Who are we (entrepreneurs)?
An entrepreneur is the individual who is willing to
take risks in pursuit of profit. A self starter will always come up with new
and better ways to deliver goods and services in exchange for profits. A smart
entrepreneur will ask “why?” and “why not?” the balance between the two will
offer the best answer. Try making a chart and write down the pros and cons of
your business or idea.
What is a business?
Are you crazy? Maybe… your idea needs to be
practical this to mean it should involve the exchange of goods and services for
a profit the major difference from a charity where the exchange is for free.
How to come up with your business idea?
Do you have a skill or talent that you can sell?
Some of us are talented artists, programmers, designers, doctors, motivational
speakers, bakers, writers etc. All these involve some level of skill and
opportunities to differentiate yourself only if you are creative enough. That
difference is what will determine your success as an entrepreneur. There are a
variety of ways to attack the market with your idea. You can start off
traditional or digital but one way or another find a way to let people know
what you can do and that you can do it better than anyone could.
I am not skilled but I have an idea what do I do?
Yes not all of us have mad skills but we are full of
great ideas. In this case get down and do some research to determine the
feasibility of the idea in terms of expected returns. My idea is yet to have
any reference what next? This is quite a special situation it means you have
noted something that no one is doing my advice would be start thinking PATENTS
and PROPOSALS with confidentiality
agreements/ non compete agreements to protect your light bulb moment.
Is the market for your skill or idea good enough to meet your objectives?
Yes some markets are oversaturated or the leaders
hold strong market share making it hard to penetrate. It’s not all doom and
gloom and like my mentor always says “there is always room for one more”. Think
about it this way, why is it that every time you visit the market you always
find a new brand of bread? Of course not all will be profitable brands but over
the long term some will be major enterprises with cupcakes and all. This will
mostly be determined by how you handle the business and the added value you seek
to offer. So it comes down to positioning and pushing your product like a real
hustler.
What are other people in your line of business saying are things looking up or down?
It is not
always a fact that when things are looking down you should avoid the line of
business sometimes it could be temporary but still remain cautious as you
continue to explore your options. Great challenges present great opportunities
with this in mind start thinking of what to bring to add value for your
customers. For example, if the hair combs business is tough think of adding a
mirror on those combs and sell them to those who don’t even have hair because
everyone needs to look at themselves anyway. For those who have hair it will be
a great value addition…pretty basic huh?
How much would you need as capital for this venture?
Do your math, money is a resource and one of its
characteristics is that it is scarce especially on the jump off. So you need to
know how much you would need and set some aside for contingencies. It is
important to remember entrepreneurs are mostly frugal and avoid extravagance.
Where would I get more money to put in?
I have addressed this question below offering you a
variety of sources that you can tap into for your business.
How do I stay ahead of the pack?
Even Facebook was not the first social media network
but it was able to overtake some of the big names to come up top. This can be
achieved with deep research and development. The number one spot is never
permanent for any enterprise the mantra here is “you snooze you lose”. I bet
you that some of your ideas currently are game changers and if executed well in
due course I’m bound to see you on the cover of Forbes. To stay ahead of the
pack will entail some level of flexibility and endurance on your part. Never
stop thinking and executing new ways of adding value. Not only will you be able
to retain your customers but you will realize growth when others are facing
serious stagnation.
What and why you need a business plan?
A business plan can be compared to a travelers map.
A plan will assist the entrepreneur to know what direction to take and what
actions need to be done at specific period. The plan will also assist in
keeping with the objectives of the business without deviation. Thus it keeps the
entrepreneur focused and grounded on the business they are conducting.
Do I need to write down my business plan?
We have numerous cases of where the real plan was
done after the business was established for instance craigslist is a business
established through serendipity so no prior planning of it as a business. Some
of my small engagements have no written business plan and they seem to be
working out fine. A plan is on the other hand important especially if you are
seeking funding from institutions like banks and VCs venture capitalist firms.
This is because a plan will show revenue projections that would offer insights
to the investors about the worth of the business in the long run. For
bootstrapped entrepreneurs this remains an argument… but the importance of a
written business plan cannot and should not be ignored.
How can I develop a business plan?
For this a link has been provided that talks
extensively about business plans and how to develop them here. You can also have a look at a simple business plan outline here.
Which type of legal business structure?
There are 4 fundamental structures that any
entrepreneur can pursue. We have sole proprietorship, partnership, corporation
and limited liability company (LLC). These structures are important because
they determine your engagement with the public, government and other
institutions such as the guys who take your taxes.
Sole proprietorship- This is a very simple structure
where as the entrepreneur you own 100% of the business and this includes the
profits and the losses you don’t share these. You and the business are a single
entity so profits are your salary for taxes individual income tax serves for
both the business and self.
Partnership- This structure involves two or more
people who have come together to do business. Ownership is determined through
percentage allocation and this should be enforced through a partnership
agreement which will also determine how you share profits and losses and how to
deal with issues of dissolution. A word of caution here, it is important to
find someone you are compatible with and even share a similar vision for the
venture else things may not work out eventually. A partnership is like a
marriage the divorce will hurt so approach this with caution.
