Chapter 14
IN THIS CHAPTER
Making the most of your jobs and career
Testing your entrepreneurial mettle
Weighing your small-business investment options
Many people’s American Dream isn’t a 9-to-5 job working for someone else, especially a large company, for the duration of their career. A lot of these folks dream of starting and running their own business. Making plenty of money, being their own boss, and having flexibility in setting their hours are often part of the dream.
I’ve known plenty of dreamers over the years, as well as those who achieved their dream. This chapter is designed to help you to invest in yourself by making the most of your working years and figuring out how to pursue entrepreneurial endeavors, if that’s what you desire. I also discuss alternative ways to invest in small business that don’t involve starting a business from scratch.
Some people aren’t going to enjoy — or be successful — as entrepreneurs. The simple truth and reality is that some folks are better off working for someone else. Plenty of people are happy or content as employees. There are many solid companies that need and want good employees, so you should be able to find a desirable job if you have skills, a good work ethic, and the ability to get along with others.
The global economy is increasingly competitive, and those whose skills don’t measure up will have a harder time finding the best jobs at the best wages. Well-paying, interesting jobs are out there, but applicants must have the right kind of background and training.
You can make the most of your income-earning ability and invest in your career in a variety of ways:
Read. One of the reasons you don’t need an advanced degree or even a fancy liberal-arts undergraduate college degree to succeed in business is that you can find out a lot on your own. You can gain insight by doing, but you can also gain expertise by reading. A good bookstore or well-stocked library has no entrance requirements, such as a high grade-point average or SAT score. A good book costs a heck of a lot less than taking college or graduate courses!
You can read lots of “content” online. Just be sure you understand the quality and source of what you’re consuming. If something is “free,” investigate how the purveyor ultimately makes money and what its bias and agenda may be.
www.academicearth.org
, www.coursera.org
, www.edx.org
, and www.udemy.com
.Should you start your own business? It’s often a difficult decision for most people, and it’s the first question you should answer before turning your business idea into the reality of your start-up company. In addition to helping you decide whether to start your own business, in this section I discuss a potentially attractive alternative: being an entrepreneur inside an established company.
Of all your small-business options, starting your own business involves the greatest amount of work. Although you can perform this work on a part-time basis in the beginning, most people end up working in their business full-time.
For most of my working years, I’ve run my own business, and overall, I really like it. In my experience counseling small-business owners, I’ve seen many people of varied backgrounds, interests, and skills achieve success and happiness running their own businesses.
Most people perceive starting their own business as the riskiest of all small-business investment options. But if you get into a business that uses your skills and expertise, the risk isn’t nearly as great as you may think.
You can start many businesses with little money by leveraging your existing skills and expertise. If you have the time to devote to building sweat equity, you can build a valuable company and job. As long as you check out the competition and offer a valued product or service at a reasonable cost, a principal risk with your business is that you won’t do a good job of marketing what you have to offer.
Sometimes entrepreneurial advocates imply that running your own business or starting your own not-for-profit organization is the greatest thing in the world and that all people would be happy owning their own businesses if they just set their minds to it. Starting and running a business aren’t for everyone, though. The good news: Other options may offer you the best of both worlds.
Wouldn’t it be great if you could have a job that gave you the challenge and upside of running your own business, with the security and support that come with a company environment? This combination does exist — if you can manage an entrepreneurial venture at a company.
If you’re able to secure an entrepreneurial position inside a larger company, in addition to gaining significant managerial and operational responsibility, you can negotiate your share of the financial success that you help create. The parent company’s senior management wants you to have the incentive that comes from sharing in the financial success of your endeavors. Bonuses, stock options, and the like are often tied to a division’s performance.
For more small-business options beyond starting your own business or leading an entrepreneurial effort inside an established company, see “Considering Small-Business Investment Options” later in this chapter.
Ideas are a dime a dozen. I’d love to see you turn your best ideas into reality. To make that happen, you should develop a business plan, lay the groundwork financially and emotionally to leave your job, and determine how you’re going to finance your new venture. I cover these topics in this section.
If you’re motivated to start your own business, the next step is to prepare a business plan. Your business plan should be a working document or blueprint for the early days, months, and years of your business. It should enable you to plan your goals, apply for and obtain loans, and show potential investors what you plan to do with any money they would invest in or loan to your business.
