, chances are whatever you choose will be difficult because your team may feel like family. This is often the case with small businesses or individuals you have mentored, especially if you have done so on a personal level. I can say that in all my years as a senior leader in Corporate America and a business owner, the hardest decisions I have had to make were along these lines. The key is to be candid, open, and honest. The following is an example of what not to do, a real story that occurred within an organization I worked for, IPC Communications in California (headquartered in Michigan).

Our plant focused primarily on fulfillment and CD/DVD replication, while the headquarters in Michigan was mostly a print house. The print consumers wanted DVDs and CDs, which created the need for our division. Many of these were customers like Apple and Microsoft and were located in California, which I understand is the reason our division was located on the left coast. From my first day, I could feel the tensions between the two locations and between the staff members. Rather than bringing the teams together, senior leaders in Michigan stuck up for only their people in Michigan. As our division’s profits tanked due to corporate’s pricing strategy and lack of leadership, rather than bringing in support from Michigan, they had a plan to shut down our facility. We all felt it; it was “in the air,” so to speak. But no one discussed it except those in our own plant.

We had very tight security; we replicated CDs for big companies that had a high degree of theft for product serial codes, and so on. We had a huge warehouse with stored product that we “kitted” and assembled for big companies like Toshiba.

Every day we went through airportlike security—including going to lunch. One day, while walking into the building (note we had no prior warning at all), we noticed there were seven guards instead of the usual one or two. Next to the guards and lining the hallways were boxes! You do the math—if you worked there, what would you do? As senior leaders, we were all instructed by the presi­dent, who visited a couple of times a year at most, to organize our teams into conference rooms at specific times—those who would keep their jobs for 30 days in one room, 60 days in another, those asked to help shut down the plant and incentivized with bonuses in yet another. Everyone knew what was going on, and the management from Michigan still waited until the end of the day. People sat in rooms waiting for the axe to fall, trying to figure out why they were separated, realizing it was by time left with the company—just not knowing how much time.

The job market wasn’t so great for IT workers, which was the group I led. I did my best to persuade the president to keep my staff on as long as possible, but they fired the people who ran the customer-facing software first (and subsequently had to rehire them back with contracts at five to six times their salary when sys­tems didn’t work and they had no choice but to pay up or be nonoperational). As leaders, we were required to help people pack their things and make sure nothing disappeared out of the warehouse on their way out. Some people were walking around hallways crying and hugging; even HR was devastated. Others were just ticked. We all went our separate ways; many went to my next organization when I was able to hire back a lot of my previous staff. My direct boss at the time hired most of the rest of the team at his company, so most fared okay. But morale? And trust in Corporate America? They suffered forever. In fact, most of us became entrepreneurs within 10 years, and we will never fire ourselves in the manner we were treated—without dignity or trust.

Source: Babb Danielle (2009), The Accidental Startup: How to Realize Your True Potential by Becoming Your Own Boss. Alpha.

In Chapter 4, on starting your business, we discussed a bit about creating a DBA and getting your name filed. We will expand a bit in this section on what to do if the name you want is taken, how to check to be sure you are following all the rules, and where to go for help.

1. Naming

Hopefully by now you have selected a business name. The only requirement for a sole proprietorship is that the name not be taken in your county. However, if you have the exact name as another business in another part of the country, you could still run into legal trouble; particularly if you start to expand into other parts of the nation.

So how do you figure out which names are legally taken and which names are legally open? Turn again to the Internet for the start of your search, but also realize that if you are ever going to go national, you will likely have to pay for a name and trademark search, as the amount of hours it takes to search the coun­try is astronomical. There are services that will take care of this for you, for a fee.

To search within your county, simply look up your county online. Once you have your county’s official website pulled up, type into the search bar “business name” to quickly find the section of their site that allows for the searching of current DBAs that have been issued.

Another method you could use is, using your preferred search engine, search for “<name of county> AND <the business name you want>” and/or “<name of county> AND ‘doing business as’,” which should bring up, within the top search results, the page associated with your county’s listing of current and past DBAs. If you want to see if the company is listed nationally, you can do a general Google search with the name in quotation marks.

Ok, so you want to go national, or the possibility is there for you to go national (or international?) in the future. You will need to search the entire United States to see if anyone already has the name you have in mind. As I stated earlier, it is a daunting and near impossible task for you to undertake on your own. This is where business name/identity search and verification services come in. A quick Google search just revealed 72 million results for “business name search.” That’s right—72 million! Searching for “business name search service” comes back with 68 million results.

