There’s no room for common sense in startups

April 11, 2011

April 11, 2011

By Jason Cohen

Let’s say you’ve decided to provide something tremendously fantastic for your customers, even though it meant great expense and hardship. It would be incontrovertible — you’d refuse to compromise on that one thing, even if it seems impossible to work out how to do it profitably.

It’s easy to identify companies who became wildly successful with this technique. Of course this is survivor bias at it’s finest; these examples don’t prove this is a great strategy, they just illustrate that it can work:

Zappos decided to sell shoes over the Internet, even though it meant eating shipping costs as customers tried shoe after shoe, constantly returning merchandise on the basis of fit or look. The convenience of online shoe shopping is a game-changer — to the tune of billions of dollars of revenue — but how could they make up the costs?

NetFlix decided to rent out DVDs by mail for a flat monthly rate despite massive postage and logistic costs, loss from damaged disks, and people duplicating 30 disks a month for $29.95. Customers gleefully avoid the Blockbuster none-of-these-look-good-just-pick-one-already-zombie-walk — and NetFlix just put Blockbuster out of business — but is this a workable business model?

What’s the upside of sticking to “fantastic” even when it doesn’t seem sustainable?

Word-of-mouth by definition. Since I defined the Something Awesome as being holy-crap-you-have-to-be-kidding-me good, word-of-mouth “advertising” is automatic. You don’t even need your own Twitter account and Facebook page and WordPress blog because your customers will spread the love for you. If word-of-mouth can replace 90 percent of your advertising/marketing budget, maybe you can use that money to address the challenges of extra expenses.

Easy to get free press. For the same reason that customers want to tell their friends, the press will find your story worth retelling.

Naysayers stifle competition. When everyone else thinks it’s impossible, they’re welcome to sit on the sidelines and watch you kick ass, just as Blockbuster watched NetFlix steal customers by the millions. Every time an MBA says “no” while a customer says “yes,” you’re increasing your lead.

“I can’t believe they can afford do it!” That’s what most people say about NetFlix and Zappos. Of course if that turns out to be true, it means a bankrupted business, but if you pull it off… isn’t that one of the highest compliments a customer could ever pay a company? It has the ring of loyalty and delight. I’d rather that testimonial than “It’s a great ROI.” Snore.

Easy to attract passionate employees. Everyone wants to work for a company doing something genuinely wonderful for the world, and stellar people have their pick of where to work. An amazing concept means you can attract the best talent who are emotionally committed to making the company succeed.

Fun. In the emotional turmoil of a startup it’s easy to forget that you’re supposed to be having fun now and then. Blowing people’s minds by doing something awesome is a blast.

Sounds like a slam-dunk, so what’s the downside?

A swift death, of course. Since you’re riding on the edge of impossible, it’s quite likely you’ll end up running a charity instead of a business. If expenses are unsustainable, if you can’t innovate around the obstacles, then you run out of money. Simple.

Of course most startups terminate this way anyway don’t they? Turning a profit at a growing company is nearly impossible regardless of business model. Since it’s already difficult, why not at least give yourself an edge in having the Fantastic Thing?

At least those internal hardships — logistics, expenses, processes — are all under your control, which means you have a decent shot at addressing them. Think of all the difficulties you don’t control — competition, changing markets, new technology, fads — all of which have equally significant influence over the fate of your business. Given that, at least this challenge is something you can understand and manipulate!

And if you fail, why not at least have failed at something worthwhile?

Jason Cohen is an angel investor and the founder of Smart Bear Software. A longer version of this story originally appeared on his blog.

Source:  http://venturebeat.com/2011/02/09/theres-no-room-for-common-sense-in-startups/

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Starting a Home-based Business—Is It Right for You?

April 1, 2011

April 1, 2011

Hundreds of thousands of individuals decide to start a home-based business each year. Many succeed. About 70 percent of all home based businesses are in operation after two years. Before entering this venture, entrepreneurs should consider several key questions:

* Can you operate the business alone with little help?

* Do you have contact with buyers or your services?

