When is the right time to start a business? This question is asked often when employment contracts. With so many unemployed or concerned about the stability of their current employment, we all need to understand what our options are.
The ideal conditions for starting a new business are:
1. Low cost of entry
2. Low cost of capital
3. Access to capital
4. Free market opportunities
5. Customer demand
6. Price elasticity
7. Access to talent
You can ask yourself this question: Are we currently living in an economy that supports the ideal conditions for a business start-up? My answer is a resounding YES!
Large corporations employ more people per employer. This fact is sometimes comforting however the converse is also true. Large employers also eliminate the most people per employer. These two realities are necessary for the evolution of business and will always be true regardless of the overall economy. At the same time, small companies add the most gross jobs between start-ups and part-time businesses, since many small company owners actually have multiple jobs. Yet when the economy tightens, small employers contract as well. Today more than ever, many companies are so focused on expedited cost containment they are not just shedding employees, real estate, risk and equipment, they are also shedding customers, revenue , entire lines of business. The downsizing of American business may be creating the greatest opportunity for start-up businesses in a decade.
The question you should be asking yourself is this: What opportunities exist for someone to enter the gap created when large companies and small companies contract at the same time? Today we have a perfect storm of opportunity for dedicated, driven, creative and talented professionals.
Here is what you know: to save money, many large companies are getting out of specific lines of business that make money, but not enough to keep them within their ideal cost structure. This is great for you because you have two opportunities:
A. Start a business that is an outsourced version of what you are currently doing for your current employer or customer.
B. Start a business from scratch.
BECOME AN OUTSOURCER FOR YOUR CURRENT EMPLOYER OR CUSTOMER:
Approach the large company and ask for a colaborative agrement so your new business can service the line of business they are shedding. This may be good for them since it may allow them to maintain some connectivity to their customer by referring you without any future cost. They may actually offer you the use of excess office space, manufacturing equipment and some resource sharing. It helps you because all of the customer prospecting and market development has been done by the large company and your investment will be in time and talent. You may even have existing relationships established so the customer familiarity has been established. You have the time and takent necessary to provide a valuable product or service. The ability to hit the ground running reduces your up-cycle time and your overhead cost can be very low as you start with only enough workers to cover the business you have, not the business you hope to have. Most companies fail because they create “field-of-dreams infrastructure costs” – expense created in advance of actual orders. In today’s economy you have to stay small and only expand if you have specific orders and DEMAND that requires the added expense investment.
START A BUSINESS FROM SCRATCH:
If you are ready to take advantage of this unique moment in history you should make your move right new before the end of the year. I would only ask that you not enter into a commodity business. Commodity businesses are highly conpetetive and almost always directed at price-driven consumers. It is nearly impossible to compete unless you happen to have massive buying power.
Instead concentrate on developing and selling a “concept-based” product or service. Concepts can only be replaced by better concepts. This is why securing patents has always been associated with job creation. A patent is a concept-based solution that can find near exclusive market potential. As long as you are solving a specific problem with your solution, you have much less price-based competition. Google, Apple’s IPad, Spanks, LED lighting are examples of companies and products developed to solve specific problems and emerged with very few competitors in their first 2 years of operation. They were able to grow and reinvest their profits into newer ideas, concepts and solutions to stay one step ahead. None are commodities even today -they remain profitable market leaders. Even without a patent you can develop your own unique solution and build a business upon that premise. What do people selectively need and what are they willing to pay you for it?
Solutions-based businesses are the best types of business to start in today’s economy.
Seek independent advice. Never start a business unless you can prove to a banker or a stranger that you have a product or solution someone other than your family or friends will pay you for. Not that you are asking for a bank loan, just that bankers are natural skeptics so if they can agree there is a market for your product and the revenue opportunity exists, you will at least be taking an important first step. Also, remember the goal of taking the risk to start a business is not to have more time on the golf course but to earn more money for the same level of effort you gave at your last job. You are willing to work, you just now have the ability to be rewarded at a higher level for your effort.