A website I mentioned earlier, LegalZoom.com, is one of the best known sites that I can recommend. It provides both a nationwide search as well as the regis­tration of your chosen name, should it be available. They will also offer recom­mendations of similar business names that are available for registration if your original choice is already taken.

If the name you want is taken, try to think of a modification that would still suit the business but not break copyright laws. For instance, changing from Inc. to Corp. may be sufficient. Note, however, that some jurisdictions, such as the State of California, do not count words like “A,” “The,” “Corp.,” “Incorporated,” etc., as part of the business name, so the addition or removal of these will not change the result if the name you had your heart set on is already taken. Due to many governing bodies following this same method, some entrepreneurs choose to add words to the name to really distinguish it from others.

2. Copyrights

Before you sell anything, apply a graphic to your website, add a company motto—you name it—you need to be sure that someone else doesn’t own it!

If they do, you could be liable for any damages done to that company and its reputation or business, and you will have to handle numerous attorneys’ fees and the costs of changing your business name—not to mention the detriment to your own business when you have to make changes down the line. Protect your name completely. How do you do that?

According to LegalZoom.com, “Copyright does not protect names, titles, slogans, or short phrases. In some cases, these things may be protected as trade­marks.” Under these circumstances, a trademark is what you (and your business) will need. LegalZoom.com continues, “However, copyright protection may be appropriate for logo art work that contains sufficient authorship. In some cir­cumstances, an artistic logo may also be protected as a trademark.” (LegalZoom, 2008)

3. Business Structure

You already know the official structure—corporation, sole proprietorship, part­nership, and so on. But what about the business model? Will you be an online or on-the-ground company? Will you be a hybrid? Will you have a store along Main Street, U.S.A., but also sell on eBay or Craigslist?

What about your management model? Will you have all people reporting to you? Will you hire managers as time goes on, or in the beginning? Will you hire professionals for advertising and marketing, or anything you aren’t particularly good at, or will you do it all yourself? Will you have a matrix style management style? A top-down management style? Let’s review these two, to get you started.

Matrix management style: The matrix management style is where an indi­vidual (the employee) has two supervisors or bosses to report to, one being a functional boss and the other being an operational boss. This can sometimes lead to staff confusion, as employees aren’t sure who to report to or have a dif­ferent boss for different projects. This management style works best with those who can operate well under ambiguous rules but not so well for people who like structure.

Top-down management style: The easiest explanation of the top-down man­agement system that I have found to date was written by Jyothi M. John in his article “Top-Down Management Versus Bottom-Up Management.” In it, he simply defines the top-down management style as “a management structure in which the managers are appointed directly, with or without relevant experience but with the necessary qualification.” In top-down management styles, direction and strategy is pushed from the highest level of the organization down to the lowest. In bottom-up organizations, management tries to get input from all levels of the organization before making any decisions. You will find most companies to be top-down. As an entrepreneur, particularly in a new business, you probably won’t want your employees deciding where your company goes! You may, how­ever, want their input before implementing a new system.

4. Fictitious Business Name Statements

In Chapter 9, we talked about how to get and file an FBN. What do you do, though, if your name isn’t taken locally but you want to expand nationally? Your FBN does not protect you. So how do you protect your name nationwide? It varies greatly by many things, including who had the name first, who can show it is essential to their business, who is willing to relinquish rights and name, if it’s available for sale, who has imminent domain over a name, and if a person has expanded a business. It also varies greatly by the jurisdiction, court, county, and so on.

5. State-by-State Issues

The big issue when expanding from one state to another is going to be your busi­ness name. What if you are moving from one state to another, and come to find out that someone in the city you just purchased a home in already has an estab­lished business and is using the same business name that you are currently using? Who gets the right of use for that name, once you move into town? Which one of you gets to continue business under the same identity that you have been pre­viously? All good questions, although the answer may not be to your liking (or in your favor).

Let me preface this section by letting you know that there are actually a couple of ways this could go. I will briefly discuss each one.

If you are moving to a new state and there is already an established business under the same name that your current business has, the general rule is whoever had the name first gets to continue using it. You could, of course, get around this by buying the other guy out (if the business type was the same) and acquiring his business. You could take him to court and see what a judge has to say on the matter, although the judge will usually find in favor of the owner with the longest use of the name, which is usually considered to be imminent domain over the name itself.

