Entrepreneurship – Chapter 6

Entrepreneurship - Chapter 6
This chapter discusses the types of businesses to start.

6

 

What Type of Business Should You Start?

 

It is often the case that a large percentage of people start businesses for the wrong reasons.  This leads to selecting the wrong business and a greater likelihood of failure.  The wrong reason is strictly doing it for the money only.  You must have an underlying passion for what you are doing.  This passion is the fuel that drives the entrepreneur to get up early in the morning and work until late at night.  Ideally, pick something that you are passion about that also has a large profit potential as well, but think about your passion first.  I would suggest making a list of things that you are passionate about in different columns.  Then, under each of those columns list your passions, list particular businesses or business ideas that would fit each particular passion.  After you are done with that process, then do research and note beside each one of those a profit potential rating on a scale of 0-10.  A column might look like:

Passion measurement

I believe that this will help you more clearly identify what type of business to start.  Loving what you do can go a long way toward producing a happier you.

I believe by sorting your potential business ideas first by passion/love and then looking at the profit potential, you will be closer to moving in the right direction than if you were purely money motivated only.  The problem with doing something for “just” the money is when it is a business that you don’t love.  Often times, later on during the business building process, you will find that you really dislike or actually hate doing the business you are doing.  At that point, even though the money is good (the reason you picked it) your motivation and drive is lower thus your output factor / energy and staying power are low.  Your level of profits will tend to move in lock-step your level of passion, love, and drive.

As you grow to hate your “money only” selected business more and more, your profits become less and less, moving in a downward spiral until you are out of business.  Save yourself from this problem and start something that you are passionate about from the beginning.  No matter what type of business you decide to start, it always carries a fair amount of risk.  Being passionate about your business and loving what you do provides energy to propel you and increases the likelihood of your business succeeding.  A cross section of all businesses from 1999 to the year 2009 gives you a much better overall perspective of just what percentage of businesses are profitable each year in the United States.

% of Profitable Businesses in US
This shows the percentage of profitable businesses.

We see that the businesses with net income range from 53% to 59% with an average of 56% (rounded – actual is 55.72%) from these data.  So your average chance of success (producing a net income) is 56%.  Conversely, you could say that you have between a 41% to 47% chance of losing money (not producing a net income, but a loss) with an average chance of losing money calculated at a 44% (rounded – actual is 44.27%) chance, according to the IRS using actual returns filed for these years.  These data shows figures derived from all businesses, from start-ups to old established and profitable businesses.  The percentage of failure will be higher for start-ups, so these figures given are on the optimistic side, applying to the most skilled people doing start-ups.  Can you now better see why passion and loving what you do give you the edge that puts you on the making-money side of business?  If you start-up a business without this love and passion, you are on the less-likely side of succeeding.

You may have noticed that the trend tends to follow the economic cycles.  Try starting your business during a time when the economy in the U.S. is taking a turn to the upside.  This should increase your chances of success to move with the positive economic trends instead of fighting against them.

Let’s consider something for a moment.  We know from the figures we examined on the chart that there is an overall 56% chance of producing a net income.  Let us consider that the 56% is our end result.  What if we view this end result as we would when calculating the reliability of a complete product by using the reliability of each component in that product?  I believe that if we break-down our business plan, marketing plan, and strategy and view them as subsystems, we can determine a reasonable estimate of what the odds are that we will turn a profit.  In these data just presented, we know that if it is 56% or higher, that is a good thing.  Let’s look at the numbers.

Reliability Test
Reliability test of systems that can be used in business planning.

In this example, you are not even close to your desired 56% or above range.  You would need to go back to each section and rework them until you feel there would be a higher chance of success.

With each part of your plan reworked to give a 90% chance of success, you have now raised your overall business success rate to 65.61%, well above your needed minimum of 56%.

Reliability Test with a higher chance of success.
This shows a higher chance of success.

This is a simple method to estimate whether or not you need to improve critical subsystems in your business start-up.  It may also reveal a business you should not start-up, saving you time, money, and possibly damaged credit.  These are estimates however, subject to your own ability to judge correctly.

This is a difficult thing since it is hard to remain objective about your own business.  You would be well-advised to work on your plan until you get your percentage as high as possible.  Also, the more you simplify your plan, the higher the chances of success you have.  The greater the number of moving parts in your business plan that are dependent upon one another, the higher the likelihood that one or more of those parts will break down and cause the whole system to fail.  This is a situation where “less” really is more.  You should strive to decrease the number of number of parts while increasing the reliability of each one simultaneously.

It is a good idea to get the opinion of a seasoned entrepreneur that you like and trust.  Let him/her rate each subsystem on the scale of 0 to 1 and calculate the total score.  Being accurate with predictions involving start-ups is difficult enough, but being both accurate and objective about your own business is nearly impossible.  This is why the help of a seasoned entrepreneur comes in handy, to be sure.  You will find that being “accurate” about predictions and projections are some of the most difficult things to do as an entrepreneur.  Much is based on judgment that only improves with time and experience.

The Future Landscape of Business

There are many changes taking place in business, not only in the way of technological innovations, but how those innovations reshape consumer buying habits.  Consumer markets become reshaped into sometimes unrecognizable remnants of what they once were.  Think back to the days when Blockbuster video was all the rage; now compare this to instant, on-demand, and often free videos – all while eliminating late fees altogether.  The difference is both disruptive and shocking.

Music is another good example.  You once had to buy an album to acquire one of your favorite songs, unless you were fortunate enough to find it offered as a single.  The prices were higher, the distance, time, and money to purchase the music greater, and the convenience factor was much lower, or non-existent.

As technology improves and international transactions become more seamless, business start-ups are easier to initiate and less expensive, so the barrier for new businesses to enter the market is lowered dramatically.  I have always been a proponent of lowering barriers to entry and less regulation on small business; however this does have some thought provoking and unexpected consequences.  Consider this … the barriers are lowered for start-up businesses to enter markets, to such an extent that a stampede of businesses within certain industry sectors pop up where only limited competition existed before.

Now with a stampede of new businesses in a particular sector resulting from lowered barriers to entry, you have a supply-side imbalance.  In other words, there is far more supply of the product or the service in question than can be consumed in that market sector.  With more supply than demand prices fall, then the competition begins cut-throat tactics to out-compete each other, and soon, all the profitability is removed.

Cut-throat competition, price reductions, and reduced profitability will drive these excess companies out of business, but what if you owned one of those businesses?  What if the barriers to entry were so low that the number of new start-ups exceeded business deaths?  Yes, from a consumer’s perspective it would be price wars and consumer savings nirvana, but a dead-end street for the entrepreneurs starting them.   Tread cautiously and very carefully if the barriers to entry are unusually low as your perspective business may be one to avoid.

What do you do?  You must lean toward having a strong competitive advantage and / or a viable Blue Ocean Strategy.  In their book, Blue Ocean Strategy, authors W. Chan Kim and Renée Mauborgne describe that a Blue Ocean Strategy creates uncontested new market space that makes the competition irrelevant.  These authors have done an excellent job and I would highly recommend that you read their book to gain insight into this remarkably powerful strategy.

In simple terms, it is often vital to have proprietary intellectual property rights such as a provisional patent or an issued patent and / or that you research and structure a Blue Ocean Strategy.  Copycat businesses, even if they are easy to get into, decrease your chances of success.  It takes more thought and creative work on your part to develop a highly profitable business and this trend will grow stronger as we move forward into the future.

Ideas and unique value proposition are greatly needed, but often in short supply.  Your job as the entrepreneur of today is to become highly creative.  It is often said: “go big or go home”.  Today’s entrepreneurs and especially future entrepreneurs will increasingly have the mantra of “get highly creative or go home”.

This approach may seem a bit extreme at first; however, if you want to minimize your downside risk when undertaking a new start-up business, this approach will be best for you.  As you move toward this approach, it is more of a calculated risk, as you move away from this approach toward “Me too” type businesses, it becomes more like gambling.  This is especially true within industries that are very crowded already.

In summary, the marketplace is becoming tougher on businesses with nothing proprietary, absent a durable competitive advantage, and / or without a blue ocean strategy.  It is far easier to work with the flow of the business marketplace current than it is to work against it.  Getting creative puts you in-line to move with the current, thereby lowering your risk while increasing your chances of success.


Hope you enjoyed this Chapter of my book “Entrepreneurship“.  If you’re a dog lover, check out my book German-Husky Dog on Amazon.

German-Husky Dog

Entrepreneurship – Chapter 5 – Business Plans

Entrepreneurship - Chapter 5 - Business Plans
This chapter discusses the value of business plans and more.

5

 

Business Plans

 

Are business plans important? In the U.S. Journal of Small Business Management, Perry (2001) found that planning does reduce the probability of firm failure.  With that said, as practical as this advice sounds, other studies tell a surprisingly different story.  This is particularly true with restaurant start-ups.

