Assured Entrepreneurial Success

Assured Entrepreneurial Success

Introduction-Preface if you prefer

Excusing the “pie in the sky” aim of this book’s title, this guide has taken about 30 years to write.
I have worked for many retail firms, been in the military, been married and traveled to several nations, from whose and which perspectives I “borrowed” to see how American firms can do better. I have also been a small business consultant for 4 decades, doing far to much pro-bono work to help people get their business started, expanded or fixed. Sometimes, like a pastor, getting someone “there” has been more important for me than making sure I was reasonably and timely remunerated. Perhaps this book can help make up for too many soup and egg meals.

Dr. Ralph Todd--who was my management mentor--likely my most important mentor! Ralph always was positive and a guide with no peer!

Like philosophers have said repeatedly, the wisest man learns from those who both harm as well as those who aid him. I hope I have.

Philosophy of Reasons for wanting to be self-employed

The WHY of wanting to start a business

The WHAT, WHEN, WHERE, WITH WHOM, and HOW of business

According to your author (and other experts), the reasons you have for entering self-employment must be VALID if you are to have much likelihood for success. I'll now take you through an analysis of VALID vs INVALID reasons for entering self-employment. Having valid reasons doesn't insure your success (the author can assure your success, but you must adhere to all the precepts of this book and any other directions the author gives you if you accept his offer of an assurance of success.) Uniquely, having invalid reasons doesn't assure you of failure though it will likely hurt you over time as will be distinctly pointed out throughout this book. Also, a "valid" reason will tend to assure you of a greater likelihood of success whenever things get "difficult." By difficult I mean when employees quit and suppliers change costs and availability at the most inconvenient times and when items are most in demand (for those of you carrying manufactured supplied inventory.

Professionalism in self-employment is anything but an '8 to 5 job." If you enter self-employment with valid reasons, you will weather difficult times much more easily than if your beginning reasons were invalid. Truly, validity in entrepreneurship makes the difficulties simply doors to more opportunities. Invalidity in entrepreneurship, when things are 'going wrong' will make you wish you stayed in bed, just like you often feel when working for someone you don't really want to work with.

The reason 'validity' will help assure success is that you, the merchant-to-be, will be motivated to take corrective steps to solve problems before problems become serious. Invalid reasons for wanting to be an entrepreneur will likely contribute towards making you, the merchant-to-be, part of the statistics on failures that flood the federal bankruptcy courts nationwide.

This book then, could, perhaps, have an additional purpose; keeping you out of bankruptcy court. (Helping you put money into your pocket and keeping it there!)
A valid reason for anything means it has been thought through and is defended well and can therefore guide others (in self-employment, this includes counselors, attorneys and accountants) who can further guide you.

Validity

Reasons people have offered me/themselves, over the past 50 years, for wanting to enter self-employment :

1. An increase in take-home pay.

2. A site preference.

3. A marketing plan to capture a certain percent (%) of a market.

4. Anger with the boss.

5. Have exclusive (a license for) use of a new technology.

6. Ideal work/employment field (area of interest) unavailable.

7. Am an alien.

8. Am retired.

9. Am handicapped.

10. Am a hobbyist (and just get a kick out of doing something).

These are all logical reasons for wanting to be self-employed, but are invalid by themselves! None of them yet speaks about what you are going to do for a "clientele base.

You have read 10 reasons why many people think of being self-employed. Let me disclose why most of these reasons, by themselves, are considered inadequate for wanting to open or buying a small business, why these reasons can't be defended.

"Why" must be defended and become "valid" (good) If you want your likelihood of success in self-employment to be high.

Let's cover the defect in each of the ten reasons listed above and see how, if possible, these reasons can be modified or changed to become "valid." The reasons people choose to become self-employed are:

1. An increase in take-home pay.

You need more! This is not, by itself, a reason for self-employment! For the first few months (or years) you can physically draw money from cash flow (gross sales). If you do so, you will likely hurt a business you start. If you buy a going business, I would wait 3-6 months before drawing a salary until you know how your demographics, your marketing and your management style are going to be perceived and accepted.

2. A site preference.

Most real estate agents, both commercial and residential, will suggest that location, location and location are the three most important considerations in acquiring property (for rent or purchase). There are some good reason for considering the location of any property, but like the firm's innovativeness or pricing or any of the other "matrix" items of a business, no single consideration (location) can be considered significantly more important than the others.

