Essential Entrepreneurial Skills

Essential Entrepreneurial Skills

Entrepreneurship basics and fundamentals blueprint

Overview

Every year, many people start their own businesses. but while most succeed (yes, that’s the truth!), many do fail. why? one of the common causes of startup failure is a lack of preparation.

People come to the entrepreneurial path from different directions, increasingly, some start fresh out of college or after a stint at home raising their kids or simply because the idea of retiring is abhorrent to them. most, though, come to entrepreneurship straight out of the workforce. quitting a full-time job to start a business isn’t something to be taken lightly. you should be sure now is the right time to get started.

First, you need to ask yourself some questions: do I have enough money? if you have a family, are they ready for this? is there a need for a product or service like mine? this book will help you answer those questions and much more.

Once you’ve made the decision to break away, there are several things you should do before taking the next step. conducting thorough market research is a must. make sure you have enough cash—not only for the business but to sustain your life—and discuss the decision with your family.

Remember, the rewards of small-business owners are not instantaneous. you must be determined, patient, persistent, and willing to make sacrifices to ensure those rewards eventually do come.

You’ll need to prepare for the responsibilities that come with business success.

What is a business?

Too often, business owners, managers, and decision-makers get fooled by the way they use language into thinking that their business is a “thing.” it is not. it is convenient and even necessary to use a noun to refer to your business when communicating with people, but when you visualize it for yourself, make sure you don’t ever do so. one of the lessons we have brought along to all the companies that we have worked at and consulted for is the following: your business is not a noun. it is a verb. it is a “happening” and a “doing.” it is nothing less than the sum total of the actions and thoughts of every employee and customer. it is the result-in-motion of all the things that the people who participate in your business do every day.

Mentally framing your business in this way is an easy and useful step toward understanding it and how its complexity is organized between ideas, your staff, your customers, and the wider market. if you are visualizing the business as a noun (an object of some kind), your model of understanding is inherently missing much of its complexity. by promoting your visualization from a noun (static) to a verb, you automatically give yourself a much more complex modeling paradigm. you will immediately get closer to the reality of dance-like complexity found in all businesses as they grow and operate.

Launch strategies

There are many different strategies for launching a business, and they depend primarily on a number of resources you have available.

Soft launch

What do you do when you have an idea and no cash? keep your day job, that’s what. being an entrepreneur is not an all-or-nothing proposition. by doing a soft launch of your business, you can scout out the territory with low risk by continuing whatever career you have, but start to put feelers out into the market in support of your idea.

Build a website, and sell your product or services on a small scale. this allows you to gather information about the viability of your plan, satisfy your itch to build something, and experience a good bit of the adventure without putting yourself or your family in a dangerous financial position.

Never underestimate the value of a steady paycheck and the benefits that come with a good job, such as health insurance. it takes a lot of progress on a startup to get to the point where it can provide comparable security (probably years).

Jumping in

This kind of business launch is what we think most people think of when starting a business: putting all your chips on the table and playing your hand—win it all or lose it all. this is a risky proposition, and not to be taken lightly. the benefit of doing this is that you can give your full attention to the project, and you can move fast. this is appropriate when the window of opportunity for your business will only be open for a short time. the caveat here is that you cannot jump in without some pool of resources to draw upon, or a very manageable risk profile (such as no family to support).

Clearly, jumping in is much easier when you have capital reserves to work from, whether from investors or your own bank account.

Joining someone else’s party

You may end up with an opportunity to join a business venture that is entrepreneurial but already funded and in motion. in this scenario, you have the benefits of a paycheck and corporate niceties, but also the open environment of a startup where your entrepreneurial skills can be applied to define a business that is not yet well-formed. the downside of this is that you will have to negotiate for even a piece of equity, as opposed to being the founder and deciding equity distributions for others. you are also likely to be compensated as an employee for the most part.

And depending on the business, not being the top guy probably means that you won’t get much credit for your ideas.