We find that voluminous plans are more of a hindrance than a help and we also find that less percentage of restaurants fail than ubiquitously touted but factually inaccurate 95%.  For those of you who wish a more in-depth look, see my case study in the Appendix on restaurant failure.

If you uncover something extremely negative about your proposed business during the planning process, this may persuade you to halt your plans of starting the business entirely.  Deal-breaking discoveries can save you from a business failure, one that may very well cost you an astronomical amount of money.  For example, let’s say you invest 100 hours in writing your business plan.  During this time, you discovered that a state or federal law will soon go into effect and would cause a quick, sure, and sudden business failure, effectively regulating you out of business just as you are getting started.  If you would have lost $250,000 for example, the time invested in working through the business plan formation and the writing process literally saved you $2500 for every hour you invested in writing the business plan.  ($250000/100 hours=$2500).  With that said, this process of business planning can yield surprising results, often to your benefit.  It is just as important to see what not to do as it is to learn what to do.

The amount of information, research, skill, education, experience, and knowledge required to effectively start-up and operate your business may at first seem overwhelming to you.  If the task of merely planning your business is so overwhelming that you cannot get it done, then you may want to give serious thought to whether or not you want to actually start a business.  Operating your business successfully at a profit carries a far greater level of difficulty than merely creating a written business plan.  Often, entrepreneurs start businesses because they have a high level of skill for the technical work involved in the business.  For example, if you are an outstanding computer repair technician, then you might decide to start a business that does computer repair.  As Michael Gerber eloquently explains in The E-Myth Revisited, paraphrased he says, “Just because you can do a certain type of technical work, doesn’t mean you are qualified to run a business that does that technical work.” He is absolutely right.  Doing a particular technical work and running a business that does that work requires far different knowledge and skills.  For example, many doctors are great doctors, but they hire an experienced office manager to run their practice.  If they didn’t, the business itself would suffer and perhaps the quality of care that the patients receive would suffer too.  Remember, being a great Chef doesn’t mean you can run a restaurant!

I believe you should create and write the business plan yourself.  If you have people going into business with you as shareholders or partners, then you should include them in the business plan creation process.  Hiring a professional business plan writer seems like a great idea, but it will short-circuit the research, validation, and critical thinking processes you need to move through prior to starting your business.  I would suggest only hiring a professional to inspect your written business plan and to polish it after you and/or you and your team have created it.  At this point, it is also advisable to hire a CPA to check and correct your financial projections in your plan.  Tell your CPA that you prefer the NPV (Net Present Value) break-even point method be used for your break-even calculations involving cash flow projections.  This is only one of several options for calculating your break-even point for your business, but in my opinion, it is the most respected method and it is very widely used.

The financial part of your business plan is very important.  Anyone that you approach for debt or equity financing will have a keen interest in your financial projections, even more so, your assumptions behind those projections.  Assumptions can be most simply explained as “how did you come up with your cash flow projections and the other numbers in your plan, such as costs, pricing, etc.?”  The assumptions behind your plan will be the basis for a large number of questions raised when speaking with any person, financial institution, or venture capital firm.  Your ability to easily and expertly answer these questions, while appearing knowledgeable and intelligent, will have a major impact on their decision to fund your business or not fund it.

For example, many years ago when I had no University Degrees, I was basically self-educated in business.  I participated in every SBA class I could afford to attend on business, marketing, and any other topic I felt would benefit me in business.  I read every book I could get my hands on, purchased audio programs on business and listened to them repeatedly.  I got out there and took action, noted what worked and what did not, and adjusted my approach and tried again as business texts suggest.  Even with the plethora of self-preparation I did to increase my knowledge, I was still missing major knowledge that could be critical.

Some of these things, I did not even know existed, let alone understand them!  In other words, even though I thought I had a firm grasp on the knowledge I needed, there were still some things that I didn’t know, that I didn’t know.  Here’s one example.  Financial projections are carefully examined by banks and investors.  They are usually savvy in this area and will ask questions to see if you are also savvy enough for them to lend you money or provide equity financing.

One major question could come from the area are the types of cash flow break-even points in your plan.  As of this writing, the subject of NPV (Net Present Value) calculations for break-even points is not usually taught in non-credit business courses, such as SBA (Small Business Administration) or others.  Usually, the only way that you learn about this is at University.  Normally, it is at the third year business undergraduate level within a corporate finance class.  I know you can look up this information on YouTube with a simple search, but how would you know about it in the first-place, and then know enough about it to know it’s important enough to look up?

This is what I mean by the phrase “you don’t know what you don’t know”.  It’s like walking into an unfamiliar house.  You can walk around the house and scan things with your eyes, but there could be hidden / secret rooms built-in and hidden information within those rooms.  The message here is that college or university allows you to dig deeper.  An SBA class, for example, usually is a great introduction to a subject, but you will not learn as much in-depth or the same things you will learn with a more exhaustive / in-depth study, such as you would receive at college or university.

If you have never had this education and a potential investor questions you during your presentation, you better be able to answer their questions.  In this situation, if you have not attended business school to an undergraduate degree level, you may not be able to have a question and answer session with those investors and provide them with well-informed and knowledgeable responses.  Many people say that college does not help you, but there are areas that can only be learned from formal education, as much experience will not teach you things like Accounting 101, Accounting 102, Cost Accounting, Managerial Accounting, Tax Accounting, Statistics and Managerial Statistics, and Corporate Finance.  If you don’t have these classes behind you, you would appear especially aloof to an investor when you don’t know what the investor is asking you about, let alone how to do it.  Sort of like when a male person has their pants zipper undone unknowingly or a lady has her slip accidentally showing, the other person sees it, but you are totally and blissfully unaware of it.  Having shared this knowledge puts you more in the know and less in the dark.  If you do not have this formal education, however, don’t fret.  Using a CPA is an option you may choose instead of acquiring this knowledge yourself at college or university.  Unless you’re very educated in finance or can learn from other sources readily, turn this part over to a financial professional.

I suggest you refer complex financial questions about the financial section of your business plan to your CPA and have him/her present it during your business presentation to answer the investor’s questions.  It will make you look like you know what you are doing and they will have much more confidence in you.  They will see that you recognize your weaknesses and are intelligent enough to hire an expert (CPA) to compensate for that weakness.  They will also have more faith in the validity and accuracy of your calculations.  Valuation of your company is a critical area to get right when presenting to investors, as Shark Tanks Billionaire Kevin O’ Leary relentlessly points out.  Potential investors will probably have a higher comfort level knowing a CPA has prepared the financial section.  Although this is technically an area that has to do with finance rather than accounting, most CPA’s should know how to do this break-even analysis using Net Present Value.  I would ask the CPA before hiring them if he or she knows how to do this part well.  Better still; seek out a CPA who is also a certified financial advisor too.  Many often achieve this designation to attract more clients and improve their practice.

You should also hire an attorney prior to and after the business plan creation.  He or She can advise you of any of the possible legal pitfalls that may be lurking within your seemingly excellent business plan.  As an attorney once told me, “Mark, the law is legal, not logical”.  I have always remembered that and used it as a rule of thumb.  Some of the most seemingly nonsensical things can be at the very core of a legal requirement that you must meet in some way in your business.  Do not fall into the trap of believing that if things make common sense then it must be legal.  This is an illusion.  As the attorney said, being legal does not have be logical or sensible.

As you start your planning process, begin to answer some of these questions in your analysis: 

*What products and services will you offer?

*What demographics describe my target market?

*How large is my target market?

*Is the market that I intend to serve only local or is it regional, national, international, or global?

*Will you produce the product yourself in your own factory, employ contract manufacturing, or purchase an existing product at wholesale to be resold at retail?

*Who will be your suppliers?  Where are they located?  Is there a cost effective method of shipping in-place currently to deliver your product?

*If importing, what are the tariffs, duties, and other fees to be incurred when you purchase your raw materials, finished inventory, or other production supplies or components?

*Do these products I will be importing often get stuck in U.S. Customs for long periods of time before I receive them?

*Will you be exporting products to other countries?  If yes, do you plan on handling the particulars yourself or will you use a freight forwarder?

*Do you truly understand the costs involved in exporting your product, including visits overseas, airfare, hotels, meals, interpreters, and other expenses?

*Do you understand the culture of the country you wish to export to?

*What is the level of corruption in your export country of interest?  How stable are they politically?

*Is it possible to affordably purchase business insurance to help offset some of the risks involved in your export business?

*Do you understand how to negotiate effectively within the context of that country’s culture, social norms, and mores’?

*Do you truly understand the process of exporting and know where to turn for help?

*What is your pricing and promotion structure?  How will you distribute your product?

*What type of promotional strategies will be used in your new business?

*How will you employ advertising, personal selling, PR, and social media?

*Is it possible to effectively reach your target market?

*If you can indeed reach your target market, will your methods be cost effective?

*Do you have a competitive advantage that is robust enough to withstand heavy competition, a rapidly changing marketplace, and time/obsolescence?

