CHAPTER 3
beat the odds
get it right from the beginning

ONE REASON MANY small-business ventures fail is that the founder isn’t sufficiently compatible with the choice of business. In other words, she finds out—too late—that she doesn’t “love it” as she thought she would. It’s hard to devote 150 percent of your effort to the business if you aren’t passionate about what you are doing.

Once you’ve decided that becoming your own boss is the right option for you, your next step is to determine what type of business venture will suit you best. In the previous chapter I discussed various ways to dip your toe in the water by sampling other business forms; here, I talk about jumping in the deep end of the pool—originating and developing your new business from scratch.

At this stage of the process, people wanting to start a business usually fall into one of three categories: (1) those who already have a business idea and are eager to get going; (2) those who have multiple ideas, but haven’t yet settled on “the one”; and (3) those who want to own a business but have no idea what to do.

Frankly, this last category makes me nervous because immediately I would question the person’s commitment. You’d be amazed at how many people have asked me to tell them what kind of business they should start. No one, including me, is equipped to tell someone else what type of business to get going. I can tell you what industries are hot, or what trends I see, but your choice of business has to be something that is a good fit for you.

For example, my husband once thought about buying an HVAC company, even though he isn’t the handiest guy around the house, and he knew very little about HVAC systems. Nor does he have a burning desire to learn more about them. Could he have been successful operating the HVAC business? Maybe. After all, he’s a smart guy. But he’d never be as successful in the HVAC business as if he had found a business opportunity that used his strengths and was something that he enjoyed learning about and doing. His lack of knowledge—and perhaps more important, his lack of interest—would most likely lead to a disappointing outcome.

So don’t be swayed by how promising a business opportunity may seem to others; the critical factor is whether or not the business is right for you. Taking into account your knowledge base, your interests, and what you enjoy doing will help you beat the odds when you start your business. It has been said that if you love what you do, you’ll never work a day in your life. That’s a situation worth planning for.

Start with Something You Know—or Go for a Test Drive

Sounds obvious, but the best place to begin your entrepreneurial journey is with something you know. If you have a skill or a product that is marketable, then that’s your logical entry point. There is going to be so much you’ll have to learn about running a business that the more you know about the product or service itself, the easier it will be for you.

Many business failures can easily be attributed to a lack of managerial experience and knowledge. However, a lot of people go into business because they want to do something new and exciting. So if your business idea is in an area in which you have little or no experience, try it out first. Volunteer with an organization or company to get some related experience. If there are opportunities available, consider a part-time, or even a full-time, job in the field. A business may look interesting, but once you get involved with it on a day-today basis, you may come to find that you hate it! It’s better to discover that before you invest your time, talent, and resources.

For example, for many people who enjoy cooking and entertaining, owning a restaurant looks like it would be fun. From all outward appearances, the restaurant business seems glamorous—especially when you see the owner of an established venue mixing with the customers, shaking hands, and working the room. Add to that the rise of celebrity chefs, and it makes the business look even more exciting. But the restaurant business is difficult. It requires long hours, including nights, weekends, and holidays. It’s a business in which employee turnover is high and theft is common. Competition is fierce, and the market is fickle. You can be the hot spot one week and find yourself with empty tables the next. Without experience in the restaurant or hospitality industry, you wouldn’t have insight into the behind-the-scenes difficulties that restaurateurs regularly encounter.

By working in and familiarizing yourself with the business or industry you are considering, you can avoid making novice mistakes. For example, a lot of new restaurant owners close their doors quickly because they simply hadn’t planned for the difficulty in hiring and retaining qualified staff. But someone who has restaurant experience, or who has worked in a related business, will be familiar with the high employee turnover and know how to judge good job candidates. In short, there are nuances to every type of business, and as an owner, the more familiar you are with the potential problems, the better equipped you will be to deal with them.

Never rush to judgment when you launch your business. Gather as much information as you can in advance, and don’t be embarrassed or hesitant to ask for assistance from trusted advisers, mentors, or professionals when you need it. I wish I had a dime for every business owner who has ever said “If only I’d known. …”

The bottom line: When you start a new endeavor, there’s a lot you won’t know, so it’s important to bring as much to the party as you can—at least when it comes to the type of business you choose.

Finally, if you lack related business experience, and there’s no opportunity for you to obtain some, consider partnering with someone who is experienced. While a fresh outlook on a business can be a good thing, because it fosters innovative ideas, a seasoned partner can help you avoid the less obvious pitfalls. With your complementary strengths, together you may create the Next Big Thing.

