Entrepreneur: Follow Your Heart. Analysis Is Overrated.

Posted by Paul Morin at 8:36 am Business Idea Screening, Dream, Mindset, Start A Business 10 Responses »

Aug 122011

Entrepreneur: Follow Your Heart. Analysis Is Overrated.

As an entrepreneur, you must follow your heart. Analysis is important, but it is overrated.

For those of you who are big into analysis and are going to get upset hearing it referred to as secondary to anything, let me explain. This is kind of like me making an Irish joke – it’s OK, because I’m Irish. Similarly with analysis, I can move it down the priority list a bit and recommend to others that they do so as well, given that analysis has been a major part of my career, particularly in the early stages.

This may further placate the “quant jocks” and analysis devotees who may otherwise be offended: in no way am I saying that you should not do analysis when you are considering which business to pursue! To the contrary, I still think it is very important to develop as strong and accurate as possible an analytical understanding of the business ideas and opportunities you are considering. What I am saying though, is that the analytical part of the process should come second, not first. Choose your potential ideas and opportunities first on what your heart says, then bring your mind into the picture to determine whether there may be “gold in them there hills”.

So, if you’re going to follow your heart, you have a few questions to answer. First, what is it in life that really excites you and gets you “fired up”? Make yourself a list. Brainstorm. There are no bad ideas when you’re brainstorming. Make the list with your heart, and then you can come back and use your mind to analyze it later.

Next, if you’ve been wanting to start a business for a while, but just haven’t “gotten around to it,” ask yourself why. What is it that’s holding you back? Is it fear of the unknown? Is it a lack of confidence in your ability to make the business successful? Is it more generally a concern that you’ll “fail” and that will be embarrassing for you? Is it simply that you have not come up with an idea that you think represents a true opportunity? Business idea screening can be complicated if you don’t have a background in that area. Seek help, or use a business idea screening tool to help you work through it.

If lack of time has been your excuse for not starting a business that you’ve been thinking about for a long time, ask yourself this question: when do I expect to have more free time? If you are like most people, the answer will be “never”. The only way to have the time to start a business, or do anything outside the norm of your everyday schedule, is to make that time. No one will make it happen for you. You have to do it. It will require a great deal of discipline and dedication, but if you are following your heart and pursuing a dream, you will find sources of extra energy that you never knew existed. Do yourself a favor and answer this question: What small step can I take right now that will get me moving on the way to my dreams? It doesn’t have to be a big step, just take a step and get the ball rolling.

Ok, so now that you’ve gotten the ball rolling and you’ve decided to follow your heart and your dreams, back to that annoying analytical stuff. Although you will be following your heart first, you’d do yourself a disservice if you didn’t make sure you took all the proper steps to ensure that your business idea is not doomed from the start. When I say doomed, I’m talking about from a profitability perspective. If it never looks like it can make you “real money,” it may be OK as a hobby or a charitable pursuit, but don’t kid yourself into thinking that it’s going to put food on the table for you and your family. In order to get yourself and your business ideas grounded in reality, you’ll want to make sure that you understand how to do a simple break-even analysis, how to calculate and understand profitability and the Income Statement, and once again, how to differentiate between ideas and opportunities. There’s a lot more analysis and “left brain” stuff you can and should do to plan your business and increase its likelihood of success, but the few exercises I just mentioned are the minimum – those you MUST understand and do.

You must first follow your heart, then use your mind and intelligence to determine which of your “heartfelt ideas” make sense as a business. What sense does it make to have a potentially very profitable business that you’re going to hate? Well, it makes about as much as sense as having a very unprofitable business that you love! There must be a balance.

I look forward to your thoughts and comments!

Paul Morin

paul@CompanyFounder.com

www.CompanyFounder.com

How To Start A Business

Posted by Paul Morin at 12:09 pm Business Idea Screening, Business Plan, Business Planning, Start A Business, Startup 15 Responses »

Jul 242011

How To Start A Business

Even though these days I often deal with entrepreneurs and senior-level managers who are much further along in their entrepreneurial careers, I still frequently get asked how to start a business. Amazingly it’s often these further along and usually successful entrepreneurs or larger corporations who are asking me how to start a business correctly! How can this be?! Didn’t I just get done saying that they’re experienced and usually quite successful already?

