Should you become an entrepreneur?

There are probably 92 gazillion articles out there on how to be an entrepreneur. Most of them assume that you've already decided to go it alone and are ready to become the next Steve Jobs, Larry Page or Anita Roddick.

That sort of ignores the people who are sitting at a desk or their breakfast table and asking "should I become an entrepreneur" because let's face it, the idea of having no one to turn to but yourself when things get rocky is just plain scary.

Here are 5 questions to ask that may help you take the plunge.

1.  Is there a compelling need for what I want to do or make?

Notice I didn't a say "a market for" something. Demand can be created. That's sales, not vision. What you need is the vision to see where something you do or have solves a problem for someone. We are not talking about inventing the internet here. For example, the dawn of the computer age created a need for smaller, more mobile devices, which led to laptops, which led to the smart phones of today and a market for creating apps.

2.  Does your passion line up with your personality?

Are you a bulldog or a greyhound? Some entrepreneurs are fabulous at conceiving an idea and taking it to a certain level, but then they get bored and want to move on to the next big adrenaline rush. Others are prepared to handle every aspect of an idea in minute detail. Each type can be successful, but they can also waste a lot of money and effort by not matching their personality to their passion.

3.  Can you ask for and accept help?

The most attractive part of being "self-employed" for many people is the "self" part. The idea of not having a boss can cause some people to think that asking for help is a sign of failure. No one knows everything or does everything perfectly.  Know your weaknesses and recruit to overcome them, not to showcase your strengths.

4.  Are you a planner?

In my business I work with a lot of fledgling businesses, both for-profits and nonprofits. I can absolutely attest to the truth of the old saying that those who don't plan absolutely do fail. Planning is about facing reality. If you are afraid to confront facts, you are dragging a ball and chain into your new venture.

Philosophically, it might be better to try and fail than to never try at all, but it's also damned expensive.

Lay it all out on paper.  Sure, maybe you will come to the conclusion that your idea is not viable. So what? Isn’t it better to find out now before you bankrupt yourself? More likely though, your plan will reveal a smoother path to success by identifying and steering you around the rocks in the path or even to a new and better path.

5. Do you know how much entrepreneurship you can afford?

It doesn't matter if you want to save the world or invent the next great fly swatter. It all takes cash and there is only so much of it to go around.

One of the hardest things for me to get through to would-be entrepreneurs is that there is no money fairy. In any business plan, there is something called a SWOT analysis…Strengths, Weaknesses, Opportunities and Threats. The most common weakness is not  being under-capitalized, but having no strategy to overcome that problem.

You may know exactly what the pinnacle of success looks like to you, but you can't start there.

The only business I know of where you can start on top is grave digging, and the only place to go with that is down. It's unlikely that someone is going to give you a million tax-free dollars to start your business so be realistic. If that means starting your business in a garage, well, a couple of guys named Steve were pretty successful with that approach.

5 Tips to set a true-cost operating budget for your start-up.

Most lenders, investors and even grantors require some sort of business plan when considering whether to invest in a start-up. One of the first things they look at is your cost of doing business projections. If they find that part lacking, they seldom look further.

  

When I'm working on a business plan for a new enterprise, whether nonprofit or for-profit, most of the initial budgets I see fail to include some fairly non-negotiable costs. Here are some areas to consider.

1. Government-required payments

Almost without fail, one area that trips up a lot of new business owners is the amount they have to include for what I call government and legal compliance costs.

Some people do include the FICA costs, i.e. the 7.53% of payroll that the employer must remit to the Feds, but fail to include costs for state and Federal unemployment assessments, workman's compensation premium payments, local taxes and licensing, liability insurance, and any professional association fees or licenses that are beneficial to or required for the business. Also, new costs associated with new laws like the ACA many factor in as well.

2. Advertising and marketing

Another often under-estimated cost is advertising. There is a prevailing attitude that everything can be done online, and it's free. No matter how wide-ranging your business plans are, all businesses have a local component, and this is particularly true for nonprofits or small retailers.

Revving up local interest can be expensive.

Websites and domains cost money. One of the popular web hosting sites that advertises ".99 cent" websites has initial start-up costs for the domain and the initial website hosting starting at around $75.00/yr for a completely static site. Add any sort of customer interaction (blog, email sign-up, mobile friendly,  etc) , and the price can triple.

As great as it is, the internet isn't a foolproof business growth tool. Running a few spots on the radio, a 15-second spot during your local news program, or utilizing any other form of "traditional" advertising avenues may be necessary just to drive traffic to your site or social media page.

3. Legal or professional costs

Sure, you may be able to get some sort of generic business document template and file it for a few dollars, but that's just the start. All states have specific documents, i.e. non-discrimination clauses, by-laws, and a multitude of other things that you may need the help of an attorney or other professional to complete or at least explain.

4. Wages

Believe it or not, you won't be able to "do it all" for very long. Even nonprofits usually find themselves at the point of needing at least one employee that they can count on being where they are supposed to be when they're supposed to be there.

5. Daily expenses

Things like utilities, phones, office supplies and equipment aren't free. Even donated equipment has to be maintained and replaced when it breaks. Having an allowance for these items is not optional.

Almost without exception, when I am working on a business plan for a client I find that they need to increase their annual cost projections by 25-40%, and that naturally affects the amount of revenue they need to break even as well.

Are your cost projections reasonable?  If you'd like a review, drop me a line at rightwords@ida.net and we can discuss them. 

How to make your first budget work for you

One of the things that seems to frustrate most new businesses, especially nonprofits, is the "imaginary budget," also known as the projected budget, an exercise required by most lenders and grantors.

