With the job market still in a malaise, many job seekers are now considering starting their own businesses. Even those who are still employed, driven by dreams of financial freedom, are increasingly considering launching their own companies. If successful, this would be good news for the U.S. economy especially since, figures from the Small Business Administration (SBA) demonstrate that, almost 70% of the net new jobs created in the two decades before the recent recession were produced by small businesses.
Our executive recruitment firm regularly receives inquiries from the brightest R&D, engineering, scientific, IT and technical talent worldwide requesting the optimum steps to follow in starting their own companies. Research shows that there is no magical formula. However, during our 25 years of existence, our executive recruiters have uncovered 6 time-tested steps from clients who are successful entrepreneurs, angel investors, bankers, and venture capitalists.
The first step is generating a great idea. Although many R&D inventors, engineers, scientists and technical personnel believe that a majority of their ideas are excellent, most will only lead to a neat gadget with limited business potential! One venture capitalist shared, “More businesses fail not because their product does not work, but because they are a 50-cent solution to a 5-cent problem.” This means that even if you have a unique, new idea, it may either: a) cost exponentially more than the problem it is trying to solve or b) be only a minor improvement over existing offerings. Therefore, it won’t yield a major business opportunity.
Some ideas may seem so simple that we wonder why no one ever thought of them before. Others are so revolutionary that we marvel at how anyone could have dreamed them up. The key is does your idea solve a major problem? If so, it may be unique. For example, when Kevin Systrom and Mike Krieger were so frustrated by the mediocrity of their mobile photographs, they developed a way to make ordinary shots look professional and compelling. This led to the creation of Instragram.
That brings up the second step, thorough market analysis. One venture capitalist shared, “a lot of times we will see someone with a product looking for a market as opposed to identifying a market need and coming up with a product to solve that need.” In order to discover if your new idea does in fact solve a problem, you need to undertake extensive market research including discovering: a) What offerings currently exist to solve the problem you wish to solve? b) What do the current offerings cost? c) What are the positives and negatives of the current offerings? d) Who are your current competitors? e) Who are your potential future competitors and what competing technologies may they launch? f) Are your projections and assumptions realistic? And g) How long will it take and how much will it cost to move your product from concept to a market penetration including building distribution channels? This will take a lot of work, but a lot of resources exist to assist you. Visit your local library, chamber of commerce and SBA office. All offer a wealth of information and experts to help you.
Third, write a detailed business plan. According to many bankers, angel investors and venture capitalists, one of the biggest shortcomings of potential business owners is they have not planned properly. Two major questions that many investors will ask when considering funding your business: 1) is there an interesting business opportunity? And 2) do you have the right plan-of-attack and management team to take advantage of that opportunity? Writing a thorough business plan will help you address both. It is a way to articulate your vision clearly and concisely.
Even if you are not raising money, a well-developed business plan can be very valuable. It can serve as your road map to success. As a result, you need to succinctly detail: a) What are you trying to accomplish? b) Where you want to go? c) Why this idea makes sense? And d) What problems you are likely to encounter? Make sure that your business plan can quickly and simply communicate your vision to investors and key employees including your VP of Sales and CFO. Also, edit, re-edit and update it to account for changing market conditions.
Even though you should share your business plan with all your key advisers to review and get their suggestions, including your accountant, lawyer and banker, one of the main caveats several bankers have shared is, “write the business plan yourself.” This is the case because the business plan needs to concisely reflect your vision.
Although many books, software packages and tools exist to guide you, there is no set formula for writing a business plan. However, one easy-to-follow book I used when writing my business plan to start Strategic Search Corporation is, “Business Plans That Win $$$: Lessons From The MIT Enterprise Forum.” Though out of print, it is still available on Amazon. Also, ask your advisors for other business plan development options.
Fourth, work for 1-2 companies for 3-5 years in your field of endeavor before starting your company. Though some cutting edge R&D industries may not offer a similar company or it may be critical to immediately launch your company or miss an important business opportunity, a lot of hidden experiences can be learned by working for a competitor. You will uncover many nuances and anecdotal information that will mean the difference between your business succeeding or failing!
I learned this necessary step from one of my professors while pursuing my MBA at Duke’s Fuqua School of Business. Then I applied it when starting my own executive recruiting firm. I had worked for a large regional R&D, engineering, scientific and technical recruiting firm for 4 ½ years and then left to start my own corporation. I almost went out of business in my first two years. Fortunately, the valuable lessons I learned while working for a competitor kept me afloat! This saved me from many startup mistakes that could have forced me out of business!
Fifth, recruit the right management team to carry out your plan. One angel investor shared, “in real estate the mantra is location, location, location. In investing the mantra is management, management, management. Investors bet on entrepreneurs to not only formulate a plan, but also execute it.” Therefore, you need to recruit the right management team to supplement your weaknesses. The caveat is you may be the right person to invent and launch a monumental product, but you may not be the best person to execute the long-term plan. Therefore, have your internal management recruiters, external executive recruiters and advisors assist you in uncovering the best management team to execute your plan! You don’t need to hire them yet, but have them in place in case either: a) your investors ask or b) you need critical advice. Many key executives may volunteer or consult part time until you are ready for a full time business launch. The key is you need to sell them on your vision.
Finally, save up enough money for 1 ½ to 2 years of operations. Even the best inventors with the greatest ideas can take a lot longer to manifest than planned. If you are not prepared for the long haul, you may be forced out of business before your great idea bares fruit. In my case, I lost money for my first 18 months. Luckily I had followed this rule and saved enough for two years of operations. Remember Murphy’s Law: anything that can happen will happen! Especially in business there are many, many unforeseen twists and turns in the road. Therefore, you need to be prepared especially with enough money in case your business takes a lot longer to develop.
Following all these six steps will not guarantee you will have a successful business. However, not following them will increase your chances of failure. In recap, you need to: a) generate a great idea b) do thorough market research c) develop a business plan d) work for 1-2 companies for 3-5 years in your field of endeavor e) recruit the right management team and f) save up enough money for 1 ½ to 2 years of operations. Especially writing a detailed, but concise business plan that shares your vision is a necessary evil to starting a business. It will provide you a road map to guide you along the way to your business success.