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.