Your strengths and weaknesses

It’s rare that one person possesses all the qualities needed to be successful in business. everyone has strong suits and weak points. what’s important is to understand your strengths and weaknesses. to do this, you need to evaluate the major achievements in your personal and professional life and the skills you used to accomplish them. the following steps can help:

Create a personal resume

Compose a resume that lists your professional and personal experiences as well as your expertise. for each job, describe the duties you were responsible for and the degree of your success. include professional skills, educational background, hobbies and accomplishments that required expertise or special knowledge.

When complete, this resume will give you a better idea of the kind of business that best suits your interests and experience.

Analyze your personal attributes

Are you friendly and self-motivated? are you a hard worker? do you have common sense? are you well-organized? evaluating your personal attributes reveals your likes and dislikes as well as strengths and weaknesses. if you don’t feel comfortable around other people, then a business that requires a lot of customer interaction might not be right for you. or you may want to hire a “people person” to handle customer service, while you concentrate on the tasks you do best.

Analyze your professional attributes

Small-business owners wear many different hats, but that doesn’t mean you should be all-in-one. just be aware of the areas where you’re competent and the areas where you need help, such as sales, marketing, advertising, and administration. next to each function, record your competency level—excellent, good, fair or poor.

Go for the goal

In addition to evaluating your strengths and weaknesses, it’s important to define your business goals. for some people, the goal is the freedom to do what they want when they want, without anyone telling them otherwise. for others, the goal is financial security.

Setting goals is an integral part of choosing the business that’s right for you. after all, if your business doesn’t meet your personal goals, you probably won’t be happy waking up each morning and trying to make the business a success. sooner or later, you’ll stop putting forth the effort needed to make the concept work. when setting goals, aim for the following qualities:

Specificity: you have a better chance of achieving a goal if it is specific. “raising capital” isn’t a specific goal; “raising $10,000 by July 1” is.

Optimism: be positive when you set your goals. “being able to pay the bills” isn’t exactly an inspirational goal. “achieving financial freedom” phrases your goal in a more positive manner, thus firing up your energy to attain it.

Realism: if you set a goal to earn $100,000 a month when you’ve never earned that much in a year, that goal is unrealistic. begin with small steps, such as increasing your monthly income by 25 percent. once your first goal is met, you can reach for larger ones.

Short and long-term: short-term goals are attainable in a period of weeks to a year. long-term goals can be for five, 10 or even 20 years; they should be substantially greater than short-term goals but should still be realistic.

Setting goals factors

Income: many entrepreneurs go into business to achieve financial security. consider how much money you want to make during your first year of operation and each year thereafter, up to five years.

Lifestyle: this includes areas such as travel, hours of work, investment of personal assets and geographic location. are you willing to travel extensively or to move? how many hours are you willing to work? which assets are you willing to risk?

Type of work: when setting goals for the type of work, you need to determine whether you like working outdoors, in an office, with computers, on the phone, with lots of people, with children, and so on.

Ego gratification: face, it: many people go into business to satisfy their egos. owning a business can be very ego-gratifying, especially if you’re in a business that’s considered glamorous or exciting. you need to decide how important ego gratification is to you and what business best fills that need.

The most important rule of self-evaluation and goal-setting is honesty. going into business with your eyes wide open about your strengths and weaknesses, your likes and dislikes and your ultimate goals let you confront the decisions you’ll face with greater confidence and a greater chance of success.

Discovering a real need

Your business idea may be good, it may even be great, you might be a great potential entrepreneur but you still need to spell out exactly what it is you plan to do, who needs it, and how it will make money. a good starting point is to look around and see if anyone is dissatisfied with their present suppliers. unhappy customers are fertile ground for new businesses to work in.

One dissatisfied customer is not enough to start a business for. check out and make sure that unhappiness is reasonably widespread, as that will give you a feel for how many customers might be prepared to defect. once you have an idea of the size of the potential market you can quickly see if your business idea is a money-making proposition.

Discovering needs triggers

Cost reduction and economy: anything that saves customers money is always an attractive proposition.

Fear and security: products that protect customers from any danger, however obscure, are enduringly appealing.