As it turns out, many folks who have been in entrepreneurship their whole lives and have attained some significant success have never really thought through how to start a business. Instead, they have subscribed to the “just do it” mentality. In my experience, while this approach can frequently lead to success, it a can much more often lead to failure. Granted, in any large group of people just “throwing it against the wall and seeing if it sticks,” there will be successes, some of them notable. That said, just because there some successes with that approach doesn’t mean it is the way to go.

In my experience and observation, the best answer to “how to start a business” is carefully and deliberately, but with a great deal of confidence and belief. Just because you take a meticulous, well-thought-out approach does not mean that you’re not an entrepreneur! In fact, the best entrepreneurs do just that. They take a measured, deliberate approach to assessing and starting up each business they get into. They are willing to take risks, but they greatly prefer to take calculated risks and they are willing to constantly update their approach based on the ongoing feedback they receive from their target market(s).

These days, when I’m asked how to start a business, I provide the following steps. While it is not intended to be an exhaustive list of what needs to be done, and the order of the steps may change slightly depending on the particular situation, I have used and seen this approach used successfully many times. As one of my mentors told me early in my career, “you want have a powerful plan that can change”. You must be willing to adapt to changing circumstances and feedback. You must not be rigid in your behavior. You must believe that you can succeed, but you must be flexible.

Here are the “how to start a business” steps. Posts elsewhere on this blog go into greater detail on most, if not all of the steps.

1.) Understand profitability and break-even analysis — too many people go into business not understanding these basic concepts.

2.) Understand upside goals and potential — what kind of business are you trying to create? Does the business you are starting right now match your objectives?

3.) Screen and sort your ideas/opportunities using criteria that make sense.

4.) Understand the psychology of markets and niches.

5.) Develop products and/or services that meet a true market need.

6.) Understand and select appropriate marketing strategies.

7.) Deploy appropriate marketing tactics.

8.) Create a full, formal business plan.

9.) Strive for operational excellence.

10.) Replace yourself/sell your “baby”.

It should also be noted that you may choose to raise capital at any point along this process. However, I would suggest that you should not seek to raise capital from angel investors or venture capitalists until you’ve at least reached Step 5, where you are developing products or services based on a true market need. Depending on how well you know the angel investors and/or venture capitalists, and depending on how much capital you are seeking to raise, you will also likely need to have a formal business plan completed before it makes sense to approach them. As discussed elsewhere, angel investment and venture capital don’t make sense for a large percentage of start-ups, so before investing a great deal of time in approaching them, be sure you have a business with characteristics that make sense for that type of equity investor.

I look forward to your questions and comments.

Paul Morin

paul@CompanyFounder.com

www.CompanyFounder.com

Of Ideas, Opportunities, Angel Investors and VCs - 40 min video post

Posted by Paul Morin at 8:20 am Angel Investors, Business Idea Screening, Business Plan, Business Planning, Funding, Idea Screening, Investor pitch, Opportunities, Raising Capital, Startup, startup already, startupalready, Venture Capital, video 4 Responses »

Apr 282011

The following video, which is roughly 40 minutes in length discusses:

- The main types of startup businesses
- How to tell an idea from an opportunity
- Potential funding sources
- What potential equity investors, particularly VCs and angels are looking for

StartupAlready – ideas vs opportunities and funding sources [click this link to access video]

It talks about these kinds of small business startups:

Hobby businesses
Lifestyle businesses
Franchise businesses
Self-funded growth businesses
Outside-funded growth businesses

It also talks about using the following criteria to screen business ideas and opportunities:

Startup investment required
Suits strengths of founders
Founder enthusiasm for industry
Founder enthusiasm for idea
Potential for residual income
Market growth rate
Number of competitors
Maturity/strength of competitors
Ability to take a vacation
High gross margins
Employee headaches
Potential for break-even in 12 months
Potential for “significant” income if successful
Liability risk associated with business

The following types of startup funding sources are also covered:

Self-funding
Friends and family
Credit cards
Home equity credit line
SBA loan
Angel investors
Venture capital

Finally, it talks about the importance of covering the following in your pitch to angel investors and venture capitalists:

Market size – show that it’s a real problem with sufficient market size to pursue

Problem – what is customers’ key problem/point of pain and why is in not adequately solved today?