*If yes, is your competitive advantage protected by a patent(s), trademark(s), and/or copyrights?

*What legal entity will you decide to form?  A sole proprietorship, partnership, LLC, an “S” Corporation or a “C” Corporation?

*If forming an LLC, what will be your legal tax designation with the IRS?  Single Owner LLC as a disregarded entity, Taxed as a C Corporation, or Taxed as an S Corporation?  You must elect on of these with IRS.  Which one benefits you the most?

*Is there enough demand for your product (or service) that your firm would survive the early years and thrive for many years to come?

*Is your proposed product’s growth trend on the rise, at a level of a mature product, or on a decline phase?

*Will people actually buy your product in large enough numbers to be a thriving and highly profitable business or is it a tiny niche market too small to be worth venturing into?

Whatever it is that’s important to your business, you will have to think about it here and your thinking is your only practice before real dollars start leaving your bank account to fund your business.  This is why it is important to think carefully, ahead of time, before actually starting to conduct business.  After you open your doors the clock and the bank account are both ticking steadily and simultaneously and mistakes cost far more than in the quiet safety of your contemplative thought while working on your business plan.

During the process of thinking through your business plan, you have time to research, cross-check, and verify before you decide if various aspects of your plan are valid or not valid. Before you decide to use them, adjust them, or throw them out altogether.

Often times, I have heard entrepreneurs or would-be entrepreneurs say, “Yes, I have a plan.  It’s all right here”, as they point to their head.  When I asked questions, however, in most cases they really had no plan at all, only vague notions.  As they would answer, it became obvious that they were making much of it up as they went along.  This is not how you want to plan!  I truly believe that the process of preparing at least a general written business plan is very important.  In many cases, the plan does not have to be intricate, but enough that you have a clear outline, strategy, and direction.  It is through this process that you will begin to think clearly, critically, and with enough detail to formulate solid plans that measure up in the real world.

Presenting Your Plan to Investors

Always seek out the advice of an attorney competent in current securities laws prior to soliciting anyone or any firm to raise money for your proposed business.  Securities laws change and in recent years there have been some changes made and they may have been changed even further by the time your read this information.  The SEC (Securities and Exchange Commission) can change your life in undesirable ways, such as large fines and/or jail time, so it is imperative that you seek an attorney’s advice prior to soliciting money for your business.

There are many ways to find angel investors for your business.  There are many services that match the entrepreneur wanting money for business with an angel investor who is looking to invest in your type of business.  One site for finding money for your new business is http://www.gust.com

At the time of this writing, they do not charge entrepreneurs a fee to be listed on the platform.  They only charge the private investor and venture capital firms that subscribe to the service, not the money-seeking entrepreneur.  As of this writing, it looks very professional and well-designed.  You should look into this further if you are raising money for a business venture.

After you’ve consulted with an attorney and begin presenting your written business plan and accompanying oral presentation to private investors or venture capital firms, you are now on the field and in the game.  Don’t let a few rough tackles cause you to walk off the field and sit on the bench, never to play again!  You will indeed experience rejection when you present your plan for business.  It is important to remember that they can’t eat you; all they can do is so “no”.  With each “no” response to your solicitation, make a note of the investor’s objections and reasons for not accepting your proposal to invest in your business.  Look for patterns of the same reasons and objections showing up over and over.  If you see a pattern, you may want to go back to those areas of your plan and rewrite and re-do whatever area they consistently find troubling.  Use this as a learning experience and think of it more as a course correction rather than a slap in the face.  Re-work these areas and try again with other investors.  Once you have your written plan and oral presentation up to professional levels, a good closing ratio should be around 20%.  In other words, if you present to five separate investors then one out of those five, 20%, should invest in your business.

You will have a choice of whom to solicit money from; either private venture capital firms or private investors (often called angels or angel investors).  For most start-ups, one or more angel investors will be a much better choice than a venture capital firm, depending on how much money you are trying to raise.  Also, most venture capital firms like to fund businesses that have gotten past the initial start-up phase, with few exceptions.  They like to see proof of sales, exceptional potential, proprietary attributes such as a strong patent, and a track record of current profitability with strong growth.

It is my belief, based on actual experience raising money for business that the best opportunity to successfully raise money for new start-up businesses exists with angel investors.  Plus, there is less red tape and bureaucracy to maneuver through with angel investors.  If an angel investor likes your plan and your presentation, sometimes they will write you a check immediately, provided that you have your written agreement ready and it is acceptable to them.  This is a breath of fresh air compared to trying to raise money from a bank.  I would personally avoid dealing with a bank for start-up capital like a person with a fear of dentists avoids root canals!  This is especially true in tough economic times, like at the time of this writing.

Once you do form your business, you should start a tiny line of credit with your bank that handles the account for your business.  Start a $500 unsecured line of credit that is in the name of the business.  If you are denied, once you have some cash flow and can afford it, use $500 to establish a secured line of credit for your business against a CD (Certificate of Deposit).  Once you show your bank that you can and do make on-time payments for 6 months to 1 year, meet with the manager and ask them if they would return your $500 CD money (when it matures plus interest) and then let the credit line be unsecured.  Repeat this process and ask for small credit limit increases every six months.  By year two or year three you will have established a very good credit reference in the name of your business, which can be very helpful later on as your business matures and grows larger.  Be very careful using this credit and it will be an asset to your business.  If you are careless, it will be a detriment to your business for a long time to come.  Use it, respect it, and pay it back on-time, always.

As a very young man, long before business school, I was thrown out of every bank in town, turned down cold and then I figured out that banks aren’t going to lend you money for a new start-up business unless you already have an income that exists “other” than your projected income from the business, lots of high quality collateral such as cash, gold, or real estate, and a significant portion of the money from your own funds already invested in the business.  In other words, you have to have money and a source of outside income to even consider raising money (your start-up capital, not the small credit line mentioned above) from a bank, not to mention outstanding credit.  You can avoid all this by approaching angel investors.

When you arrive to present to an investor or group of private investors, make sure you have several copies of an agreement drafted by your attorney physically with you prior to giving your presentation.  Leave lined-blank spaces where you can write in percentages, names, addresses, social security numbers, Tax ID numbers, the city and state where it was agreed upon in, etc.  Make sure that your attorney drafts a legally binding disclaimer so that in the event that the investor loses their money that they cannot sue you for it.  Only in the event of fraud should they be able to sue you for the money they invested (in equity financing, not debt financing), if the attorney does it right.

They should know that the risk of investing in a start-up business is a loss of 100 percent of the capital that they invest.  If they ask you “what’s the worst case scenario?”  Make sure you look them in the eye and tell them “Mr. /Mrs. /Ms./Dr. Last Name, the worst case scenario is that you could lose your money, but as you know that is the risk that you take when you invest in a start-up business”.  Don’t sugar-coat it.  Make sure you don’t guarantee or promise them a sure thing.  If you do, you are headed for a world of legal trouble.  Be blunt and tell them they can lose their money.  If you look them in the eye and tell them that, which they already know to be true anyway, they will often times trust you more and will often be more inclined to invest in your business.  Investors feel comfortable with straight-shooters and run for the hills if they even so much as suspect that you are sugar-coating things to make it sound more attractive in order to get their money.

Also, your attorney will probably mention full-disclosure.  This simply means that you must tell them every fact you know, the good, the bad, and the ugly and you must omit nothing.  This is required by law, as your attorney will explain to you.  The prudent man rule may apply too, so check with your attorney about all these things because laws change often and I am not an attorney and this is not to be taken as legal advice.

For presentation purposes, the most important part of your plan is going to be what is called “The Executive Summary”.  Think of it as cliff notes for your business plan.  It is a summary stating the features, advantages, and benefits of your product and/or service and how and why you think it will make money for everyone involved.  This is the story that will persuade them to invest.  The next most important part of the plan is what is known as “The Assumptions Section”.  In this section, you explain the basis for all major points of your business plan.  The investors will want this section to detail how they are going to make money and the facts behind it. This includes both qualitative and quantitative aspects of your plan.  Your logic should be rock-solid and accurate throughout your entire presentation.

How do you structure a deal with angel investors?  The very best thing about a deal with an individual angel investor is that it has so much flexibility in the way that it can be structured.  The more flexibility you have, the more of a chance that the two of you will negotiate a deal that you both can live with and agreements can be signed and money can be given to you as an investment.

There are two types of investments you can receive from an angel investor.  They are 1) Debt Financing and, 2) Equity Financing.  Debt financing is a loan and equity financing is when you sell a certain percentage of your company (usually in the form of corporate stock or membership percentage in an LLC) to the angel investor.  You are most concerned with the type(s) of financing and the issue of majority control.  There is also the possibility to have a combination of both debt and equity financing combined.  Let’s talk about each.