Of all the sections of a business or strategic plan, this is the most one often ignored or done badly.

Having looked at too many start-up budgets to count, I find that most people tend to pick a desired revenue number and make the budget arbitrarily fit that figure.

I see a lot of grant requests from new nonprofits that begin "We need $1.3 million dollars this year  to accomplish our goals." In reality, that's what they will need a few years down the road, not now.

That leads to things like allowances for a $20,000 website, $1 million buildings and marketing budgets that would be the envy of a lot of Fortune 1000 companies.

Budgets like this turn off donors, grantors and bankers. They advertise that the person or organization hasn't done their due diligence, or that they have no concept of financial development and management.

That's a bad place for you to start.

A beginning budget isn't going to look anything like your eventual goal.

 

You have to start with where you are, not where you want to be in the future, and then build up to your desired goal.

Let's inject a modicum of realism into the process.

Let's take the $20,000 website. There is no doubt that you can sink that much money into developing a website, but do you really need it in your first year? I would submit that given all the hosting companies that want to capture your business, you can probably get one that will suffice for the first year or two free or nearly free, and many of them don't require any coding knowledge at all.  Even if you need to process payments or donations at the start, most of the major players offer e-commerce packages for under $50.00 a month, sometimes substantially under.

Investors and supporters know that too, so your line item of $20K for a website simply tells them that you won't be spending that money on your core business or program.

Good budgets start with realistic planning. You may eventually want to feed 10,000 hungry people or sell 100,000 handbags, but you aren't going to do it today, next week, or this year.

Take the time to find out what things actually cost.  I well remember getting a budget for a charity wanting to provide a safe after-school environment that allowed $10/day for a single snack for each child. A quick check of the national averages showed that the range was from $.60 to $1.50/day, making it impossible for me to sell the $10 snack to any grantor.

Your dream may be to have a 20-room building for sheltering domestic violence victims, but you may have to budget for vouchers at a motel in the beginning.

The other side of any budget is the revenue side, and your base revenue target is dependent on your break-even cost.

If your initial costs are out of line, then your revenue target will also be out of line.

I once got a request to construct an investor-grade proposal from someone with one of those ideas to manufacture something that makes you say "Wow! Why hasn't anybody thought of this before?"

The marketing and manufacturing process side of the proposal was well done, but when it came to manufacturing costs the client had made some very unrealistic assumptions. That resulted in his costs of manufacture being some 2.5 times higher than he could cover with his targeted selling price.

That impacted the whole proposal. Now instead of a product with a cost that was easily manageable by almost anyone, his target market shrank to upper-middle class and above customers, shrinking his projected sales figures and thus his revenues, by more than half.

If you don't know how to fact-check costs, or simply don't have the patience to do it, hire someone that can do it for you.

In conclusion, budgets aren't sexy or inspiring, but doing them right will pay off big in the long run. The first thing you need to sell is yourself or your organization, and good budgets make good first impressions.

8 things you should do before starting a new venture

Notice that the title says venture. It doesn't matter whether it is a for-profit or nonprofit, these 8 tips will make your start-up life easier.

1. Define your reason for starting something new.

It doesn't matter whether it’s a charitable cause or a retail business, if no one needs what you are going to invest a lot of your time and energy in, or there are a million others doing the same thing,  it has a greater-than-average chance of failure.

2. Define your strengths and weaknesses.

No, not the strengths and weaknesses of your business or nonprofit idea. Your strengths and weaknesses. Maybe you are an antisocial recluse, but you make beautiful handbags. It doesn't matter what your personal pros and cons are, only that you recognize them honestly.

3. Recruit supporters that complement your weaknesses, not your strengths.

In the example above, you would look for people that love social interaction and marketing to pitch your beautiful handbags to the world.

4.  Set attainable goals.

Sure, you have a vision of what your venture will look like when it is a mature business or nonprofit, but give yourself a break. Start with smaller but attainable goals. Nothing breeds success like success, so set yourself up to win.

5. Don't let an occasional failure defeat you.

If you are trying, then you are going to fail in something at some point. Use it as a learning experience and move on. If you are failing constantly, see #6.

6. Be flexible.

It doesn't do any good to build a better mousetrap if there are no mice to catch. Don't get stuck on a mental one-way street. If there are no mice, and mice eat cockroaches, there might now be too many cockroaches, so build a better cockroach trap. Adapt to survive.

7. Accept that you can't do everything.

Rigid things break more easily than flexible things. Some things are worth doing yourself, but insisting on doing everything yourself will eventually lead to nothing being done quite right. Learn when and how to ask for help and accept it graciously.

8. Don't ignore proven methods just because you think they are old school.

The reason some methods hang around for decades or even centuries is because they work. It's fine to innovate, but if the innovation doesn't produce a better quality result or produce it faster or more economically, then it's a waste of money, time, energy or all three.

You may have noticed that all of these hints are about you.

There are a jillion tools out there for you to use in building your new venture, but in the end, it will all boil down to you.

I write all sorts of B2B, B2C and nonprofit verbiage. Grants, brochures, marketing copy, web copy, blog posts, press releases, you name it and I've probably done it for someone.

The things I write are tools. The online courses you see advertised are tools. Formal education is a tool. The shiny new computers and smart phones are tools.

The thing about tools is they need someone to pick them up, learn about them, and then use them, and that's you.

If master these eight things, you are going to be head and shoulders above most of your start-up peers.

Have questions? Feel free to contact me at rightwords@ida.net. Let's talk!