Solution – how does your offering solve this problem? (high level)
Offering Description – go into more detail on the solution; try to keep in layman’s terms as much as possible

Case study – actual or hypothetical customer – show revenue and profit flows where possible

Sales/Marketing/Distribution – how to you sell this solution / get it to the target market

Partner strategy – who can you partner with? What is their incentive? What do you get out of it?

Overview of financial model – high level – Sources of revenue? Recurring vs non-recurring? What are key costs?

Financial results – actuals, if available – otherwise, more detail on projected Income Statement – go out 3-5 years

Management team – who is the team that executes? Track record? Track record together?

Growth plan – how will you grow the business? Does it scale well? Timeframe?

See the 40 minutes video at the link below or at the beginning of this post and leave your comments and questions below.

StartupAlready – ideas vs opportunities and funding sources [click this link to access video]

Paul Morin
paul@companyfounder.com
www.companyfounder.com

Screen Your Business Ideas With This Free Tool (Excel/PDF) - Brief Video Description

Posted by Paul Morin at 4:15 pm Business Idea Screening, Business Plan, Business Planning, Idea Screening, Ideas, Opportunities, Opportunity, Startup 4 Responses »

Apr 082011

Enter your name and email address here to download your FREE Excel and PDF copies of the Business Idea Screener. Click on the link above or cut and paste the following into your browser: http://www.uncoveryourniche.com. You will see a form on the site to enter your name and email address to download the tool. If you have any problems with the download, please contact us by email at info@companyfounder.com.

Types of Startup Businesses - Which Do You Want To Have?

Posted by Paul Morin at 12:30 pm Business Idea Screening, Franchise, Growth, Hobby Business, Lifestyle Business, Raising Capital, Startup, Type of Business 10 Responses »

Apr 032011

If you are starting or already have an early-stage business, you may have come up with an idea and just decided to go for it. While that works for some, I have found that it is always a good idea to get very clear in your head the objectives you have for a business, before you start it, or at the very least, before you try to grow it too much.

There’s probably an infinite number of categories of businesses you could create, particularly if you want to get very specific about the venture’s characteristics. Rather than try to take on the world here, we’re going to focus on five broader categories of businesses that I have found encompass the vast majority of companies out there.

1.) The first category is what I call Hobby Businesses. An example of a business that falls into this category would be one where you collect antique trains, so you decide to go into business buying and selling them. The beauty of a business like this is that typically you won’t lack for passion for the subject matter, as it’s something that you’re already willing to do in your spare time for free. Another positive about this type of business is that no matter how much time and resources you invest, within reason, with deference to your relationship with your family, you can hardly lose. You love the subject matter and would probably be spending money on it anyway. The downside to a business like this is that it’s hard to keep your hobby and love of the merchandise separate from the commercial interests of the enterprise. In the end therefore, while there are exceptions, a business such as this typically remains in the hobby realm and does not develop into a larger, more profitable enterprise.

2.) The second category is Lifestyle Businesses. This is the kind of business that allows you to have flexible hours and maybe even flexible geography, yet pays you well enough to make it worth doing. An example of a lifestyle business would be working as a business coach. There’s no doubt that there are some coaching businesses that are large, have several partners and various administrative staff and are extremely profitable, but on average, these are one- or two-person Lifestyle Businesses. They take advantage of the background and capabilities of the owner and allow that owner to make a good wage with a lot of flexibility; however they are highly unlikely to become fast growth companies with many employees. There is nothing wrong with Lifestyle Businesses, in fact, they can be great! It is important though that you understand their limitations and realize that if you are trying to create a fast growth business, then that is a different animal, with different lifestyle, investment, risk and upside expectations.