YOU ARE THE TALENT, never forget it. You possess the knowledge and competence to do the job.
It takes a village. You need a strong team to support you. Collaborate with other small businesses or individuals that have strengths which compliment your own. You will need a finance buddy, operations pal, quality control and compliance partner, sales and marketing guru, and a communications and technology pen pal. None of these people have to be on your payroll. You can have a loose partnership and collaborative teaming agreement that brings you all together out of necessity and in order to take advantage of a specific opportunity. The team can expand and contract as new opportunities bubble-up. Over time this relationship can morph into a specific company but you should retain maximum flexibility.
I believe that inside every small business entrepreneur is a large business waiting to get out. There are no limits as your future options are unlimited in our great country.
Remember the measure of success is not how much you sell or how much you sell it for. The measure is how well you performed from and execution level and how quickly you can get paid by your happy customer. If you have terrible customer sevice and fail on the back end of a transaction, your receivables will fall apart and you will have negative cash-flow. Cash-flow is the life blood of a business and happy customers pay their bills on time. Focus on exceeding customer service expectations and you will earn more and have the money faster.
Keep in mind that another important measure is how much money you get to keep in your pocket after you are paid. Gross profit is important but net profit is even more important. Too many businesses think they can sell just one more item at a loss in order to keep a customer or stay in business yet selling at a net loss is the surest way to accelerate the demise of your business. It is what you net that counts.
Do not skimp on the variety of business insurance requirements but increase your deductible limits to keep your operational costs lower. Risk is expensive but not having the proper coverage can destroy your livelihood faster than a speeding bullet.
Stay on top of federal, state and local compliance. So msny knuckleheads have convinced themselves that they can skirt, diffuse and work the margins. They are often wrong. What a easte of talent? When you are wrong can go to jail or worse … wait, is there anything worse than going to jail? Do I need to say more?
ARE THERE WAYS TO ACCESS CAPTAL AND FINANCING TODAY?
Yes, rates are low and capital s available but it is not easy to find so you have to be creative. Today, any investment in equipment is 100% tax deductible but more importantly, you can take accelerated depreciation. Accelerated depreciation lowers your current year tax burden. There are also 4 SBA micro-business programs available with just your signature.
Today, borrowing costs are the lowest they have ever been but you need greater asset value than ever as well. Access to capital for equipment can be challenging but I have had success going directly to the manufacturers and getting payment terms directly from them. Copier companies have done this for years. They give you the equipment and charge you for use but almost never ask for a direct capital outlay. This concept allows you to pay for their equipment out of your operating budget not your capital budget. As long as you have a valid successful business you should be able to finance from operations. Expand this concept to all of your suppliers.
I’ll give you an interesting credit-line concept without actually using a bank line of credit. This concept works if you are selling products or goods. I call it “bill-direct” purchase order financing but instead of having the bank as your finance company, use your vendors, suppliers or manufacturers. Develop your price with your profit included. Close the customer and secure your purchase order for the specific product you are selling. Have your customer issue the purchase order to your supplier (c/o) care of your company. Have the supplier invoice the customer directly and pay you the difference of the cost less the sell price -your profit and your internal fees. Now you have a way to sell $1 million worth of goods without ever needing a large line of credit – which a start-up business might never have access to in this contracting lending climate.
There are so many items I can cover to support my belief that today is the best time in history to start your new business. America is the largest consumer nation on earth. We absorb demsnd lime no other nation. We import things we wnt and export things others eant. This is thecland of commerce and opportunity. Don’t let your current employer mske decisions about your future without you having a opportunity to fulky vet your own options. Think of all of the things the economy is not currently offering you as a consumer and ask yourself this question: Can I provide that solution? If you answer in the affirmative, you are 50% of the way towards realizing the next level of the American Dream – the opportunity to be your own boss.
The time is right. Now is the right time to start your new business.