How the SBA Can Help You Get Your Business off the Ground

It is no secret that the U.S. government is a massive buyer of services and commodities. Government contracting exceeds half a trillion dollars each year and a major focus by the government, through the Small Business Administration (SBA), is that a portion of these funds be dedicated to small businesses. Currently, “the government-wide procurement goal is that at least 23% of all federal government contracting dollars should be awarded to small businesses (sba.gov).” The 23% mentioned here is in regard to prime contracts. Often prime contracts for large dollar projects will require that the prime or general contractor subcontracts small businesses at percentages higher than the 23%. In fact this percentage can be as high as around 80% of the work or procured items must be provided by small businesses.
 
So what does this mean for your startup? This emphasis on small business by the federal government means there are a lot of opportunities for small businesses. In fact, any government procurements between $3,000 and $150,000 are set-aside for small business prime contractors (sba.gov).
 
Your small business has two routes through which it can tap into these funds the government sets aside for small businesses. First, is to become a prime contractor and the second is to subcontract with a prime contractor. Both can be very profitable for your young business and provide early cash flow for future expansion.
If such opportunities fit your profile, visit SBA.gov to learn more about how you can be considered for government contracts. As well the website has databases for both prime and subcontract listings where you can search by your expertise, location, and other criteria.
 
While government contracts have a large upside, they also have their caveats as well. Generally, they are more heavily regulated, require more extensive external reporting, and business processes can be directed by the government.
 
Small business opportunities are many through government contracts and, despite caveats of working with the government, can provide great opportunities for building a foundation for your small business and potentially future expansion.

When Should I Update my Business Plan?


 
All over the internet, including our own previous blog posts, business plans are referred to as “living documents.” That is a document which is modified, updated, added to, or even changed entirely. A common reference that is considered a living document is the United States Constitution, which is constantly being interpreted and, more uncommonly, added to or changed. Business plans should be used the same way.
 
Business plans should be considered living for several reasons but I think the biggest reason is the fact that much of the business plan is a lot like a forecast. Anyone who has done any forecasting in their career knows one simple fact: Forecasts are always wrong. Does that fact make forecasting unnecessary and ineffective? Ask those people who create forecasts or managers who make decisions based upon forecasts and they will tell you, “Absolutely not.” Forecasts are essential and useful. So, without plugging the necessity of business plans too much; business plans, like forecasts, are useful and effective tools not only in the development stages, but also during the entire life cycle of the organization.
 
That leads us into our title question, when should we revisit and update our business plans? The simple answer would be always. It is probably unrealistic to expect that we will be formally revising our business plan always but we should have a systematic approach to this process. Find what works best for you and your start-up, whether it be yearly, monthly, or quarterly updates. The key is that the business plan is used as a strategic planning and performance measuring tool. A systematic approach and timeline to revisiting your business plan will help you accomplish those effective uses of your business plan.
 
There are times when the business plan should be revisited outside of the scheduled times. This can be due to external or internal factors. Examples include,
 

  • New competitors enter market or previous competitors begin to obtain greater market share
  • Changes in economic environment/government regulation
  • Changes in supplier or contracted agreements
  • Growth accelerating at higher than planned rate/increased staffing needs
  • Changes in major buyers
  • Expansion into new areas
  • Technology upgrades
  •  
    These are only a few of many potential scenarios where it would be wise to revisit and update your business plan. The point being is that the business plan should be considered living and be updated at least once a year or more. Also external or internal factors may dictate updating your plan at an even greater frequency. In a young start-up’s life this is fairly common.
     
    Constant changes do not negate the need for a business plan. They create the need for flexibility and business plans are as flexible as we make them. But be prudent to not over-do it when it comes to modifying a business plan. Doing so would actually negate the idea of having a plan to work against. Done properly, revisiting your business plan consistently and in key moments will help your business adapt and prosper throughout its life-cycle.

    Performance Measurement is Vital to a Meaningful Business Plan

    Hours and hours of time are invested in constructing business plans for start-ups all over the globe. Innumerable amounts of similar blogs and articles are written about the value of these business plans. And, yes there is value
    in them. Especially if they include well-defined performance milestones across business functions.
     

    A Common Planning Mistake

     
    A huge error made by many entrepreneurs is seeing their business plan as a one-time use only document. This is simply not true and here is one reason why: The plan should include financial forecasts and a business life-cycle timeline of some sort. Investors and lenders want to see this in order to determine their own Return on Investment. This is one area where the business plan becomes much more than a one-time use only document. While you may see those numbers only being important to obtaining that needed capital from investors, the opposite is true. Quality forecasts and timelines can be your own internal performance measurement baseline.
     
