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2011

What’s the right way to start a small business?

 

by Reed Richardson.

 

Though many of today’s budding entrepreneurs are well versed in the latest technology and adept at leveraging social media, one age-old business question can often trip them up on the road to success: How much time and effort should be devoted to the small business when you’re just starting out?

 

With seemingly more pressing concerns like product development, marketing strategy, and capital funding looming over a new small business owner, focusing on this question can seem relatively unimportant. Indeed, for some, Starting-your-business---Pull-Quote.pngparticularly the millions who have lost their jobs due to the struggling economy, the answer about how much effort to put into a new entrepreneurial opportunity may appear obvious. But for many others, the choice isn’t so clear. “Jumping into an entrepreneurial opportunity full-time, especially in this economy, still makes a lot of people nervous,” explains Farmington, New Mexico-based small business advisor Steven Schlagel.

 

But launching a new venture as a side or part-time business has its own set of issues. Companies that linger in an incubation stage with little steady income (or even taking steady losses) and no employees can often have a harder time achieving enough momentum for liftoff. According to the SBA, sole proprietorships that have yet to bring in an employee are three times more likely to fail than companies that have already hired someone.

 

To fully evaluate how entrepreneurs can best answer this “go big or side gig” question, business coach Schlagel, who also runs the my-small-business-mentor.com online coaching site, tells new clients to first think about what they want their future life to look like. “I ask them what their long-term life goals are and what they would want to accomplish with their small business, and then we start figuring out how to best meld those two things together.”

 

Consider test-driving the entrepreneurial lifestyle first

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Entrepreneurs come from all walks of life and bring with them a broad range of motivations, constraints, personalities, and goals. As a result, easing into the small business arena part-time is often an attractive alternative. The part-time approach also allows entrepreneurs to prepare for how their small business will intertwine with their personal lives. Failing to do so could be laying a foundation for disaster down the road.

 

Indeed, an entrepreneur’s personal life and its attendant responsibilities, Schlagel points out, mustn’t be overlooked when launching a small business. “A lot of times, if an entrepreneur is supporting a family, those commitments will necessitate taking less risk initially, making a part-time enterprise a more reasonable starting point,” he explains. “Some people won’t lose any sleep over the idea of putting millions of dollars of personal assets on the line and failing, as long as they learn something from it. However, if you’d be scared to death over these day-to-day risks, perhaps you’re not yet ready for a full-time entrepreneurial opportunity.”

 

By rolling out a business at a more controlled or piecemeal pace, entrepreneurs can enjoy the luxury of being more deliberate in their decision-making process, working out some early (and inevitable) kinks, and possibly even avoiding some bigger mistakes. Often, starting out part-time allows a small business to test whether or not its products or services are actually marketable and profitable without jeopardizing all of the owner’s personal and financial assets along the way. “Part-time ventures can enable you to phase the small business lifestyle in slowly and can be a great stepping-stone to a viable full-time entrepreneurial opportunity,” notes Schlagel.

 

Your small business’s structure may answer the question for you

 

Sometimes a small business’s organic evolution makes starting part-time a natural choice. Take Gunner’s Recycling, a Nashville-based business that began 18 months ago when five-year-old Gunner Sweeney noticed that his hometown’s recycling program didn’t pick up unwanted glass from homeowners. Working with his dad, Mark, Gunner convinced six neighbors to pay them a small fee for the pickup and delivery of their leftover glass, using the family’s SUV.

 

“When we first started it wasn’t even a small business idea. It was just a way to spend time with my son, help the environment, and teach him a little about money,” explains Mark, who was, coincidentally, enrolled in Belmont University’s MBA program at the time. From that humble start, however, the project took off and the Sweeneys quickly found themselves with a viable small business, one that now has more than 350 customers. As a result of this growth, Gunner’s Recycling has incorporated, bought a dedicated delivery truck, rented warehouse space, and hired its first employee. “Still, it was a hobby first and then we turned it into a side business, which allowed us the time to build a business plan with an exit strategy and figure out the right leverage we need to grow to full-time,” Mark says. “We’re about three-quarters of the way there now.”

 

One the other major steps along this path involved Mark quitting his full-time corporate job as a financial planner to focus more on the recycling business. (He maintains another side job for extra income.) But it’s notable that his trigger for taking such an important step didn’t center on spreadsheets or dollar signs. “It was really based on my personal passion,” he recalls. “I’d wake up in the morning and not want to go to work at my day job, I’d really want to go work on our small business instead.”

 

Taking it slow can sometimes lead to stalling out

 

While Gunner’s Recycling is growing quickly, its total customer base is a fairly finite and limited universe and its organic evolution naturally lent itself to a part-time approach to start. But entrepreneurs seeking a much larger market horizon, who have dreams of taking a startup from their garage to the ranks of the Fortune 500, may need a more dedicated commitment from the get-go.

