Thursday, February 21, 2019

how to start a small business

how to start a small business


How To Start A Startup As A Small Business Owner - Forbes

Posted: 19 Feb 2019 11:01 AM PST

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The Small Business Administration defines a small business as an independently owned entity built for profit and is not dominant in its industry. Startups, on the other hand, are temporary organizations created to search for a repeatable and scalable business model as defined by entrepreneur, author and investor, Steve Blank.

Based on numerous conversations with small business owners interested in building a technology startup, I found that entrepreneurs are mostly intrigued by the scalability and repeatability aspects of a startup that are not feasible under the small business model. In other words, I observed that most small business owners who want to start a startup are looking to build a venture that reaches and serves thousands of customers without necessarily needing hundreds of employees.

A successful small business owner recently told me that 80% of his business expenses are overhead costs that average $450,000 per month. He emailed, "I would rather run a $1 million business with 80% margin than generate $10 million in revenue and only keep $800 thousand."

While simple projections can make sense, building a startup is one of those battles where "everyone has a plan until they get punched in the face," says Mike Tyson. However, just like any business, there are right and wrong ways to start it and there are many strategies by which an entrepreneur can mitigate risk of failure and increase certainty in the path to market and growth.

Here are two important lessons about startups followed by how to start a startup especially if you are currently running a growing small business or have developed expertise in a particular industry.

  1. A Startup Is Not A Small Business

While small businesses execute on a validated business model, startups search for one. Take the example of a restaurant. For as long as we can track humans, selling and trading food were how people survived for thousands of years. The main responsibility of a restaurant owner is to provide quality and accessible food at a price that justifies the value. One startup idea that comes to mind related to restaurants is a food on-demand app. Consumers have been used to buying food a certain way, therefore, the job of the entrepreneur is no longer making and selling the product only but in educating the buyer and validating the on-demand model which may sound viable but is not necessarily valid for every segment.

This important distinction simply means launching a startup with a small business building mindset will rarely work. If you have not previously experienced the ups and downs of startups, it is wiser to hire a mentor and team members who can help you build a valid, viable and valuable solution the right way.

  1. A Startup Is Not An App

According to CB Insights, it costs less than $5 thousand to launch a startup today compared to $5 million twenty years ago. Take a moment and Google, "cost of building an app." Most of the estimates you will find exceed $100 thousand only for the first version of the application. The question is, if it has never been cheaper to start a startup why is the cost of an app in the six figures range?

The truth is, a startup is not synonymous with applications. Apps, web or mobile, are accelerators and, in many cases, not mandatory to launch a startup and deliver a solution. In most cases, entrepreneurs can deliver the desired outcome by leveraging existing tools and by doing things that don't scale.

The founders of the food on-demand application DoorDash used Find my Friend app, their cars and a simple landing page to connect buyers with local restaurants and deliver the food. As CB Insights explains, thanks to open source technology and cloud-based tools, virtually every entrepreneur with an idea and a passion can launch a startup venture quickly and cost efficiently.

Based on conversations with first-time technology startup founders over the years, I found that most entrepreneurs rush into building an advanced application thinking that it is the quality and functionality of the app that determines the success of a startup. Many founders spend over a year and hundreds of thousands of dollars building a product just to realize it isn't solving the right problem, the right way. Instead, here are three key steps that will help you alleviate risk and increase chances of success.

Focus On What You Can Control

If you are brainstorming ideas, keep in mind that your startup is more likely to succeed if you control most of the variables. In other words, ideally, you want to create a scalable solution in an industry you are already in with customers you spent years learning about and serving and with other key stakeholders like partners, suppliers or distributors that you understand and perhaps know.

This scenario will allow you to make wiser hypotheses, avoid many mistakes and accelerate the path to market by creating solutions you know people will pay for if not willing to invest in it before it's launched.

Delay Automation And Focus On Manual Work

As noted earlier, many entrepreneurs at the early stages focus exclusively on creating a web or mobile app which are costly and time-consuming. Instead, find existing tools that you can leverage to solve the problem quickly and cost efficiently.  It took the founders of DoorDash an afternoon to set everything up and receive the first order. They could have spent months building an advanced food ordering app but decided to start by doing things that don't scale, gather customer feedback and generate revenue quickly and then progressively invest in the advance, scalable version of the product.

Forget Ads And Get Your Hands Dirty

One of the advantages of controlling most of the variables as stated earlier is that you can market to a group that knows and trusts you. Nonetheless, many entrepreneurs prefer to invest significant advertisement amounts hoping that this will accelerate growth. In reality, a startup is not at a growth stage until it validates a business model and finds product/market fit. When you use ads to acquire new users, you miss a big part of the opportunity to gain customer feedback and learn what needs to be adjusted and created next. Even billion-dollar companies like Airbnb, Etsy and Uber acquired the first users by personally meeting and assisting them.