3.) The next category is Franchise Businesses. This one does not require too much explanation, since as consumers, we’re all familiar with a large number of very successful food franchises, such as Subway, McDonalds, etc. Franchise Businesses do not appeal to all entrepreneurs, but they do appeal to a good number, particularly those who have come from jobs in corporate America and are accustomed to a structured environment. Franchises can be great businesses, with excellent profitability. Also, on average, given the proven system they usually provide to their franchisees, Franchise Businesses fail at a much lower rate than the overall startup population. On the downside, Franchise Businesses can require a significant initial investment that is outside the reach of many entrepreneurs. They also require ongoing royalty payments to the Franchisor. That said, they can be an excellent alternative for the aspiring entrepreneur who has very little experience in startups and who has some funds available to dedicate to the franchise startup costs.

4.) The fourth category is Self-funded Growth Businesses. These are not hobbies, they are not Lifestyle Businesses and they are not Franchises. Rather, they are businesses that you start with the intention of growing them into large enterprises with many employees and many millions of dollars in revenues. In this category, you are funding the startup costs yourself, from your own assets and available credit. You are not seeking outside investors, most likely because you want to retain control of the business and you do not want to have to answer to equity investors, whether they be friends and family, angel investors, or venture capitalists. Since you typically need significant funds to start a growth business (let’s say $250k plus), this type of business is usually started by someone who is either independently wealthy from other sources, or has started and been successful with other businesses and wants to pursue their next great idea. Just because businesses in this category are self-funded at the outset, does not mean that they will not take growth funding down the road, rather it means that in the startup phase, the company founder(s) do not want the complications of having outside investors. Businesses in this category can fall into a number of industries and business types, depending on the background of the founder(s).

5.) The fifth and final category on this list is Outside-funded Growth Businesses. Such businesses often fall in the technology space, as this is an area of great interest for angel and venture capital investors, two of the most common types of equity investors in early-stage companies. Because they are “Outside-funded” does not mean that none of the founder(s)’ money goes into the business; it just means that a significant portion of the funding comes from outside sources and a good portion of the control of the venture is ceded to those outside investors. For many types of true growth companies, given the startup costs required relative to the net worth of the company founders, there is no choice but to take outside capital [investor pitch template, here]. This is not all negative, of course, as having the participation of the right investors can help the founders accomplish many of the early partnering and customer seeking activities necessary to achieve success. On the other hand, most any entrepreneur who has worked with outside investors will tell you that they would much rather be able to drive the business in the direction they want, without having to answer to outsiders. So taking equity investment from outsiders is a doubled-edged sword, but the reality is that, particularly in the tech space, very few of the great companies that you would know by name were started and grown without the benefit of outside equity capital.

This list of startup business types is not exhaustive, but it gives you an idea of the five broad categories of businesses that you may consider starting. Before you invest the first dime in your business, I strongly suggest that you come to terms with the type of business you are trying to start. If you find that you want to start a business that you simply cannot afford to fund from the resources of the founder(s), you will need to seek outside capital. In that case, there’s a wide variety of funding sources that you can consider. In any case, you will want to make sure you do a good job of screening your ideas to ensure that they truly represent the types of opportunities you want to spend your time, money and other resources pursuing.

I hope you have found this helpful in gaining perspective on the types of ventures you may start up and grow. If you have any questions with regard to how to apply these ideas to your particular venture, don’t hesitate to contact us. In any case, we’d love to hear your thoughts/comments/questions/ideas. Please enter them below or in the top right corner of this post.

Paul Morin
CompanyFounder.com
paul@CompanyFounder.com

Are You an Entrepreneur at Heart? Don't Settle. Follow Your Dreams.

Posted by Paul Morin at 7:14 am Business Idea Screening, Dream, Entrepreneurship 5 Responses »

Sep 172010

Most people end up settling and never follow their dreams. It’s sad, but true. What is the main reason for this? Well, there are many theories and some hard evidence, but in my opinion, the main reason people never pursue their dreams is that they are afraid of failure. Why are they afraid? I’m not sure, but it seems to be very deep-seated, as it affects almost every human being I have met. Everyone has some fear of failure, even those that claim they don’t. But the difference between those that let inertia take over and end up doing nothing and those that “go for it”, is the ability to take that first step.