Passion Doesn’t Equal Profit

“If you’re passionate about what you do, you can’t help but succeed.” Oh yes, you can! Yet, there are so many business books and popular speakers who want to feed you this line of B.S. Forget whatever else you’ve read. If you get nothing else from this book, pay close attention to this sentence: Passion is not the singular key to business success. Let me repeat: Passion is not the singular key to business success!

Sure, the passion thing sounds good (and easy), and I’m sure it sells a lot of motivational books, CDs, and seminars. But it’s not the whole enchilada. Believing that passion by itself is the key to business success is like thinking sappy chick flicks reflect real life. Anyone who has built a successful business understands that it requires a lot more than passion.

Don’t get me wrong. Passion is one of the important ingredients for success—in everything you do. It is life’s energy source. Without a high level of enjoyment in the work you do, you won’t have the energy and the drive you need to get you over the inevitable hurdles you will face in your new business. Furthermore, when you love something and are passionate about it, it’s easier to excel.

Think about successful athletes. They practice hours and hours each day, despite aches and pains or inclement weather. Their lives are focused on improving their game so that they can be serious competitors. They have a special talent and passion for the sport, which provides them with the necessary energy, but it is their commitment and dedication to it that set them apart from the rest of us.

The same is true in business. Success depends on practicing the business fundamentals daily: keeping your eye on the goal, being willing to be coached, and maintaining a strong, committed work ethic. There are lots of passionate people in the world who never achieve their goals. That’s because building a business is plain old hard work! And if you don’t have the discipline to get up and go after it every single day, then you’re not going to be successful. After all, if it were that easy, every new business would be a success.

The Best Business Idea Starts with a Problem

Show me a problem, and I’ll show you a business opportunity. Starting a business that’s the same-old, same-old stuff makes it tough to capture people’s attention. “Me too” business ideas rarely become great businesses. The businesses most likely to take off are created by entrepreneurs who see a need in the market that isn’t currently being met, and who figure out a way to meet that need. Now, that might mean inventing a new product, creating a new industry, or simply figuring out a better way to provide a service or bring a product to market.

Belts to the Rescue

Former social worker turned inventor Talia Goldfarb needed a belt to hold her potty-training son’s pants up when he wasn’t wearing a diaper—one that he could easily manage on his own. After her sister and she searched everywhere to no avail, they decided to create one on their own. The result: Myself Belts. A cleverly designed belt that snaps around one of the kid’s belt loops and uses Velcro as a fastener. Goldfarb told me she couldn’t believe no one else had thought of the idea because it was so simple. Myself Belts are now in more than 700 stores around the world, and they are available on the Internet, where the founders say they do the majority of their business.

A Trans-Mission

A successful entrepreneur sees a market opportunity and creates an entirely new type of business. Anthony Martino recognized that eventually most cars would need transmission repair or replacement. And while car dealerships and gas stations focused on selling cars and gasoline, respectively, he realized that no one was focusing on transmissions—so he launched AAMCO Transmission Services. His franchise became the world’s largest transmission specialists.

Shoes on Demand

You are probably familiar with the popular Internet shoe site Zappos. Founder Nick Swinmurn certainly didn’t invent shoes—or the Internet. He simply changed the way people purchase shoes. Frustrated with department-store offerings and unable to find his favorite boot in the right size and color, Swinmurn developed an idea. Instead of hoofing it all over the place, why not create an online megastore that would offer shoes in all styles, colors, and sizes? For busy and frustrated customers like himself, he provided something a traditional retail store could not offer—a virtually stress-free environment in which to shop for shoes.

From Dimes to Dollars

Sam Walton approached the Ben Franklin dime-store chain in the early ’60s about his idea of establishing discount business operations. He recognized a unique market need, but Ben Franklin’s management didn’t. So, instead of working with the chain, Walton struck out on his own, and he opened his first Wal-Mart store on July 2, 1962, in Rogers, Arkansas. When was the last time you shopped in a Ben Franklin store? I bet there’s a Wal-Mart within a couple of miles of where you live. Sam Walton didn’t copy and compete; instead, he changed the nature of the business forever.

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So think about your business concept in terms of solving a market problem. Where is there a gap between what customers want and what is being delivered to them? In investment circles, this is called the market pain. What’s the pain? What’s the problem that isn’t being solved? And what’s your solution?

Let me share a personal example. When I was a full-time broadcast journalist, I used to pitch small-business stories to my news director. Typically, my ideas fell on deaf ears. Those in mass media, particularly electronic media, didn’t grasp the size of the audience for small-business features—and that it was a rapidly growing market segment. After I purchased the domain SBTV.com—small-business television—from an existing website owner, it became clear to me that I could create an electronic mass medium to serve the needs of the small-business market.