Debt Financing

Debt financing is my least favorite choice when it comes to raising money for a new start-up business.  I believe that debt financing is much better suited for a business that is already established for a year or two or longer, with a proven track record of profitability.  In other words, the uncertainty of a new start-up business makes it ill-suited for this type of financing in most cases.  A new start-up is too speculative for debt financing in my opinion based on my level of risk.  I know that many things can happen and missed payments can equal adverse circumstances for you and your business, all depending on what type of deal you structured with your angel investor(s).

It could mean them taking over your firm, obtaining majority control, selling off the assets against your will, etc.  An entire universe of bad things can come from this and the chances that you will have cash flow that is high enough and reliable enough to service this debt is remote, very unlikely.  This type of structure could kill your business before it has a chance to survive and then thrive.  These are just some of the reasons that I prefer equity financing when it comes to financing a new start-up business and debt financing when it comes to existing businesses.

Equity Financing

This is where an investor(s) receives a piece of the pie, a percentage of your business.  If you plan to seek this type of financing, I suggest you incorporate.  Incorporating, in and of itself, is an entire topic, but one worth carefully considering.  I suggest the audio version of “Rich Dad’s Advisors: Own Your Own Corporation – Why the Rich Own the Companies Where Everyone Else Works” by Garrett Sutton, Esq.  Mr. Sutton is an attorney and I really think his audiobook is first class.  This is a must-listen for would-be and current entrepreneurs.  It is available from audible.com.  The link is here.

http://www.audible.com/pd/ref=sr_1_1?asin=B00B03H7DY&qid=1360771472&sr=1-1

I believe that equity financing is easier to obtain than debt financing, given that you have a great business idea.  Investors love owning a piece of the action.  Also, they love taking action too.  You will find that some private (angel) investors are more hands-on than others.  Many are highly paid executives and some of them are former business owners (or current) themselves.  This is where the issue of trust, control, and percentages comes into play.

Trust – Only allow an investor that you trust to invest in your business.  Bad people do not make good deals!  Conversely, good people make good business partners and investors.  If you are unsure about an investor, make sure you check them out before signing.  For less than $80 you can run a thorough background check on your potential angel investor.  I suggest a company called U.S. Search.

Control – All investors will have some control in the business.  Many investors will want to hold a controlling interest in your company, which would be more than 50% of the stock.  Why do they want this much control?  That is the question you must answer.  Do they want this majority control because they want to do bad things with your company or do they want this control because they have an abundance of expertise in this area and want to prevent you from making bad decisions, thereby running the company into the ground?  You have to decide what their intentions are and if they are sincere or insincere, honest or dishonest.  This is no easy task, discerning their true intentions.  Tread carefully and trust your gut instincts.  If something doesn’t seem right, don’t make the deal.

Percentages – I suggest that you retain a controlling interest in your company if at all possible.  When you sell an investor a controlling interest in your business, more than 50% of the stock, it is a very risky move indeed.  Even if they have great expertise, I believe that it is better that you, the entrepreneur have the final say in most cases.  It was your business idea.  This is not always possible, however, because it is their money.  Only sell more than 50% of your company if you must do so to make a deal and “only” if you trust the investor and they can add value to your company such as distribution channels and / or valuable contacts.  Make sure you get the advice of a competent attorney before you decide.  Just remember, that the final decision is yours entirely.  Your attorney is paid to point out the pitfalls and the positive points.  You should weigh the attorney’s advice carefully against your own judgment and come to a well-informed decision.

Accountants – They are great at their profession which is to categorize, organize, and present financial data according to the GAAP (General Accepted Accounting Principles).  Always use a CPA (Certified Public Accountant); however, there is one common issue that I have seen time and time again that I would like to address here.  Remember, a CPA is just that, a CPA.  A CPA is not an attorney.  If you go to a CPA first (before seeing the attorney) when forming your business, they will often dispense the advice of “not incorporating and not forming an LLC or Corporation”, and often they will tell an entrepreneur to form their business as a sole proprietorship!

I believe this is horrible advice.  Do not listen to them (CPA’s) when it comes to what legal entity to form.  Get the advice of a competent attorney.  I also suggest Mr. Sutton’s audiobook.  Once you listen to his audiobook, you will have a profoundly deep understanding of why you should not form a sole proprietorship or a partnership.  Why do CPA’s do this?  I’m not really sure, but it happens often.  Limit CPA’s to accounting work, not advice on what legal entity to form when starting your business.  Stick to this no matter how much you like, trust, or enjoy your CPA’s knowledge and insight.  I emphasize this because it is too easy to unknowingly fall into this trap.

One trend that has recently become popular is crowd funding.  The robust barriers between entrepreneurs with ideas and investors with money seem to be weakening.  Crowd funding has made it much easier to raise money for business.  The marketplace has adjusted to the tightening of credit from formal lending institutions with the evolution of these easier paths to venture capital.  The need for business funding still exists so the market moved in response to this unmet need in order to fill it.  This is excellent news for the potential entrepreneur who has an idea for a business, but no money and also for the entrepreneur that has an existing business and no ability to borrow funds from traditional sources.  As with anything involving business deals, you need to look well into the matter before moving forward and preferably speak with an attorney first.  Here are some links that may be helpful to you in your fund-raising efforts.

Popular Crowdfunding Sites

http://www.gofundme.com/

http://www.kickstarter.com/

http://www.indiegogo.com/projects

http://www.causevox.com/

http://www.firstgiving.com/


Hope you enjoyed this Chapter of my book “Entrepreneurship“.  If you’re a dog lover, check out my book German-Husky Dog on Amazon.  Check our publications page often.

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Entrepreneurship – Chapter 4

Entrepreneurship - Chapter 4

4

 

What Area Should You Focus Your Attention?

 EinQuoteThere’s a lot of truth in what Albert Einstein said in this statement.  If there’s something in your life that you have tried to do and could not do successfully, perhaps you were like the fish climbing the tree, doing the wrong thing.  If you were simply focusing in an area of interest or career that you just could not seem to make happen, it’s not that you’re stupid; it’s most likely that you should focus on an area where you have greater aptitude.  Some well-meaning, but ignorant person could criticize you and you might take it as a valid personal label, feeling you’re stupid overall.  If so, this would have you believing that you can’t do “anything”, not that you needed to focus on an area in which you have greater aptitude.  This would hold you back; keep you from trying other things, among them, your area of greatest aptitude.  You would therefore completely miss it, going through life without discovering your area of greatness.

What a shame that someone’s critical remark could cause such damage.  This damage would probably go undetected because you would never know what you missed, but what if you could discover your area of excellence?  You can.  The first step is to tune out the naysayers, like in the above example.  If you allow them to be the ones who decide your intelligence or lack of it, by a label they placed on you, then you are subject to missing the mark, not finding the areas in which you truly thrive.  Don’t let them beat you down, make you feel worthless, or cause you to mope around while in a deep depression, instead, choose to shine by tuning them out, while tuning yourself in.

Cut them out of your life like a cancer, if you must.  You need to be free to explore, to try, in order to unleash your creativity.  Negative criticism stops the free flow of creativity.  Try different areas until you discover the areas where you should focus.  How do you know which ones are right for you?  What would you do if you didn’t need the money; what would you do for free because you enjoy it so much?  This could be a current hobby that potentially could become a business.  What makes you feel good?  What inspires you and creates passion and energy inside you?  These are the areas most likely to be successful in return for your efforts.

Just as important as what to focus on, is what to avoid or approach very cautiously.  Some of these business and opportunity types will seem axiomatic depending on your age and/or life experience.  Younger and older people alike may benefit from viewing these things through a more cautious lens, taking time to look, see, and carefully evaluate.  Here’s a closer look.

6 Types of Opportunities

In today’s world there are six frequently seen money related options that present themselves to you as opportunities.  When you think something is an opportunity, use caution.  There are many hucksters out there and they are becoming more and more sophisticated, in lock-step with the pace with which technology increases.  These six types are of particular importance as they present themselves often and they also can be seductive to the uninformed.

Total Commission Sales

The job boards are filled with sales opportunities, and many of them are full / total commission sales.  Your compensation is based solely on the sales that you produce, no sales equals no income.  There are various features of the job that an employer will tout in an effort to convince you to work for them on full commission.  Providing that their product or service is in-demand and of high value and the company is strong, the one factor I consider impactful in swaying my opinion about the opportunity is pre-set appointments.  Will they provide at least 2 confirmed pre-set appointments for you each day?  In other words: they set you up to see John at 2PM and Mary at 4PM, for example.

You need pre-set appointments at a minimum in return for spending your gas, time, wear and tear on your car, and money in your attempts to make a sale.  If they try to say they will give you “leads”, big deal, so what.  They could open the phone book and make copies and tell you to call them on the phone and say they provided you with “leads”.  You need pre-set appointments or it’s simply a non-starter.  Having pre-set appointments also cuts your job in half by eliminating the act of prospecting for appointments and / or telemarketing.  If you feel confident in your sales ability, the product or service, the company and their reputation, the commission structure, and the training program – go for it!