There are other aspects that are taken into consideration as well, such as com­pany size, customer base, notability, and “recognizability,” etc. An example of the premise of these issues would be if you owned a fast-food restaurant named McDonald’s that has been in your family for 100 years, you would most likely still not win if you went up against McDonald’s. They are more widely recog­nized, have a larger demographic, etc. The overall thought behind using these criteria is that the business that would suffer the most from losing its name gets to keep the name. If both businesses make out to suffer an equally negative impact, it will likely come down to tenure.

On a positive note, if you are moving, you could always change your business name, or the spelling of your business name. This would allow for both you and “Business B” to coexist without any of the aforementioned hassles. If you are not moving to another area, and are expanding your business, you will likely fall into one of the scenarios I just detailed.

6. Where to Go for Help

If you get stuck with all of these difficult decisions, you need to go to specific attorneys for help. There are patent and trademark attorneys that the SBA can refer you to, or you can ask others for counsel on who they use. You can also do a search online, but you run the risk of getting the attorney paying the most for advertising, and not necessarily the one that does the best job.

Source: Babb Danielle (2009), The Accidental Startup: How to Realize Your True Potential by Becoming Your Own Boss. Alpha.

1. Deciding If You Need to Hire

In your first year, you may grow rapidly and feel the need to hire as you get more and more overwhelmed. Remember that there are many costs associated with hiring, so while it feels like the business is growing rapidly and you’re buried in work, this may need to remain the case for awhile. If you truly cannot do the job, consider a part time assistant until you can afford one full time, or consider a contractor. Remember that if you hire an employee you will have a new set of headaches: payroll taxes, deductions, and so on. While many larger banks now handle payroll for you online (and many small business software products do too), it is still a new area to research and understand. In general, if you cannot serve your customers without hiring, it’s time to bite the proverbial bullet.

Be sure you hire the right type of person, too. Personality does matter! If someone is answering the phones, you don’t want someone with a poor “bedside manner” and a grumpy voice representing your business. It reflects on you.

Remember that, regardless of how close you get with your team, you are still the boss. You must always act like one or risk losing control of your business.

Try to figure out what people are good at, too, and then hire them for appropri­ate jobs. If someone hates a portion of her job, she may just have to deal with it if you don’t have the funds to hire another person. Explain this to the employee; most of us don’t like some aspect of our job. That is life.

1.1. Costs

Among the costs of hiring include payroll taxes and, of course, the salary or hourly wage that you are paying to your employees. Deciding what to pay can be tough, but salary should be commensurate with value add, how much you can afford (you may not be able to afford the best right now), education level, experi­ence, prior job experience, and number of hours required by the employee.

Other costs may include: healthcare, uniform costs (if applicable), payroll service costs (if you don’t want to deal with calculating payroll yourself), the cost of training new employees (both in training materials as well as time spent), addi­tional insurance needed to cover your employees in the case of an accident or injury while on the job, etc.

1.2. Benefits

Of course, there are many benefits to hiring employees, too: delegating some of the busy work, expanding your business more rapidly, feeling that great sense of progress, feeling as though your business is a true business now, supplying a job for another human being (a great sense of pride for many of us), having some­one to bounce ideas off, and gaining a feeling of camaraderie (particularly if you
have been working alone for some time). Unfortunately, no one will ever care about your business as much as you do, but you can find people that care enough to get close.

1.3. Amount of Work Initially

Be sure you give responsibility commensurate with what you’ve seen an indi­vidual be able to perform. It might be a great feeling to dump lots of work on your new colleagues, but a bad move on their part can be highly detrimental to your business. Dole out responsibility based on capability and a proven record, not because you don’t want to do it. Be sure that you train employees thoroughly, and give them only what they can handle initially.

1.4. Growth Rate

Look carefully at your growth rate; don’t over hire and don’t under hire. You don’t want to have to hire under the gun when you badly need someone or risk making a bad hiring decision that will cost you in many ways. At the same time, hiring too prematurely can cause incredible financial distress and can make you feel resentful toward that team member—which is unfair to you both.

A general rule of thumb to go by is that if you have the time and energy to do the work yourself, you don’t need another employee (unless you can financially afford to hire someone to allow yourself additional “you time”). If you are finding yourself having to constantly carry over tasks to tomorrow and the next day, chances are it’s time to take a look at your finances and determine what you can afford to pay someone, as you are in the position to take on an employee.