* Is the location such that distributors, sales staff, clients and others can reach it without difficulty?

* Is start-up and operations capital available for the first year?

* Can the business really be operated from the home?

* Do you have separate spaces for storage, records, isolation, parking, etc.?

* Can a business in the home compete with similar businesses?

As in most businesses, there are advantages and disadvantages to the home-based business. A business in the home permits flexibility of working hours, lower start-up costs and allows family affairs to continue during business hours. There are also disadvantages—zoning restrictions may prohibit business, the IRS may raise tax questions, it may be difficult to get materials and customers to the location and financing the business could be challenging.

The IRS specifies that a home-based business must have its own location away from the family living space that is devoted exclusively to the business. The business must be in regular operation, profits must exceed expenses in order to claim deductions, the business must be conducted almost exclusively in the home and the motive must be profit.

A major challenge in operating a home-based business is isolation from distributors, merchants, clients and interested parties. Modern communications help to alleviate the problem—a computer is a necessity. A fax machine and Internet access are almost certainly necessary for communications within the business community. In addition, separate telephone phone lines must be installed for telephone, fax and Internet access and the business phone needs some type of answering service.

In summary, the business must be run as a business not as an extension of the home. It is essential that the prospective business owner have a good business and financial plan, separate from the family finances, that clearly spells out the present and future of the business.

Be aware that many neighborhoods have deed restrictions forbidding the operation of a business. Some require extra off street parking, others forbid deliveries and signs, etc. It is wise to check with your Home Owners Association and with your local government for a complete survey of your city or county regulations.

It may be difficult to raise capital. The average home-based business requires about $10,000 in start-up costs. Although this may be much less than opening a business outside the home, both the start-up and operating funds should be in hand before beginning the business operation.

Help is available. The National Association of the Self-employed (NASE) can provide help and information, as well as your local SCORE office. Find SCORE on this Web site to meet face-to-face with a professional business counselor.

This article was written by J.H.U. Brown, a counselor with the Houston SCORE Chapter, and a former director with the National Institutes of Health and a health care administrator.

Source:  http://www.score.org/bp_11.html

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Trying to Be “The Next Big Thing” Will Usually End in Failure

March 23, 2011

A friend of mine has worked at an internet startup that shall remain nameless since 2006.  During that time, the company has been unable to actually produce a clear product and has changed direction several times.

When I asked him what the culture there was like, he told me that the leader of the business was obsessed with being “the next Facebook” or “the next Twitter” or “the next Google.”  He was constantly focused on what these big successes had done.

Some small business management types might tell you that he’s doing a good thing in trying to emulate these big success stories.  However, there’s a big difference between emulation of success and jealousy of success – and being on the wrong side of that line can cause a great deal of business problems.

Almost every small businessperson has a business that they admire.  I certainly have several businesses that I admire greatly – and, yes, Google is one of them.  I respect many aspects of their business and think that by studying them, I can learn quite a lot.  Do I want to be “the next Google”?  Absolutely not.

I’m going to use Google as an example here because they’re a recent enormous success story and they’re a business that countless people look at with envy.  Countless advertising-based search engines have been thrown up by jealous entrepreneurs.  All of them have failed to unseat Google.

Businesses succeed when they produce something special, something different than what can already be found out there.  Google succeeded because they were able to offer great internet searching for free, and their secret was tying targeted advertising to those search results.  If you’re in the search business and you’re striving to be “the next Google” by figuring out new ways to bundle search results and ads, you’re wasting your time.  Yahoo is figuring this out the hard way.

What do you offer that stands out?  What “secret” do you have that enables you to offer it?  That should always be the core of your business.  Let’s look at these elements.

What do you offer that stands out?  The only way you’re going to achieve the success you want is to offer something that stands out among the competition.  If you’re merely going to build a “better” advertising-funded search engine, Google will crush you.  You have to offer something different, and when you’re doing that, you’re not merely being “the next Google.”

What “secret” do you have that enables you to offer it?  You have a great idea that is going to cause people to beat a path to your door, but unless you have a way to turn those exchanges into something profitable, you’re either going to fail or, if you’re lucky, get bought out.