As you put together your business plan and evaluate your opportunities and challenges, keep your ears and eyes open. Expect to do research, and speak with other entrepreneurs and people in the industry. Most folks will spend time talking with you as long as they realize that you don’t want to directly compete with their businesses.
What follows are the highlights your business plan should cover:
Financial projections: An idea may become a business failure if you neglect to consider, or are unrealistic about, the financial side of the business you want to start. Financial projections are mandatory, and knowledgeable investors will scrutinize them if you seek outside money. Before the revenue begins to flow in, you incur expenditures as you develop and market your products and services. Therefore, you need to understand what you must spend money on and the approximate timing of the needed purchases. Preparing an estimated income statement that summarizes your expected revenue and expenses is a challenging and important part of your business plan.
A balance sheet details a company’s assets and liabilities. A detailed balance sheet isn’t as important as tracking your available cash, which will likely be under pressure in the early years of a business because expenses can continue to exceed revenue for quite some time. A complete balance sheet is useful for a business that owns significant equipment, furniture, inventory, and so on.
After you research and evaluate the needs of your prospective business, at some point you need to decide whether to actually start your business. If you really want to, you can conduct and analyze market research and crunch numbers until the cows come home. Even if you’re a linear, logical, analytic, quantitative kind of person, you ultimately need to make a gut-level decision: Do you jump in the water and start swimming, or do you stay on the sidelines and remain a spectator? In my opinion, watching isn’t nearly as fun as doing. If you feel ready but have some trepidation, that’s normal.
Mind you, I’m not trying to present a rosy view of entrepreneurship. Plenty of small businesses fail, and plenty of small-business owners end up losing rather than making money.
You may never discover that you have the talent to run your own business, and perhaps have a good idea to boot, unless you prepare yourself financially and psychologically to leave your job. Financial and emotional issues cause many aspiring entrepreneurs to remain chained to their employers and cause those who do break free to soon return to their bondage.
On the financial side, plan for a reduction in the income that you bring home from work, at least in the early years of your business. Do all you can to reduce your expenses to a level that fits the entrepreneurial life that you want to lead.
In addition to reducing your spending before and during the period that you start your business, figure out how to manage the income side of your personal finances. One way to pursue your entrepreneurial dreams is to continue working part-time in a regular job while you work part-time at your own business. If you have a job that allows you to work part-time, seize the opportunity. Just be sure that the outside work you’re doing doesn’t conflict with your regular job.
Another option is to completely leave your job but line up work that provides a decent income for a portion of your weekly work hours. Consulting for your old employer is a time-tested first “entrepreneurial” option with low risk.
For many people, walking away from their employer’s benefits (including insurance, retirement funds, and paid time off) is both financially and emotionally challenging. Benefits are valuable, but you may be surprised by how efficiently you can replicate them in your own business:
While creating your business plan (discussed earlier in the chapter), you should estimate your business’s start-up and development costs. Luckily, you can start many worthwhile small businesses with little capital, but you will need capital — and for some businesses, significant amounts.
Here are proven, time-tested methods of financing your business:
Bootstrapping: Bootstrapping simply means that a business lives within its own means and without external support. This funding strategy generally forces a business to be more resourceful and less wasteful. Bootstrapping is also a great training mechanism for producing cost-effective products and services. It offers you the advantage of getting into business with little capital.
Misconceptions abound about how much money a company needs to achieve its goals and sources of funding. The vast majority of small businesses obtain their initial capital from personal savings, relatives, and friends rather than from outside sources, such as banks and venture capital firms.
Eventually, a successful, growing company may want outside financing to expand faster. Raising money from investors or lenders is much easier after you demonstrate that you know what you’re doing and that a market exists for your product or service.
Taking out business loans: If you’re starting a new business or have been in business for just a few years, borrowing, particularly from banks, may be difficult. Borrowing money is easier when you don’t really need to do so. No one knows this fact better than small-business owners. To borrow money from a bank, you generally need a business plan, three years of financial statements and tax returns for the business and its owner, and projections for the business. Seek out banks that are committed to and understand the small-business marketplace.
