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Bootstrapping a Franchise

Franchising continues to be a popular pathway to entrepreneurship, particularly for many unemployed professionals who are looking to join the ranks of accidental entrepreneurs created by the great recession.

Rieva Lesonsky looks at home-based franchises as a low cost way to bootstrap your way into business ownership in an article on Business on Main.

Approach a franchise just as you would any new business.  Develop a sound business model, and if financing will be required, a business plan.  Make sure that you temper any projections to the current economic conditions. Also, look for franchise opportunities that create value for the customer.

Franchising is tightly regulated and there can be some sticky contracting issues with buying any franchise. Make sure to work with an attorney who has experience with franchising.

But, beyond the contractual issues that arise in franchising, there are some fundamental business and personal concerns that many franchisees experience after it is too late.

One of the biggest sources of frustration among franchisees is that they perceive that the value added from association with their franchisor diminishes over time. A franchise will charge a significant monthly percentage fee (this can average about 7% of sales) associated with all that they offer, including systems, marketing support, purchasing power, and so forth. Over time, many franchisors realize that they can be just, if not more effective on their own without paying the monthly percentage of sales to the franchisor.

This on-going monthly fee is often glossed over by franchisees during start-up planning, as they tend to think only about the initial fees and capital expenditures in their planning.  So while a home-based franchise can reduce the start-up cost, the on-going monthly fee to the franchisor will still be something to consider when thinking about investing in a franchise.

Another concern expressed by franchisees is that with all of the 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 and processes can face the wrath of the franchisor.  Larger franchisors have entire staff dedicated to franchisee compliance.

So as you consider franchising, even a home-based option, approach it as if you are starting a business from scratch and make sure you understand the costs and constraints that come with owning a franchise.

Simple Business Models Often the Best

Sometimes the simplest business models make the best opportunities.

We recently held our competition for the Baker Donelson Outstanding Student Entrepreneur of the Year award here at Belmont University.  The winner not only has bragging rights, but also receives a significant cash award to help with the growth of their business.

This year’s competition was particularly strong.  But in the end, the winning business was not a new app for your smartphone, a new web platform, or a breakthrough technology to change the music industry.  The student entrepreneur who was named the Outstanding Student Entrepreneur of the Year collects medical waste from doctors’ offices and funeral homes.

It took Jerell Harris, founder and at this time sole employee of QuickMed, a long time to get to the point of starting his medical waste management business.

Harris is not my typical student who comes to college fresh out of high school.  By the time he enrolled he had worked for several years, was married, and had a family of four children.

“I operated a small business for more than seven years,” said Harris, “but failed to take the company to the next level of growth. It was very frustrating.”

Eventually he decided to take significant step of entering college to pursue a major in entrepreneurship.

As he began to learn about entrepreneurship, Harris explored several business models.

The most recent one was a biometric attendance-monitoring concept aimed at reducing fraud within the state supported childcare industry.

The further he explored this idea, the more he realized that the technological complexity of the systems to operate the business, the cost of getting it started, and the general political climate it operated within made it too risky to launch.

After abandoning that idea, he decided to try and find a simpler business model to pursue.

Based on conversations with a friend, he recognized an opportunity in a well-established industry — medical waste management.  As he developed the business model for this idea, he discovered that it was relatively inexpensive and easy to launch.

But even a simple business model requires proper and careful execution.

“My entrepreneurship education has helped me tremendously,” said Harris. “I now understand how to make necessary pivotal steps that will help me reach my growth targets.  Above all, I have learned how to manage my company as it goes through various life cycles.”

Even though this medical waste management is a well-established market, Harris was able to find a value proposition that has helped him steadily gain market share.

“I have listened to the complaints in the market and developed QuickMed’s services based on those criticisms,” explains Harris.

Harris has ambitious goals for his new venture.  He intends to extend QuickMed’s waste collection services across the state of Tennessee by 2014.

When searching for a new business idea, avoid the common temptation to try and find a complex, trendy, or glamorous product.  Some of the best opportunities come from the most simple, everyday needs in the marketplace.

When Lightning Strikes

Most entrepreneurs dream of that one big break.  For some businesses it is getting the one big customer.  For others it may be betting that magical “shout out” from a national thought leader or big time media outlet.

Should you always walk through the door of opportunity that
the big break opens for you?  Sometimes yes, but sometimes no.

Business on Main has a video about a chocolate maker who got national attention for one particular recipe for beer infused chocolates.  Orders went through the roof.  And fortunately she was able to put in the twenty hour days Continue reading When Lightning Strikes

The Entrepreneurial Generations

If we have any hopes of entrepreneurs leading us into a new period of economic growth the evidence is that they will come from two generational groups — the Millennial Generation and their parents the Baby Boomers.

A lot has been written about the potential entrepreneurial contribution of the Millennial Generation.

Jeff Wuorio examines the boom in boomer entrepreneurs in a post at Business on Main:

“They may share many attributes with their younger colleagues, but the
challenges and opportunities faced by older entrepreneurs are decidedly
different, and it’s critical they know what those differences are and
how to approach them.”