Two examples will help demonstrate the exceptions to the rule of ideal or best locations. When I was a pre-teen aged boy, my father worked for a bar named Charlie's Penthouse in San Francisco. It had only one entrance (a grand-fathered commercial site) and this was on an alley-way. If one weren't a resident (most likely with several years residency) of the city, one would likely not know how to find it. Did it make money? Plenty! Those who were natives knew where Charlie’s was and went in droves!

A second establishment was a restaurant and bar. I found this place by accident! I was driving home to Sacramento, CA., after visiting Folsom Lake, CA. About 10-20 miles south west of the lake, at a cross-roads in the middle of NOWHERE, sat this building with a restaurant and bar. Venturing into it, I found a reservation-only place of business and they were booked two months ahead of time! Again, those who knew passed the word around. It could have been located anywhere, it was simply where it was. People would have driven 50-100 miles to eat and drink there.

Therefore, a site preference for a business without having done one's homework as to type of business, a semi or formal survey to confirm customers exist who would consider doing business with you and that your atmosphere, price, quality are what customers want and enough would shop with you to make YOUR SITE and its accommodated business attractive and profitable, would be an invalid reason to be self-employed. Answer or solve the above requirements and you turn the site preference into a bona fide reason for self-employment and your site reason becomes valid!

3. A marketing plan to capture a certain percent (%) of a market.

A marketing plan may be the best reason of the 10 listed, to open a business, but a marketing plan to capture business by itself, like site preference, is inadequate. Let me explain. Let's say that you have available an attachment to a solar water heater. This attachment allows water to have its temperature changed higher or lower within 15 minutes to 20 degrees higher or lower, and the device can be invented, perfected and be ready to compete with something else on the market that sells for 300% more and the profits will be 75% on sales (excellent!) Further research also discloses that only 25 solar cells are sold monthly, there are only 5,000 nationwide, and expected sales of the cells are 300 annually for 10 years. Capturing 35% of this market at a cost of $250,000 would be prohibitive if the profit is $35.00 for each item. The start-up costs would be high ($75,000 is our example), the time to reach your market would be long (3 years), and the total market (8,000) is insignificant to make it worth your while, even if you could sell to 35% (it was presumed you could capture 25% and the competition gets 15% now) of all the past and future users. (Not all users of these cells will use your attachment. If you sold them via a license agreement to the original cell manufacturer, you may be better off. Therefore, in this situation of capturing a majority percentage of a market is an inadequate reason for becoming self-employed.

4. Anger with the boss.

According to extensive research, 65% of Americans are dissatisfied with their job. Probably 85 % of these dissatisfied workers are directing the reason for their frustration to one or more problems with their boss (having poor attire choices, bad breathe, bad body odor, bad temper, etc. This is an inadequate reason to become self-employed, because the anger does not describe the new business venture you would have if you left the boss; the reason is invalid.

5. Have exclusive (a license for) use of a new technology, bought or invented.

By coincidence, many "bio-tech" firms were started in the 60's, 70's, and 80's because some scientist, biologist or chemist discovered something in a laboratory or read of another's discovery and had developed or thought they knew how to exploit such a new creation in a different way. These 'laboratory rats' provided to investment groups uses for discoveries that weren’t involved with patent infringement, copyright infringement during FDA approval. The Federal Drug Administration is in charge of certificating all things that are of a drug nature. If the process proves positive, the drug firm can get permission to sell its discovery.

6. Ideal work/employment field (area of interest) unavailable.

Unemployment is and has been the greatest reason besides serving a marketing need since our country was founded, but it also provided the biggest headaches simply and literally because the business wasn't designed originally to satisfy a particular marketing niche. The business, regardless why opened, must, to exist, inevitably satisfy a market. To wait to find a niche is expensive and headache generating--flipping a coin and rolling dice have slightly poorer odds. Being unemployed, therefore, doesn't focus on serving a market--the criteria here.

