Invest In the Right People for Your Start-up

As Strong As Its Weakest Link

 
All new start-ups are desperately searching for the same thing: Capital. All new companies need money and resources in order to get their new product and service moving and growing. But financial capital is not the only capital needed in order to get your business off the ground towards future success.
 
Like the old saying goes, a chain is only as strong as its weakest link; a business is only as strong as the people who form it. Without finding the right mix of people to manage capital and resources a business is bound to fail. Human capital is what ultimately determines the success of financial capital.
 

Finding the Right People

 
Each entrepreneur is different and desires something different out of his/her start-up. The differences may be in culture, principles, ethics, finances, and the list goes on and on. At the end of the day every entrepreneur has a long term vision of what they want to accomplish with their business. As you look to start your business you probably have a similar vision or end-goal in mind. Find people who are willing to support that end-goal and have similar motives.
 

Bring in Skill Sets that Add to Your Own Then Build

 
Nobody is an expert at everything, even though we may try to be. The best thing a new business owner can do is recognize personal strengths and weaknesses then look to build upon them. Often in the early days of a start-up it is nearly impossible to add a significant list of employees but you can seek advice when needed. Build an advisory board and seek out expert opinion on how to handle business matters where you may need help.
 
As the decision to add employees is made consider the areas where you may be deficient and fill those first. It’s amazing how much more can get done if differing talents are combined. Not always will your employees agree with you, or you with them, but differing opinions lead to good discussions. These discussions are healthy if handled correctly and will lead to better ideas. Good managers will bring in people with unique skill sets and then create opportunities for others to further develop those talents.
 

The 1/8 Rule

 
It is important for any new organization to plan the future of its organizational structure. Doing so enhances the ability it has to promote growth and development from its members and leads to organizational competitive advantages. Organizational structure and hierarchy can be a turned into a strategic advantage.
 
Studies done on organizational behavior (OB) have determined what is called the “1/8 Rule” which states that: Half of all organizations believe that OB is important; Half of those recognize the need for and put into place a comprehensive and systematic approach to effective management of people; while half of those who do see the need will continue to persist with their practices long enough to drive economic profits.
 
Therefore only 1/8 (12.5%) of all companies carry out organizational changes long enough to see returns. This is pretty profound. Investing in human capital and putting into practice procedures which will develop them eventually leads to an economic benefit but only 12.5% of companies ever see those returns.
 

Human Capital Is a Company’s Greatest Asset

 
This phrase has been said often by many businessmen and can seem even cliché at times, but it is indeed true. Human capital drives economic success for any business and investment in its development will lead to economic profits. Careful hiring and training of employees is an expense in the short-run but ultimately pays for itself in the long-run. Your new start-up may or may not be in a place to begin hiring but it will eventually make it there. As that day comes, see future employees for what they are, your greatest asset.

Integrate Business Models Across Industries

The Search for Successful Business Models

 
Starting your own business is a difficult process for anyone; whether they have had formal business training or not. The hardest part is often analyzing whether your new idea will be profitable or if a market for it even exists. Sometimes it is trying to decide if there is space in an existing market which can be exploited. Such questions can be answered through economic analysis but a certain amount of innovation and creativity is always required.
 
Often the creative solution to finding prominence in market is by creating a new business model to the industry. Does that new business model have to be completely original? Absolutely not. Many companies have found success by simply integrating an existing model from another industry into their own. To illustrate this point let’s take a look at the DVD rental industry.
 

How Movie Rentals Have Changed

 
Up until about 5-10 years ago the movie rental industry was filled with names like Blockbuster, Hollywood Video, and Movie Gallery but today you would be amazed to find a single one of those stores anywhere. Instead this industry is now dominated by Redbox kiosks, Netflix, and other instant movie-streaming systems. What happened and how was the game changed?
 
First, let’s take a look at Netflix and what they did. Netflix originally entered the movie-rental industry without the streaming service we now know today. It was first done by customers paying a monthly flat fee then receiving DVDs delivered directly to their homes. Netflix did not take long to catch on and took a significant chunk of the industry fairly quickly. What Netflix did was apply a business model predominately used by online merchants such as Amazon to the movie rental industry (Dyer and Bryce, HBR May 2007, “Strategies to Crack Well-Guarded Markets”). They accomplished this by offering cheaper prices, flexibility, and building a chain of distribution centers much like Amazon did when it revolutionized the ecommerce industry. Ultimately, Netflix succeeded by using a new model within an existing industry. The model wasn’t completely new, but is was new to that given industry and created a competitive advantage.
 