I’ll use two examples from small businesses in my own area.

One restaurant business succeeds by simply trying to be the best “bistro” style restaurant in a college town.  They offer a great meal with very elegant ambiance for a reasonable price in an area where there isn’t a large population – and thus not a lot of competition in that niche.  How do they make this work if there isn’t a lot of people?  They placed the restaurant near the campus and focused directly on reaching out to the college professors in the area, finding out what they wanted and needed from such a bistro.  The restaurant looked at the town, identified exactly who would be their primary clientele, and focused entirely on meeting their needs.  By doing that, they strongly attracted a particular customer base right off the bat.

Another business, a comic book store, succeeds purely through customer service.  They make a very specific point to have all of their employees greet people immediately upon entry, offer to help them with what they want to find, and then leave them alone.  However, if you ask for just about anything imaginable there, they will try to find it for you.  Their employees are incredibly well-informed about virtually everything sold in the shop and can answer almost any question given to them quickly and correctly.  Their prices are higher than what you find online, but they have cultivated such a strong customer base due to their service that they do incredibly well and have opened a second shop.

You can learn from what others have done, but you will never succeed by merely being “the next Google” or whatever business intrigues you.  You have to beat your own path.  What will you offer that stands out?  What is your “secret” that enables you to offer it?  Answer those questions first.

By Trent Hamm

Trent Hamm is the creator of TheSimpleDollar.com, a popular blog on personal finance, career, and personal development topics. He is also the author of “365 Ways to Live Cheap,” a book divulging tactics for living on a budget.  Follow Trent on Twitter @trenttsd.

Source:  http://www.openforum.com/idea-hub/topics/money/article/trying-to-be-the-next-big-thing-will-usually-end-in-failure-trent-hamm

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4 Reasons Not to Launch a Startup

February 25, 2011

Yin and Yang.  Sunny and stormy.  Happy and sad.  Success and failure.  For every action there is an equal and opposite reaction.

Business is no different: It is subject to these same principles.

Many articles and posts on this blog focus on the positive aspects of launching a business, offering tips, expert advice, and opportunities.  Today’s opinion, by Susan Payton, offers potential drawbacks to consider before launching a startup.  This article is not to dissuade anyone from creating a business success story; I simply wanted to offer an intelligent view of potential pitfalls.  I strongly believe the correct combination of creative ideas, research, planning, and hard work ultimately yields success in many startup attempts.

4 Reasons Not to Launch a Startup

By Susan Payton

Startups are the new shiny toy these days. Groupon and Mint are among the constantly quoted examples of what can go right with a business startup, but what percentage of startups actually enjoy that kind of phenomenal success?

Before you jump right into a startup, consider these four reasons it might be worth thinking through.

1. Money Burns Like Kindling

Whether you’re bootstrapping your startup or actually get seed money or VC capital, I guarantee the money will disappear quicker than you planned. A VC in Silicon Valley wants you to meet in his office…tomorrow. Bam: $2,000 for travel expenses. Another mobile carrier said they’d consider hosting your app, if you make 20 hours’ worth of programming changes. Bam. Another $1,000 gone, with no guarantee of revenue as a result. Things break. Conferences come up. Money dwindles.

Even getting money can be problematic. VCs are the equivalent of journalists: they’re getting pitched from every angle, and being heard above the din isn’t always easy.

How to Circumvent the Money Drain: Having money, period, for your startup already puts you ahead of the crowd. Make a budget upfront and build in as many surprises as you can. Pad the budget for travel and discretionary funds, and make sure you always have enough to pay your staff.

2. The Learning Curve Is Tough

Unless you’ve done this before, I’m guessing you’re winging the whole startup thing as you go. Reading Hacker News and OnStartups; attending industry conferences; finding other startups in your area (or maybe you’re not doing these things?). There’s only so much you can glean about crafting a startup pitch to VCs from blog posts. You need inside advice, and what you lack may show when you’re pitching investors.