Some of you may be thinking: Well, I don’t know how to sell, right?  You would evaluate it a bit differently, in that case.  Given that you like all the other factors, do they have a full and complete ground-up sales training program “and” a minimum of 2 pre-set appointments per day?  If so, give it your best effort.  In all fairness to you, you want to have a month’s worth of living expenses or more (depending on the type of sales) before attempting a commission sales effort.

Also, how often a company pays you (determines your personal cash flow) and whether or not the commission you earn is linear or residual.  These are important factors to consider.  Linear is where you make a sale, are paid once, and you are never paid again for that particular sale.  Residual income is where you make the sale once, but you are paid an on-going (residual) commission periodically for that same sale, over and over.  The more often they pay you, the better.  Daily pay is the best, via direct deposit.  That is the gold standard.  You have money from sales being deposited each day and it is deposited electronically, so you don’t have to fetch your check physically and then spend gas, time, and money getting it to the bank.  If your bank offers mobile deposit, then this is better.  Weekly pay is acceptable too.  Biweekly “might” be manageable, but monthly commission payments are not acceptable, in my opinion.  Why?

Remember, your personal and household bills, as well as money you spend on the sales acquisition process (gas, food on the road, dry cleaning, taking potential clients out to lunch or dinner, and/or travel) add up very quickly.  You need cash in the palm of your hand as often as possible or you’re dead in the water.  Without money to keep selling and to give presentations, you’re out of business.  Remember too that these expenses are yours, not reimbursed by the company.  What you earn in commission, minus what you spent to make the sale is your profit.  Effectively, on full commission sales, you are an independent contractor.  You are self-employed.

Like any other form of self-employment, there is a risk that you take when you decide to go into business.  When you evaluate the possibility of a full commission sales job, do so with as much due diligence as you would if evaluating the possibility of a business start-up.  If at any point in time during your due diligence process you feel uneasy or if a certain part(s) don’t measure up to what you want or what I’ve mentioned here, walk away.  Always remember, you are evaluating them, regardless of how they try to make you feel like they’re evaluating you, and you have the power to walk away.  Remember, you are always in control.

Affiliate Marketing

You should approach this in the same manner as you would a commission sales job.  If you are an affiliate, marketing someone else’s product or service, you are essentially a self-employed commission sales person/independent contractor.  There are some very enticing affiliate programs out there.  Most good affiliate programs have a sales page that is professionally written, designed to sway you to buy their product or service.  When you are checking out the company, it is just as easy for you to be swayed by the content of their sales page on their website.  For this reason, try to maintain a mental distance by consciously realizing that it’s a pitch you are reading!  There is an old saying in sales that you must be sold on the product or service before you will be able to sell it/convince others to buy it.  If you’re not sold, don’t attempt to sell it to others, simple as that.

Let’s say you’ve just read their sales page and you lean back, take a deep breath, and you are sold. You would buy the product or service they are selling for yourself.  At this moment, I would suggest you get up, walk around, take a short break and think.  Remove yourself from the spell of the sales page for a few minutes and think clearly.  Are your feelings based on legitimate and positive reasons pertaining to the company, product, or service?  In other words, after you take a break, are you still sure that it is truly a good thing?  Or are you being sucked into something that is not good?   Are you being conned or is this legitimately a good thing?

Before signing up, search the BBB Online for their company name and see what others are saying about the company.  Do they have any outstanding complaints with the BBB Online?  If so, how many complaints over what time-period?  What is the nature of the complaints?  Out of all the complaints, how many have been resolved?  Are there any left unresolved?  If so, why?

If they are a Limited Liability Company (LLC) or a Corporation (Inc.), go to the secretary of state website for their state and see if they are in good standing.  Are they a real entity?  If so, you will find them there.  If you find them listed in that state, check to see if they have filed their required annual reports – if it is a requirement of that particular state.  Check to see if their listed address matches the address in the contact information on their website.

Are there other affiliates you can contact and ask about the company and the affiliate program?  If there is a way, contact them and ask how they are doing with the company.  Also, keep in mind that most affiliate programs are free to join.  Any affiliate program that requires an initial investment is suspect.  I would tread carefully here.

Invention Companies That Supposedly Do it All for You

If they do it all for you, run don’t walk.  Most likely they are a con.  Twenty-seven years ago, when I was only 21 years old and inexperienced, I got conned out of $6,000 by one of these companies.  They are smooth-talking folks.  Clamp your hand around your wallet and move to a safe distance, out of the range of their greedy grasp, dollar-sign-filled eyes, and huckster ways.  Don’t even consider it.  This lesson cost me $6,000 to learn and if I save you from the same loss of money and humiliation, it was worth the effort for me to write this book.   This is one organization with a long and positive track record that will legitimately do a lot of the heavy lifting for you if you have a great idea.  That company is Edison Nation.  You can visit their site at http://www.edisonnation.com   They have some great programs that will benefit inventors and I recommend you check it out.

Automated Profit Schemes

Automated Forex trading schemes, automated profits from a website affiliate program, or guaranteed opportunities of any kind.  Same instructions as before:

Clamp your hand around your wallet and move to a safe distance.  Don’t even consider it.  The old saying: “If it sounds too good to be true, it probably is,” is just as true today.  This so called opportunity is not as visible as it once was, but beware that many of these schemes diminish for a while and then resurface later.  If it were possible to easily make money automatically, everyone would be doing it.  There is no such thing and regardless of how persuasive the sales pitch is, don’t believe it for a minute.  It is not real.  Avoid it.

Selling to the U.S. Government – A truly legitimate and large opportunity

Understand that the U.S. Government is the largest purchaser of goods and services in the world!  Since they print the money, as long as the government has not collapsed, you have little risk of not getting paid.  They also have much deeper pockets than selling to individuals or other businesses.  The main stumbling block is that selling to the government is complicated and after taking a brief look into it, many entrepreneurs turn away and decide not to get involved.

If you are willing to take a little bit of time and view the government’s materials on how to sell to them, you could be on the road to large amounts of business from a well-paying customer.  Cash flow and being able to get paid are the two main ingredients to sway the odds of your business having a chance to be successful.

I define successful as the business being profitable and the more profit the better.  It is far beyond the scope of this book to teach this subject.  I will simply point you in the right direction so that you will have access to information that is accurate, free, and premium services at a lowered cost.  Do not fall prey to outrageously expensive books and courses on the subject sold by private companies when the U.S. Federal Government will teach you for free!  Here’s where to start.

https://www.sba.gov/blogs/your-small-business-ready-sell-government

https://www.sba.gov/learning-center

Multi-Level Marketing (MLM)

Multi-Level Marketing (MLM) is commonly known as network marketing.  There are entire books written on this subject.  It is therefore beyond the scope of this book to write a comprehensive body of work, but there are some very important things to emphasize here that fall into the category of “must know”.  The first thing you must know is MLM or Network Marketing is a highly controversial and often misunderstood subject; therefore it is easy to get bad advice on this subject.  Here is what I believe to be true based on real-world experience.

  • There are many legitimate Network Marketing organizations and there are also many bad ones. The differences can be many; however, some key differences to look for in a good organization are the following.
    • Do they base their compensation on the sale of an actual product or service and not paying for recruiting alone?
    • Is this product or service legitimately useful to many and not simply a half-baked product or service dreamed up as an afterthought to the MLM compensation plan?
    • Is the initial investment zero or a small amount (under $300)?
    • Do they require you to have a large quantity of initial inventory (called front-loading) or do they only have you purchase a small amount when starting?

Some initial indicators of a legitimate organization are: 1) Basing compensation on the sale of a legitimate product or service, 2) Low initial investment, 3) No front-loading of inventory.  Also, are they members of the Direct Selling Association?  Check this at https://www.dsa.org/benefits/dsadirectory

Some keen insight into the undertaking of building a Network Marketing Company

First of all, it is not an easy task.  When someone shares an MLM opportunity with you, they will often emphasize how “simple” the business is to carry out.  What they don’t tell you is that: “simple” is not synonymous with “easy”.  Building a Network Marketing organization is probably one of the most difficult undertakings you could possibly attempt.

Yes, you can do it part-time, but if you are to be very successful long-term, your growth rate of new members in your organization must be higher than the attrition rate of people leaving your organization.  Simply put, you must sign up new members faster than others quit.  If you are too part-time, then you will never grow.  Can you see how this could be?  Therefore, you must work at a rate that is as fast as you possibly can handle to give yourself the best chance of success.  As a matter of fast, many successful network marketers worked very long hours, day and night, to achieve the success they achieved and it was far from easy or quick.

If you already know a thousand people that like and respect you, often like some coaches do, then you are in a unique situation that could be advantageous.  Not social media friends, but friends you know face-to-face personally.  If this is you, then you could have success come to you more easily and more quickly than other people would have, but it will not be easy, as you have to mentor all those people in your organization that you sign up.  Once you build that organization, being available always is advantageous.  This can cut into your personal time greatly.

