An Entrepreneur’s Guide to Small Business Success

This post heralds the beginning of the turning-ip101.com website and blog – focused at the first-time entrepreneur who wants to start a new small business. The website itself will highlight a new book – Start-Up!  An Entrepreneur’s Guide to Small Business Success – that is now available for pre-order in Kindle format at Amazon (click here). Later, as the publication settles down, the book will be available directly from this site as a print-on-demand paperback book. This blog will be highly active, with frequent posts that are relevant and timely to first-time entrepreneurs. I hope you find the website and blog meaningful and informative.

The book’s Preface begins, “As a first-time entrepreneur who wants to start a small business, you won’t know one very important detail . . . what you don’t know . . . until it’s too late.”

This is a variation of the old saying, “you don’t know what you don’t know”. And while it’s true in many of life’s endeavors, it’s particularly true in starting a small business. Most new entrepreneurs have little experience in how to actually create a business, and importantly, one that’s profitable and sustainable. And the danger of that situation is, you learn something critical just after you needed to know it, most likely by stepping in over the tops of your waders, and only learning about it from a search of the internet to find where you went wrong. The point is, you need to know this stuff before you make mistakes that can really cost you, not only in money, but also in dissatisfied customers and employees.

This blog isn’t aimed at the Mark Zuckerberg’s of the world – where the goal was to haul in millions of venture capital dollars before the ink was even dry on the new business’ incorporation papers, resulting in growth that was meteoric and completely bypassing the usual small business phase. If that’s the kind of business you have in mind, you’ll be absorbing all of your business acumen at the knees of big-time venture capitalists, and not from the school of hard knocks. No, this blog is directed squarely at the first-time entrepreneur . . . someone who is starting with a good business idea, but most likely under-capitalized, and who is quite unsure about the myriad details necessary to start a new business, and then successfully run it after the doors are open.

There are over 500,000 small businesses started in the U.S. each year. Recent statistics from the Small Business Administration illustrate that fewer than half of them will still be in business five years from start-up. That’s pretty sobering, considering how many would-be entrepreneurs will have lost a good chunk of their life savings – and their confidence in running a successful business. I’d venture to say that most of the failures are due to one of three possible reasons: (1) poor financial planning; (2) poor decisions on day-to-day running of the business (duh!); and (3) wrong product/service at the wrong time. None of these three have to occur, and the right guidance at the right time can make all of the difference in the world. That guidance, though, can’t be helter-skelter if it’s going to work – which seems to be the failing of many small business blogs and other sources of advice to first-time entrepreneurs.

This blog, as well as the accompanying small business book, will deliver information that is timed and sequenced specifically for the entrepreneur who is about to launch a new business, and who needs to know the gotcha’s to be faced, and how to steer clear of them.

To illustrate where my own small business background comes from. I started my first small business in 1978, long before there was an internet to search. And even though I’d grown up working in my mother’s small hamburger joint throughout junior and senior high school, I really had no idea what it took to start and operate a small business. When I was planning my first business launch, I searched the local bookstores and libraries for how-to books on small business, but there was nothing on the shelves that really fit the bill. My goal was a mainframe software education business, where the plan was to travel around the country (and the world) teaching on-site classes to programmers at very large mainframe computer centers. Like so many of today’s new business ideas, the genre was totally new – and my business plan (such as it was) was so unique – there was no hope of finding any how-to books for guidance.

Worse, I didn’t have a clue how to prepare a before-day-1 cash flow/budget analysis to project whether I could even make it through six months, let alone a year, two years, or five years from start-up. I had no idea of the type of business structure to register, and to complicate it, no idea whatsoever of the city, state, and federal requirements for starting a business – and as a result, I had the worst possible business registration for my particular situation (C-corporation), and when I discovered it several years later, it could have cost many extra thousands of dollars in taxes that I couldn’t afford (luckily, the IRS accepted my plea for a change, so I got off the hook easily).

Nowadays, everything you need to know about planning, starting, and operating a new small business can be found somewhere on the internet. That’s really good . . . and it’s really bad.

The good is that it’s all out there. The flip side is, there are zillions of hits from every search you make, and much of the information from them is simply wrong for your situation, not focused to the correct perspective, or it’s from a website that’s really just trying to sell you something.

Here is an example: what type of business structure is best for you? Let’s look at the background on how you can go down a wrong path on this seemingly simple question.

Most first-time entrepreneurs are, shall we say, financially challenged when they make the decision to launch a business – so the urge is to scrimp wherever possible. That’s good in many areas, but not in others. Go ahead, scrimp on the salary you pay yourself – until you know you can afford the salary. Scrimp on the initial business digs, unless, of course, there’s a bona fide reason to do otherwise, such as presenting a good outward face to customers. Definitely, scrimp on the Friday afternoon Happy Hour parties until you have enough money in the bank to carry you over a good long dry spell. Scrimp on the 3-color print jobs for business stationery and business cards – and the decision on that needs to be made early, when your fancy-schmancy business name and logo is under design for your website page.