With the addition of Redbox the movie rental industry has changed significantly and is borderline unrecognizable from what it used to be. We all know that Redbox is easy and cheap; offering one-day rentals instead of multiple day fees and the quickness of simply sliding a card. Redbox also was an application of an existing business model to a new industry. An almost vending machine principle was used by McDonald’s when they first introduced Redbox. They knew their customers would be interested in renting movies but also knew they could not build rental stores within their restaurants. The solution was a kiosk outside stores and the new model that is so popular today. Now there are Redbox kiosks all over and the idea has been invested in by several companies with McDonald’s still holding significant stock.
 

Apply Existing Models in New Ways

 
Netflix and Redbox have reshaped the movie rental industry in a matter of years by simply integrating successful ideas from other industries. We all have witnessed their success and are most likely consumers of each. As you seek to build your own new business venture, be creative and innovative in how you model your business. The answer may lie in applying existing models in a new way. Doing so may not revolutionize the industry, but it most likely will create a new competitive advantage for your business.

Considerations for Where to Locate Your Start-up

Making the Decision of Where to Locate Your Business

 
Launching your new start-up has a web of decisions to be made regarding how the business will be structured, managed, and funded just to name a few. Another very important decision is, where will your start-up be located? Location is vital to business success and varies greatly between businesses due to things such as the type of business or simply the owner’s preferences.
 
The decision of where to launch your start-up may not be as straightforward is it may seem. There are many variables to consider that can affect business success and personal happiness. Here is a list of simply a few of the variables to consider.
 

State Laws and Regulations

 
Each state has procedures for starting a business and obtaining licenses. As well, each state differs in its tax laws especially in income and sales tax. Certain states across the country laws and regulations invite and create a small-business friendly culture. The type of business you are looking to start may also be more accepted from state to state pending regulations and established industries.
 

Local City Regulations

 
Often cities will offer economic incentives to new businesses hoping to invite more entrepreneurs to the community. Take the time to know which cities they are because these local regulations and incentives vary greatly even within the same state. Taxes are a big factor here as well. In the same metropolitan area property taxes can differ immensely in towns that are not separated by more than a few miles. Ultimately these taxes cut into your bottom line while incentives may help your company get off the ground.
 

Available Labor Force

 
Within the state and city you choose is there an available pool of qualified workers? Take population into account here but also local universities, trade schools, and other means of creating skilled workers if your business requires them. As your company grows the need for such workers will increase and the cost to recruit out of the area is obviously greater than recruiting locally.
 

Proximity to Customers

 
You probably have a good idea of who your target market will be at this point. Choose a location where your target market resides or where you market is still accessible (maybe tech start-ups can be anywhere). No customers leads to no business or very high shipping costs.
 

Partner Availability

 
As your company grows you may look to create new partnerships. Often certain places become hubs for industries. Wall Street and Silicon Valley are examples of this taking place. The closer you are to potential partners the easier it is for you to do business with them.
 

Type of Location or Company Requirements

 
Find a location that fits your business needs whether that is a manufacturing plant, office space, or a retail center. Each will require different types of space, location needs, and scale.
 
These are only a handful of factors that go into the decision of where to locate your business. Each person and business will have different requirements to meet. Ultimately, the person who understands this decision best is you. Take into account all factors as location can play a big role in your company’s future success.

Keeping Fixed Costs Low to Build Your Start-up

Limit Start-up Fixed Costs

 
Costs associated with starting a business rack up fast. Initially, there are almost always more expenses than revenues. The trick to starting a business is to simply survive long enough to begin turning a profit. After that finances can begin to work more for the company. So what is the best way to ensure that your business can survive long enough financially in order to begin turning a profit? The answer lies in keeping your fixed costs low.
 
Fixed costs include expenses that do not change with month to month business activities. No matter what your business in doing the costs will always exist and, for the most part, remain constant. So how can new start-ups keep these costs down? Here are few basic ideas to help.
 

Distinguish Needs and Wants

 
Establishing needs and wants may seem elementary and personal-budget focused but it is important to business as well. It is really amazing how many businesses suffer because they simply forget this basic budgeting principle. An example here may be leasing office space or new equipment purchases. A tendency for new companies is to want to lease a large, new office spaces that are beyond the means of the company. Such a lease can drown a new company quickly because the high costs take away from hiring new employees, producing new products, and investing in other outlets such as marketing. As well you may ask yourself about buying brand new company vehicles when used vehicles would work just as well. Obviously any company would love brand new vehicles and top-notch office space early on but it is not necessary as a company tries to get its legs underneath itself.
 

Be Conservative

 
After establishing needs and wants, companies then needs to make sound decisions that do not get themselves in over their heads. Take the time to perform proper analysis, shop around, and do not rush into anything. Many companies get drowned by bad contracts regarding leases, loans, and other financial obligations. A bad contract without the needed flexibility can essentially kill a company through high costs and termination fees. Be sure any contract or action is the right move for your company before taking on those fixed costs.
 