Also, the idea that “anyone” can do it is a bit misleading.  Yes, anyone technically can do it probably, but can just anyone do it well enough to be highly successful?  No.  It takes true people skills, leadership qualities, and public speaking ability to excel in the network marketing business.  Please investigate this type of opportunity with an especially skeptical and informed eye before deciding to participate.  Here are some more resources for further reading on the subject.

http://www.entrepreneur.com/encyclopedia/network-marketing

https://www.dsa.org/benefits/dsadirectory

http://en.wikipedia.org/wiki/Multi-level_marketing

http://www.forbes.com/sites/robertlaura/2014/08/29/would-you-join-a-multi-level-marketing-company-for-retirement-income/


Hope you enjoyed this Chapter of my book “Entrepreneurship“.  If you’re a dog lover, check out my book German-Husky Dog on Amazon.  Check back on Our Publications page for new titles.

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Entrepreneurship – Chapter 3

Entrepreneurship - Chapter 1

3

What’s It All About Anyway?

When we all look at something, whether it be abstract like thoughts or concrete like your home, we each see something different from what the other person sees.  Some will see more things, others less.  Some people will see things in a glass-is-half-full light (positive), while others color everything in their world with a negative brush.  Some of us over-analyze to make sense of the world, while others over-simplify things.  Everything we see and experience in life is shaped and filtered through our lens of perception according to our genetics, upbringing, experiences, culture, and personal beliefs.  This indicates that we can be very different, right?  I think most of us are different, in many ways.  If we assume this is true:

“Then why is it that a large majority of people feel obsessively compelled to keep up with their neighbors?”  Why is that?  Is that a common thread we all have or is it shaped by modern society?  Is it a positive driving force to make us do more or is it a negative force driving us deep into debt, spiraling down the short path to foreclosure and bankruptcy?

Based on results that we see reflected in much of modern society today, I believe it is a negative force, even a curse, seemingly crossing through the generations and perpetuating the same mentality that leads to excessive debt and financial ruin.  I can hear the “but’s” coming as I write this.  But I need those things.  But I want those things.  But, but, but, but, but…..  Erase the “but’s” from your mind!  If you’re one of the many who keep up with their neighbors out of pride or one-ups-man-ship, stop!  Put the financial brakes on now before it’s too late.  Stop, take a deep breath, sit down in a chair and think.  Look around you now.  What do you see when you scan the room you’re in?  Do most of your things have debt attached to them?  How much of it is free and clear?  Imagine that every one of those items that isn’t owned free and clear has a sign on it saying:

“You are my slave.  You work for me.  You have no say in the matter.  I own you!”

Seems ridiculous to read, doesn’t it?  The fact of the matter is that truer words could not be spoken.  When you purchase items on credit, you are indeed a slave that works for that item, and in terms of your freedom, it does indeed own you.  Doesn’t that bother you, that “things” enslave you month after month, causing you to work like crazy just to meet the minimum monthly payment?  If you do meet the minimum monthly payment, how long will it take you to pay it off, 20 to 30 years?  All this for what: To keep up with the neighbors, boyfriend, girlfriend, Uncle or best friend?  What else could you be providing for your family if you lived within your means, avoiding all this excessive debt?  We haven’t even begun to factor in the stress.

Am I against wanting and having nice things?  No.  I am also not advocating that you live like a pauper, but I am suggesting that you look at your own inner motivation for buying things, especially large purchases that you really can’t afford, but buy anyway!  Keep the motivation strong for what you want and what your immediate family wants, in most cases, but don’t over-extend yourself and pay cash most of the time.  To do otherwise is detrimental for your financial life or your health.

It’s been proven that there is a direct link between levels of stress and longevity.  The stress from struggling to pay for excessive things will take you out of your family’s lives mentally and emotionally because you are often too preoccupied with how to make ends meet.  The good news is, ultimately, you’re not a slave.  At any moment in time, you can make a new decision based on new information to change your circumstances.  Take the following four steps:

  1. Eliminate the “buts” or the “well, buts” from your vocabulary altogether. It’s an excuse.    Don’t fall for it.
  2. Define your current circumstances.
  3. Compare your current situation with where you would like to be financially.
  4. Start taking small, but concrete steps, to eliminate the debt you have and to pay cash only from here forward no matter how hard that may be.

This assumes that you want to keep your current lifestyle, while reducing your debt and living more fiscally wise from here forward, but what if you want to make major, radical changes?  That option is always available, but I wouldn’t suggest it unless your spouse and kids are on-board with a fanatical zeal, ready to sacrifice and bite the bullet.  What if you’re single?

This is a different picture altogether than if you had a spouse and kids to consider.  You can have a higher level of change, because the only one you have to consider is you, even better if you’re single and just starting out.  OK, I realize what you are probably thinking: “tell me some real, concrete steps that I can use,” right?

The starting question is: “How radical are you willing to be in order to have extra income each month, debt free, freedom to move about, and extremely low monthly expenses.”  If you are single and in a position to be extreme, you may want to go as far as you can.  Here’s how.

The very first step is to lower your monthly living expenses dramatically.  In business, we call this overhead.  In your personal life, it can be thought of the same way.  The minimum amount to keep your basics expenses paid and groceries in the refrigerator.  The second step is to forget about “how this will look” to others.  Focus on the overhead savings and other advantages for the time being.   Remember, keeping up with the neighbors is unimportant now, and equally unimportant are appearances and status.


Hope you enjoyed this Chapter of my book Entrepreneurship.  If you’re a dog lover, check out my book German-Husky Dog on Amazon.

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Entrepreneurship – Chapter 2

Entrepreneurship - Chapter 12

 Thoughts and Ideas

 This is where everything begins.  Thoughts lead to more organized concepts, which form into complex thoughts, from which emanates useful ideas.  Some ideas you will have are possibly marketable.  Notice I said possibly?  Even if you have an idea and you think it is great, it doesn’t mean that it is a marketable idea – one that will sell.  Much more research will be needed before this can be determined.

We live on a planet with around seven billion people currently, and growing fast.  As the population grows, more and more minds are at work – and more importantly, focusing on solving the same problems that you pondered during your creative process.  This doesn’t mean that there is no room for your idea / concept / solution; what it does mean is that once you think of something new or different, you must be first to market with your idea.

One of the keys to success is becoming an expert at turning data into useful information and then applying that information in a way that produces the desired outcome.  You must also keep up with all the latest information systems knowledge as the market changes.  As we move into the future, we will see technology and information systems change at a phenomenal rate, probably at a rate considered to be exponential.  Knowledge of converting inputs into outputs that the marketplace will purchase is a key success factor.  If your raw material / inputs are ideas, then they must be saleable in the marketplace, cheap to manufacture and sell, require little set up cost or changes by an existing manufacturer to get started, and provide a competitive advantage to the manufacturer / company you approach.  If all these factors are in place, you may be in a position to license your idea to them.  This means that they must pay you a royalty on each item manufactured using your idea.

This business of licensing your ideas to manufactures is a nice alternative to setting up and running a “traditional” business, in-turn avoiding such things as employees, excessive overhead, high startup costs, and hundred-hour weeks.  The nuts and bolts of licensing are beyond the scope of this book.  I strongly suggest you check out the following book and read it for further information.  I make no income from referring you to his book.  I’ve read it and think it is excellent.  Stephen Key is a very credible source in an industry where many people often prey on your ignorance.

One Simple Idea by Stephen Key

http://www.amazon.com/dp/0071756159

His approach is for you to license your idea to manufactures, let them handle most everything while “renting” your idea, also known as licensing, paying you royalties on each item sold.  He goes into great detail and has been quite successful himself with his own inventions over a very long period of time.  I believe this is your alternative to working hundred-hour weeks.  After 27 years of business experience myself and given everything I have experienced and having earned my MBA; licensing your ideas is a smarter approach and probably an easier thing to accomplish than making a typical traditional business successful.  One important note:  I said easier, not easy.  Nothing worthwhile is easy.  Ideas can truly become income, but you must learn how to turn the raw material of an idea into a payday first.

The main reason that striking a licensing deal would be easier than setting up, running, and making a traditional business successful, is that licensing has far fewer moving parts.  Generally speaking, the fewer components acting within a system, the more likely you will experience a successful outcome.  Not only that, but when you have a successful outcome by licensing your idea, you have created residual income instead of linear income.  I will explain more about residual income vs. earned / linear income a little later.  In my view, having the time and the money at the same time is an ideal situation; it is the perfect storm.

When examining a business, business opportunity, or licensing deal, it is important to think within these lines of thought in order to give yourself the best chance of creating a successful outcome.  Since the odds are certainly not stacked in your favor, anything you can do to increase the likelihood of success is worth examining and possibly implementing.  Examining things this way also causes you to make the best use of limited resources.  In most cases, the limited resource is money.  You want to get the most mileage for your money possible.


Hope you enjoyed this Chapter of my book Entrepreneurship.  If you’re a dog lover, check out my book German-Husky Dog on Amazon.