It can be enticing for successful small business owners to jump on the tech startup bandwagon especially when cash is no longer a problem. Nowadays, for most startup business models, funding is not a determinant of successful execution and thus taking measurable and educated steps are key to startup success.

Startup Money Made Easy - Forbes

Posted: 20 Feb 2019 11:40 AM PST

One Of The Biggest Obstacles To Launching a Successful Startup And Keeping It Going Is How To Raise The Capital.Getty

Most businesses fail. In fact, according to the Bureau of Labor Statistics, about half of all startups fail within five years. If you are contemplating founding your own business or are in the midst of raising angel funding or yet another round, seasoned business journalist, financial expert, and Inc. editor-at-large Maria Aspan knows and has researched what makes the difference.

According to Aspan, "There's no one single reason (businesses fail), but overall, it usually has to do with a lack of ability to see, or accurately predict, the big picture for your business. That can, and often does, come back to finances. "

Aspan has the data to back this up citing "64% of small businesses reported financial challenges in 2017, according to Fed data but it can just be a lack of demand for what the startup is selling; in the course of analyzing 101 failed startups last year, CB Insights found that 42% of them cited "no market need" for their product. The next most-frequently cited reason was "ran out of cash." So whether it's market demand or the inability to make enough money to sustain a cashflow, startup failures tend to happen when the entrepreneurs haven't been able to accurately predict the realities of doing business."

In her new book, Startup Money Made Easy: The Inc. Guide to Every Financial Question about Starting, Running, and Growing Your Business Aspan tackles and combines her expertise with real-life stories from successful business owners to produce a practical field guide for dreamers and entrepreneurs. Sound familiar? It should. As someone who is currently working with and advising over four startups right now, I know first hand how founders grapple with this issue everyday. It can make or break your business.

For Aspan, it all started back in June 2017 when the award-winning journalist had adapted her new book from a feature story she titled "The Smartest Money Advice I Ever Got." Curating candid stories and insights from a wide range of leading entrepreneurs (and all of these business super stars have actually been in your shoes) from the likes of Bobbi Brown (professional makeup artist and founder of Bobbi Brown Cosmetics) and Christina Tosi (chef, founder, and owner of Milk Bar) Aspan is sharing smart, practical advice that may just help you raise that round of capital you need.

In addition to stories of financial mistakes (and who hasn't made them?), Aspan divulges hard-earned business advice and lessons from successful tycoons with tips for tackling every step of the start up process as well as how entrepreneurs need to look beyond profitability to the bigger picture of how your brand and company can contribute to the greater good.

Award Winning Journalist And Startup Money Made Easy Author Maria AspanMaris Aspan

If you're wondering where to find your funding and how to get started, Aspan shared her top three tips on business planning and bootstrapping along with her boiled down essential musts. Use them to lay the foundation for your early stage fund raising and keep a list. The more organized you are about it the better off you'll being during the entire process and each subsequent round.

One quick caveat, make sure you have your deck ready and honed before you take on some of these initial conversations. Other founders often start the process with informal discussions to test the waters and initial interest.

Savings. Like any other big, expensive life goal—a house, a big wedding, college tuition, getting out of debt—your startup is something you should plan ahead to fund. Start setting aside money now, if you haven't already, consider these steps to help build your business savings.

The stats back up this approach. While much less glamorous than venture capital plenty of non-VC startup financing sources exist. According to Aspan, "three-quarters of Inc. 500 founders responding to an annual 2014 CEO survey said they used their savings to start their business; 43 percent took out loans from banks, friends, or family; and just 22 percent used venture or angel capital."

Keep Costs Down. Aspan heard this often from successful startup founders, especially when she asked them to pass on the best financial advice they were ever given. According to Zach Perret, Co-Founder and CEO of financial startup Plaid, this was pivotal. His dad told him,"that keeping my personal spending low would give me more flexibility than I ever imagined in my career. " Perret added, "We spent a long time bootstrapping in the early days, and having a low burn rate was very important."

Of course, some dads of successful founders have different advice—which has worked out just as well. Cosmetics empire builder Bobbi Brown, who moved to New York in 1980 with a degree in theatrical makeup and an amateur portfolio, detailed her own experience.  Brown explained over the next several years, as she worked as a freelance makeup artist and started introducing the more natural beauty look that her eventual company would be known for, Brown practiced moderation in her budgeting habits, except fore one caveat.

Brown reminisced,"When I was just starting my career in New York, my father told me, 'Don't waste your time trying to stick to a budget. Figure out how to make more money, and always spend money on good food."