At first, we considered launching a cable network, but the funding required was beyond our reach. Furthermore, my partners and I believed that, in the near future, consumers would dictate how, when, and where they would access media resources. It wouldn’t matter if you were on cable, traditional broadcast, or the Internet—the lines between the media would blur, and you could watch anything, anywhere, anytime. So we decided to create a broadcast medium on the Internet that focused on news and information for small businesses. An Internet form of CNBC for small business, of sorts. That was in January 2004, and people thought we were nuts. Television on the Internet? It will never work!

When we launched our SBTV.com website, there were other sites providing information for small businesses, but not in a video format. We defined a market need—electronic broadcast media for small business—and we identified a financially feasible way to deliver it to the market.

As you define, refine, evaluate, and develop your business idea, think about how you can deliver a product or service in a unique or different way—a way the market really wants it. How can you stand out from any competition?

Can You Make Money?

My mother was an outstanding businesswoman and entrepreneur. Even as her mind faded with the effects of Alzheimer’s, when I discussed my business with her, she’d take my hand and ask, “But, honey, are you making any money?” Nothing like getting right to the point. You go into business to make money. That’s the bottom line. Even if you invent the world’s greatest mousetrap, if you can’t sell it and make money, it’s not a good business idea.

There’s no sense in going into business if you can’t anticipate making a reasonable profit. Why work as hard as you’ll need to work to build a business if you’re working for pennies? So as your business idea develops, your challenge becomes that of determining whether or not there is an opportunity for your venture to be profitable. At this juncture, it’s premature to dive into an elaborate financial analysis of your business concept, but you should do a preliminary, back-of-the-envelope review to estimate the potential profitability and sustainability of your business idea.

First, is there a market for your product or service? You obviously think there is, but are there enough people who would be interested in buying from you? Second, will those people interested in buying your product or service also be willing to pay enough to allow you to make real money?

For example, consider a woman who enjoys cake decorating, so all her friends encourage her to start her own business. Depending on the complexity of the cake design, each cake she makes will take her from three to eight hours to complete. Suppose the woman decides she wants to charge $10 for each hour of her labor, plus the cost of her supplies; that means one of her low-end cakes would cost at least $40. Depending on the socioeconomic profile of the area in which she lives, she has to determine how many people would be willing to pay $40 for, say, a child’s birthday cake, when, alternatively, they could run to the nearby big-box store and get one for considerably less.

Assuming there is a market for her higher priced cakes, how many can she produce in a day? In a week? Based on this general review, can she generate enough revenue to turn her cake decorating into a viable business? Probably not. Unless she hires other people to increase her volume and can create a process to systematize production of the cakes, her business will remain a microenterprise at best—with minimal profitability. (I’ll talk more about pricing and process later.)

Third, are there other, similar types of businesses already out there? You can learn a lot from researching the competition. You may think you’re the first one to come up with a business concept, but chances are someone else has thought of it, too. If no one else has seen the business concept take off, there may be a reason for it. Obvious issues could be market demand and price. The competitor might have learned that there isn’t enough opportunity out there to build a sustainable, scalable, profitable business.

By example, consider the mobile pet-grooming services. There are lots of them popping up here and there. On the surface, this concept sounds like a reasonably good business idea. However, I called one recently to inquire about fees for grooming my two small dogs. The provider wanted $75 per animal, with a $5 discount for doing both on the same day. Call me a tightwad if you like, but in my hometown market, that’s a ridiculous price. I can drive a couple of miles to a nearby groomer and get it done for less than half that price. So it causes me to question just how large the real market for this service is and how these businesses can reach a comfortable profitability level.

Whatever your idea, you have to look at the number of people who might buy your product—realistically. Let’s say that in your area there are 10,000 potential customers for your product. For your business to be successful, you think you’ll need to sell to 60 percent of these people. But that’s going to be tough, if not impossible. On the other hand, if your business is viable with a 10 percent market share, then your chance of making a decent profit is more realistic.

Prelaunch Market Research

Conducting market research when you’re just thinking about starting a business may sound costly, but there are ways in which you can do it professionally and affordably. And keep in mind that, at this prelaunch stage, market research is more important for you than it is for a big company. Big companies can afford to misjudge the market and experience a flop; you can’t. But you don’t have to invest big bucks in market research to evaluate your business idea. Your biggest investment will be in time and effort.

A simple and logical place to start your research is by bouncing your idea off your friends and family, as long as you realize that they may not always be completely honest with you. Not that they mean to deceive you, but their feedback could easily be biased. Many of your friends will want to be supportive, and they won’t want to pour cold water on your dream. Others may have a hidden agenda, causing them to discourage you unfairly. Some people don’t want to see others they know succeed, so they are quick to put down any new ideas. Or maybe they’re simply negative types who automatically look at the glass as half empty. Because it’s hard to know what someone’s agenda might be, you’ll also need to reach beyond your intimate circle to gain more objective opinions of your business concept.