    This is how performance measurement works. First, a baseline must be created and then actual performance is measured against your “planned” performance. That creates the ability to have meaningful analysis and really flesh out why your start-up is on track, over-performing, or under-performing. A good baseline makes it easy to find focus areas later down the road. The more detail included in your own internal and original plan, the better.
     

    Keys to a Good Baseline

     
    First and foremost a good baseline requires specific milestones both financially and chronologically. These will be different for each business depending on your industry and business model. Milestones may include breaking even, staffing upgrades, product development, market expansion, conversion rates, capital investments, and many more. Most importantly, no matter your industry, is to create specific, measurable, and meaningful milestones. They should be driving factors in business development and success. Be careful not to get bogged down by performance indicators that have no meaning or are not driving your business. Such things may be variables in other, more important milestones.
     

    Performance Milestones Help Us Make Informed Decisions

     
    Strong performance milestones with a plan built around them will aid you in knowing how to allocate resources and budget to individual areas within your company. When things go good or bad this will help you make more informed decisions about how to reallocate resources and budget because of the framework in place that tells you what is important and where over-performance and under-performance are taking place.
     

    The Extra Work is Worth It

     
    Anyone who has created a business plan before understands that creating quality forecasts and timelines is difficult and time consuming. Often a rough forecast seems sufficient. And honestly, in the short-run, will probably get you what you are looking for. But in the long-run the extra effort is extremely worth it as your company matures and begins to grow. Time and money will be saved because a framework is already in place for recognizing progress and problem areas. Starting from scratch months or years down the road can be even more costly than doing it at inception.
     
    As you begin your business plan, see it as a long-term investment and take the time to establish meaningful and measurable performance milestones. The milestones you create and the performance measurements taken from them are going to bring true value to your business plan and bring true ROI for the time and money spent on constructing your plan.

    Getting to Know Your Business: It May Just Make or Break It

    Starting out we all have an idea of how we want our business to be, what it is, and what it is going to become. The funny thing is it never seems to turn out to be exactly what we imagined, which isn’t necessarily a bad thing. In fact, it can be the best thing that ever happens to you and your business. The truth is businesses, like people, have growing pains, changes, and evolve. In those initial months, or perhaps years, there is absolute need to get to know your business.
     

    Keep an Open Mind

     
    No market or business landscape is stagnant. Consumer wants change, opportunities come and go, and innovation occurs. Naturally your start-up is going to change with these external changes as well. At least it should. Really, we just never know what opportunities may arise. New product possibilities and potential partnerships can happen at any time. These discoveries can lead to fruitful success and are definitely a part of getting to know your business. The bottom line, don’t be afraid to adapt and pursue new opportunities that you may not have planned on originally.
     

    Finding Your Niche

     
    Within your industry there are several strategies to gaining market share. To name a few, you can pursue new technologies and have a first-mover advantage, you could simply do the same thing as others but cheaper, or you could create a specialized product that fills the need of a very specific submarket within your large scale market. All have their advantages and potentially lead to success. Your job is to pick one. This also is a process of simply getting to know your business. What do you do especially well? Are you more cost-efficient? Do you fill a special need somewhere? Or do you have the latest and greatest trend?
     
    Most business professionals will tell you to pick one and run with it. This is great advice whether you are just starting out or are an established business. Don’t try to wear too many hats. But sometimes as your business progresses your niche may not be what you thought it would. This is a process of getting to know your business over time. A few months or years in you will probably have to adjust your niche market in some way.
     

    Hold on Loosely

     
    Your business is your baby. Most entrepreneurs feel this way and have a tight grip on the reins. As cheesy as this may be, I think some great advice for entrepreneurs comes from some old song lyrics, “Hold on loosely, but don’t let go.” In sports you often hear coaches say, “Don’t force it.” This is true in the business world. Often we try to force plans or deals like a quarterback trying to squeeze a pass in a hole that isn’t there or a baseball player trying to hit every pitch out of the park. Every once in a while we need to take a risk but most often it’s best to take what the defense gives us. Sometimes we just need to take a step back, assess the situation for what it is, and then make some objective decisions about where we are and where we are going.
     