Nowhere was this ever more apparent to me than in a recent trip to Central America, where my youngest son, who (I thought) was deathly afraid of heights, went with us to a ziplining adventure park, where you’re strapped onto a cable and sail through the rainforest like a bird, sometimes at heights of 300 feet plus, speeds of 40 miles per hour plus and distances of up to 1 kilometer. My previous experience with my son and heights had been trying to put him on my shoulders and having him end up crying for 15 minutes because he thought I was being mean and exposing him to grave danger, or throwing him up in the air and causing similar hysteria. I thought to myself, there is NO WAY this kid is going to do this circuit of ziplining, but to humor him, we had him strap on all the equipment, go through the orientation and go to the starting point with us.

Wow, was I wrong! He was literally the first person of thirty on the first cable, with a professional guide who did not give him even one second to react or become scared. He was literally whisked away from us before we were given the opportunity to say “good luck” or inadvertently show him the fear we felt for him — and for ourselves — let’s be real, this whole concept is crazy. As it turned out, I think he enjoyed the experience more than anyone on the trip. That trip he also rode a horse solo for the first time (in the mountains, to boot), again with the help and guidance of an experienced guide. He also climbed to the top of some amazing waterfalls, daring some pretty scary cliffs in the process. On this trip, he kind of came into his own as a member of our adventurous family. By the way, he is five years old.

Ok, now let’s transition to starting your own business, to becoming an entrepreneur and pursing your dreams. Does it feel a little like stepping off a perfectly safe platform and trying to “fly” to places where you suspect no sane person has ever gone? Does it feel a little like getting on a horse for the first time, where you don’t know if this beast is going to give you the best and most exciting and rewarding experience of your life, or throw you to your iminient death or paralysis? Is it a bit like trying to reach the most beautiful waterfalls and natural swimming pools you’ve ever seen, where few have ever visited, but in the meantime having to brave cliffs and a tortuous climb, the likes of which you have never even come close to? I would say the answers to these questions are an unequivocal yes, but then again, I took that plunge into entrepreneurship so long ago — 30 plus years now — that it’s a bit hard for me to remember. Fortunately though, I stay in touch with a lot of startup and early stage entrepreneurs, so I’m quite sure the answers to these questions are YES, YES, and YES.

So what does all this mean to you as a first time entrepreneur or even as a veteran entrepreneur? NEVER lose the spirit of adventure or the willingness to try new things. That being said, do not approach your entrepreneurial adventures in a foolhardy manner. Just as you wouldn’t climb a tough mountain without some quality planning and depending just how tough a mountain, an experienced guide and some equipment, DO NOT do so with your entrepreneurial ventures either. One article I wrote relatively recently, which is a good guide if you’re at the very beginning of your journey, trying to distinguish between ideas and real opportunities, can be found here. It includes a free tool you can use to screen your business ideas.

Pursue your dreams as an entrepreneur. You will then not have to wonder what could have been.

If you found this article helpful, please leave comments below and send it out to your Twitter and Facebook friends.

Yours in entrepreneurship,

Paul Morin
paul@companyfounder.com
http://www.CompanyFounder.com

How do I Screen My Business Ideas?

Posted by Paul Morin at 8:15 am Business Idea Screening 1 Response »

Aug 032010

If you have a bunch of business ideas, but are having a hard time screening them and deciding which one(s) to choose, you are not alone! I would say this is one of the most common questions I get. It usually comes in the form of: I’m thinking of starting a home based business, but I don’t know which business idea is the best. Or, I have an idea for an internet business, actually several of them, but I don’t know how to compare them and choose one to focus on. Sometimes someone has come along and thrown an idea at you for a particular home business opportunity, but you have no way to objectively assess whether the business makes sense.