7. Am an alien. [legal]

Excepting that America was built (again, excluding the founders--the Indians) by aliens--I'm not sure whether any came by air mobiles, but this conversation relates to the ones who came by ship from England and elsewhere--those who came to America seeking political, religious, movement and economic freedom found the opportunity, albeit, run by aliens (anyone not part of the founders were aliens). Perhaps the first culture in the world whereby aliens became the power group and other aliens coming came from he same reason but were treated differently. Like simply being unemployed, being an alien (and likely finding work with and among bigots--many Americans are bigots) is insufficient reason for starting a business. Do the market research necessary to determine what market/business you want to serve and you will then satisfy that criteria. Being an alien, like the others, in and of itself, is an inadequate reason for being self-employed. Unless a marketable idea catches your interest and you test its marketability, your reason for self-employment is invalid.

8. Am retired.

It is absolutely true that one's age is not a reason for any firm or organization to retire anyone. Perhaps a person wants to retire. That's great if the retirement is voluntary. However, regardless how a person becomes retired, no longer working for this or that employer because of age is, like being an alien, not a valid reason in itself for being self-employed. One only need seek an unmet need in a market place and, ideally within one's previous realm of expertise, to then have a valid reason for self-employment.

9. Am handicapped.

Regardless the federal law prohibiting discrimination in the work place because of one's handicap. An employer will almost always win a suit charging discrimination because there is almost always someone else equally skilled who is not handicapped and who will therefore cost the employer less in modification change costs, and peer acclimatization time and work place adjustments if necessary.

Regardless the attitudes of employers, if one is unsatisfied in the work place because of anyone's attitude, such attitude or discrimination is an invalid reason in itself for being self-employed.

10. Am a hobbyist (and just get a kick out of doing something).

Most small businesses in America are run by hobbyists who don't realize they are only hobbyists and not real business operators. A business owner is one who has the customer's needs in mind before the needs and desires of the company. Hobbyists have taken their love of cooking, painting, fixing cars, taking pictures, et al, and have evolved a business from said activities. The idea of interviewing or surveying customers about their needs seems like something involving activities 'big' companies do. Offering to help customers with needs' satisfaction that doesn't follow the exact parameters of the business seems like a foreign activity and hobbyists are not likely to engage in such "folly." For such reason, hobbyists who are very fond of their activities are not candidates in and of itself to become self-employed, until they find that the tasks they claim only big companies involve in is necessary for all customer-oriented firms. Hobbyists are therefore ruled invalid as entrepreneurs.

--If friends seek a service or product unavailable by local merchants, and your friends would be glad to buy from you in enough quantities to make a living for you, you may well have a valid "why" for being in business.

We may presume you have passed the validity test for being self-employed you have a good business idea and have tested the market place to see if your idea is good. (See market research)

If your business is to or might ever become "big," you need to conduct a system of planning, thinking, making decisions called STRATEGIC thinking, strategic planning. With this strategic work, you decide the who, how, when, where, and other things of your business. You decide the stages of growth, what you are going to do slightly different, or the slight changes, differences you need from your business each month, or quarter, in order to have your business reach (and therefore, you reach) specific objectives. Say for instance, you want sales to be $50,000 a month within 6 months, and grow by 2% per month every month for the next 3 years. You further decide that you will need 5 sales people, 2 office people and an advertising budget of $1,500,000 on June 1st to accomplish this by June 1st of the next year, etc. These kinds of decisions are part of what is known as strategic planning decisions. If you want to stay small, not even caring if you make a profit, don't waste your valuable time making such decisions. Small businesses can be run like hobbies (most are) and profit oriented decisions need not be considered for hobbies. If, on the other hand, you want to see profits by the 2nd month, and have profits increase by 5% a month for the following 3 years, and other consequences (strategic goals and objectives), you must plan for them if you want to make reasonable sequential decisions to the myriad of questions that will come up before you reach your financial objectives.

The 'why" question for this business has been asked and answered positively.

Now that we have the why, let's make sure you can defend the why. Your why must be defended and become "valid" (good). If you want to serve a distinct market; your why is "valid." A valid reason for anything means it has been thought through and is defended well and can guide other business decision makers who can further guide you; your accountant and lawyer will be able to guide you when you provide them with valid "why" answers.

Now that we have discussed and analyzed reasons for being self-employed that are valid and invalid, it is time to consider the next question: do we want to start-up a business or acquire one.