2. Hiring Basics

You want to hire the right people—after all, they represent you and your com­pany! Like many of us, you may be used to interviewing for jobs at a company you don’t own, and suddenly you find yourself being hypersensitive to answers you hadn’t thought twice about in the past, because now it is your company. This is okay and normal! You will want to be sure to do a complete background check of possible employees, and in some states and counties it is legal to do a credit check, too. A credit check might help indicate the level of responsibility that an individual has taken in his or her personal life, and could potentially be an indication of how he or she will treat your business. I hire a lot based on instinct and always have. It hasn’t let me down; but your instinct needs to be based on experiences.

2.1. Skill Sets

Determine and write down what skill sets are absolutely essential, which are nice to have, and which are icing on the cake. Then assess those strengths in each candidate, first by screening resumes and then by interviewing. You must align skill sets and the individual’s desire to do a job with your needs.

2.2. Time

You may have found the perfect candidate with an excellent skill set and educa­tion, but she wants to work part time and you need full time. She must leave at 4 P.M. to pick up a child, but you need someone to cover evenings. This isn’t a good fit. Time must be assessed as part of your interviewing process.

2.3. What You Offer Versus What They Need—’Iife” Fit

Find out what prospective employees want in a job. Is it just a job? Do they want a place to grow? Do they prefer environments and managers that let them run with things, or do they prefer a set direction and set list of tasks? Be sure that what makes them happy and what you need is aligned.

2.4. Personality

I made mention earlier in this chapter of someone with bad phone manners (and who may not even realize it!) taking a job where he or she needed to answer phones. But there are numerous other areas where personality plays a role. The mood of one upset or generally irritated person can upset the entire office and make for what we call a hostile environment. If you want a happy place to work, hire happy people. If you need intense seriousness, hire intense, serious people.

2.5. Dedication

Be sure that the individual has the time and interest to dedicate to your business what you truly need. If they don’t, you need to move on.

3. Contractors Versus Employees

When you first hire (particularly in the first couple of years), it’s a good feeling to know you have a team. It makes you feel somehow legitimized as a business owner. But contractors may actually be the way to go. There are rules, though, based on IRS tax regulations, for contractors.

Did you know that under the common law, a worker is an employee if the hiring firm (that is, the person or persons for whom services are performed) has the right to control and direct the way he or she works, not only with regard to the final result, but also with regard to the details of when, where, and how the work is done? This is important because you don’t want to get into trouble with the IRS.

According to Uncle Sam, it is not necessary that the employer actually directs or controls the manner in which the services are performed; it is sufficient if the employer has the right to do so.

The IRS now investigates the status of independent contractors in all business audits they conduct. The burden of proof is always on the hiring firm to dem­onstrate unequivocally that an independent contractor is not their employee. (IRS.gov)

There are two resources for this section that are very important for you to use:

The first is a summary of legal issues related to the hiring of independent contractors: “Independent Contractors: A Manager’s Guide and Audit Reference,” published by the California Chamber of Commerce, PO Box 1736, Sacramento, CA 95812-1736, 916-444-6670.

The second is a resource when considering hiring independent contrac­tors: “The Employer’s Legal Guide,” by Stephen Fishman, published by Nolo Press, 1997. An in-depth and comprehensive discussion of employee vs. independent contractor legal issues is available online at Fenwick &

West: Publications.

The pros to bringing on help in the form of contractors include:

• No costs of benefits.
• No responsibility to continue contracting with them if you cannot afford it (though in at-will states, this isn’t an issue anyway because employers and employees can sever their contract at any time without cause).
• The ability to cut back or increase hours easily (of course, you risk losing the contractor if he or she is unhappy).

The cons are as follows:

• Many contractors though don’t feel as settled or as loyal to a company if they are not “real employees.” Since the IRS requires you not treat a con­tractor like an employee, contractors often report feeling like outsiders, particularly in mid- to large-sized businesses.
• There is little control you can take with a true independent contractor.

If you even mandate a single hour that a person must be in the office, the IRS can consider him an employee. If you tell contractors when a task needs to be completed, how it needs to be completed, when they need

to start, or pretty much anything for that matter, they are no longer an independent contractor and are officially (according to the IRS and many state legal systems) employees.

Source: Babb Danielle (2009), The Accidental Startup: How to Realize Your True Potential by Becoming Your Own Boss. Alpha.