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Entrepreneurship – Chapter 1

As promised, here’s Chapter 1 from my book Entrepreneurship for you to enjoy for free.  Also, be sure to check out German-Husky Dog in Our Publications Section too!

Entrepreneurship - Chapter 1


 

1

 

Introduction

 

So, you want to be an entrepreneur?  What makes you think this?  Is it a deep down, burning desire grown from a passion, a true love for starting something new and achievement, or is it that you’ve gotten motivated purely by money alone?  The former is good; the latter is more likely a financial death-rattle.  It’s been said by many successful people over the years that “you have to love what you do”.  This is not just some knee-jerk, feel-good saying, but in fact, a reality.  If you don’t love what you do, you won’t try as hard or work as long and you won’t persevere through thick and thin, good times and bad.  The output quotient is far greater when there is love and passion for what you do.  In fact, you truly can’t compete without it!

Think about this logically; if you’re going up against your competition, in whatever industry you are in, and they indeed love what they do and are on-fire with passion and you don’t love what you do, are not passionate about it, but only after the buck – which one do you think will prevail?  I would say that the odds lean heavily toward the person that is totally passionate about and in love with what they do.  When you love what you do, it literally becomes who you are, instead of simply what you do to earn money.  Doesn’t that seem like a better place to compete from and increase your chances of success?

With that in mind, think about it this way: Doesn’t it make sense to look for a business in the areas that you love?  If you’re a dog lover, you’ll perform better in a dog business than many others who are just in it for the money.  If you have a love for automobiles and love classic cars, you’ll perform at a higher level fixing up classic cars for resale than a person who sees nothing but dollar signs, and is totally absent passion.  Does this make sense to you, yes?  I think it’s important to do what you love to do, because I believe the wrong vocation is a bad thing.  As I was writing a few days ago, a saying formed in my mind pertaining to this.

An unwanted vocation robs a man of the now, and destroys all that could have emanated from the heart.

Think about that for a moment.  If you are stuck in a rut, doing something that you don’t want to do drags you down and absolutely destroys both your passion and your creativity.  Passion and creativity come from the heart and you cannot become inspired while working and living from an uninspiring emotional place.  Seeds grow in fertile ground as does passion and creativity successfully emerge from the positive mental states of joy and happiness.  For most, it is impossible to hate what you are doing and be positively inspired at the same time.  Almost always, an unwanted vocation and being inspired in a creative way are mutually exclusive.  It is like having bright sunlight and darkness existing in the same space and at the same time; it simply cannot happen.

Even if you have the passion or love for a thing, does it mean that you’re cut out to pursue it as an entrepreneur?  The short answer is, not necessarily.  This question has many moving parts to consider before making a decision.  The most important factor to consider is lifestyle suitability.

Is your lifestyle supportive of entering into the highly unpredictable world of the entrepreneur?  This depends partially on your level of risk tolerance.  This is determined by the sum total of your internal risk tolerance plus your external risk tolerance.  Your internal risk tolerance is how you feel on the inside.  How much can you take?  The external risk tolerance is the amount of risk you can allow in your life that loved-ones can morally and ethically endure.  How will they feel about it?  Will their well-being be jeopardized if you stepped out and focused on your entrepreneurial goals?  What would be the worst case scenario for them?  Is there enough financial buffer to support them or are you lacking in this area, now barely making ends meet?

If everything that I’ve said so far looks acceptable to you, then do you have the money now or can you raise the money you need for your business?  Do you have the experience and education to allow you to thrive instead of dive?  As you can see, there is much to consider before you decide anything.  A word to the caution – if you seem overwhelmed by just thinking about and considering all these preliminary questions I’ve just posed to you; are you truly cut out to be an entrepreneur?  Lying to yourself will get you into trouble, more trouble than you can ever imagine.  You must be brutally honest with yourself and if you’re not suited for the entrepreneurial life, then you’re better off not taking the first step towards it.  It is certainly not for everyone, in fact, it is for very few people, the exception and not the rule.

There are ways that you can become wealthy or well-off other than entrepreneurship.  In fact, if you do a financial analysis on it, unless you enter into a niche business with a strong competitive advantage that will last for many years, you are better off financially choosing other career paths.

Some people highly prioritize money; some are all about quality of life and doing what you love to do, even if it pays less.  You have to step inside your own mind and decide what is truly most important to you in your own life.  This line of mental dialogue, so far, has probably created more questions in your mind than it has produced answers.  If so, that is OK.  I want you to think, ponder, soul search, and consider these broad choices and areas I have mentioned so far.  I will tell you what I know and what I truly believe.

What kind of lifestyle do you want to have 5 or 10 years from now?  Do you want more time with your friends and family or is the sense of importance associated with business ownership a higher priority?  I ask this question because many people don’t realize that when you start a business, it often ends up owning you, instead of you owning it.  Some businesses become liken unto a black hole for time; it sucks it all in and you never see it again.

I have seen many successful businesses consume their respective owner’s life.  The feel-good idea of you being in charge because you started your own business quickly disappears, filed away in the file folder where fantasies are kept, and rightfully so!  If working 70, 80, or even up to 100 hours a week bothers you; then you should seriously consider not traveling down the entrepreneurial path of starting a business and growing it into a large enterprise.  If you are weary of this idea of long hours and being enslaved to a business – don’t do it!  This long-day enslavement will end up being what you hate, and shouldn’t you do what you love?

I’m not trying to be high and mighty here; I’m being straightforward.  I would rather deliver the truth and save you from a horrible personal and financial fiasco.  Your time is valuable, as time is something that once spent, you can never get back.  The more often you can make more right choices, more often than the wrong choices; the further you will be along the road of life, whatever road you choose.

Examine yourself carefully.  Look at your family life and make sure you don’t ruin it over a business venture.  You can and will often lose your marriage and possibly your kids in the nasty wake of a bad business failure.  Realize that a large percentage of new start-up businesses do indeed fail, and if you want different results, you must thoroughly examine, plan, prepare, fund, and effectively execute a well-planned strategy in a unique and excellent business that has a strong competitive advantage.

In Crafting and Executing Strategy – The Quest for competitive advantage, Thompson (2012)  found, “Without a strategy that leads to competitive advantage, a company risks being outcompeted by stronger rivals and locked into mediocre financial performance” (p. 9).  If you are pontificating on starting a run-of-the-mill coffee shop, restaurant, laundry matt, laundry service, corner store, or any such business that has no competitive advantage within a hyper competitive market, forget about it!  Save yourself the time, aggravation, money, and most of all, your relationship with your spouse and kids.  For it to be worth the risk, it has to be an especially awesome and unique business, which has a strong competitive advantage that is sustainable across time.  By strong I mean a competitive advantage that your competitors cannot easily and/or quickly duplicate.

Here’s another factor to consider.  With only a few exceptions, the job world often times doesn’t look highly upon the self-employed.  When Human Resource managers consider people for job openings, they see “entrepreneurial” as “trash-can-neurial”, when hiring for non-sales jobs.  This means that your resume’ has a direct path to the trash can without as much as a passing thought.  HR managers hate job hoppers, serial entrepreneurs, and start-up junkies!  They see you as a huge risk of company training dollars.  They see you leaving at the drop of a hat for not liking being told what to do, or to start your own gig again.  Some exceptions are: consulting firms, universities hiring college professors who desire entrepreneurial experience, and other start-ups.

Consider this hypothetical scenario for a moment.  Larry and Sue are married, have 3 kids, a mortgage, and two car payments.  Larry feels strapped, and rightfully so, there is more month than there is money.  Larry is not making enough at his job and Sue tells him that they are running a $500 deficit each month, and they can only sustain this negative cash flow for another 3 months before their credit cards are totally maxed out.  Larry gets the paper and meticulously searches through the classifieds and several online job search engines.  He finds nothing.  A month and a half goes by of fruitless searching and Sue reminds him they’ve got a month and a half left to find a solution to their money problems or face Bankruptcy and losing their home.

Subsequently, Larry stops by the bookstore on the way home in search of answers.  He pours through the shelves, crouching down low until his knees can barely straighten out when he stands 20 minutes later.  He searches the middle row, nothing.  He starts his scan of the top rack in the business section and his eyes fly past and then returns to a book about starting your own flea market business.

Larry has no experience in this type of business, or any business for that matter.  He looks at his watch and sees he must get going or Sue’s going to be angry for him running late.  Feeling time pressure, he pays for the book at the checkout and heads straight home.  Sue needs an explanation of why he’s so late getting home and Larry proudly produces the book, tilting it back and forth in Sue’s view, like a pot of gold just discovered on the front lawn.  Sue feels desperate too.  She’s the one actually handling the bills, after all.  She sides with her husband and they’re about to start their new business venture.

They use up the $4,000 remaining on their credit cards to start the venture, buying inventory at a government auction to resell at the flea market, hopefully at a huge profit.  They arrive at the flea market in their little truck, sporting a 5 foot by 5 foot by 4 foot deep box of olive green overalls, neatly folded and compressed, acquired at the GSA Auction.  They purchased the 1,000 pairs for $4,000, putting their cost at $4 each.  Surely they can sell these at a profit, they feel.