Forecast

 
Forecasts are important to any business but can be even more important to start-ups without any kind of safety net. Talking to supply chain specialists they will tell you that excessive inventory is a cash flow nightmare. That entire inventory is unsold cash essentially being stored on the company’s dime. Such a scenario becomes a fixed cost that will drag down cash flow. Early on, forecast to the best of your ability in order to determine roughly what your variable costs, revenue, and cash flow will be. Having a solid number for those criteria will allow you to determine the level of sustainable fixed costs for your company.
 
Each company is different as a manufacturing start-up may require more fixed costs than an online business might. But regardless the principle is the same. Keeping fixed costs low early in a company’s development will help in turning a profit sooner. The sooner profit is being generated the more likely it is the company will survive. Seek out ways in which your company can limit fixed costs by avoiding them or somehow converting them into variable costs.

Establish Measurable Goals in Your Business Plan

Include Measurables in Your Business Plan

The business plan is your individual roadmap to success. This map is designed for you and to those whom you present your business to. Through it you are showing yourself what steps will be taken on your way to success, when they will be accomplished, and how. While this is very important for you, it is very important to investors as well. The more measurable steps you have, the more possible financial prosperity seems.
 

Where Your Product Is and Where It Will Be

When writing your business plan you are most likely in the development phases of your business. You may not even have a product completely established or produced. Include goals regarding when your product will be finished, tested, marketed, and mass-produced. Explain how funds will be used to make this process happen. Show how the money will be used if received and how quickly sales can begin bringing in returns.
 

Set Financial Goals

As mentioned above, exhibit how you plan to spend money, what you expect in return for those expenses, and sales projections. After all your company is an investment for those you are presenting to, they want to see when the can expect results. If going in for a loan this is very important as well. Lenders need to know you will be paying them back on time. Be detailed and thorough. Forecasting is a powerful tool if you can back up your projections. They will not be perfect, forecasts never are, but well-done forecasts can go a long way for your business plan.
 

Market Share

Market analysis is essential to understanding your business and showing potential. Set goals and standards of success in terms of market share. Target a group that you intend to sell to and create a timeline for when you expect to attain different market share levels. With each level you may include strategies and plans to get there. Again provide details that show you have thought it through.
 
Business is results and goals driven. Having a business plan structured the same way will connect with readers while showing them how possible your plan really is. The business plan does not need to be 50 pages with every detail and step that will ever be taken. In fact, chances are the future will play out very differently. But your business plan should be thorough, providing a process or progression towards success. The better you can articulate your goal through step-by-step milestones the more potential your plan exhibits.

Get the Most Out of Your Business Plan

Where Business Plans Go Wrong

For entrepreneurs, the business plan can be the difference in getting necessary funding to getting your business off the ground. This important document is the first thing investors see regarding your business and really is the first impression of entrepreneur’s start-up ventures. How well-crafted this document is can be the difference between gaining support or not. Let’s take a look at where entrepreneurs often can come up short on their business plan.
 

Differentiating Themselves

Investors see lots and lots of business plans and not every idea is completely unique. In fact, most businesses start from similar products or ideas that have small changes in product or the business model. Investors need to see and believe that your business will add value. The business plan needs to clearly state and highlight what separates your business from the pack. This may be in the product, cost structure, target market, or whatever niche you may find. Sell that niche by making investors believe that niche will lead to large returns.
 

Including Company Goals

Within your business plan you should include a timeline of goals and milestones to be met. For example, discuss how funding would be used and where that would move the company in a certain timetable. Goals should be optimistic yet attainable. Discuss any future partnerships and when those are planned to be finalized. Tell investors how much product you intend to produce and sell within six months or a year. Show investors your goals, giving them something measurable to believe in. This is a great opportunity to show growth potential.
 

Use the Business Plan as a Marketing Tool

Really your business plan is the first opportunity to sell your business, the product, and yourself. The investors are your first supporters. Your business plan should keep them interested and intrigued. By no means should it be a pamphlet or brochure but it should provide relevant, interesting statistics that will keep the reader engaged. The more engaged they are the more likely they will invest in your future.
 
Business plans have necessary information and sections that all investors like to see but a business plan is more than that. You are selling yourself and your business with it. Take the time to do solid research and provide necessary information but do so in a manner that differentiates you, that gives measurable goals, and that engages the reader. If you do so you will find more investors giving your plan serious consideration which gets you closer to making the deal you need to get your business going.

Are You an Entrepreneur?

Is Entrepreneurship For You

 
Starting your own business is an exciting undertaking and few things offer the benefits that entrepreneurship provides. As an entrepreneur you can make your own schedule, be your own boss, make important decisions, and work where you want to work. But being an entrepreneur is not easy and can take its toll on people. Anyone can be entrepreneur and many entrepreneurs share similar traits.
 

