Ideas To Deals

It's About Demand

I meet with a lot of people that are trying to build a business. Most have a cool idea for a product or service.  ALL think that EVERYONE will need it.  Why, because it is their passion. Most of you know I am  runner.  I have all the technical clothing, stability running shoes, I read a number of blogs to learn more about running...the moral is that I am pretty passionate about running and see the value in all things running.  It stands to reason that if I decided to do business in something involved in running I would see the applicability to many potential customers.  Is that demand real or is it more specific to me? This is the question you need to be able to answer.  It is critical that as you are thinking about building a business you determine what you want out of the business and are there enough potential customers for you to reach that financial goal.  

A lot of time when I teach business start-up classes I sense that people don't want to hear about market research but that is what will make you successful.  It is all about market research.  The more research you can do up front the more risk you can bake out of your business and the less money you will waste chasing non-existent customers.  Understanding the demographics of your market and applying psychographic research to those demographics will allow you to better target your message and get more customers.  Like I always say it is about knowing who is out there to buy your product and how are you going to get them to buy it.  Market research will help you answer both questions.

OK, here is the lesson part. 

Step 1 ...Go to your local library.  Regardless if you are in a small community or a big city your library will have resources to help with your research.   If you are in a smaller community your local library may not have all the resources for you to access but they will have the trained staff to advise and guide you.  Most metropolitan libraries have extensive on-line resources that you can access simply by having a library card (which you can also get on-line).  Access the on-line resources and leverage local assistance to help you get what you want.

Step 2 ...Talk to your potential customers. I don't care what kind of a business you are building you should be researching the likes and dislikes of people that may buy you product.  This will allow you to get off the ground faster once you launch and save you money on marketing because you will have a better understanding of your customer.

Step 2.1 ...Discount the opinions of friends and family. This is not really a step but more of an add on to step two.   If you ask your friends and family what they think I promise you they will like it and encourage you to go forward because they think that is what you want to hear and they want you to be happy.  Not a good focus group for you.

Step 3 ...Apply what you are learning about your market.  Research may lead you down a path that you didn't anticipate.  Trust what you are hearing and apply it to your strategy.  As long as you are comfortable with the direction and it still fits within your mission you will be much better position to sell your product and make money earlier in the life cycle of your business.

Step 4 ...Never stop learning.  Once you launch it may become more difficult to do research but never stop doing it.  Markets and tastes change and you need to stay on top of those trends.  Use your industry trade associations, Chambers of Commerce, SBDC's whatever will help you stay on the cutting edge. 

I wanted to leave you with one more great resource to find information on building your business, CentralOhioEntrepreneurs.org.  This site will provide you with tremendous content and resources to build your business.  While it is based in central Ohio much of the content is universal so wherever you are reading this you will benefit.

I know it is time consuming but every successful entrepreneur I know has told me that the secret to their success is research.  Let me know your thoughts and any other resources you have found to be valuable.

 

Funding Is Not Magic

Here is the conversation:

Me: Hello this is Michael Bowers. How can I help you?

Caller: I need to speak to someone about my business.  I am having someone write my business plan and I should have it in the next week or so.  I need to discuss how to get funding.

Me: How much do you need?

Caller: $1.2 million.

Me: What are your thoughts on getting the funding?

Caller: I was wondering what was out there in the way of grants, loans or investors. 

Now is when the caller expected me to put on a magic show and pull $1.2 million out of my hat.  As much as I want to help I don't see it happening. 

It is critical that when you know funding will be needed you make the capital access plan a major part of your business planning process.  To many people see the business plan as the path to capital.  However, if you have not thought through how and from whom you are likely to get funding the plan won't be sufficient. 

Thinking through the "Uses" of funds without a strategy around the appropriate "Sources" of funds is a recipe for disaster.   Just like marketing, staffing and sales your capital raising plan needs to be thought through strategically.  Here are key points to address as you are building out your plan.

• Understand where you are in the funding process. Early stage, high risk opportunities don't appeal to banks so you either need to find other sources or figure out how to reduce the level of risk to the bank.
• What is your equity position and how does that relate to your current or prospective debt position.  The more money you need the more equity you need to have in the business.
• Develop your plan including the fund raising strategy.  This should not only include what you need but who provides that kind of funding and how do they evaluate opportunities.
• Be advised...There is no 100% funding. I don't care if you are approaching banks or investors you need to put some of your own cash into the opportunity.
• Not qualifying for loans does not mean you should be approaching investors. 
• Don't expect to find grants to fund your business start-up.  Depending on your business you might find grant dollars to provide services (usually only available to non-profits) but grants don't provide dollars to set up the business.  You need to have the business set-up and successfully operating before you can access most grants.
• Revenue is the best financing! Focus on customers and driving revenue.  This will make getting financing easier when the time is right.
• Push the need for financing out as long as you can.  The more operating history you have the better banks will like you and the higher your valuation will be if you are seeking equity investment.
• Remember the Golden Rule ~ He who has the gold makes the rules.  Don't expect banks or investors  to change the way they do things for you.  You will need to build a plan that works within their systems.
• Don't wait until the last minute.  That is the whole point of this to be prepared to seek financing.  By doing this kind of planning you should be able to avoid an urgent need for cash that is not taken care of you will be out of business.
• Realize that everything will take longer than you expect.  Think ahead and leave plenty of time to get financing arranged.
• If you don't have enough experience to justify getting financing you can build expertise into your team by adding people to your team or through an Advisory Board.

If you are seeking financing know that you need to be thinking several steps ahead.  The more you know about your needs, who can provide the financing and what they need to provide the financing the better your chances of success.

What's In A Start-Up?

Over the next few months I'll be developing a series of posts specific to starting a business.  There are a couple of things that got me thinking about doing this. First, at our SBDC here in Columbus we recently developed a Start-Up series of programs and workshops designed to provide education in the start-up process.  These provide great educational sessions on everything from what it means to be in business to to the mechanics of developing financial projections.  What I wanted to do here on Ideas To Deals was provide real life examples to augment the live instruction but also be a resource to anyone starting a business. 

The second thing that sparked this was a great discussion I had with Janine Holsinger founder of the Paralegal Team, an on-line group of experienced and motivated young professionals providing virtual assistance to bankruptcy attorneys nationwide.  I took away a list of things that Janine was doing to start her business that would be valuable to others starting a business.  Here is a quick list of things that Janine is doing right:

• Taking her time to do things right
• Researching her market with a focus on future sales and marketing
• Building and leveraging her network for support, information and to provide needed services that are not her specialty.
• Really understanding the needs of her customers so as to provide a service that they need and will pay for.
• Being efficient with the use of her money so she doesn't have to seek financing.
• Working hard on the pre-launch development of the business so the future operation of the business will be successful.

OK, let's get going!  I want your help in building this.  If you have ideas or insights share them in the comments section.  If there is something you have questions about drop me an e-mail at mbowers3@cscc.edu and I'll get a post up addressing your question.

Starting a business can be a lot of work but if you are truly passionate about what you are doing it is worth it.