Greed: anything that offers the prospect of making exceptional returns is always a winner.

Niche markets: big markets are usually the habitat of big business – encroach on their territory at your peril. new businesses thrive in markets that are too small to even be an appetite wetter to established firms. these market niches are often easy prey to new entrants as they have usually been neglected, ignored or ill-served in the past.

Differentiation: consumers can be a pretty fickle bunch. just dangle something, faster, brighter or just plain newer and you can usually grab their attention. your difference doesn’t have to be profound or even high-tech to capture a slice of the market.

Checking viability

Having a great business idea and having the attributes and skills needed to successfully start your own business are two of the three legs needed to make your business tool balance. without the third leg, though, your stool isn’t stable at all. you need to be sure that the business you plan to start is right for you.

Before you go too far, make an inventory of the key things that you are looking for in a business. these may include working hours that suit your lifestyle; the opportunity to meet new people; minimal paperwork; a chance to travel. then match those up with the proposition you are considering.

An idea, however exciting, unique, revolutionary, and necessary is not a business. it’s a great starting point, and an essential one, but there is a good deal more work to be done before you can sidle up to your boss and tell him/her or him/her exactly what you think of them.

The following pages explore the main steps you need to take so that you won’t have to go back to your boss in six months and plead for your old job back (and possibly eat a large piece of humble pie at the same time).

Step one: researching the market

However passionate you are about your business idea, it is unlikely that you already have the answers to all the important questions concerning your marketplace. before you can develop a successful business strategy, you should understand as much as possible about your market and the competitors you are likely to face.

The main way to get to understand new business areas, or areas that are new to you, at any rate, is to conduct market research. the purpose of that research is to ensure that you have sufficient information on customers, competitors, and markets so that your market entry strategy or expansion strategy is at least on the target, if not on the bull’s eye itself. in other words, you need to explore whether enough people are attracted to buy what you want to sell at a price that will give you a viable business. if you miss the target altogether, which you could well do without research, you may not have the necessary resources for a second shot.

Market research main factors

Your customers: who will buy more of your existing goods and services and who will buy your new goods and services? how many such customers are there? what customer needs will you meet?

Your competitors: who will you be competing within your product/market areas? what are those firms’ strengths and weaknesses?

Your product or service: how should you tailor your product or service to meet customer needs and to give you an edge in the market?

The price: what would be giving value for money and so encourages both customer loyalty and referral?

The advertising and promotional material: what newspapers, journals, and so forth do your potential customers read and what websites/blogs/social media channels do they visit? unglamorous as it is, analyzing data on what messages influence people to buy, rather than just to click, holds the key to identifying where and how to promote your products and service.

Channels of distribution: how will you get to your customers and who do you need to distribute your products or services? you may need to use retailers, wholesalers, mail order, or the internet. they all have different costs and if you use one or more they all want a slice of the margin.

Your location: where do you need to be to reach your customers most easily at minimum cost? sometimes you don’t need to be anywhere near your market, particularly if you anticipate most of your sales will come from the internet. if this is the case you need to have a strategy to make sure potential customers can find your website and try to spend your advertising money wisely.

Step two: doing the numbers

Your big idea looks as though it has a market. you have evaluated your skills and inclinations and you believe that you can run this business. the next crucial question is – will it make you money?

It’s vital that you establish the financial viability of your idea before you invest money in it or approach outsiders for backing. you need to carry out a thorough appraisal of the business’s financial requirements. if the numbers come out as unworkable you can then rethink your business proposition without having lost anything. if the figures look good, then you can go ahead and prepare cash flow projections, a profit and loss account and a balance sheet, and put together the all-important business plan. you need to establish for your business:

• day to day operating costs.

• how long will it take to reach break-even?

• how much is start-up capital needed the likely sales volume?

• the profit level required for the business not just to survive, but also to thrive.

• the retail price of your product or service.