My only critique is that Wuorio kept referring to the boomer entrepreneurs as “older” entrepreneurs.  As a proud member of this generation, I can assure you that while we may be older chronologically, we are still very young at heart!!

Business Modeling is Process, not an Event

Developing a sound business model is key to the successful launch of a business.

But you should never assume the business modeling is finished once the business begins to grow. Keeping a business model current is critical for long-term success.

A business model helps to ensure that all of the “moving parts” of the company are working together.

What is the value that is offered to the customers and what is it worth to them? Who is my target market? What do they expect out of me as my customer?

How do I get information to them, and how do they want to get the product? What are the key activities to make this all come together, and what will it cost? What are the resources I need to make this happen (money included)?

Developing a sound business model in a startup venture helps improve the chances that the business will survive the launch, begin to gain acceptance in the market and grow.

While a business plan may be important to secure financing, a business model is what will guide the entrepreneur through the inevitable trial and error of finding the best fit in the market.

Changes that result from forces such as technology advancement, demographic trends and new customer preferences can all require adjustments.

For example, a recent study by the Pew Research Center found that more than one third of all American adults now own a smartphone, which is changing customer preferences in how they want to communicate and engage in transactions with businesses.

These changes can have a profound impact and at the same time open many new opportunities.

Businesses expanding into new products or new markets should also give careful consideration to the business model.

I personally learned this lesson the hard way.

When we expanded our health-care business from Raleigh into Charlotte, N.C., we assumed that the business model we had developed in our first market would work equally well in the new market. However, we quickly found out that assumption was wrong.

There were significant differences in customer preferences and expectations in the new market. Unfortunately, we had made major commitments to space and staffing based on a flawed business model. As a result, our operation in Charlotte never reached profitability.

Even a more established business should revisit its business model, as every market experiences changes over time.

For most of its history, Best Buy had been a business that catered primarily to men, as they were the main purchasers of consumer electronics. However, a report in Harvard Business Review chronicles how over time more and more women became customers.

Best Buy found that these women were highly dissatisfied in their customer experience, as their approach to buying electronics was quite different from men’s.

To remain competitive, Best Buy made significant modifications to its business model.

Don’t assume just because you had your business model right when you opened your doors that it will always work smoothly. All businesses experience changes over time. Assessing and revising a business model is the best way to ensure that your entire business keeps pace.

Working On the Business Easier Said Than Done

Entrepreneurs face a difficult challenge in how they should be spending their time as a business grows.

 

The dilemma is commonly referred to as needing to “work on the business rather than work in it.”

 

Typically, entrepreneurs are heavily involved in working directly with their customers during the startup phase. They do much of the work necessary to generate revenues. Tasks such as sending out invoices, bookkeeping and developing marketing materials are squeezed into their days as they can find time.

 

And if there’s no time during the day, these things may get put off until the end of the day or the weekend.

 

But with growth comes the need to add more employees, and with a growing staff comes the need to develop procedures and systems to make sure that all the necessary work of the business gets accomplished.

 

This is when entrepreneurs’ own job description needs to begin to change, as it is up to them to “work on the business” and make sure it evolves and develops.

Easier said than done

 

However, for many entrepreneurs this transition in roles is much easier said than done.

 

Often it’s the “in the business” work that led someone to start the business in the first place. The owner may have started a cabinet company because he loves working with wood. Or someone may have started a Web development company because of her design skills and knack on the computer.

 

It can be hard to let go of work you really enjoy doing.

 

Another issue that can get in the way of this transition for the entrepreneur is being uneasy with delegating important tasks to others. Developing good training programs, clear procedures and effective systems can help make that process a successful one.

 

I hear from many entrepreneurs that the process of moving from a hands-on role to more of a management role can create anxiety. They tell me that they feel they’re not busy enough. Or they say that they feel as if they’re not really contributing.

 

From my own experience, I can say that these feelings will ease over time as the business grows and the entrepreneur becomes more comfortable in his new role.

 

Some entrepreneurs are not sure what success looks like when working “on the business.” They are more accustomed to checking things off the to-do list by working with customers and doing more routine work.

 

But creating effective systems and building a strong culture will become a bigger part of the entrepreneur’s job. Any outcomes from these tasks will evolve slowly. Therefore, it will take a long time to see the results of these efforts.

 

It’s best to view the transition of the entrepreneur’s role in the company as a one- to two-year project. As you begin to delegate parts of what you do, replace them with things that will improve the business and help it grow.

 

Moving from working in the business to working on the business is best accomplished if it’s viewed as a gradual process rather than an abrupt event.

A Time for Plan C

One of the bootstrapping techniques I like folks to consider is keeping your day job while your venture to getting up to speed.  This has become a more common financing strategy now that the weak economy has put a hit on the ability of friends and family to provide start-up financing. 

Erin Albert, who teaches at Butler University, has released a book that offers insights on keeping one’s day job while pursuing a start up from a number of entrepreneurs who have used this approach to bootstrap financing.  She calls this strategy “Plan C”.