Each method uses the same kinds of overall data, but the approach must be different because the priorities are different! One is to get the door open on a designated day in the future and hope customers come on opening day and all the days thereafter, and the second way hopefully will allow you to make the business you bought more efficient than the last person (the seller) had it by doing things your way (with my guidance on things I am sure you will not have thought of!)

Also, one must, for hope of existing a long time, have a plan of operation, known as the Business Plan. If you have a valid reason for being in business and your plan substantiates this, you will likely succeed!

THE WHY OF BUSINESS

Starting vs Buying

Starting

One wants to start, rather than buy, a business.

a) one needs to bootstrap. Bootstrapping means starting a business with next to no cash. One does this when it appears one can work from their home for a while, and can get purchase orders for goods and services.

b) one starts when one cannot find enough acquisition cash to satisfy the seller's representative or the seller with enough cash out cash or down payment cash.

c) there is no similar or modifiable (within your definition of reasonable) business to be acquired.

d) the idea is too new to have any way of exploiting another business whom might very well steal the idea if they learned about it while you were trying to buy them.--sometimes during the process of acquiring a business, a seller gets wind of the ultimate reason for the business and feels he/she can steal your "wind" and run with your idea and make it theirs leaving you with no recourse and while they renege or fail to complete the sale of their business to you.

We have already determined that your reason for being in business for yourself is "valid." Now, we are only concerned with buying vs starting form scratch.

The defenses used in buying are almost identical to those of starting. You must determine why this particular industry, and then, when you have satisfied the "why" validity, you must ask yourself if your reason for buying vs starting from scratch is valid. Frankly, I think there are more reasons for buying than starting from scratch. This data took 12 years to determine!

Valid reasons for buying

You want to buy if: daily cash flow, daily net profits, good will, and a team to build (that already has a mission or objective) are important to you. You also want to buy when you have determined you want fewer risks as you prepare to try something new. By buying a business, you need only open a different system, product, or operation in an adjoining room or building and build off the credit, cash, staff and additional sources that exist with the business that already run. Let's take these one at a time and succinctly analyze them.

You want instant daily cash flow--(Cash flow is synonymous with gross sales--different from net profits. Cash flow stems from the question/position--where is all my cash flowing to? Some goes to paying back vendors for goods bought, some to overhead, some to your paycheck as owner (called draw).

For clarity and demonstration purposes, I will begin an imaginary business, one of my own, and will develop its business plan step-by-step for you to follow. This start-up business is included in PROLOGUE E, BUSINESS PLANS.

You must determine (presuming you have passed the validity test Why this particular industry for being self-employed and [Why you, why now, why here.]):

[you have satisfied all the validity tests]

Once you confirm that buying a business is right for you, you need a business plan to guide your acquisition BUSINESS PLANS financing the acquisition is a next logical step and this will be covered in chapter 9, Financing.

BUSINESS PLANS

We can compare, for those who like analogies and associating words, (business counselors and writers have used association to facilitate communication) a business to both a battle field and a ship to help our understanding of business plans:

Maybe running a business is like a battle; you are going to have to attack unless you give the "Hun" (from the movie Patton) the upper hand and wait for the son of a bitch. We need only determine whether you are going to start a business from scratch or buy a going concern.

Now let's compare a business to a ship:

A ship needs a captain, similar to a business's owner.
A ship needs power, similar to the businesses's inventory or skill.
A ship needs a rudder to provide it direction, similar to the businesses's plan.

A ship needs either wind for sails or fuel for its engine to propel itself forward similar to business credit and inventory.

This ship analogy goes further--the ship's engines can rev with power but it goes nowhere or in circles until it has a direction.

Why does it make a difference? With one, you have things to do to get the door open, with the other, you want to assure things, at least for a while, stay the same (presuming some people like what your seller's business was and will still do business with you even before you make the first change) until you determine how to go where you want to go. While examining things, you want to make sure things are their most efficient before going off in any direction!

Writing the Business plan

All business owners, be they considering a start-up or the acquisition of a (very successful) business, need a business plan for guidance. One ought never blatantly accept the previous owner's business plan or financial statements without independent examination by a CPA. The new business owner needs to write his or her own plan, and if applicable, uses parts of the previous owner's plan.

A different plan, but one as complete, would need to be written for a start-up business. This book will cover business plan writing for both start-ups and for acquisitions and offer applicable explanations.