    The growing pains of a business can be hard, but if we make an effort to get to know our business as it evolves our chances of success will increase. As you keep an open mind to new opportunities you will be pleasantly surprised as to what you accomplish.

    How to Simplify Your Technical Business Plan

    When Less Can Become More

     
    A common mistake made by entrepreneurs creating a business plan is to make their plan too technical. What do we mean by too technical? Simply by including too much jargon and details about the specifics of the product or service being created.
     
    Now this may seem a little contradictory since essentially what you are pitching is your product/service and that is what makes you different from competitors in some sense. But as in all things, there is a time and a place for all things. These technical details and jargon can be shown later on in the process. Too correct this commonly made mistake entrepreneurs need to recognize their audience, acknowledge the purpose of their business plan, and change their focus.
     

    Audience and Purpose

     
    The business plan, especially for startups in manufacturing or other industrial startups where technical details are prevalent, is written to obtain capital and support. The readers are business professionals, investors, lenders, etc. who are focused on profitability and potential. These people do not want to see necessarily see how your technology works but instead want to see how it;
     

  • Solves a consumer pain
  • Exceeds competing products or processes
  • Is defendable in terms of patents, market entry, etc.
  • Can be produced in a timely and cost-effective manner
  •  
    As you write your business plan, skip the technical details of how it works and focus on answering these questions. Record those technical details in other documents to show investors as the process is carried out.
     

    Change of Focus

     
    It is a general rule of thumb that a good business plan is anywhere from 20-30 pages long. That is not necessarily a ton of space to include all the competitive advantages and product descriptions of your business. Writing a business plan becomes an analysis of determining truly vital information and non-vital information. The more technical information included essentially means there will be less room for other strategies and plans that investors really want to see within the business plan. This includes
     

  • A Target Market Analysis
  • Marketing and Sales Strategies
  • Budget Planning
  •  
    Investors want to know who is going to buy your product, how you plan on selling it to them, who is already buying this product, and even how you plan on delivering the product to the target market. For investors, answering these questions is just as important as explaining how the product works. Even if the product works and blows all the competition out of the water in terms of usability, if you can’t get anyone to buy it, then they won’t fund it.
     

    The Lean and Mean Plan

     
    Know your audience. Know why you’re writing the plan and focus on that. At the end of the day a few blanket statements can cover a solid business plan strategy. Focus on your competitive advantages that your audience wants to see by writing objectively, clearly, and concisely. This will produce a shorter document where truly less is more.

    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.

    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.

    Key Components to a Business Continuity Plan

    What is a Continuity Plan?

    The business continuity plan (BCP) encompasses disaster recovery planning and business resumption planning. The BCP outlines how the company will continue operations in the event of disasters and unforeseeable events that shutdown facilities or operations.
     

    Recognize Critical Factors

    Critical factors are factors carried out within the firm that are essential to operations. Without these critical factors operating properly the product/service cannot be offered or manufactured. Often critical factors create competitive advantage for your firm and will be absolutely necessary to continue operations following some kind of disaster. You can use your business plan and developing operations to recognize these key factors. Highlight points in production that create value and are irreplaceable in operations; these will be your critical factors.
     

    Create Contingency Plans

    There are a number of events that can require BCP implementation. Examples include earthquakes, storms, power outages, cyber-attacks, fires, and other disasters. For each event a recovery plan should be created. The recovery plan should outline the requirements to getting critical factors up and running again in order to continue business operations in times when perhaps employees are unable to meet at the office, etc.
     

    Keep BCP Up-to-Date

    As the organization grows and evolves so should the BCP. Over time new needs will arise and new threats, each needing to be addressed formally by a BCP. Frequently, BCP procedures should be reviewed and confirmed to verify that needs are met. This includes testing of recovery procedures and functions. This is normally done semi-annually or annually.
     

    Communicate Procedures

    As with any organizational plans and procedures, they need to be communicated and taught to all players within the organization. Management should frequently review and train employees on continuity plans. Make all information easy to access and visible to all employees. Take the time to gather all information and put it in one place where all employees know to find it. Once this information is gathered make a step by step guide for each employee defining their role in the contingency plan. This will help everything go smoothly if a situation ever arises.
     
    Having a continuity plan will save you lots of time, money, and headaches if a situation were ever to arise. In times of disaster the last thing you want as a manager is to be unable to get your business going again while your employees run around unsure of what to do. A good continuity plan will outline critical factors and define each employees role in getting those critical functions up and running again as quickly as possible.