Should I Start a New Business?
Launching a new business takes a lot of planning, a good product, and careful financial forecasting. More than that, launching a new business takes massive amounts of time, energy, and risk-tolerance. So the first question at hand is...
Should You Be Starting A New Business?Launching a new business is a daunting task, requiring great energy and an even greater ability to consistently assess the business. Personality plays a large role in the success of the business. You always hear that being an entrepreneur requires a certain passion. Quite often, businesses are launched based on passion alone, although this strategy is not recommended. On the opposite end of the spectrum, great ideas are often never launched because of a certain mysterious analysis paralysis.
Before you start your business, do a reality check. Launching and running a small business requires a certain type of entrepreneurial personality. So slow down, take a deep breath, and answer some basic questions before you go forward.
What's Your Personal Tolerance For Risk?Starting a business is highly risky. The odds of survival are not in your favor. Generally a new business requires at least two years of hard work before achieving an acceptable level of success. Do you have the tolerance for this kind of risk? If you don't like risk, then consider very carefully whether you're a good candidate for starting a new business.
What Are Your Personal Resources?You'll need to review your resources on several levels. First, review your personal financial situation. How much money do you need every month in order to pay your bills and survive until the business can pay you a decent salary? Can you cut your personal financial obligations to focus on the business without worrying about personal debt? Will you have the support of your family if you decide to launch your business? You will absolutely work longer hours, most likely for a significant pay cut for several years before the business is stable and profitable. Carefully review your personal financial resources before undertaking the risk of launching a new business venture. Plan very wisely if you're considering financing your venture with personal assets that may be very difficult, if not impossible, to replace such as a retirement account. Sometimes assuming failure rather than success sheds a different light on whether to tap resources that are vital to your future.
What's Your Industry Experience? Do you have direct experience in the industry that you're considering entering? Knowing your industry is essential or you'll face a steep and risky learning curve. And steep learning curves often translate into a greater chance for failure. Having industry experience also means that you know people in the industry that can help you. Also, if you do have experience in the industry, is that experience in a management position? There's a big difference between being an expert in your particular field and knowing how to manage the entire process of getting a product or service successfully to market. If you don't have specific management experience, it's imperative that you get help from someone who does. Seek guidance from industry experts. We strongly recommend contacting your local SCORE chapter, along with contacting local SBDC (Small Business Development Center) offices. Your number one priority should be to educate yourself about the big picture of running a business.
What Type of Business Should You Start?Choosing the right kind of business is critical. Is the business you're considering a high-maintenance or low-maintenance business? Can you automate any of the processes, or will the company offer only highly customized products? Consider carefully the amount of energy required to establish a manufacturing or service process. Is your product or service easy to manufacture? If your manufacturing process is high maintenance and requires a high degree of customization per unit, you face an uphill battle to squeeze out a large enough margin per unit to generate a high enough net revenue to survive. With the help of an accountant, create conservative financial forecasts that show the projected returns are worth the risk. An important first step is to look at business plans that are similar to your business and to talk with other business owners for insight.
Set Realistic Goals for Starting a New BusinessMost importantly, set realistic and conservative goals. These goals can be tied to important milestones that help you see the big picture. Your goals and milestones can be managed through the diligent use of a business plan. You can drastically reduce the risk of failure by developing a business plan that includes careful, conservative financial forecasting. I can't stress enough the importance of forecasting your cash flow. Most new businesses fail because the company's cash flow wasn't adequately forecast -- they simply run out of money to cover costs. Just as important is updating your business plan on a regular basis. Quarterly updates are a great way to incorporate what you've learned and better project your financials based on your new-found knowledge.
Be A Tortoise and Not A Hare When You Start a BusinessFinally, consider starting slowly. If you are currently employed and have a steady paycheck, start the business on a trial basis in your spare time. Bootstrap the company as much as possible until you have a better idea of the company's actual month-to-month costs. Use the trial to discover a) if there's a market for your product, b) if you like doing the job, and c) what profit margins and actual costs you can expect. Only then can you make informed decisions, including when to transition from a steady employer's paycheck to part-time business owner to full-time business owner.
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