Many businesses have difficulty raising start-up capital. to compound this, one of the main reasons small businesses fail in the early stages is that too much start-up capital is used to buy fixed assets. While some equipment is clearly essential at the start, other purchases could be postponed. you may be better off borrowing or hiring ‘desirable’ and labor-saving devices for a specific period. this is obviously not as nice as having them to hand all the time but remember that you should maintain every material, and aspect you buy and they become part of your fixed costs. the higher your fixed costs, the longer it usually takes to reach the break-even point and profitability. and time is not usually on the side of the small, new business: it should become profitable relatively quickly or it will simply run out of money and die.

Step three: raising the money

Two fundamentally different types of money that a business can tap into our debt and equity:

Debt is money borrowed, usually from a bank, and which you should repay. while you are making use of borrowed money you also should pay interest on the loan.

Equity is the money put in by shareholders, including the proprietor, and money left in the business by way of retained profit. you do not have to give the shareholders their money back, but they do expect the directors to increase the value of their shares, and if you go public they will probably expect a stream of dividends too.

If you do not meet the shareholders’ expectations, they will not be there when you need more money – or, if they are powerful enough, they will take steps to change the board.

Alternative financing methods include raising money from family and friends, applying for grants and awards, and entering business competitions.

Step four: writing up the business plan

a business plan is a selling document that conveys the excitement and promise of your business to potential backers and stakeholders. these potential backers could include bankers, venture capital firms, family, friends, and others who could help you get your business launched if they only knew what you want to do.

Business planning best tips

Hit them with the benefits: you need to spell out exactly what it is you do, for whom, and why that matters.

Make your projections believable: sales projections always look like a hockey stick: a straight-line curving rapidly upwards towards the end. you should explain exactly what drives growth, how you capture sales, and what the link between activity and results is. the profit margins will be key numbers in your projections, alongside sales forecasts. these will be probed hard, so show the build-up in detail.

Say how big the market is: financiers feel safer backing people in big markets. capturing a fraction of a percentage of a massive market may be hard to achieve – but if you get it at least it’s worth it. going for 10% of a market measured in millions rather than billions may come to the same number, but it won’t be as interesting.

Introduce you and your team: you need to sound like winners with a track record of great accomplishments.

Include non-executive directors: sometimes a heavyweight outsider can lend extra credibility to a business proposition. if you know or have access to someone with a successful track record in your area of business who has time on their hands, you could invite them to help. if you plan to trade as a limited company you could ask them to be a director, without specific executive responsibilities beyond being on hand to offer their advice. but they need to have relevant experience or can open doors and do deals.

Provide financial forecasts: you need projected cash flows, profit and loss accounts, and balance sheets for at least three years out. no-one believes them after year one, but the thinking behind them is what’s important.

Demonstrate the product or service: financiers need to see what the customer is going to get. a mock-up will door, failing that, a picture or diagram. for a service, show how customers will gain from using it. that can help with improved production scheduling and so reduce stock holding.

Spell out the benefits to your potential investor: tell them that their money will be paid back within ‘x’ years, even on your most cautious projections. or if you are speaking with an equity investor, tell them what return they will get on their investment when you sell the business on in three or five years’ time.

Going for growth

growth is as natural a feature of business life as it is of biological life. people, animals, and plants all grow to a set size range and then stop. a few very small and very large specimens come to fruition, but the clear majority fit within a narrow size band.

businesses follow a similar formula: most successful new businesses, those that survive that is, reach a plateau within five to seven years.

once a business starts to grow, the overhead costs are spread over a wider base. you can buy materials and services in larger quantities, which usually means better terms and lower costs. the combination of these factors generally leads to a higher profit margin, which in turn provides funds to improve the business, which, in turn, can lead to even lower costs. this virtuous circle, as it is known, can make a growing firm more cost competitive than one that is cautiously marking time.

Securing a competitive advantage

a new business can steal a march on its competitors by doing something vital that established businesses cannot easily imitate.

