Common Myths of Startup

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— 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.

1 thoughts on “Common Myths of Startup

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