Now that we are in what I call The Entrepreneur Economy, having a business (or at least side income) is essential to your financial future. If there is something you are passionate about, you can find a way to make money from it. The beautiful thing about creating a startup business today is you don’t have to figure things out for yourself or “learn the hard way” because experienced and successful people are freely sharing their knowledge on sites like Start and Grow Business, with books, and podcasts. There are also Score advisors and taxpayer funded SBDC resources in most cities. It has never been easier to learn from successful people.
Note: Be sure the people advising you have actual experience and aren’t just rehashing other people’s knowledge.
Surprisingly, many people who reach out for help with their startup are missing some of the key ingredients for creating a viable business. In my view, the minimum requirements for a viable business are it pays the participants a reasonable amount of money for their efforts and it is financially self-sustaining. Whether it is a side business, or one that supports the owners and operators, you need to be able to make money. If you are developing technology, or aspire to massive scale or an IPO, there are differences. Yet the fundamental ingredients which drive the potential for startup success are the same, and they should all be included in your business plan. Here are some of the key ingredients that are frequently missing on initial consultations I’ve had with startups.
Experience In The Industry Your Startup Is In
As the saying goes, “you don’t know what you don’t know.” There are things about every industry that you only become aware of when you are in the business, or have had many, deep conversations with people who have. That is why it is important to have industry experience on your team. If you intend to carve out a niche in an industry, you need to know the rules of engagement well so that everything runs smoothly. If you are trying to change, improve or disrupt an industry, an intimate understanding is required so that you can re-engineer it and effectively persuade people to adopt your new approach. You need to understand the pricing and margin structures, the vendors available to you, what is important to the typical customer, payment terms, the infrastructure available, and so on.
Although it seems basic, this particular piece of common sense is frequently overlooked. If you want to create a successful business in an industry, spend some time working in it to gain an understanding and develop the necessary connections, get help from someone who knows all the right questions to ask, or get mentored by someone who has been successful in it.
Understanding Of The Competition Your Startup Will Face
In the robust online world we live in, it has never been easier to learn about your competition. From the customers they target, to their brand positioning, to the value proposition they offer, to where they get the internet traffic for their website, to which ads are working for them online. It is all there for you to capture, understand, and plan against. The only thing you can’t see is their future plans, but if you study them closely, you can even begin to anticipate those.
Understanding your competitors and how you stack up against them is an essential first step in planning your own business strategy. You need to understand everything you can about the ecosystem you are in, and your competitors are a critical component.
A Compelling Value Proposition For Your Startup That Differentiates You From The Competition
Your potential customers are always asking themselves, “Why Should I Buy From You” and “Why Should I Believe You.” They should buy from you because your product or service is different from the competition in some way that is emotionally relevant to them. Your value proposition is how your product or service is better for me than all of the other choices I have. These choices include all of your competitors’ offerings, doing it myself, and doing nothing to solve the problem.
The answer to the first question can take many forms. It could be price, that you are local, your customer service, convenience, packaging, or any number of things. However, it is essential that your messaging resonates with your target customers better than the competition because a better story will beat a better product or service every time (as long as the story is true). The answer to the second question is your brand position, which starts from your creation story, and is another reason why relevant experience is important. More people have a better sense of the second than the first. Perhaps because answering the first question requires a significant amount of effort.
A Marketing Plan And Budget
I hate to be the one to tell you this, but if you build it they will not come unless you tell them about it in a emotionally compelling manner. Although the internet provides unlimited opportunities for businesses of all types, you still need to get your value proposition in front of your target customers. You need a marketing plan and the money to execute it. Fortunately, online advertising can be very cost-effective if it is carefully targeted. As mentioned above, you can actually study where and how your competitors are attracting potential customers. In addition, Google favors local business – so start out locally, drop into existing traffic streams your customers already inhabit, and test and refine your marketing. Once you have it converting well for a reasonable cost, ramp it up.
A Clear Plan For Generating Revenue
If it is a hobby, understand it is fine to do things you enjoy with your time and you don’t have to talk about it like it’s a business. If you are calling it a business, you need a plan for making money. Who exactly are your customers, what are you going to charge them, how are you going to collect the money, and how you will deliver the product or service consistently are questions requiring clear answers. Recently a team of very nice, bright people reached out for some help with launching their business idea. It was a service business where they would be providing services to both parties in a transaction. They had some funding from family members and savings, but initially had no revenue plan. The didn’t understand that both parties were their customer and would find value in the service, primarily because they didn’t have experience in the industry.
Another client confidently stated that ad revenue would be the income source, and included annual projections in the initial business plan. Unfortunately, exactly how they intended to attract the target viewers and paid advertisers (and a number of other factors) had not yet been developed.
None of this is difficult, it simply takes some knowledge and understanding of what is possible. For example, anyone can take credit card payments on their website or phone. There are tools available to meet nearly all of your startups operational needs. Which leads to the next essential ingredient.
A Solid Understanding Of Actual Costs And Expenses
There is a cost for everything, including your time (and I appreciate you taking the time to read this). For a business to be self-sustaining, it needs to pay you for your time. All of your time, including the administrative or creative stuff that people tend to forget to include. For your business to grow, you will eventually need to pay people to do things for you so you can focus on the things that earn the most for the company. Mileage and tolls are another area often neglected in service businesses. For product-based businesses, the need for master cartons, labels, and the cost of pallet stacking/wrapping are usually not obvious. Most people prefer not to think about bookkeeping and taxes, but they are real expenses that need to be accounted for (couldn’t help the pun). Fortunately, as mentioned, there are tools available to help you minimize costs and grow your business.
A Plan to Systematize Operations So Your Startup Can Grow Profitably (The Ability To Scale)
The reason I frequently say this is the best time in history to start and grow a business, is there are so many tools available to help you. Credit card processing, website development, app development, marketing automation, product development, inventory tracking, manufacturing, logistics, and more have never been easier to get done. This enables you to start a business with very little capital. It also enables you to grow quickly without adding full time headcount or additional investment.
Furthermore, there are other companies who are excellent at doing all of the things that are not part of your compelling value proposition, and they are available to work for you for a reasonable cost. You no longer have to continuously develop “best in class” capabilities in every functional area to stay competitive. In fact, I believe that companies who are “vertically integrated” in this way will become extinct in the next decade. They will be “disrupted” by leaner, more agile businesses who maximize the advantage of these resources and focus their time, attention, and capital on the parts of the business most important to the customer.
Funding Requirements and Sources
Last, but certainly not least is funding. The reason it is so important to plan revenue, costs, and systems is so that you can make sure you will have enough money to get the business off the ground. You need to be clear about the funding required for each stage of your business plan and have the sources lined up. The good news is this is the best time in history to build a business because the barriers and costs of entry are so low. The tools and services available mean you can get started for a minimal amount of money (a few hundred dollars in a personal services business), and with no full-time employees initially.
With a little time and planning, you can set yourself up for startup success. Keep us posted on your progress.