Retaining key staff

the surest way to ensure a business fails is to have a constant churn of employees coming and going. valuable time and money should be invested in every new employee before they become productive, so the more stuff you lose the more growth you sacrifice.

most employers believe that their staff work for money and their key staff work for more money. the facts don’t really support this hypothesis. all the evidence is that employees want to have an interesting job and be recognized and praised for their achievements.

by growing the business, you can let key managers realize their potential. in a bigger business, your staff can be trained and promoted, moving up the ladder into more challenging jobs, with higher salaries earned on merit, whilst staying with you, rather than leaving for pastures new. and if employees are good at their jobs, the longer they stay with you the more valuable they become. you save time and money on the recruitment merry-go-round and you don’t have to finance new managers’ mistakes whilst they learn how to work in your business.

Gaining critical business mass

bigger isn’t always better, but a growing business will have a greater presence in its market, and that’s rarely a bad strategy. large businesses are also more stable, tending to survive better in turbulent times. bigger businesses can and do sometimes go bust, but smaller ‘doing nicely’ small businesses are far more likely to go bump.

a small company often relies on a handful of customers and just one or two products or services for most or all its profits. if its main product or service come under competitive pressure, or if a principal customer goes bust, changes supplier, or simply spreads orders around more thinly, then that company is in trouble.

How to get an idea for your business?

many people believe starting a business is a mysterious process. they know they want to start a business, but they don’t know the first steps to take. in the next pages, you’re going to find out how to get an idea for a business—how you figure out exactly what it is you want to do and then how to act on it.

but before we get started, let’s clear up one point: people always wonder if this is a good time to start their business idea. the fact is, there’s never a bad time to launch a business. it’s obvious why it’s smart to launch in strong economic times. people have money and are looking for ways to spend it. but launching in tough or uncertain economic times can be just as smart. if you do your homework, presumably there’s a need for the business you’re starting. because many people are reluctant to launch in tough times, your new business has a better chance of getting noticed. and, depending on your idea, in a down economy, there is often equipment (or even entire businesses!) for sale at bargain prices.

everyone has his or him/her own roadblock, something that prevents them from taking that crucial first step. most people are afraid to start; they may fear the unknown or failure, or even success. others find starting something overwhelming in the mistaken belief they should start from scratch. they think they should come up with something that no one has ever done before—an invention, a unique service. in other words, they think they should reinvent the wheel.

but for most successful people starting a business, the issue should not be coming up with something so unique that no one has ever heard of it but instead answering the questions: “how can we improve on this?” or “can we do this better or differently from the other guy doing it over there?” or simply, “is there market share not being served that makes room for another business in this category?

How do you start the idea process?

first, take out a sheet of paper and across the top write “things about you.” list five to seven things about yourself—things you like to do or that you’re good at, personal things (we’ll get to your work life in a minute). your list might include: “I’m really good with people, I love kids, I love to read, I love computers, I love numbers, I’m good at coming up with marketing concepts, I’m a problem solver.” just write down whatever comes to your mind; it doesn’t need to make sense. once you have your list, number the items down one side of the paper.

on the other side of the paper, list things that you don’t think you’re good at or you don’t like to do. maybe you’re good at marketing concepts, but you don’t like to meet people or you’re not that fond of kids or you don’t like to do public speaking or you don’t want to travel. don’t overthink it; just write down your thoughts.

when you’re finished, ask yourself: “if there were three to five products or services that would make my personal life better, what would they be?” this is your personal life as a man, woman, father, husband, mother, wife, parent, grandparent—whatever your situation may be.

determine what products or services would make your life easier or happier, make you more productive or efficient, or simply give you more time.

next, ask yourself the same question about your business life. examine what you like and dislike about your work life as well as what traits people like and dislike about you. finally, ask yourself why you’re seeking to start a business in the first place. then, when you’re done, look for a pattern to emerge (i.e., whether there’s a need for a business doing one of the things you like or are good at).

