Deciding on an Initial Startup Strategy

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.