The result was Brown and her business partner, Rosalind Landis, started Bobbi Brown Cosmetics with $10,000. Brown's side gigs, spurred by her father's advice, included networking at magazine shoots and dinner parties, once bluffing Bergdorf Goodman into a bidding war with Saks over which department store got to carry her products.

It's now the stuff of business lore. Brown sold her company to Estée Lauder in 1995, but stayed with the brand for the next two decades.  By the time Brown stepped down, she had created a makeup empire with thousands of employees, millions of dollars of revenue, and a reputation for doing business by being nice to people. Summing it all up, Brown passed on a common theme many founders reiterate.

"It's common sense," Brown told an audience at a 2017 event. "Don't do it because you want something. (Do it because) it actually makes you feel good." This is the perfect segue way to Aspan's advice on the best way to boost your savings.

Work For Someone Else And Build Your Startup Nest Egg. The same way you might plan and save toward a mortgage down payment or other big life goal. That's how Kathryn Minshew, CEO and Co-Founder of The Muse, worked toward starting her company.

Minshew shared her early experiences with Aspan about how one of her mentors advised her "not to accept a job offer as a management consultant because her spending habits would inevitably adapt to the high salary and, in his view, would lock her into always needing an expensive lifestyle." While it was a smart warning, Minshew always believed "that getting used to any financial changes is a choice more than a default." Minshaw ended up accepting the position and lived well below her means, which allowed her to save enough money to eventually start her own company.

It's also wise to remember that working for a bigger company can also occasionally provide windfalls in the form of bonuses or stock options, which is what helped Therese Tucker, founder and CEO of accounting-software company BlackLine. One of the fastest-growing private companies in America from 2008 to 2016, Tucker is one of the only women founders (and probably the only pink-haired founder) to take a modern tech company public—which she did after years of working for other tech companies. Tucker also oversaw its $152 million IPO. In 2017, the company reported $177 million in revenue. How did she do it?

Rather than try to raise money from venture capitalists, Tucker cashed out her retirement accounts and her SunGard options and took out a second mortgage on her house. At forty, with more than fifteen years of experience programming for financial companies, she had both the contacts and the professional seasoning, yet she still had to prove her qualifications.

Tucker also financed her startup's early days with a risky, but not uncommon, financial decision to tap into her 401(k). This tends to be a bad idea (but it worked for Tucker), since you'll destroy your retirement safety net, but that hasn't stopped many a founder from taking the risk. You'll also have to pay a high tax burden to take money out of tax-sheltered financial accounts—meaning that the dollar amount you're able to take out may be far less than what you see in there today. Therefore, Aspan doesn't advise this strategy. If you decide to do it anyway, first consult a financial advisor or accountant.

Aspan also shared these detailed caveats and recommendations for bootstrapping your finances.

1. Don't Use Credit Cards - Credit cards can get you into a lot of trouble, and a lot of debt. Aspan heard this over and over again when she asked successful founders for their biggest money mistakes. Don't make it yours.

If you are going to start putting business expenses on your credit card, especially if you're not going to repay the balance in full every month, look for one that won't charge you interest for the first year. Then pay attention to when that zero percent introductory offer is up.

As Fundera Co-Founder and CEO Jared Hecht wrote, "This seems like one of the best business funding deals out there because it is––even the most desirable term loans include some sort of interest, even if it's a low rate. However, what about when that introductory offer is up? The interest rate will rocket skyward—and you may be unprepared for it." Most credit cards have APRs of at least 13 percent, with some as high as 20 percent. This means financing your business with a credit card could prove to be more expensive in the long term than finding funding through a small-business loan. Be sure to contemplate this option over carefully.

2. Loans - Ten years after the financial crisis, when banks stopped lending or shut their doors completely, it's only now starting to get easier to secure a small-business loan. Banks and credit card companies are lending again—and a wide array of online-only lenders have sprung up, offering quicker (though often more expensive) credit. Aspan's top options:

  • Bank And/Or SBA Loans - Aspan advises "These are some of the safest, smartest, and cheapest ways to fund your business. They're also some of the most difficult to get. Almost half of small businesses applied to large or small banks for credit in 2017, but of all businesses seeking debt financing, 54 percent did not get all the credit they applied for, according to the Federal Reserve. You'll have a better chance of securing a bank loan if you have a good personal credit score and an existing relationship with a financial institution. Look around for local banks or credit unions, where loan officers may have more time to get to know you or have more incentive to take a risk on a local business owner. Also, ensure your paperwork is in order." Be sure to look forward and set those relationships in motion even before you need them.
  • Online And "Alternative" Lenders - Speaking of high interest rates, Aspan says, "Handle this next group of lenders with care. They'll lend to almost anyone, for a price. The interest rates and repayment terms will be worse than bank loans, and typically worse than credit cards. On the other hand, online lenders will often get you money faster, with far less paperwork, than traditional banks and credit unions––and in many cases, they'll lend to you when banks won't. That's why 24 percent of small businesses applied for online loans in 2017, up from 20 percent in 2015, according to the Federal Reserve." Aspan revealed the Fed concluded,"Applicants tended to choose a lender based on their perceived chance of being funded, rather than on product cost," the Fed concluded.
  • Tech-Savvy Newcomers. This is another option which includes Lending Club, OnDeck, and Kabbage, some of which specialize in small-business lending. They tend to offer bank-like loans, but with higher interest rates and shorter repayment periods.
  • Factoring Companies. This method is especially great if you are focused in the fashion or beauty business. For a fee, a factor provides cash up front while you're waiting to sell your product. When you do sell your product, your lender receives your sales.
  • Friends and Family Loans - Aspan counseled, "Getting financially involved with friends and family members can be perilous, but it's also gotten many a founder out of a money shortfall." Make sure you clearly explain the risks to close associates before you seal the deal.

Finally, some of those real struggles—and some of your most crucial financial and emotional support—will come from your close friends and family members. Don't forget to celebrate them and your "angels" as your business picks up traction. One of the most effective things to orchestrate is intimate dinners bringing supporters together to toast progress. Then everyone feels as invested as you do.

The Atlanta Small Business Show - Atlanta Small Business Network

Posted: 20 Feb 2019 12:07 PM PST

The Atlanta Small Business Show, airing daily on myASBN.com is your small business resource show in Atlanta. This information-packed daily video series features interviews with successful entrepreneurs and promising start-ups in and around Metro Atlanta. Tune-in daily to catch our weekly segments including Success Stories, Start-up Spotlight, The Pitch, Tech Trends and our daily small business tip.

3 Myths About Starting a Small Business - Business 2 Community

Posted: 30 Jan 2019 12:00 AM PST

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The New Year is here and with it a time to reflect on career goals. Aspiring entrepreneurs who are considering starting a small business in 2019 may find encouragement in new survey results from Kabbage. After polling 600 thriving U.S. small business owners, the survey found that the majority of successful entrepreneurs got started with little cash and short run rates. The survey also demystifies the cash flow obstacles many aspiring entrepreneurs may perceive as reasons to not start a business, when in fact they're all too common.

These are three myths aspiring entrepreneurs should know when starting and building their company.

Myth #1: You Need a Lot of Money to Start. One of the biggest perceived barriers to starting a company is the amount of capital required. In reality, many successful entrepreneurs get started with surprisingly small amounts of money. According to new data, 58 percent of small businesses started with less than $25,000 and one-third of successful businesses started with less than $5,000.

While the amount of capital required to get started may be lower than expected, managing cash flow is critical to growing a company. Many small business owners have begun using online lending platforms that look at a business' live performance data to approve funding instead of old bank statements and dated tax returns. These innovations help small business owners who may not have long credit histories and allows for faster and more flexible access to working capital.

For example, years after Illinois-based couple, Maryla and Derek Bosek, started their kitchen countertop store, Factory Plaza they found themselves struggling with cash flow. Having taken out several loans from their bank to buy a warehouse and cabinet production equipment, they needed more funding to hire a production team to keep up with demand. They turned to online lending and were quickly approved. With that funding, they were able to hire three more people and, as sales grew, eventually increased their production team to 16 people. By expanding their production, Maryla and Darek were able to increase their annual sales by $500,000.

Myth #2 Start a Business In The Industry You Know Best. Forty-one percent of survey respondents started a business in an industry that was new to them. Despite this, 82 percent of respondents did not doubt they had the qualifications and experience to successfully run a company.

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While confidence is key, no business owner should go it alone. Aspiring entrepreneurs should find a mentor or advisor in their industry who can help them avoid mistakes, keep an eye on long-term goals, anticipate upcoming expenses and give objective advice about cash flow issues. For those searching for a mentor, try connecting with industry contacts on LinkedIn, join a trade association or look at SCORE for opportunities.

Myth #3 Being a Business Owner Means Doing It All. Another common misconception is that business owners should both know how to do and manage every aspect of operating a business.

According to the survey, the areas of business in which entrepreneurs had the least amount of experience when they started their company was financing/bookkeeping, legal/compliance and marketing/advertising. To free up time that could be focused on bringing in new customers, hire consultants or part-time freelancers to manage tasks that you are unfamiliar with or that are time consuming.

Small businesses can also benefit from using technology to automate different aspects of business operations. Technology platforms can help manage tasks like resource scheduling, inventory management, digital marketing and customer service. Having the right tools in place can improve operational processes, reduce paperwork, increase efficiency and even improve worker productivity. Remember: a smart investment in your business is one that will secure its future.

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