Thinking it through

before you start a business, you should examine the potential, what your product or service is, and whether the opportunity exists to make a good deal of money. it may be a “hit and run” product, where you’re going to get in, make a lot of money, and then get out. that’s not necessarily a bad thing; fads have made some entrepreneurs incredibly wealthy. but remember, once you’re in the fad business, it’s hard to know when it’s time to get out. and if you guess wrong or try to make a classic out of a fad, you’re going to lose all the money you have earned.

whether your idea will succeed in your community is to talk to people you know. if it’s a business idea, talk to co-workers and colleagues. run personal ideas by your family or neighbors. don’t be afraid of people stealing your idea. it’s just not likely. just discuss the general concept; you don’t need to spill all the details.

Just do it!

hopefully, by now, the process of determining what business is right for you has at least been somewhat demystified. understand that business startup isn’t rocket science. no, it isn’t easy to begin a business, but it’s not as complicated or as scary as many people think, either. it’s a step-by-step, common-sense procedure. so, take it a step at a time.

figure out what you want to do. once you have the idea, talk to people to find out what they think. ask “would you buy and/or use this, and how much would you pay?”

understand that many people around you won’t encourage you (some will even discourage you) to pursue your entrepreneurial journey. some will tell you they have your best interests at heart; they just want you to see the reality of the situation. some will envy your courage; others will resent you for having the guts to do something. you can’t allow these naysayers to dissuade you, to stop your journey before it even begins.

in fact, once you get an idea for a business, what’s the most important trait you need as an entrepreneur? perseverance. when you set out to launch your business, you’ll be told “no” more times than you’ve ever been told before. you can’t take it personally; you’ve got to get beyond the “no” and move on to the next person—because eventually, you’re going to get to a “yes.”

one of the most common warnings you’ll hear is about the risk. everyone will tell you it’s risky to start your own business. sure, starting a business is risky, but what in life isn’t? plus, there’s a difference between foolish risks and calculated ones. if you carefully consider what you’re doing, get help when you need it, and never stop asking questions, keep learning, you can mitigate your risk.

Should you launch your business part or full time?

should you start your business part time or full time? even if you ultimately plan to go full time, many entrepreneurs and experts say starting part-time can be a good idea.

starting part-time offers several advantages. it reduces your risk because you can rely on income and benefits from your full-time job. starting part time also allows your business to grow gradually.

yet the part-time path is not without its own dangers and disadvantages. starting part-time leaves you with less time to market your business, strategize and build a clientele. since you won’t be available to answer calls or solve customers’ problems for most of the day, clients may become frustrated and feel you’re not offering adequate customer service or responding quickly enough to their needs.

perhaps the biggest problem for part-time entrepreneurs is the risk of burnout. holding down a full-time job while running a part-time business leaves you with little, if any, leisure time; as a result, your personal and family life may suffer.

Market matters

as with any business, your plan of attack should start with a thorough assessment of your idea’s market potential. often, this step alone will be enough to tell you whether you should start part time or full time.

you can’t become so caught up in your love for what you’re doing that you overlook the business realities. if you find there is a huge unmet need for your product or service, no major competition and a ready supply of eager customers, then go ahead and start full time. if on the other hand, you find that the market won’t support a full-time business, but might someday with proper marketing and business development, then it is probably best to start part-time at first.

investigate factors such as the competition in your industry, the economy in your area, the demographic breakdown of your client base, and the availability of potential customers.

once you have determined there is a need for your business, outline your goals and strategies in a comprehensive business plan. you should always conduct extensive research, make market projections for your business, and set goals for yourself based on these findings. it gives you a tremendous view of the long-range possibilities and keeps the business on the right track. don’t neglect writing a business plan even if you’re starting part-time: a well-written business plan will help you take your business full time later.

certain businesses lend themselves well to part-time operation: e-commerce, food products, direct marketing and service businesses as examples. doing your market research and business plan will give you a more realistic idea of whether your business can work part-time. (for specifics on conducting market research and writing a business plan.

if you’ve got your heart set on a business that traditionally requires a full-time commitment, think creatively: there may be ways to make it work on a part-time basis. for instance, instead of a restaurant, consider a catering business. you’ll still get to create menus and interact with customers, but your work can all be done during evenings and weekends.