Here is part of what she learned from researching this book:

I learned several things from this project. First off, I have nothing but the utmost respect for the people who are trying to rock both the day job and the part-time (which we all know is really a full-time) business. It’s really hard, but I am appreciative of the people who were willing to share their stories in this collection of what the future of career development looks like in this country. Secondly, through their uplifting, positive yet real stories, I know that doing both can be done, and done successfully!  Lastly, I was encouraged by the fact that employers (in particular, more creative employers) actually saw the value of the Plan Cers to their own businesses.

Albert’s e-book, Plan C: The Full-Time Employee and Part-Time Entrepreneur, needs to be in every bootstrapping entrepreneur’s e-library.

PlanCCover.jpg

Finding Balance Between Family and Business

I have written often about the challenges for entrepreneurs of finding balance between the strong, often conflicting pulls from family and from their business.

Toddi Gutner offers three case studies on entrepreneurs who have worked at finding this balance in a recent piece at Business on Main.

One entrepreneur uses mobile technology, one has built a team, and one has become a master at the art of time management.  You can read more here.

Avoid the Backward Start-up

“I’ve developed this really cool product and I have applied for a patent.”

“I want to show you this awesome app that I helped design.”

“We’ve got a great idea for a website.”

Those of us who work with entrepreneurs hear these types of introductions all the time when people come to meet with us.  Whether it is a result of years of development and research, or a sudden inspiration that leads to a “eureka moment,” these aspiring entrepreneurs have come up with what they hope to be the next big thing.

The problem is that many of these entrepreneurs have gotten the design of their business models backwards.  

Rather than look to the market to tell them where opportunities are, they have come up with an idea and are trying to run full speed into the market with it.  

Starting a business by trying to find a market for an already developed product usually leads to a long and often futile launch of the new venture.  It results in a very expensive start-up process, as revenues tend to be very slow to materialize.  Expenses just keep piling up as the entrepreneur tries to find a target market with customers who need the product.

The approach to starting a business that has the best chance of success is to look to the markets for ideas.  

Start by looking at markets you already are familiar with from your 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 see in your everyday life.   

Look for groups of customers who share a common dissatisfaction with how they are being treated or who cannot find what they really want.  It may be something as simple as a market that has not been given good customer service.

Look for markets that are ready to try a new product to replace the old ones they now using.  That is what has led to the success of the Nashville-based app company Aloompa.  Much of their growth has come in the music festival market, where their apps replace outdated printed programs.

Look for markets where something that has worked in other similar markets has not been tried in your market.  That is what inspired Bob Bernstein to open Bongo Java, a neighborhood coffee shop in Nashville, that was like the ones he loved in his home town of Chicago.  

Look for markets with “pain” and then develop a product or service that takes care of that “pain.”  

My favorite meeting with an aspiring entrepreneur is when they come to my office and say, “I have found a market that needs….”  

I know they are starting down the right path to develop a business model that has a good chance of success.

Luck and Serendipity

While entrepreneurial success is tied to careful feasibility assessment, business modeling and planning, never underestimate the role that luck plays in an entrepreneurial journey.

I am not suggesting that aspiring entrepreneurs just sit and wait for an opportunity to come to them like a bolt of lightning out of the blue. As the Roman philosopher Seneca pointed out long ago, luck is the crossroad of preparation and opportunity.

Preparation comes from the development of what I call the process skills.

Entrepreneurs have a better chance of success if they learn fundamental business skills, such as accounting, marketing and managing people.

They also benefit from learning specific process skills tied to starting and growing a business, such as how to assess opportunities and translate them into business models.

Opportunities come from the development of content skills that come from our experiences in life. The best ideas for possible businesses most often come from jobs we have held, from our hobbies and interests and from our social network.

If we pay close attention, it is out of these experiences that we’ll notice customers who aren’t getting what they want or who are missing the service they expect. This is what creates the gaps and pain in the market that entrepreneurs can capitalize on with a new business.

There is one important caution regarding the opportunities that come from our experiences, though. Don’t become a slave to the status quo. Be ready to be surprised.

Luck is not the only element that leads to entrepreneurship. We also need to be ready for serendipity, which is when we find opportunity not by plan, but by accident.

The examples of the role of serendipity in entrepreneurial success are many.

For instance, the original plan for PayPal was to build a payment platform for the old hand-held Palm Pilot devices.

And 3M sticky notes came from an adhesive that did not work as well as it should have.

The key was that in both of these examples, while the original plan did not work, an entrepreneur was willing to pursue a surprising new direction that did work very well.

Entrepreneurial success can be the result of a path we did not expect.

While our experiences are important, we have to be careful not to get stuck in the old, traditional ways of thinking. And we must never become a slave to our original ideas.

So, the formula for success is quite often a combination of hard work and preparation, of the experiences we have in life and more than a few surprises.

Never underestimate the role of luck and serendipity in entrepreneurship.