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How to Successfully Launch a Business in Tough Times
How to Successfully Launch a Business in Tough Times
Launching a new business has always been a major challenge. In the current economic climate, it is even tougher to do because of the lack of both personal and investor capital that an entrepreneur can tap into for funding a start-up. So it becomes imperative to plan your start-up in such a way as to maximize your chances for a successful launch with minimal capital. So how can this be accomplished? From observing entrepreneurs over two decades, I have come to divide them into two groups based on how they handle the start-up phase. The first group weds itself to a particular product which requires a certain sum of capital to launch. This groups then takes the traditional approach to start-ups by first writing a business plan and then looking for investors to provide the funding. The problem with this approach is that most start-ups are never able to raise the necessary capital and, therefore, either die on the vine or morph into something else after six months of a futile capital quest. The second group is led by entrepreneurs who announce their intention to go after a given market opportunity and are, seemingly magically, in business a month later with bona fide customers and sales revenues. What is the difference between these two types of entrepreneurs? What is the magic used by the second group? Being a student of entrepreneurship, I have come to the conclusion that the second group is a subset of entrepreneurs which instinctively understands that a start-up strategy based on first raising outside capital means, almost assuredly, a delay of six months or more and frequently abandonment of the project. As a result, they adopt an entirely different approach to start-ups which does not rely on raising capital. Instead they substitute hustle, creativity, and the sheer determination to succeed for money. Equally importantly, they understand which market conditions and points of management focus, when combined, maximize their odds of start-up success. These conditions and focus points are summarized as follows.
! Smart entrepreneurs ask themselves whether they are proposing, in the parlance
of Silicon Valley, to sell an “aspirin” or “vitamin” type product or service. Aspirins reduce or eliminate pain that a business or consumer is experiencing. Vitamins
are things which would be nice to have if any money is left over once the pain is dealt with. For example, an entrepreneur who has developed a solution which will eliminate a manufacturing or logistical problem in a particular industry has an aspirin to sell. A returning vacationer who wants to import and sell the arts and crafts she saw in Cabo San Lucas has a vitamin. Start-ups which focus on selling aspirins do far better than those attempting to sell vitamins.
! Successful entrepreneurs understand that emerging industries provide far more
favorable conditions to start-ups than stagnant mature industries. Not only is demand out-pacing supply in the former, but more importantly from the start-up’s perspective, purchasing criteria and relationships are still fuzzy making it easier for a start-up to win customers. In mature industries purchasing criteria and relationships have become so entrenched over time that it’s next to impossible for a new company to break into the vendors’ club. On the other hand, all that it often takes in emerging markets to win business is to be one step ahead of the customers in know-how. As the old saying goes, “In the land of the blind, the one-eyed man is king.”
! Savvy entrepreneurs also know that they enjoy a much higher probability of
success by entering a growth industry with little more than a “me-too” product then they do by latching their dreams onto a new product without an existing market. They understand that the ability to organize and execute effective marketing, financial, and operating efforts is far more important than having a unique product. Not so savvy aspiring entrepreneurs can waste years waiting for the breakthrough technology that will guarantee their success. However, it rarely comes along.
! Smart entrepreneurs also focus on building a selling machine. They do not rely
on others to sell for them. Instead they handle sales personally because they understand two important facts about business. First, middlemen such as distributors will not have enthusiasm for a new product until customers start asking for it first. The only way that this will come about is if the entrepreneur creates market awareness first through personal selling. Second, direct selling enables the start-up to stay in touch which its customers and gather valuable
feedback on what works and what doesn’t work about its offerings in the customer’s eyes.
! Successful entrepreneurs also understand what type of sales-person they are.
Some people are more suited to selling tangibles (i.e., products) while others are better suited to selling intangibles (i.e., services). Very few people can sell both as different selling styles and temperaments are required by each. Get clear on what you are more comfortable selling before committing to a painkiller product or service.
! Finally, financially savvy entrepreneurs devise a start-up cash flow model which
minimizes their start-up cash requirements. Cashflow models run the gamut from the traditional manufacturing model wherein a lot of cash goes out initially to pay for production inputs, labor, and overhead before any cash starts coming back, to the new Dell Computers model where you make nothing until you have first received an order along with payment. If at all possible design a cash flow model where your customers pay you before you have to pay your suppliers. In addition, all other things being equal, a business model with regular repeat sales to the same customers is preferable to one which needs to find a new customer for each sale.
What is the main lesson from all of this for someone looking to start-up a business in these tough times? It’s that your start-up model is far more important than your product. Forget the old school product focused thinking in favor of the new school cashflow focused thinking. Don’t commit to a specific product or service but rather to the start-up strategy which offers the best possible odds of generating cashflow quickly. The above insights, taken from years of observing successful entrepreneurs, can help you to screen out the best situations and focus on the right things. Once you have positive cashflow, you are in the ”stream of opportunities” wherein all sorts of doors for further growth and profitability begin to open. Ask yourself, “In six months, do I still want to be trying to fund my start-up or do I want to be running a company with positive cashflow?” The call is yours.
Peter Ireland, is an entrepreneur, former CEO of a public company, and angel investor. More information on smart start-up strategies can be found in The Anti-Venture Capital Guide at www.antiventurecapital.com
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