Passion

Almost all entrepreneurs are passionate about their idea, industry, or business. They want to see it succeed and sincerely enjoy it. Often money is a plus but not the only factor in their choice to start their own business. Entrepreneurs believe in their product and service, and have a vision for its future.
 

Innovative

Almost all entrepreneurs start their business by seeking to create a new idea or simply make another idea better. Many new products on the market come from entrepreneurs. The effort is always improving upon what comes before. If you like to come up with new ideas and put them into action then entrepreneurship may be for you.
 

Independent

When first starting out entrepreneurship can be lonely and may seem like it is you against the world. In a sense it is as you make decisions on your own. As an entrepreneur you will face failure and rejection and your ability to bounce back may define you. It takes an independent person to be an entrepreneur as much of the initial workload will be done on your own but as time goes that network will build.
 

Risk-Taker

Starting your business always involves some sort of risk, whether it be large or small. If you are comfortable with taking risks and going out on a limb, then entrepreneurship may be for you.
 

Charismatic and Good Leaders

In business the difference between success and failure rests in your ability to get others to get on board with your ideas. As an entrepreneur you will need this ability when looking for financing, employment, partnerships, and sales. Many entrepreneurs possess a natural ability to recruit and lead others towards a shared vision.
 

Get Started

These are only a few traits that many entrepreneurs possess. Entrepreneurship is definitely hard work, and your work ethic may be the defining characteristic. It will be a rewarding experience for you. If you think entrepreneurship is for you then the only step is to get started. There are plenty of resources to help you learn how to business plan, obtain funding, and get your business going. We wish you the best of luck in your endeavor.

Business Structure for New Businesses

Understanding Your Business Structure Options

 
An unavoidable step in starting your own business is deciding what kind of business structure you are going to register your business as. For the most part new businesses are structured in one of four ways: 1) Sole Proprietorship, 2) Partnership, 3) Limited-Liability Corporation, or 4) Corporation. Each has its advantages and disadvantages and there is definitely no “one-size fits all” option. For someone starting their first business it can be overwhelming and complicating.

Let’s take a look at each business structure, its basics, and its advantages and disadvantages.
 

Sole Proprietorship

 
A Sole Proprietorship is the most basic of business structures and many may be acting in this form without even knowing it. Sole Proprietorship is owned and managed by a single individual and requires no registration with the state. Starting a sole proprietorship requires no formal filing. The ease of starting a sole proprietorship is a clear advantage.

Legally there is no distinction between the owner and the business so the owner is entitled to all profits and subject to all losses. Because of this, there is risk involved with being a sole proprietor. This risk proposes unlimited liability to the owner and is a clear disadvantage.

In regards to tax implications the company is not taxed separately from the owner and the owner represents all income in their own personal income statement. Tax filing for a sole proprietorship is straightforward.
 

Partnership

 
In a partnership the business is owned by two or more individuals who contribute to all parts of the business. These owners share in the profits and losses of the business.

In this regard a partnership is very similar to sole proprietorship in that liability is not limited to business assets but also to personal assets. There is no distinction in tax forms between them. The tax filing system requires more than sole proprietorship but they are filed with each partners personal income forms.

Partnerships are fairly straightforward and easy to start. It requires some paperwork and registration with your state. When doing this you will have to register a business name.

With any partnership it would be wise to create some kind of agreement contract between partners that outlines governance of the company. Within it should address profit division, new ownership procedures, and how the partnership will be dissolved.
 

Limited Liability Company (LLC)

 
An LLC separates the liabilities of the business from the owner. Sole Proprietors and Partnerships tie business assets to personal assets but an LLC limits this liability.

LLC’s are not taxed for business income but taxes are passed on to the company owner(s). Owners are taxed as self-employed individuals and instructions are outlined by type of LLC through the IRS.

Finally, the process for setting up an LLC is different in each state and requires more than Sole Proprietors and Partnerships. It is required that your business is named and a document outlining articles of organization be submitted. Other details are given state by state.
 

Corporation

 
Due to tax implications and higher complexity to start a corporation most small businesses do not structure as corporation. Corporations face different tax laws and are taxed on business incomes. One advantage to the corporation structure is the ability to sell stock in order to gain capital. The other three structures mentioned do not offer that feature. Corporations have benefit because of their separate taxation and their ability to generate capital.
 

Deciding on a Structure

 
As stated above no structure is a one-size fits all for all businesses. This is only a brief outline of each of these structures. Take the time to research each structure at a deeper level and the requirements of your own state. It is recommended that you present your business to an accountant who can advise on the best way to structure your business. Ultimately, find what fits you best.