ENTREPRENEURSHIP: Keys to Starting a Business Dr. Edwin Cottrell Entrepreneurial Leadership Center Fall 2009 - Speaker Series
ENTREPRENEURSHIP: Keys to Starting a Business Dr. Edwin Cottrell Entrepreneurial Leadership Center Fall 2009 - Speaker Series
Deciding whether or not to start a new business can be one of the most difficult decisions a person faces in life. The consequences are widespread, the impact is deep, and the required commitment is immeasurable. People arrive at this crossroad from various points. Some people seem to be “born entrepreneurs.” These are the people who as youngsters ran the lemonade stand, delivered newspapers, baby-sat the neighborhood children, or cut the neighbors’ lawns.
The desire to be their own boss or control their own destiny seems to be in their blood, and no one is surprised when they drop out of college because their side business has become so prosperous. Other people arrive at the crossroad less out of their own choosing. An existing employment situation may have become intolerable, or the employer may be downsizing, rightsizing, or simply going under.
Lifestyle entrepreneurs
There is also a new breed of entrepreneurs, called lifestyle entrepreneurs. Lifestyle entrepreneurs may include early retirees or others with strong philanthropic or personal objectives that seek entrepreneurship as a strategy for obtaining multiple goals. Thus, the time has come. A decision must be made: jump back in the rat race or strike out on your own. It’s a tough choice, but many people face it every day. In the first section of this guidebook, a series of issues will be presented that will aid in this important decision making process. Persons who complete this initial assessment will be more confident about their final decision. Entrepreneurship is not for everyone.
Success depends not only on personal ambitions and means, but also on external factors beyond a person’s realm of control. Therefore, a thorough analysis of the internal factors will help to minimize the risks inherent in this decision. These internal factors (personal strengths and weaknesses) can then be compared to the typical expectations of an entrepreneur forcing a Go/No Go decision.
Do your feasibility study of the business
If a Go decision is reached, the next step is to examine the feasibility of the proposed business. The business feasibility determination is based on whether or not the business can meet the entrepreneur’s short-term and long-term goals. An honest evaluation of aptitudes and attitudes will help determine whether or not entrepreneurship is an appropriate career move.
Sometimes the risks simply outweigh the rewards, and it is important to make this determination prior to cashing in the 401k, diluting the kids’ college funds, or maxing out a few credit cards. Below is a series of questions from various sources worthy of serious consideration. There are no right or wrong answers and no scoring. The only requirement is sincerity resulting from a balance of logical thinking and gut feelings. Recording the responses is recommended, in order to compare this personal reflection to the expectations of an entrepreneur.
QUESTIONS TO ANSWER BEFORE STARTING A BUSINESS
1. Are you courageous? Do you have a tendency to take calculated risks?
2. Are you self-motivated? Are you self-confident?
3. Do you have thick skin?
4. Can you accept advice from others?
5. Do you enjoy competition?
6. How well do you manage money?
7. Are you able to make plans? Do you carry out your plans? Do you do so in a timely manner? How well do you make decisions?
8. Do you prefer to be in charge?
9. Do you have pertinent industry experience or transferable skills?
10. How would you rate your personal skills in the following areas: Oral presentations?
11. Written communications? Computer skills? Word processing and other relevant software? Organizational skills?
12. How would you rate your business skills in the following areas: Sales and marketing? Financial planning? Accounting? Administrative? Personnel? General management?
13. What do you want to achieve through owning a business?
14. What are your personal goals? Financial goals? Service goals?
15. How well do you adapt to changing conditions? n Do you mind working long hours for six or seven days per week and possibly holidays?
16. Do you have the emotional and conceivable financial support of your family in this endeavor?
17. Would you mind lowering your standard of living for several months or even years? Are you prepared to lose your savings?
18. Do you have the physical endurance to handle owning and running a new business?
19. Do you have the emotional fortitude to handle the stress of owning and running a new business? Can you persevere? Do you have will power and self-discipline?
20. Do you work well alone?
21. How well do you work with and manage others? n Do you have the ability to devise new and innovative ways of doing things?
Considerable research has been conducted to define the personality of an entrepreneur. A family history of entrepreneurship, educational attainment, propensity for risk taking, and optimism are but a few of the characteristics that have been examined. While there are some central tendencies, there does not appear to be a specific formula for success.
