Start-up: October 2009 Archives

My column this week in the Tennessean offers start-up advice for accidental entrepreneurs:

Has the recession made you an accidental entrepreneur? Not sure how to pick the right business to start?

Business opportunities are most often the result of major changes in the economy, society, our culture or technology. These changes create customers who have new unmet needs. For example, when women entered the work force in large numbers in the 1970s, they needed child care.

This soon led to creation of a whole new industry called day care.

The first step in determining if a business idea is right for you is to make sure it builds on your existing knowledge, skills and experiences. The best business opportunities come from solving everyday problems that you have observed from your previous work experiences, your hobbies or things you regularly experience.

Make sure that there really is a strong market that is truly interested in your product or service. Examine the size of the market to confirm that you need to attract only a small percentage of the total potential customers to make your business work. And make sure that the potential customers are willing to pay you enough to make the business turn a profit.

The business will need to generate enough income for your lifestyle. Also, it will need to become profitable before you run out of whatever funds you have saved to live on during the startup of the business.

It is very difficult, if not impossible, to find bankers or investors willing to back a first time entrepreneur's startup in today's economy. So if your savings are meager, you may need to find a venture that generates cash flow quickly or postpone the startup until enough savings are in place.

Take it personally

An entrepreneurial business is not just a simple financial investment. It becomes much more personal and emotional than that. Surveys of entrepreneurs tell us that building income and wealth is only one of the many reasons for launching a business.

Entrepreneurs want to create a business that is a reflection of who they are. They want to build a business that has a culture based on their values -- that is, on how they want their employees and customers to be treated.

Finally, don't overlook the importance of building a business that allows room for the other things that are important in your life. The time and energy you want for your family, your friends, church and hobbies should be factored into the planning.

The right business needs to fit with your experiences, income needs and values, and it must allow for a balanced life.

I will be leading a seminar for Belmont University titled "Business worthy? How to uncover and evaluate entrepreneurial ideas."

It's designed to help guide aspiring entrepreneurs through the process of finding ideas and assessing their feasibility. It will be held in Williamson County on Nov. 3, Nov. 10 and Nov. 17.

More information can be found at http://www.belmont.edu/business/executive_education/workshops/index.html.

Gregory Go and Glen Stansberry have pulled together a collection of recommended resources from various entrepreneurship writers and bloggers, which is posted at OPEN.  My recommendation was:

How often are you working on building connections? Jeff Cornwall believes that connections are some of the most important resources you can have to help your small business.

"An often overlooked resource for small business owners - and particularly aspiring small business owners- is entrepreneurs in the same industry whose businesses are further along in their development. Entrepreneurs are surprisingly willing to 'pay it forward' and help other entrepreneurs. These entrepreneurs are usually very willing to offer information, advice and even mentoring because someone probably did the same for them when they were first starting up. And more often than not, all you have to do is ask."

This is probably one of the most common pieces of advice I find myself giving to our students and alumni as they are developing their business plans or trying to get their ventures off the ground -- and it really works.  All it usually takes is a phone call or an e-mail.

My column in this week's Tennessean looks at franchising as a path to business ownership for accidental entrepreneurs:

Franchising is a path to business ownership that many of today's accidental entrepreneurs find appealing.

"For those in career transition who are considering business ownership, franchising may be a viable option, primarily because most have spent their entire career in corporate America and are used to structure and following processes," says Dan Aronoff, Nashville franchise consultant with FranNet.

"Franchising provides that structure through well-established and proven systems. For the right person and right fit, following the franchise's 'recipe' can lead to success. Why reinvent the wheel if you don't have to."

One of the downsides of buying a franchise, though, is that many require that the entrepreneur put up a significant amount of funding to start the business. However, many franchises may be eligible for Small Business Administration loan programs, too. Here is a Web site that offers more details.

Just like any new venture, developing a business plan is a must. It's essential to determine the feasibility within the local market where you plan to open the franchise. Make sure that you temper any financial projections with current economic conditions. Be realistic.

Also, look for franchise opportunities that create value for the customer, as this will be the best business model for some time to come.

There are some sticky contracting issues with buying any franchise. Make sure to work with an attorney who has experience in that arena.

Monthly fees add up

One of the biggest sources of frustration among franchisees is that, over time, they begin to perceive that the value added provided from the franchisor or the parent company becomes less valuable.

A franchise will charge a significant monthly percentage fee (this typically ranges from 4 percent to
7 percent of sales).

This fee covers business systems, marketing support, purchasing power for inventory, and so forth. As they gain experience in the business, many franchisees believe that they can be at least as effective on their own without the support of the franchisor.

Another concern expressed by franchisees is that with all sorts of rules and standardized procedures, they tend to feel more like an employee than a business owner. Those who try to break away from the predetermined model can face the wrath of the franchisor. Larger franchisors have entire staffs dedicated to franchisee compliance.

The SBA offers comprehensive information on buying a franchise at its Web site,