Identify your target market, and talk to potential customers. You might think everyone would be potentially interested in your product or service, but in reality that’s not going to be the case. So define who will be your most likely customers. Then, ask questions. Find out what they like about the similar products or services that are currently available. Ask open-ended questions so you can see whether there are any unsatisfied needs. Don’t be satisfied with “yes” or “no,” go for the why—and why not—behind their answers. If you identify any unmet needs, that opens the door for you to describe your offering and find out whether they would be interested, if it were available. And, if so, how much would they be willing to pay? Remember, you are going into business to make a profit, so price is critical.

Talk to potential vendors and suppliers. Because they work with businesses similar to what you’re considering, they usually have a good sense of the market environment. Don’t ask or expect them to divulge confidential information, but question them in general terms about what’s currently available and whether or not customer needs appear to be satisfied.

Another research option is to conduct an informal focus group. Invite a number of people you respect to your home, to a restaurant, or to a borrowed conference room. Introduce your business concept and encourage free discussion and feedback. Keep an open mind and listen objectively to the comments being made. You aren’t there to defend, persuade, or convince—just to listen and learn. If you don’t think you can remain neutral during the discussion, you may want to ask someone else to facilitate.

An Alarming Idea

Linda Sosna, inventor of the Tag Alarm, an alarm system for purses, briefcases, and backpacks, added an important feature to her handmade prototype as a result of feedback she got from focus groups. Someone suggested she add a panic button to the electronic device. So before she went into production, she was able to add that safety feature, which enhanced the overall product offering. Today, Sosna sells all over the world via her website, and the product has been featured on QVC. Sosna believes that the added feature enhanced her ability to succeed in the market.

Focus Groups

Sosna was willing to listen to the feedback she received from her focus group; but that isn’t always the case. I was invited to be part of an informal advisory board for a friend who was developing an Internet site for women. The group she put together was impressive, and she made us all feel like VIPs. But it was clear that she didn’t really want to hear our input. What she wanted was to “tell” us what she was going to do, and she wanted us to rubber-stamp it.

Having survived the early stages of an Internet start-up, I recognized the flaws in her business model immediately. Yet when some of us objectively tried to point out the realities of the market and how her failure to understand the nuances involved would be the kiss of death, she clearly didn’t want to hear it. Sadly, she lost a lot of her own money, as well as that of a few other investors. In fact, some of the investors were friends, so she lost the friendships, too. The site never got off the ground. (More about family and friend funding later.)

With a focus group, you have to be prepared to listen to what you might not want to hear, because it could save you money and time in the end. It’s one thing to consider feedback and decide against the recommendations; it’s another to be closed off to even considering others’ suggestions. Don’t waste your time or resources (or anyone else’s time) on conducting a focus group unless you plan to keep an open mind.

To put together a good focus group or advisory board, reach out to a diversified group of individuals. Make a list of some of the people you know who fit into any of the following categories:

• Business owner

• Financial manager

• Successful salesperson

• Technology expert

• Attorney

• Commercial real estate professional

• Marketing expert

• Vendor (related to your industry or business)

• E-commerce expert

• Retail connection

• Human resources professional

• Accountant

Electronic Research Tools

Social media provides unique opportunities to conduct almost realtime focus groups and obtain good feedback. By circulating your idea through social media you can learn a lot about what the market wants. Additionally, some social media sites offer polls, survey tools, and discussion areas where you can engage and measure your market’s interest in your product or service offering. Of course, be careful about revealing proprietary information, as someone could steal your idea. (More about protecting your idea in Chapter 8: “Protecting Your Business, Your Ideas, and Yourself.”)

Online surveys also provide an opportunity to gain insight into the viability of your business idea. A number of companies provide online survey tools, along with templates to assist you in developing a professional survey. Not only can you get a general idea of the market demand for your product or service, but you can also use the survey to develop your marketing strategy and define market opportunities in your business plan. The survey can be sent to your personal database of friends, colleagues, and business associates. And you may be able to ask them to share the survey with people on their business or personal databases, too.

Finally, the college-level marketing or business classes in your area may be willing to conduct a research study for your business as part of a class project. It’s a win-win: The students get the experience and you get the information.

Final Thoughts for a Great Beginning

Defining, refining, and evaluating your business idea not only enhances your opportunity for success but also provides solid information with which you can begin to draft your business plan. The process of analyzing the viability, profitability, and sustainability of your business concept takes time, but it is better to spend this time now than to waste months or years pursuing a business idea that was doomed from the start. Alternatively, with this research in hand, you’ve made a major step forward in reaching your business goals.