Entrepreneurial Warfare for the Independent Mind: What Aspiring Business Starters Should Know

Starting a Business

Compilation of Volumes I through X

In this section, labeled "Starting a Business", we will address all the questions one should ask before making the decision to go into business. These are fundamental questions whose answers one must be absolutely certain to have firmly in mind before taking the necessary Leap of Faith that is required before starting a risky adventure. Faith that all the planning, all the efforts will yield the expected results at the end of the journey.

There will be a series of Posts addressing each question separately. This will allow you the readers, to interact on the subject by either adding your professional expertise on the matter being discussed, ask questions, argue a point you'd like to make or contest one that I made. It will also allow some of you to share their personal experience on the subject to illustrate this posting with real life testimony on a specific example.

"Why go into Business for Yourself?" is the very first of the series. There will be 10 Postings in the series for the moment. I may add others as this section evolves with your interaction and as per your suggestions, queries and recommendations. Here' s the Series preliminary Index:

Why Go Into Business For Yourself?
Who Should Start His/her Own Business?
What Do You Need Before You Start Your Own Business?
With Whom Should You Go Into Business?
What's The Best Size for a Business Start Up?
When Should You Go Into Business For Yourself?
Where Should You Establish Yourself?
Who Do You Need?
How Much Do You Need?
What Should Be The Annual Objective of the Business?

Volume I

WHY GO INTO BUSINESS FOR YOURSELF?

Everyone has a personal reason to do anything. Just taking a simple single step requires a personal reason to do so. I will not speak here of motivation, since that relates to the choices each and every one of us make every single instant of our entire life. Motivation, while very important is irrelevant to this discussion. I will, however, speak of rational reasons to go into business. Whether we do it consciously or not, we are always aiming higher than our current condition. We are in a perpetual quest to better ourselves on all levels. We strive to provide better for our family and for ourselves, and if possible something more meaningful, more rewarding on an intellectual level, not just mind-numbingly trading hours for dollars while doing meaningless tasks indefinitely. Many pathways are available to us from the time we hit the job market. Whether we have been fortunate enough to receive an education or not, that constant in our lives remains true for all of us.

There are two major phases in an individual's life; the "Training" phase and the "Survival" phase. The former consists of the years where the individual just learns to interact with society under the protection of his parents, within the family unit, or lacking a family environment, within the community itself as well as possible, and with limited responsibility or consequences. The latter consists of taking that theoretical knowledge and putting it into practice by getting into the job market and starting to take on one's own shoulders the burdens of life, such as starting to pay one's own bills. It also means taking responsibility for one's own actions and face up to the consequences of one's own choices.

Most of us will seek and hopefully find a position within a private or public organization and start trading our time, knowledge, conscientiousness and will to a good job for on the job training, real work experience, hopefully a sense of fulfillment for doing something that matters to us and that we like doing, and certainly for money. That path is pretty stereotypical, simplistic and of course idealistic. But for the sake of this particular argument, I will dispense with the aleatoric details of a given individual's life path. As we apply our theoretical knowledge, gained in the Training Phase and acquire skills by practicing our duties on the job, we become better performers, acquire experience and therefore qualify for a "better" job in terms of remuneration, quality of work environment, relationship with clients/co-worker/superiors...etc.

As one keeps traveling down that path, "working for someone else", fully engrossed in the day to day obligations of the "Survival Phase", an individual will from time to time reach a point in his career where his skills, experience and knowledge, surpass the requirements for his current position. There are only two choices available to that individual then:

One is to keep going down the same road, not rocking the boat, hoping to be recognized for the true asset he is and simply playing it safe. This will of course, will lead him to become an overqualified and underpaid statistic, which eventually leads to loss of motivation, stress, frustration and feelings of not being appreciated at one's just value.
The other will require taking a chance, coming out of one's comfort zone and either ask for a better position within the same organization or go out and look for a better position in a different organization, consequently risking the current position or realizing after the fact that the new position is not what one expected.

The risks in this scenario are easily manageable. Time is not a factor since the current position for this overqualified individual is secure for the moment, the upside is therefore greater than the down side so the decision is not too difficult to make.