How to Get Your Startup Degree: Self-teaching and sticking with it is what helps the big startups get acquired or funded. Don’t give up. Find a local mentor or startup organization that will rally around you and give you inside tips on what investors (even specific firms) are looking for. Ask for advice in putting together your deck and business plan. You are not operating in a bubble; ask for help. Repay it on the other side.

3. You May Kill Your Co-Founder

You and your best bud came up with a fantastic idea for a startup…only now he’s dragging his feet at getting coding done, or disagrees with you on every point. How are you supposed to grow a business if you can’t even agree on a logo? Starting a business with a friend can be stressful and put a strain on a relationship. Do you have to choose between getting rich or having a friend?

How to Keep Your Friend and Make Money: At the outset of your startup, determine what each of you will do. What are each of your strengths? What will you each be responsible for? It’s a good idea if one of you takes the CEO role and can make executive business decisions. Make it clear who has what authority. Stay in constant contact, and don’t let aggression build up. Go out for beers together every once in a while.

4. The Competition Beats You to It

After months of development, you’re ready to release your app or service. The day before launch, you find out a formidable competitor has just launched the exact same product. Do you throw all your work down the toilet?

How to Keep on Truckin’: The thing about startups, especially tech ones, is that you can’t focus on a single product or solution. You have to be multifunctional and find different ways to reach your audience. If this was your only product, you must decide whether to go up against a competitor with deeper pockets. The smart thing to do is to start out working on multiple projects so you can shift your focus if need be.

If you’re still reading, congrats. If these reasons didn’t scare you away from creating a startup, I wish you the best. Ben Yoskovitz talks about why you should begin a startup. You’re passionate. You want to change the world.  You’re a control freak. But you don’t need me to tell you that.

Startups are like babies. They require a lot of care, and many people start them on a whim. But they need constant nurturing or they’ll die (taking your $100,000 second mortgage with them). Be fully prepared for the responsibility a startup entails, and you’ll be fine. You can thank me after you’ve sold to Google.

Susan Payton is the President of Egg Marketing & Public Relations, an Internet marketing firm specializing in blogger outreach, social media, and PR. She is also the blogger behind The Marketing Eggspert Blog.

Source: http://smallbiztrends.com/2011/02/4-reasons-not-to-launch-a-startup.html

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Finding and keeping customers – Part 1

February 21, 2011

February 21, 2011

“The absolute fundamental aim is to make money out of satisfying customers.“  ~John Egan

Simply stated yet often a major failure of any business, small or large.  In this next series of posts, we’ll take a look at the art and science of finding and keeping customers.

Every business needs customers.  Ongoing revenue is key to keeping revenue flowing and your business in operation.  Some business can succeed with one time or occasional purchases if the volume of customers or the product is high.  Consider a Ferrari dealership: How many customers purchase per month?  How many times does the same customer buy per year?  I’d guess the numbers are pretty low, but unless your service or product is very expensive and exclusive, repeat business is vital.

Getting and keeping these customers requires research to gain insights into the industry, competition, customers, product, and the marketplace.  Research is required to support fact-based business forecasts and plans; without the proper research your business plan is fictional, based on hope and wishful thinking.

What research reveals:

- If a market exists for your product or service: Knowing this in advance saves time and money invested in a futile effort.

- The target customer(s): What demographic – age, gender, ethnicity – are you targeting?  Which geographical area?

- Can the market support your product or service: Does too much competition exist in the computer repair industry?  Is your offering unique or positioned to take advantage of a new product?

- Customer motivation: What makes people want to buy the product or service you offer and more so, why?  You need to know why people want to buy this product and why they want to buy from you.  Equally as important is the opposite.  Why don’t they want this product or what turns them away from your business and to the competition.

In summary, market research will reveal if the potential exists for your business and what strategies are key to success.  Do your homework before jumping into the business you THINK will succeed.  Selling bottled water to a drowning man may not be such a great idea, but life vests and swimming lessons may have a market niche.

By Dion D Shaw
Dion Shaw is the founder and owner of homepreneurs.

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