The U.S. Small Business Administration (SBA) offers workshops and counseling services for small-business owners. Its SCORE (Service Corps of Retired Executives) consulting services (www.score.org
; 800-634-0245) provide free advice and critiques of business plans, as well as advice on raising money for your business. For more information on the SBA’s services and how to contact a local office, call 800-827-5722, or visit its website at www.sba.gov
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If you don’t have luck with banks or the SBA, credit unions can be a source of financial help. They’re often more willing to make personal loans to individuals.
Tapping investors for an equity investment: Beyond family members and friends, wealthy individuals are your next best source of capital if you want an equity investor. An angel investor is a wealthy individual who invests in small companies and has a track record of success in funding somewhat-similar businesses. Angels bring things to the table besides money, such as strategic advice and helpful business contacts.
Finding folks who may be interested in investing requires persistence and creativity. Try consulting tax advisors and attorneys you know who may have contacts, and network with successful entrepreneurs in similar fields. Also consider customers or suppliers who like your business and believe in its potential.
Only your imagination limits the ways you can make money with small businesses. Choosing the option that best meets your needs isn’t unlike choosing other investments, such as in real estate or in the financial markets. In this section, I discuss the major ways you can invest in small business, including what’s attractive and not so attractive about each option.
If you don’t have a specific idea for a business that you want to start, but you have business management skills and an ability to improve existing businesses, consider buying an established business.
Some people perceive that buying an existing business is safer than starting a new one, but buying someone else’s business can actually be riskier. You have to put out far more money up-front, in the form of a down payment, to buy a business. And if you don’t have the ability to run the business, and it does poorly, you may lose much more financially. Another risk is that the business may be for sale for a reason. Perhaps it’s not very profitable, it’s in decline, or it’s generally a pain in the posterior to operate.
Good businesses that are for sale don’t come cheaply. If the business is a success, the current owner has removed the start-up risk from the business, so the price of the business should include a premium to reflect this reduced risk. If you have the capital to buy an established business and the skills to run it, consider going this route.
If you like the idea of profiting from successful small businesses but don’t want the day-to-day responsibility of managing the enterprise, you may want to invest in someone else’s small business. Although this route may seem easier, fewer people are actually cut out to be investors in other people’s businesses.
Consider investing in someone else’s business if the following points describe you:
Putting money into your own business (or someone else’s) can be a high-risk but potentially high-return investment. The best options are those that you understand well. If you hear about a great business idea or company from someone you know and trust, do your research, and use your best judgment. That company or idea may be a terrific investment.
Purchasing a good franchise can be your ticket into the world of small-business ownership. Franchising makes up a huge part of the business world. Companies that franchise — such as Papa John’s, Jiffy Lube, 7-Eleven stores, Gymboree, Century 21 Real Estate, Supercuts, Holiday Inn, Avis, Smoothie King, Subway, and Foot Locker — account for more than $1 trillion in sales annually.
When you purchase a franchise, you buy the local rights to a specified geographic territory to sell the company’s products or services under the company’s name and to use the company’s system of operation. In addition to an up-front franchisee fee, franchisers also typically charge an ongoing royalty.
Here are the primary advantages that come with a good franchise:
Buying a franchise isn’t for everyone. Here are some common problems that may cause you to reconsider buying a franchise:
Franchises and multilevel marketing companies have some similarities: Both offer a prepackaged and defined system for running a business. Although both types may be worth your exploration, significant obstacles can trip you up, especially with multilevel marketing companies (MLM).
MLM companies, sometimes known as network companies, can be thought of as a poor person’s franchise. I know dozens of people, from clients I’ve worked with to students I’ve taught in my courses, who have been sorely disappointed with the money and time they’ve spent on MLM companies.
In companies that use multilevel marketing, representatives who work as independent contractors recruit new representatives, known in the industry as your downline, as well as solicit customers. For those weary of traditional jobs, the appeal of multilevel marketing is obvious. You can work at home, part time if you want. You have no employees. You don’t need any experience. Yet you’re told you can still make big bucks ($10,000, $25,000, $50,000, or more per month).
Think twice before you sign up relatives, friends, and co-workers. A danger in doing business with those people you have influence over is that you put your reputation and integrity on the line. You could be putting your friendships and family relations on the line as well.
Quality multilevel marketing companies are the exception and make sense for people who really believe in and want to sell a particular product or service and don’t want to or can’t tie up a lot of money buying a franchise or other business. Just remember to check out the MLM company and realize that you won’t get rich in a hurry — or probably ever.
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