I suggest that when this happens to you, you rank your various business ideas and business opportunities based on the following criteria. You may come up with some other ranking criteria to filter your list of ideas, but these are the ones that, based on my experience working with a large number of startups and small business entrepreneurs over many years, give the best indication of whether a business is likely to succeed:

Startup capital required? What will the initial investment be? Is it an investment you can afford to make, particularly in light of the upside potential the business opportunity provides?
Does it suit your strengths? Does the business idea play to your strengths and to those of your partners, if will have any?
Does the business idea make you enthusiastic? Entrepreneurship is not an easy road, but if you are enthusiastic about what you’re doing, it makes it a lot easier. How excited are you about this business idea?
Does the business have potential for residual income? In other words, can you make a sale once and then enjoy continuing income (or “residual income”) from that same customer without having to make a sale again? Selling life insurance and many other types of insurance would be a good example of this.
What is the market growth rate? Is the market for this business growing rapidly, is it steady (mature), or is it on the decline? It’s not to say that you cannot make money in a shrinking market, but it can be a lot more difficult, particularly if you’re a small home based business that does not have the resources to compete with the big, entrenched competitors.
What is the competitive landscape? Is the market characterized by a few large, well-capitalized and mature companies, or is it highly fragmented with a very large number of small competitors? Sometimes in a market where there are a few large competitors, you may still have a chance to cherry pick and go after the most profitable parts of their business. As a small company, often you can be more nimble and adjust to a dynamic market more quickly that large competitors that have a lot of bureaucracy in place.
What will be your ability to take a vacation? Some businesses make it very difficult for you to enjoy the fruits of your labor. In retail, for example, it is often quite hard to get away, particularly for any extended period of time. Almost every retail entrepreneur I have known has told me that without them there watching over the details of the day-to-day operations, bad things happen, from employees stealing, to employees just not caring about the business. Some forms of retail are not quite as tough in this regard, like online or internet retailing, for example, where you may be able to outsource some key functions, like order fulfillment. With some or most key functions outsourced, you may be in a better position to get away from time to time.
Does the business have high gross margins? When you enter and run a business where the products and services you sell have high gross margins, you are far more likely to be successful and make a reasonable net profit in the end. There are no hard and fast rules on this, but businesses that have a 60% or higher gross profit margin (which is defined as selling price less cost of goods or services sold) allow you to make a lot of mistakes and still make good money at the end of the day.
Will you have a lot of employee headaches? In some businesses, such as home construction, you must have employees, as it would be very difficult to profitably build homes by yourself. In this day of the internet business or the home business though, there are many business ideas and opportunities where you do not need to have any employees at all. The more you are able to avoid potential employee headaches, in my experience, the better off you will be and the more likely you will be successful in your venture.
Does the business have potential to make “significant” income? I put “significant” in quotes here because everyone’s definition of what’s significant is different. You need to answer this question in terms of what is significant to you and to your partners, if you have any. It is amazing to me how many folks get overcome with enthusiasm for starting their home business, internet business or other type of small business, to the point that they don’t consider the simple but important question: If I’m successful here, will this business make me the kind of money that I can get excited about, or at least that would be meaningful to me, given my financial situation?
Does the business have a lot of liability associated with it? There are a lot of types of liability and risk out there, but for the moment, let’s consider the contrast between the levels of liability of the following two businesses: daycare for infants and dogsitting. Not to take anything away from dogs, as they are very important to and loved by their owners, but do you think there’s more risk to you as an entrepreneur if you are caring for someone’s infant, or for their dog? This example is very obvious, but when you are thinking about the riskiness of your business idea, you should consider issues beyond bodily injury risk. How about intellectual property liability? How about property damage? You get the idea.

Realizing that there are a lot of moving parts in screening your business ideas, I came up with a simple matrix that will make it easier to keep yourself organized and apply the screening criteria. I created a business idea screener in Excel for those of you that are comfortable using it there. But I understand that a lot of people would rather do their screening and organize their thoughts by writing them down, so I also created a version in PDF that you can simply print out and fill in. Both are available free by going here [www.uncoveryourniche.com] and entering your name and email address. There’s a short video that explains a lot of what I went through in this post. You’re free to watch it, or just go ahead and enter your name and address on the right side of that page and after a confirmation email, you will be sent email instructions for downloading the files. It shouldn’t take more that a couple minutes in total.

Well, enjoy. I look forward to your comments once you’ve had a chance to give the tool a try. If you have any questions, feel free to shoot me an email at paul@companyfounder.com. Again the place to get business idea screener for free is here.