 

In a SmallBusinessOnlineCommunity interview from last summer, Mint.com founder and serial entrepreneur Aaron Patzer explained that his early small business experiences taught him about the pitfalls of a too-cautious start. “I found out [one of my early businesses] had a much smaller market than I thought and I tried to do it while I was in school. So, I didn’t give it 100%,” he recalls. “What I learned there was that if you’ve got a good business idea, you have to give it 100%.”

 

As a result, when it came time to rollout Mint.com, Patzer, wary of making the same mistake again, quit his job and spent nearly a year working full-time on fine-tuning both the product and the marketing pitch. And from that experience he learned another valuable lesson about entrepreneurship. “There is a difference between a startup and a small business. A small business typically starts out with one location or with one set of clients and then it expands out,” he says. “With a technology-based startup like Mint, [I was] attempting to go national, or international, from day one.” That vastly larger initial market meant a part-time approach wouldn’t have been able to raise the necessary capital for launching the business on such a broad scale, he notes. “It’s a high-risk but also a high-return proposition if you make it.”

 

Besides a high degree of scalability, other structural considerations can make a part-time start a difficult choice, like if your proposed business will require a physical storefront or rely upon walk-in traffic for most of its sales revenue. Rarely can an entrepreneur afford the overhead of renting a retail space without keeping regular business hours. Of course, hiring employees to staff the store solves this problem, but that too is a significant step in the life of a business and adds in many other complications for part-time entrepreneurs that may make jumping in with both feet ultimately a better choice. “While part-time ventures let you phase into the lifestyle, there’s a risk that the business stagnates and never goes any further,” cautions business coach Schlagel.

 

Sometimes impatience can be a virtue

 

Mark Rudder, owner for the past decade of the Tulsa-based graphic design and sign manufacturing company Signs & Wonders, has been on both sides of the part-time/full-time small business coin and says he greatly prefers the latter. “I worked a 9-to-5 job while running a sign business on the side, but when I got home each night I was so burnt out I didn’t have the energy necessary to do both,” he recalls. “Time is an entrepreneur’s most precious asset, so I finally asked myself ‘Where would I rather have my focus full-time?’”

 

Indeed, there is no substitute for real-life experience and, for many entrepreneurs, keeping a day job while running a side business can quickly turn into the equivalent of trying to learn how to ride a bike without ever taking the training wheels off. And though it might require bootstrapping your finances and creatively marketing your products or services, the sink-or-swim philosophy can often serve to sharpen one’s business focus and accelerate a company’s growth. “Sure it’s easier to work for someone else, but I’ve found there’s more personal growth in working for myself,” Rudder says. “So, why would I want to spend 40 hours a week building someone else’s business, when I could be using all that time to be building my own?”

Starting-your-business-article2.pngby Reed Richardson.

 

Matt Mireles vividly describes it as his “hallelujah moment,” that point in time two-and-a-half years ago when the notion of starting his own business suddenly made perfect sense.

 

“After trying a number of other things in my life, I still felt like I hadn’t quite found my niche,” recalls Mireles, who is the founder and CEO of the Silicon Valley–based startup SpeakerText. But after a five-week entrepreneur’s course at the Stanford Graduate School of Business, he says he realized, “this is what I was born for.”

 

Ben Plikerd speaks of an altogether different experience. After starting a small, part-time computer repair business more than a decade ago simply to earn a little extra cash, Plikerd now sits atop a budding entrepreneurial empire comprised of seven different IT, communications, and real estate corporations that stretch across northern Indiana. Last year, all these ventures brought in annual revenue of roughly $2.8 million. But despite this success, Plikerd recalls on his personal blog: “there was never a day when I woke up and decided that I’d become an entrepreneur.”

 

Talk to enough entrepreneurs and you’ll no doubt hear a similarly broad cross-section of stories, explains Belmont University’s Director of the Center for Entrepreneurship, Jeff Cornwall. “Some come to it because it’s what they’ve always wanted to do,” explains Cornwall, who founded a number of successful health care start-up ventures in the ’80s and ’90s before embarking on his academic career. “But other people find it along the way or have it kind of thrust upon them. They’re what I call accidental entrepreneurs.” As a result of this diversity of thought and experience, Cornwall says, “The best predictor of success for entrepreneurs is not who they are but what they do.”

