Starting Up a Small Business

If you are looking into the idea of starting up a small business there are a few things you should know before taking the leap. Small business is tricky business and unless you know what you are doing you will end up like the majority of people who give business a try by shutting your doors in 2 years or less. The up side is that you can be successful in starting up a small business if you keep in mind a few main realities.

Volatility

In a previous article I dug a bit deeper into small business volatility but it is worth mentioning again especially in the context of getting a business started. Small business exists because large business has carved out a method to meeting the needs that doesn’t reach everyone in a market place. In other words small business is small business because large business has deemed the pursuit of such market places not worth the effort. Large businesses seek opportunities that exist in well-established mature markets. These would be markets that yield smaller margins but are also less volatile. Consequently this leaves the more dynamic and volatile markets for the small businesses. This is part of why small businesses don’t last long, they compete in an ever changing market place.

So, what does this mean for you? It means that the opportunities that will exist for you and the business you aspire to open will be opportunities that require quality and custom solutions quickly. This also means there will be a good deal of work involved in order to gain market share for you niche. Abandon any idea of providing a single product or service, you will need to diversify your products/service, customers, and possibly industries. To combat the ebb and flow of the small market place you will need diversify all aspects of your company.

Alignment

Ok, now that you understand a little about the realities of the small business market place the next thing to look into is how well your potential business aligns with who you are. In the beginning stages of a business the founder is the business and the business is the founder. To offer the most value the business should be the embodiment of you and you should be the embodiment of the business. The realization of a single opportunity should not be the only deciding metric for starting a business. As an example; A few years ago I had the opportunity to start a frozen yogurt shop in my town that would have been modeled after a profitable model that was doing well in other cities. I did my homework and found that for $40,000.00 I could have everything I needed to open the doors and start selling yogurt. I decided against it for two reasons, 1. I live in a four season’s area and I did not want to have a feast or famine demand and 2. I am not that crazy about yogurt.  Now, the opportunity was there, and since then many of these shops have opened, but I didn’t want to invest 80 hours a week into a frozen yogurt business.

Market Positioning

So you have an idea that aligns with who you are, and you have come to understand the nature of the small business market place, how are you going to position your product or service? How are you going to meet the needs of the customer? The answer is somewhat laid out above, but because of the nature of the small business market place you will need to become a high quality, quick turnaround company. Small businesses have the advantage in small volume custom areas. Your competitive advantage will be your ability to cater to the specific needs of your customer. In factors of competitive advantage I explore in more detail where a competitive advantage exists, here I am stating that as a small business you have no business competing on price.

Margin

You are your business, and chances are you do not have much capital behind you. This means that achieving a positive cash flow situation as quickly as possible is key. Cash is king and without it you don’t have a business. The upside is small volume high quality work demands top dollar. That’s right, by being a small business you are competing in a large margin arena. The mark up on your products and services can and should be high. The market will let you know when you are too far out of range, but a healthy profit margin is to be expected with small businesses. Individuals that fail to understand this begin to lower their prices in hopes of gaining some sales but what they don’t realize is they are diluting the market and putting themselves out of business. So, don’t be afraid to charge for your work!

Growth Strategy

The last thing I will mention for those looking to start a small business is that a growth strategy is imperative. You need to have an idea of where you are going if you ever expect to make it as a business owner. By nature small businesses should only remain small for a while, if you company is not growing it is dying. Markets mature, customer needs mature, and guess what… your business should also be maturing. Knowing where your business is headed will allow you to take the appropriate measures today to set up for tomorrow’s market. A growth strategy can be vague. You don’t need to define every variable, but you should use your intuition to determine where you should position your company.

If you are planning on starting a small business understand it is a lot of hard work and there are no rules. There is no one telling you what to and not to do, you will be responsible for your success or your failure. You must be persistent and willing to invest more of yourself than the next guy in line. If it were easy everyone would do it, but because it is demanding there are only a few to compete with.

7 thoughts on “Starting Up a Small Business”

  1. Pingback: What Is In A Name? What You Need To Know When You Name Your Company

  2. i want to open a drycleaning/laundry firm,and hire people to manage and do the work.im setting it up because im looking for extra income streams,i think im more of a serial entrepreneur………………..im not gonna be stuck in it…..what do you think?

    1. I think that is a great aspiration. I don’t know the drycleaning/laundry market all that well but it will share the same fundamental truths expressed all over ShyEntrepreneur.

      Don’t plan on being hands off right away. Unless you are buying an existing establishment your presence will initially be required. After you get a mode of operation in place you can begin to be more hands off. Remember though everything follows the law of entropy ie: moves towards a state of disorder. So, you will be required to keep everything moving smoothly.

      Dig in and find out as much as you can about the business. Know who your competitors are, define your target market, and watch your costs. Don’t expect to see a huge profit overnight.

      Growth will require much of your time and energy but if you put it in success will come.

  3. Pingback: Starting Up a Small Business Concerns | iZets.com

  4. Pingback: How to Become a Business Owner, The Layers of Resistance

  5. Hi TJ, After 20 years working for a large well known company only to be laid off, I decided to open my own business and work for myself. I know if I’m going to work my @%& off I might as well do it for my family. I have a great idea that I have been researching on for a while. No one in my area is doing this and there is a need for it, people will pay for it and it’s a got to have thing for people. The problem is I don’t have the experience in the “doing hands on” part of the business but have the experience in running the business part, due to my husband has been in business for himself & sales management experience that I have. I know I have a lot to learn but I also have the will power that it takes to get it done. My question to you- Is it a good idea to start a business if I lack the hands on experience part? I know if I hire people to do the hands on part this 1) creates jobs in my area and 2) will fill the area where I lack the experience. Keep in mind that I know this area is in need of this, doesn’t have it, and will pay for this service. Thanks for your time and I enjoy your site.

    1. Thank you LT for the question, I wish more would share their specific concerns. In the beginning of your venture you are your business. I read a study on the success rate of big business executives starting their own businesses and it wasn’t good for the same reason you are concerned about. While they had the experience with a large business paradigm and could manage people they lacked the ability to handle the day to day responsibilities. It sounds however that you are familiar with this which is a good start.

      To answer the question; “Is it a good idea to start a business if I lack the hands on experience part?”

      I would say it is not ideal but it is doable. I think you will find that the “hands on part” can be acquired easily enough but you need to understand that you alone will need to be the one to acquire it. As a budding small business I would advise against hiring out this aspect initially. While you are getting things up and going if you take on this responsibility you will be better equipped to scale this out as you grow. Additionally I would guess you don’t have endless piles of cash to be bringing on a work force right away. Let the cash flow of your business pay for the workforce.

      The strength of any small business is its ability to meet a custom need in a timely fashion. If the solution could be accommodated by a large business there would be no market for you. This means the human element is essential and you will be the entirety of that on day one. You will probably be the entirety of it for the first 2 years. As you grow you will begin to synthesize your efforts so others can provide what you provide but the value of your business will still be rooted in you. No one will care or tend to your business like you will and your customer base will know if you are simply out to make a buck or if you want to truly provide them with value.

      Your business will fail if you can’t make money and watching your expenses will play a large part in you margins.

      I hope this helps. If you have any follow up questions feel free to ask.
      TJ

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