 |
Startup steps 3 & 4
Startup steps three and four
This page addresses steps to startup number three and four of the ten steps needed to start your own business: 3. Do I want to build it from scratch, buy existing or buy a franchise?
Startup steps for your business This question is a classic MBA ‘make vs. buy decision.’ There are huge books written about how to make this kind of decision for your first startup steps. If you love statistical analysis and if you have a finance background you may want to consider this approach. For those of us who don’t there are some less technical ways to make this decision. Should I buy an existing business as a first startup steps for my business? Let’s begin by considering buying an existing business. The obvious question to ask is if there an existing business available? Is it for sale or likely to be for sale within the foreseeable future? What is the business worth? Is the current owner willing to sell the business for that price? Commonly a business owner has an inflated value of their business, so there may be room for negotiation. Let’s take a real life example. My husband found out that a newspaper on auto racing was available for sale. The owner was losing money and wanted to get rid of it. My husband was interested in racing so he met and discussed the business with the owner. The owner said that he wanted $150,000 cash for the sale of the publication. Because I was less enamored than my husband with the topic I did some research and found out that newspapers commonly book subscription revenue such that when they stop publishing they have to pay back all of the subscription revenue they’ve collected. In this instance that amounted to about a $130,000 liability. We saw room for negotiation. We went back to the owner and said we’d pay him $12,000 over four years AND assume his $130,000 subscription liability. He wasn’t happy, but he did eventually agree to the deal. This allowed us to buy an existing business with essentially no money down. This happens MUCH more often than you think, especially with distressed buyers. Figure out why they’re distressed and you may end up with a SWEET deal. Tip 4: When you can get favorable terms (no money down or a land contract) it’s USUSALLY less risky to buy an existing business rather than build from scratch because it helps you avoid much of the startup costs and is usually startup steps for your business. Why not franchise as startup steps? Buying a franchise is another way to avoid some of the risks of early startup steps of a business from scratch. Link to the franchise page (link) to learn more about the pro’s and con’s of franchising.
Finally, if you must, start from scratch If you’ve exhausted all of your options and there aren’t any businesses available to either buy or franchise then your decision is easy. You have to build from scratch. More than 50% of new businesses start from scratch so you’re not alone. Also starting from scratch allows you to design it JUST the want you want it. So enjoy it and have fun!! Tip 5: When you start a business from scratch try to be as flexible as possible so that you design a business that TRULY delivers the goals you’re interested in. There is ALWAYS more risk when you start something brand new but often there is also more reward. Startup steps for your business I’ve devoted an entire section of this website to business planning just like everyone who writes about starting a business does. (SEE PLANNING LINK) You see it over and over again. Why? You MUST write a business plan! Does that mean people do it? No! I would argue the SINGLE biggest mistake entrepreneurs make is not spending enough time planning before they launch their business. I’ve thought a lot about why this is true. My father was an entrepreneur and he totally refused to plan. I’ve worked with many small businesses and it’s almost impossible to get them to do ANY planning. I’ve reviewed business plans that projected HUGE losses but the plan was ignored. Why would this be? These people weren’t stupid and they had a lot of business experience. The answer that I’ve come up with is that they think planning is a WASTE of time and they want to start WORKING on their business and planning is nonsense. Some sort of colorful metaphor is usually included. They don’t believe in planning. I couldn’t disagree more! The reason you plan is so you can ACT according to plan. But many people don’t want to deal with the difficult decisions that planning forces you to confront: How am I ever going to make any money? Marketing is a waste of time… I KNOW HOW TO SELL!! I don’t want to spend a lot of time writing down what I’m going to do, I want to DO IT! There are two types of operational modes I’d like to share with you. The first is “React Mode,” which is what you do when something comes up and you don’t have a plan for how to handle it. Many small business owners merely react to situations. You might also call this “panic” mode, because panic is commonly associated with it. Secondly, there is “Execution Mode,” which is operating according to plan. This enables the business owner to relax, make the necessary adjustments and focus on the plan. NFL coaches plan extensively, and then they make halftime adjustments, or adjustments from one series to the next. All I can tell you is I’ve worked with MANY businesses and those that plan reasonably well survive the difficult times and those that don’t usually end in failure. Tip 6: Create a plan that is short (maybe you can fit it on a napkin), to the point and gives you guidance for direction and decision making. If this isn’t clear to you SPEND MORE TIME PLANNING!
|
