Start Up Strategy

by Dawn Fotopulos on June 5, 2010

Best Start Up Strategy is all about how to transition from being an employee working for “the man” to building a business of your own. I’ve given the following advice to many people, but only a few have followed it. Those who do end up being VERY successful.

Meet my friend George. He asks me to dinner once a year and the conversation always has the same ring to it.

George has a great new idea. He wants to test it because he thinks it will make him a lot of money. It’s in an area where he has little experience but it has high revenue potential, or so he thinks. The businesses he’s explored have ranged from middle managing gifts and premium production in china to retail security systems.

It’s been four years and he’s still at square one. If this sounds like you, here are some tips to get you off the mark.

Start up strategy is all about finding the business that’s right FOR YOU. The truth is, all these businesses George brought up can all be profitable. It’s not that they’re bad ideas. The problem is that George has zero, zip, nada experience in any of them.

He would have to come up a very steep learning curve in all of these industries if he’s going to make real money (over $100,000 in salary). To make over $100,000 every year means the business probably should be kicking off at least $1,000,000 in revenues to get there. This is no small task. If you have no clue of what I just said, watch our videos on the Profit and Loss Statement in our Learn section. Revenues are top line. Profits are bottom line. There’s a big, fat, world of expenses between the two.

The Best start up strategy for George is for him to leverage the experience he already has in industries he knows. Why? Because his risk of failure will be far lower. He’s already made his mistakes in those industries working for someone else. George’s experience gives him competitive advantage over his peers just getting started.

Here’s my advice to George and to you from now until eternity. You may choose to take it or ignore it; that is always your choice. If you take this advice, you’ll suffer far less, make more money and make it sooner. Here goes:

One of the key questions any investor or bank will EVER ask you before they loan you money is: “how much experience do you have in this business?”

If you have a lot of experience in an industry even if you were working for someone else, that makes you a better credit risk. It also means you have a ready network of industry experts, suppliers, customers, industry knowledge, media contacts, web traffic that probably took years to build. If you have experience generating revenues especially in your former job, that counts even more. Why? Because revenues drive EVERYTHING.

Ewing Marion Kauffman worked for a pharmaceutical company in the 1930′s as a sales rep. He made no salary, only commission. He was the top salesperson in the firm making more than the president of the company. After they tried to cut Mr. Kauffman’s salary twice, he decided he’d had enough and struck out on his own. He took some of his customers with him (it’s not illegal unless you’ve signed a non-compete). Kauffman made money his first year in his own business. Forty years later, he sold to Marion Labs to Dow Chemical for over a billion (with a “B”).

How did Kauffman do it? Three things:

First, simplify your life to what you do best.

Second, focus your efforts on highest potential customers.

Third, leverage your network of people who know and trust you.

Here’s how you can do that:

The key to start up strategy is to stick to an industry or function you know well where you have a relevant network.

This is your starting point. My friend George has that in spades in every major media outlet around. All he has to do is pick up the phone and producers, bookers and directors answer his call. That’s money in the bank! He’s not valuing that network at all. Oy!

If  a family owned business wants to take you in as a partner, be wary. There’s always the risk they will treat you as an outsider.

Find a service business that is in high demand. It should have  low or no inventory costs (low fixed overhead). You’ll weather the economic storms better because your fixed expenses won’t be so high.

Avoid businesses that are highly seasonal. Retail fits this description. So does the flower business. Another friend wants to open a flower shop and do floral arrangements.What’s her point of difference with FTD and Flowers.com?

Being a florist is seasonal and highly competitive. It’s difficult to generate enough gross margin to pay yourself a decent salary. If you can find a niche or a local market that is under-served, only then consider taking the plunge.

Fox News took off because the networks abandoned  the conservative  public. Apply that same kind of analysis to flowers and you might have something. Are there events, audiences or populations that need a certain type of flower at a certain time but no one’s paying attention?

Next, build your own reputation as a thought leader; don’t rest on the halo of other high profile names. You’ll always be a slave to them otherwise. Write articles for your trade journals. Start a blog about your expertise. Write a column on other blogs. Get your name out there so you’re not an unknown. It’s far easier to do that now with social media.

Leverage the relationships with people who know, love and respect you. Suppliers, customers, colleagues, trade association contacts are all your first stop. Build a database then work it strategically. Tell people what you’re doing. Celebrate the little things with them. Keep them informed about your start up idea and the progress you’re making. Everyone loves to cheer on smart people.

Start Up Strategy that works very well builds a strategic partnership with a going business that needs help because they’re growing like mad. Consult for them on a project basis. Let them get to know you. Perhaps you can get their client overflow. You’ll generate cash flow sooner and get to breakeven sooner.

Can you be your own boss? Can you weather the dips? Can you motivate others? Only you can answer those questions.

Don’t forget to Celebrate our wonderful small business owners who are making their dream a reality. They’ll inspire you!

In your court and in your corner, as always.

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