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Beware the “Facebook effect”

So, is there any way to know if the entrepreneurial life you’re contemplating is right for you? The answer often depends not on the path you take but the reasons for choosing it. That’s why, to avoid putting the proverbial entrepreneurial cart before the horse, Case Western Reserve management professor Scott Shane recommends investing some time into carefully considering your motivations behind such a move. “One of the reasons the failure rate is so high is because many people say, ‘I want to be an entrepreneur, now I have to figure out what I want to do,’” he explains. “If the motivation to be an entrepreneur comes first, there’s a danger.”

 

As the author of the 2008 book The Illusions of Entrepreneurship, Shane attributes some of this pre-emptive launch behavior to what he calls the “Facebook effect.” Every so often, a startup like Facebook rockets out of obscurity to achieve fame and billion-dollar riches seemingly overnight, its meteoric trajectory romanticizing entrepreneurship for a whole new batch of dreamers. But for an overwhelming number of them, the reality is much less glamorous and financially rewarding. “Eighty percent of new startups are non-employer businesses that bring in a median of $45,000 in sales a year,” he notes. Couple these income figures with a failure rate of roughly 50 percent after five years and it becomes clear that the chances of becoming the next Mark Zuckerberg are almost astronomical.

 

Still, Shane has discovered that many push on, regardless. In fact, he cites surveys in which as many as 40 percent of entrepreneurs acknowledge that their new business offers no competitive advantage over others in their marketplace. “I mean, if the owner of the company already believes that, then why start the business in the first place?” Shane asks incredulously. “What we see in many of those cases is that motivation overrides common sense.” What are the warning signs of entrepreneurial ambition run amok? Shane says they include launching a small business without having any kind of expertise in that specific industry, choosing to forego any kind of a business plan, and placing no financial controls on a new company.

 

You gotta have a certain personality, right?

“I’ve learned in my own years as an entrepreneur—and now an entrepreneurship professor—that there is a gut level ‘fit’ for people who are potential entrepreneurs,” writes Daniel Isenberg in a recent blog post at the Harvard Business Review. And though Isenberg, who teaches management practice at Babson University, acknowledges that the 20-question test he developed for HBR was done quickly and somewhat tongue-in-cheek, he maintains, “There’s some truth there. People who make the leap have those attitudes.”

 

Still, Isenberg is quick to say that if someone doesn’t ace his test that doesn’t mean they lack some “entrepreneurial DNA” necessary to succeed. “There isn’t a gene for entrepreneurship,” he points out. “For any occupation, there is only a very, very low genetic component.” Basketball players do tend to be tall, he acknowledges, but he also points out that an overwhelming majority of tall people are not successful basketball players. “In fact, our research shows that most talent is not innate, we’re not born with it.” But what about the notion that entrepreneurial aptitude correlates with characteristics like a willingness to take risks and an abiding passion for following one’s dreams?

 

Ask SpeakerText’s Mireles and he’ll agree that launching a startup usually involves absorbing a certain amount of chaos and uncertainty into one’s life. (For more on his long, strange trip to becoming an entrepreneur, check out Mireles’ personal blog.) However, he is quick to add an important qualifier. “There is risk-taking, yes, but I think if you’re successful you don’t take stupid risks,” he says. “Instead, I call it having strategic courage.”

 

Isenberg agrees. According to his research, the most important characteristics needed for a successful entrepreneurial career involve the ability to cope with large amounts of uncertainty—a term he also uses instead of the more loaded word “risk”—and an ability to lessen that uncertainty incrementally by taking action. As for the need to be passionate, Isenberg emphasizes that budding entrepreneurs need not lose sleep if they can’t conjure up fiery emotions every time they think about their small business idea. “Most people think that passion is a critical part of entrepreneurship,” he says. “That’s really a big myth.”

 

Keep an open mind

More than a decade into what easily qualifies as a successful entrepreneurial career, U4 Corporation CEO Plikerd says he still experiences moments that leave him scratching his head. “There’s always stress, even now,” he explains. “But I got to where I am by not being afraid to ask questions when I didn’t know how to do something, even if that meant that I looked like the dumbest guy in the room.”

 

Unfortunately, says Plikerd, many of the small business tenants he encounters now in his capacity as a commercial real estate owner don’t share this affinity for curiosity and adaptability. “By now, I can usually tell within 15 minutes of meeting them and asking them questions about their business whether or not they’re going to make it,” he says.

 

Professor Cornwall echoes Plikerd’s anecdotal impressions. “Those [entrepreneurs] that work out the best are the ones willing to listen. Those that aren’t willing to adapt and change and instead just blame the ‘stupid customers’ for not buying their products—they’re the ones that are bound to fail,” he says.

 

But perhaps the most important thing to remember when contemplating an entrepreneurial endeavor is that, like everything else in life, you’ll likely get out of it what you put into it. “Starting a small business, technically, is a very simple process,” Cornwall points out. “However, it is a lot of work.”

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