And, in fact, many business experts agree that sometimes all it takes is a little bit of luck to instigate success. The following list presents some points to consider. It is important to bear in mind that possession of all of these traits does not guarantee a successful business venture, nor does the absence of one or two traits indicate certain failure. Are you able to use defeats and obstacles constructively by turning them into useful lessons for the future?
Critical Success Factors for New Business Owners
Ø Willingness to Sacrifice
Ø Strong Interpersonal Skills
Ø Strong Leadership Skills
Ø Strong Organizational Skills
Ø Intelligence/Common Sense
Ø Management Ability
Ø Business Experience Ø Optimism
When comparing the internal assessment to the expectations of an entrepreneur, some patterns begin to form. The decision may not be completely self-evident at first. Other factors not included here could influence the Go/No-Go decision and should be considered as well.
Also, you should examine the situation from both sides: Do you have the skills, traits, and assets to own and operate a business? And does the business concept capitalize on your abilities and ambitions? Just like pieces of a puzzle, the characteristics of the potential owner and the critical success factors of the business should mesh well. Take all of this into account when making your final decision.
What specific goals are you seeking?
Once you have determined that you have what it takes to own and operate a new business, you must examine the business itself. What specific goals are you seeking? Will this business venture enable you to reach them? In other words, why is this business concept under consideration and what do you hope to gain from it? Fame?
Fortune? Happiness? All of the above? By setting some broad short-term and long-term goals for the business, you can begin a rough analysis of the business concept. These goals should be realistic and measurable within a specific period of time.
Experts often suggest that short-term goals are beneficial for psychological reasons, since revenues usually lag efforts and profits lag revenues. Some examples of short-term goals might include obtaining proper permits or licenses, purchasing equipment or inventory, and registering a domain name. Long-term business goals might include revenue or profit levels, recognition as an industry leader, and the eventual sale of the business. Long-term personal goals might include flexible scheduling, professional development, and adequately providing for one’s family.
These goals form the building blocks for a business plan that will outline the structure and operations of the business. With these goals in mind, one can conduct a feasibility study of the business concept. There are two main components to a feasibility study: the marketing feasibility and the financial feasibility.
The marketing feasibility determines whether or not there is sufficient demand for your products or services. Is it a good idea? At this time? In this place? For this price? The financial feasibility determines whether or not there is profit potential with this business concept. Will projected sales cover your projected expenses? And if so, when? Will this margin be enough for you to make a living?
Marketing feasibility
Of the three tests for new business feasibility (marketing, financial, and technical), marketing feasibility is arguably considered the most critical test. If there is no market demand, then there is no point in evaluating the financial or technical feasibility.
If there is a market of substantial volume, then the financial feasibility and technical feasibility need to be carefully examined to determine if this market can be profitably served. There are three main questions, the answers to which determine marketing feasibility:
n Who makes up the target market and how large is the potential customer base?
n Who are the competitors and how does your product/service compare to theirs?
n How much of the market can you expect to capture? By researching the target market, analyzing the competition, and determining appropriate product positioning, you will be well on the way to developing a marketing strategy. All of this information will help you estimate the potential sales of your new business.
The potential sales figures will be used in developing your projected financial statements. SECONDARY MARKET RESEARCH Secondary market research can be helpful when analyzing a broad issue or topic. The U.S. Census Bureau is one of the most popular sources of secondary data.
Many secondary market research studies and publications are available through the Internet; however, some directories and indexes are available in print only and can be found at most public libraries. Included in this chapter are two instructional tables outlining secondary sources of information for industry profiles and for specific firms (competitors).
PRIMARY MARKET RESEARCH
Primary market research is undertaken with a particular objective in mind. Data is gathered either by someone who has been hired to collect information or by you. Primary data collection can be as formal as mail surveys, telephone interviews, or focus groups or as informal as directly observing shopping habits and spending patterns. Some examples of primary research activities might include:
n looking at a competitor’s advertisements to see what a store is charging for products
n observing license tags of cars in the competition’s parking lot (to identify from what counties customers are coming)
n interviewing business owners that operate similar stores
n mystery shopping (entering a retail establishment as a customer to learn as much as possible about the business
If a survey is called for, then you must decide what you need to know, whom should be surveyed, how many people to survey, and the best way to reach your targeted participants. A questionnaire should cover interest and need for the product or service; demographic and lifestyle information about the prospective customer; the best way to reach the target market when advertising; where customers shop or who they buy from; and acceptable prices for your proposed product or service.