But don’t scrimp on professional services that are so necessary for getting you started. Paying two hundred bucks an hour for an attorney for legal advice on a partnership agreement, or an LLC operating agreement is probably the best money you can spend. Paying for the advice of a tax accountant on the tax advantages of a sole proprietorship, a partnership, an LLC, or a corporation can easily pay back many times that in the future – and the old saying is definitely true . . . this is an area where you can’t afford not to.

Let’s go back to the cash flow/budget mentioned above. You’ve created the world’s best and newest gizmo (or designed an unbeatable replacement for yesterday’s best and newest gizmo). You haven’t settled on pricing for it yet, but figure you’ll just undercut other products already out in the market by a few bucks. But you have no idea of what went into the competition’s pricing algorithm – how much money they have in the bank to weather business ups and downs, what their cost to produce is, or what their required profit margin is. The product you’ll be competing against could be a loss-leader for them, and they really make their money on a second product – and you only have one arrow in your quiver.

Unless you can develop a comprehensive cash flow/budget – one that projects forward for an entire year, and shows actual revenue and expenses for the past year – you’ll be operating with your eyes blindfolded, lying awake each night and hoping it’ll all work out. Created as an Excel-type spreadsheet, the cash flow/budget allows you to play what-if scenarios with your pricing. It lets you plug in the cost of the new equipment you hope to buy two months from now, giving you more confidence that you can really afford it. It lets you see that Product A has a gross profit margin of 47%, whereas Product B is only 24%, and from that you can decide whether to cut costs and increase sales for Product B, or increase your emphasis on Product A even more.

When it comes time to hire your first employee(s), what do you need to know before you put out the first feeler (job posting or talk to a friend-of-a-friend)? During job interviews, if you say the wrong thing (such as, “with your job skills, you have a job here for life”), you can lose your “at-will” employer status with that employee – and that can create huge problems if later the employee just doesn’t work out as expected, but you don’t otherwise have good cause for termination. If you aren’t aware of the questions you can/can’t ask an employment candidate, you can be hit with a discrimination claim – and you likely won’t even know it’s coming until the EEOC comes calling.

And what about benefit packages for new employees? To a first-time entrepreneur, none of the employee benefits you hear about seem affordable. But this is another area where you can’t not afford them if you want to attract and keep quality employees.

Example: you’re growing a very small custom home remodel business and you need a really good, highly skilled finish carpenter to add to your work crew. You interview a guy with a very good background and you’re convinced this is the candidate for you. But then he says, “Do you have a 401(k) plan, and how much do you match – my current employer does, and they match a third of my contribution – can you offer that?” Uhh, no, you decided you can’t even afford the couple thousand dollars to set up a 401(k), let alone match employee contributions. The result is, you have to get by with a second-string finish carpenter, and the homeowner complaints and do-overs end up costing you more than the benefit would have.

Then you discover that your competitor seems to be getting all the buzz, expanding faster than you are, able to leap frog you in their product development, and they just seem to have a sparkle about everything they do that you just can’t seem to match. Maybe it’s their company culture that’s giving them the edge over you – or put another way, maybe it’s your lack of a positive company culture that’s holding you back. How do you develop a culture within your company that will drive your employees to follow you to the ends of the earth, or customers to buy from you even though your prices are a bit higher or they have to drive five miles more to get to you? It’s easy to recognize a good company culture when you see it – but how do you even define (or describe) the culture you’d like to have, let alone go on to actually create it? Your company’s culture is something you need to start working on the day you open your business doors – subtly, and little by little – and you have to keep working at it every day thereafter.

And just when you think business is on the rise, one of your employees leaves, taking in his head the details of a unique process that really gave you a competitive advantage. But you hadn’t thought ahead of time – such as when you hired your first employee – about company proprietary information, trade secrets, or intellectual property – and therefore, didn’t require your employees to sign non-disclosure or proprietary information agreements when they hired in. If you can prove that the ex-employee took company trade secrets to another job you might be able to claim damages. But without an agreement that binds the employee from doing that, you have an uphill (and likely, costly) battle. And don’t think this applies only to your top notch geniuses in the back room – administrative and accounting people likely know who every customer is, your pricing information, and a lot more about your business than you’d like your competitors to know, so proprietary information shouldn’t go out the door with them either.

All of these topics are likely to be off the radar screen for most first-time entrepreneurs – yet each of them can break the back of a new small business. When it does, it’ll be a perfect example of “I didn’t know what I didn’t know” . . . until it was too late.

Future posts on this blog will cover topics like these, in great detail, and categorized by topic, enabling the archives to be searched to find them. This way, you have a very good chance that you’ll already know where to look for the answer.

Stay tuned here at www.turning-ip101.com for the announcement that Start-Up: An Entrepreneur’s Guide to a Successful Small Business is available at Amazon – it will be your handy pocket guide for everything you need to know . . . at the time you need it.