They fight the sweltering heat, buying a cheap fan along the way, and spending $25 on concession stand food and $60 on a baby sitter.  These are country people passing by, but nobody is giving their overalls so much as a second look, puzzling both Larry and Sue.  “Why aren’t they stopping,” She asks Larry with a look of panic.  Larry answers “I don’t know”.  They try this for 4 weekends and they’ve sold a whopping 5 pair of overalls not at a profit and not a break-even of $4 each, but at $1 each, as it was all the people in this market were willing to pay.

Turns out, all these folks have overalls already, and each one is brand loyal and 99% of them hate the olive green color of Larry and Sue’s inventory!  They’re stuck.  They have 995 overalls left and they’re at their wits-end.  Sue gets an idea and has Larry stop the truck.  She says she’ll be right back and walks into an Army/Navy store that carries many things and some olive green, such as ammo belts, bandoleers, and canteen straps.

She runs out to the car 5 minutes later, beaming as she explains to Larry that she just struck a deal with the store owner.  He will buy their 995 remaining pair of overalls for $248.75, or 25 cents each!  They take the offer out of fear they’ll get nothing otherwise, they are nearly out of groceries, after all.  So far, Larry and Sue have taken in $248.75 + $5 for a total of $253.75 and spent $4,000 to make it, not counting food, mileage, and the baby sitter!  A net loss of $3,746.25!

Larry follows this pattern with different items purchased at auction, one right after another, even after losing their home and filing bankruptcy.  Sue stays with him, but Larry now goes back and forth between full-time business ventures, full-time jobs, and part-time jobs.  His job history has changed dramatically.  Now, instead of having one job for the last 10 years, 10 years later, he’s had 25 jobs and 10 businesses, averaging just 3 ½ months per job or business!  He’s now become a job hopping, serial entrepreneur, and startup junkie.

Under pressure from Sue, Larry forces the entrepreneur out of him and resides to get a steady job and stay there until retirement.  No more businesses, no more job hopping, and no more startups.  Larry has a Bachelor of Business Administration degree, but can’t land an interview now if his life depended on it.  There’s no job history for him except job hopping, and serial entrepreneur ventures with startups.  After 6 months, he changes his resume’ to a functional resume’ format.

Larry is unaware that recruiters and HR personnel hate, yes abhor, functional resumes, unceremoniously tossing them in the trash within the first 2 seconds of looking at it.  Nobody trusts him.  They don’t believe he’ll stay with a job so much that they wouldn’t dream of wasting an hours’ time on him interviewing.  Larry is now even more desperate.

Sue files for divorce and disappears with the kids, secretly moving in with her long-lost Aunt 2000 miles away in Idaho.  Larry has no choice but to try another venture because he’s gotten zero interviews with his job hopping, serial entrepreneur history.  He has become unemployable.  With all that and bad credit to boot from entrepreneurial misadventures, he is unqualified for any jobs that check his credit report.

Alone now, he is depressed to the point of suicide.  His neighbor learns of this and calls the police who involuntarily commit him to a mental health institution, hauling Larry off in a straight-jacket with large buckles, and matching leather straps.  After 3 weeks, Larry hangs himself from a ceiling fan with an extension cord.  At his funeral, relatives gather in small groups, with clustered tight whispers, each shaking their head no with disgust mumbling: “I don’t know why he couldn’t get a job. Always chasing some damn pipe dream, now look at em’.”

Do you see how you can get pigeonholed by creating a history of job hopping and serial entrepreneurship combined with bad credit?  If you make it as an entrepreneur, fantastic, you need not worry about any of this.

God help you though, if you create this type of unstable job history and then try to return to the job world.  It will be hell on Earth trying to get an interview, let alone getting hired, like trying to fit a round peg into a square hole.  The HR recruiters will look at you like you are hiding a secret identity or as if you have an undisclosed stretch of prison time!  Yes, that much suspicion and more will appear in their eyes.

This will be a very difficult obstacle to overcome, even with a Bachelor’s Degree and many years of business experience: In this way, business experience really equates to “bad” experience for a potential employer and as a result, for you too.  Tread carefully.  You can pigeonhole yourself into becoming unemployable at a traditional job.

In order to prevent this situation, always start a business on the side while you have a steady full-time job income.  Only “if” the businesses starts becoming wildly successful, two or three times your job income, should you consider jumping ship and going into your business full-time.  Job hopping and going back and forth between a full-time job and a full-time business paints a negative picture in the minds of human resource decision makers, effectively burning your bridges that would lead back to a steady job.  You are writing on the record of your history and character.  Make sure your record shows a positive impression that includes dependability, loyalty, and trustworthiness.

My Advice:

“If it ain’t great, don’t set a date!”


I hope you enjoyed chapter 1 of Entrepreneurship!  I will be posting the entire book “Entrepreneurship” chapter by chapter, so stay tuned!

 

Business and Career Info – Free

We are a small press publisher that is revamping its inventory with a slant toward dog related media.  Dogs are my passion.  I simply love dogs and as such, I enjoy writing about them.  My education is in business, but my passion is with dogs.   I hope to build a platform that will enrich others who also have a love for dogs while also posting a vast amount of business and career content.

Two of my books, Entrepreneurship and Choosing the Right Career Path, I have retired from Amazon.

Business and Career: Title Choosing the Right Career Path Business Category: Title: Entrepreneurship

I did this so I could share this content/knowledge for free here on this blog.  My hope is that the benefits of career and business knowledge can help others for free, while simultaneously posting information about dogs.  My dog books will also remain for sale on Amazon and you can view them as they are published on the “Publications” page of this blog.   .

I want to include my “Author’s Preface” from my book “Entrepreneurship” below:

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Author’s Preface

The most important person I focus on in my writing is you, the reader.  Even though we haven’t met, I respect you and see you as a kindred spirit, seeking business knowledge as I have done all of my adult life.  If you are reading this book, you are either thinking of becoming an entrepreneur, or you are already one, hungry for information.  I will share my knowledge with you in a way that is as clear and concise as possible.  Here’s my background.

As of this writing, I hold an MBA (Master of Business Administration) in International Business and Marketing, a Bachelor of Business Administration in Organizational Management, and an Associate of Applied Business in Business Management.  My numerous hands-on business ownership experiences stretches back to 1988 when I was honorably discharged from the United States Air Force.

Just before making the transition from the military life back to civilian life, I became a fixture at the base library where I began with an intense self-study of business.  Some of my fellow Airmen friends joined me and we formed a discussion group where we kicked ideas around.  This expanded to the nearby coffee shops where we tipped the wait staff generously due to our enthusiastic, but very long stays.

My civilian introduction to hands-on business began with start-ups and also a stint into the 100 hour per week world as a series 7 licensed stock broker at an investment banking firm.  Although this was a good financial education and I learned many cause and effect relationships between company actions and stock price, entrepreneurship was what my heart and mind were drawn toward most.

I leaned mostly toward service oriented businesses because of the typically higher margins than product oriented business.  I was the personification of “get out there and do it”.  I attended classes at the SBA (Small Business Administration) like an addict.

I have experienced advertising on shoe-string budgets with start-ups, written my own ad copy, TV and Radio commercial scripts, producing my own TV commercials on a budget with a very high response rate, cold called residentially door to door, cold called business to business, marketed with flyers, postcards, web ads, website organic search engine marketing, magnets, cards on cars, face to face selling of small and large ticket items, sales and sales management, telemarketing and telemarketing management, business consulting, and the operational, bookkeeping and accounting aspects of business.  I have owned LLC’s, a Corporation, several partnerships, and several sole proprietorships as well.

I mention this background summary not to boast, but to simply share the academic and hands-on experience that forms the background from which I write.  Learning from someone with experience can indeed speed the process of becoming an entrepreneur.

As luminary voice over teacher and performer Pat Fraley says, “Experience is not the best teacher, it’s the slowest and you can’t afford the time. You need to seek out somebody with wisdom, who has circled back and is willing to show you the short cuts.

The same type of concept applies here.  I have the experiences, circled back, and I’m showing you the shortcuts and other helpful information throughout this book.  I will present my thinking on many particulars to steer you clear of many obstacles you may encounter and toward opportunities.

I use a story early in the book to illustrate the ripple effect of one’s decision on one’s life.  It’s honest and a bit hard-hitting, but valid, and gravely realistic.  Anything I write that’s candid is not meant to offend, but to be helpful, and to provide clarity and direction.

Share your thoughts with me and offer any suggestions you wish.  I like getting constructive feedback from my readers.  If you would have rather seen more or less of a particular subject or topic, let me know.  Point out the parts you really liked and which parts you were not so crazy about.  I am always looking to improve and you’re like that too, or you wouldn’t be reading this book.  All the best!  I hope you enjoy this book.

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That concludes the post.  Stay tuned for more business, career, and dog information!