One cannot assume that a business will succeed without determining who comprises the target market and whether or not this market is of sufficient size to generate the sales needed to sustain the business. It will be a waste of time and money to simply assume there is a huge, eager market for the business and then try to market your product or service to everybody.
Determining whether or not a sufficient market exists for your new business and gaining the most benefit from your marketing efforts requires segmenting your market of potential buyers. There are several methods of segmentation from which to choose, and the choice may vary according to the product or service being sold and whether the buyers are individual consumers or other businesses (“business to business” sales, abbreviated “B2B”).
The most common methods are based on customer purchase behavior or product usage. Some initial market research will help any entrepreneur determine which segmentation variables have the most impact on purchase behavior and/or product usage and ultimately which segments are the most lucrative for a particular business
Marketing Tools
1. Product - The product is the tangible object that is marketed to the target market for consumer goods, retail, and business-to business companies. For service businesses, the product is a future benefit or future promise.
2. Branding - Branding is the naming of the product, service, or company. A brand or name is the label that consumers associate with your product. For this reason, a brand or name should help communicate the product’s positioning and its inherent drama for the consumer.
3. Packaging - For manufacturers, packaging holds and protects the product and assists in communicating the product’s attributes and image. For retailers and service firms, packaging is the inside and outside environment that houses and dispenses the product/services (stores, offices, etc.) and it helps communicate the company’s attributes and image.
4. Pricing - Price is the monetary value of the product. The monetary value is usually governed by what the target market or buyer will pay for the product and what the seller or company must receive for the product in order to defray costs and generate a profit.
5. Personal Selling/Service - Personal selling for retail and service firms, often referred to as “operations,” involves all functions related to selling and service in the store, office, or other environment, such as door-to-door solicitation, in-home selling, and telemarketing. This includes hiring and managing sales personnel, stocking inventory, preparing the product for sale, presenting and maintaining the facility, and follow-up service to the customers. For business-to-business and package goods firms, personal selling relates to the manufacturers’ selling and servicing of its products to the trade and/or intermediate markets (various buyers of the product within the distribution channel from original producer to ultimate user). [Editor’s note: Internet sales (also known as e-commerce) are included in this category as well.
6. Distribution - We define distribution as the transmission of goods and services from the producer or seller to the user. Distribution must ensure that products are accessible to the target market(s).
7. Promotion/Events - Promotion provides added incentive, encouraging the target market to perform some incremental behavior. The incremental behavior results in either increased short-term sales and/or an association with the product (e.g., product usage or an event-oriented experience). In addition, promotion is more short term in focus.
8. Advertising Message - Communication which informs and persuades through paid media (television, radio, magazine, newspaper, outdoor, and direct mail) constitutes the advertising message.
9. Advertising Media - Advertising media are paid carriers of advertising, not at the point of purchase. While the advertising message is what is being communicated, the advertising media is how it is delivered.
10. Merchandising - Merchandising is non-media communication of the company and/or product to the target market. This is the method used to communicate product and promotional information. Merchandising makes a visual and/or written statement about your company through an environment other than paid media, with or without one-on-one personal communication. Merchandising includes brochures, sell sheets, product displays, video presentations, banners, trade show exhibits shelf talkers, table tents, or any other non-media tools that can be used to communicate product attributes, positioning, pricing, or promotion information.
11. Publicity - Publicity is any non-paid media communication which helps build target market awareness and positively affects attitudes for your product or firm. Publicity provides your firm or product with a benefit not found in any other marketing mix tool. Since publicity utilizes noncommercial communication, it adds a dimension of legitimacy that can’t be found in advertising. You should also be aware that publicity -- editorial space and time for your product -- are only one part of public relations. Public relations deals with creating goodwill for an organization, not just for the short term, but also regarding long-term public opinion issues
Elijah John