Corporation or Inc- This structure has some level of
permanency and the business is an entity separate from its owners, stakeholders
or stockholders. Corporations mostly seek to protect their owners from liabilities.
Limited Liability Company (LLC) - An LLC combines
some aspects of partnership and corporate characteristics. It provides limited
liability to its owners or owner as the name suggests. In legal action the
owner’s private property in most cases will not be liquidated to pay debts.
What to look for before settling for a structure?
Taxes: Sole proprietorships and unlimited
partnerships comply with taxation by paying from their incomes or profits.
Corporations and LLCs comply by reporting the taxes as a business.
Liability: What happens when you are required by law
to pay off some debts? Will your private assets be liquidated? For sole
proprietorships and unlimited partnerships the liability falls squarely on the
owners for corporations, limited partnerships and LLCs the liability affects
the business only in most cases.
Future needs: As an entrepreneur you need to
anticipate future situations. Before you settle for a structure you should make
sure that it is flexible enough for your future needs. Issues like expansion,
incorporating new partners and equity share allocation etc should be crossing
your mind.
Costs: Of course there are costs involved with
running a startup so issues of bookkeeping and records will cost you. Always
ensure that the benefit surpasses the cost and this depends on the structure
you choose.
How to finance a startup?
It is important to know the sources of funding
available to the entrepreneur but before we look at them I would like to state
that as a self starter it is important to look at personal sources before
borrowing. You need to try as much as possible to put your own money on the
line anything above 30% is good enough. This is because this shows the lenders
that you are committed to the venture and given that you have something to lose
you will fight hard not to lose and instead you will work to grow your profits.
Financial sources
Personal savings- This is money out of your pocket
from earnings or savings from previous engagements. The benefit with this
method is that your morale will be high given that you have much to lose as the
entrepreneur. You also get to control the business. In case things don’t work
out no one will come for your house, car or kitchen cutlery…
Grants- Although rare and only targeted to specific
businesses grants do exist and are a good source of business financing. The
benefit is that there are no repayments or interests to think about. The major
problem is you may become careless or extravagant. For US citizens visit www.grants.gov for grants for other
entrepreneurs from other regions visit….
Angel investors
These are guys (entrepreneurs) who have already made
it big and have the finances to lend you for your business. The benefit
associated with this source is that the angel investor will not only offer
money but also experience. They are also willing to give the business time to
grow before they cash in on the investment. They don’t take much from the
business in terms of earnings as compared to VCs. The only major hurdle here is
that you will likely not find them but they will find you if your idea is
simply BRILLIANT! Just put yourself out there.
Venture capitalists
These are professional groups that loan you the
money in exchange for equity or ownership in the business. US Shark Tank and
UK’s Lion’s den are the best examples others include Kleiner Perkins Caufield
and Byers, Sequioa capital among others. These groups have been behind some of
the major businesses such as Google, Apple and others. The firm will offer
experience and loads of cash if need be. Major drawbacks worth considering are
they majorly aim at going for IPOs thus making the company public. Control of
the business is shared and the amount they would ask in earnings would likely
be high but you will also walk away with something substantial.
Factoring
This may not be the best source of financing but may
work for startups. Factoring involves getting advanced payments from banks and
other institutions based on the amounts receivable. The bank or financial
institution will collect the receivable directly to repay their advance to you.
It is prudent to understand the terms of this method and the time period of the
contract.
Bank loans and mortgages- In case you need more
funds for capital an entrepreneur can apply for a loan from the bank. The bank
will offer you the money after consideration of your application so your
application needs to be above board. Drawbacks include interest payments given
time value of money the banks need to be compensated. If this is defaulted then
consequences include seizure of your personal property to repay the loan thus
they will come for your kitchen utensils… Successful businesses financed this
way include FUBU, Cochran real estate among others.
To consider a loan request for a new
business, bankers and investors usually require the following information:
• Formal business plan
• Statement of what the loan will be used
for
• Collateral and owner’s equity to secure
the loan
• Your investment in the business
• Projections of income, expense, and cash
flow
• Three years of personal income tax
returns if ownership is 20% or more
• Signed and dated personal financial
statement if ownership is 20% or more
• Guarantor’s financial statement (if
applicable)
• Good credit history
• No bankruptcy in the last 5-7 years
• Lease details
• Personal resumes
• Expertise/experience in the area of the
business
• Management experience
Who constitutes the team?
Just because you are an entrepreneur doesn't mean
that you will be alone. In the beginning this scenario is likely, you will be
the secretary, the secretary’s secretary, accountant, marketer, manager, IT
specialist but this will change after the business stabilizes. It becomes
important to get a group of people together specialists, support guys and all.
The people who you chose should be able to discharge their duties efficiently.
If your business takes off with a team then ensure the people are compensated
commensurate with what they are offering to reduce turnover which can be costly
and instead improve on their commitment to your cause.
In conclusion, when starting a successful business
it becomes important to sell what people want not what you want to sell. This
will guarantee profitability because as an entrepreneur you are satisfying a
need and in the course of time you will develop better ways to add value to
that process. This way you will attract new customers, impress the potential
ones and lock in the existing customers to your venture.
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