This situation will repeat itself throughout the traditional career path of any given individual until retirement. The Qualification/position requirement ratio should remain slightly overbalanced (Top heavy as it should be), but not overly so. Everyone should be very well qualified to execute the duties required by his position, so the task is done smoothly, faultlessly, with effort but not difficulty. This breeds self-confidence in the individual holding the position, and confidence in whoever is at the receiving end of the product or the service being produced by said individual. When the upper side of the ratio becomes much greater than what is required by the position, it will prompt the person to move forward on the career path. He will eventually obtain a position at, or slightly above, his qualification level and the Ratio will be slightly bottom heavy, challenging the right individual to strive to acquire the knowledge and skills in order to right the balance of the ratio. This phenomenon will continue until either retirement age or... until, for one reason or another, there are no better positions available, whichever comes first.When there are no more positions available, where an individual can better himself by accepting the intellectual challenge of rising to the occasion of a more complex task and rip the intellectual, social and material rewards that comes from achieving it, not to mention the satisfaction of exploiting ones full potential, what then?

When someone reaches that crossroads in his/her career, the decision of which way to go depends on the financial situation the person is at that point in his/her life. I am not writing about how much money or assets have been amassed, but how much passive income one can expect from that day forward to offset the cost of current standard of living. The timorous individual, if the passive income is either insufficient or nonexistent, that individual will either forge on until retirement age and collect his/her pension and social security or until s(he) has set up sufficient investments to secure enough passive revenue to retire early, that's when motivation comes into play. The confident, bright and ambitious person, on the other hand, might arrive at that crossroads on his/her career path, much earlier in life. What then? What should someone do when there is no more upside possible on a career path and the person is overwhelmingly overqualified for the position s(he) is currently holding? The character of such a person would not be able, and should not be able to clip his/her wings and remain gloomily grounded waiting for the ripe old age to be put to pasture without having ever reached his/her full intellectual potential. As the United Negro College Fund's Slogan says, "A mind is a terrible thing to waste". It is indeed and more so when it has already reached its full potential. The only solution to such a conundrum is for the individual to create that position himself by taking, his skills, his experience and his vast knowledge on his given field and go into business for himself.

That is the only logical reason why one should go into business for himself at any given time. Going into business is the riskiest career path. The upside, while unlimited during and beyond the growth phase (Year 6 to year 15 in my book) is incredibly limited from the inception of the business concept to the end of the growth phase (first 6 years of existence). The downside, on the other end is tremendously high during the same period. The risk is potentially the total loss of capital, time, effort and family's financial stability. To embark on such a venture, one must have no better alternative available. Going into business should be because no better option is available to someone who has reached the professional crossroads where one can only do better working for himself than for "The Man". In spite of all the risks involved, it should be better that any position that could be offered for the set of skills, experience and knowledge one has.

THAT should be the only reason WHY. Any other reason is just foolishness of an oversize ego and delusions of grandeur. Of course, not everyone is motivated enough to undertake such a risky proposition. Who should do so is what will be discussed in Volume II.

Volume II

Who Should Start A Business?

Now that we know why one should start a business, the next question that should be asked is: Who should do so? As discussed in the previous posting (Volume I), not everybody is cut out to be his own boss. It takes more than simple ambition. The demands, on a business starter are great, numerous and costly and not just on the financial level. The toll on health and on family relations is even greater than the financial risk. The ideal Entrepreneur needs to wear several hats, (S )he needs to be the consummate paradox; both visionary and practical; a great leader and a greater follower; a Jack of All trades and an expert. Most importantly, the new entrepreneur must be steadfast, intrepid and laser focused on reaching his/her goal.

It takes a certain type of person to be able to see a need for a product and service and then visualize the extent of its potential market. From there S(he) must also be able to envision the entire process from conception to delivery to that market. It seems simple, doesn't it? Just look around you and observe people go about their day-to-day lives at work, home or during leisure time. There's always something missing, a process that can be shorten a step or two to speed it up, a concept that can be simplified so access to larger amount of users can be opened further. Or even an existing tool that is on the verge of being obsolete because of the way of using it has changed and it is no longer as adequate as it was originally conceived. That tool can be tweaked a little bit to adapt it to the new materials or way of doing things and. Just like that, a brand new tool perfectly relevant to today's way of doing things is born. Yes, most of us, with a little observation and patient thought process, can come up with a few new ideas. Then why don't we see, new business popping out every minute out of every day all over this great nation and over the entire world? Well, they probably do. But it is not always news worthy and therefore not always reported or even talked about in the very preliminary stages. But that is not the point I'd like to make. Everyone can have the vision; everyone can even see the entire path of the step by step process from conception to realization. The difficulty lies in what happens after the Euphoria of discovery has passed. The impediments on the road to success show up before the first step is event taken. It rears its ugly head from the second the visionary speaks of the idea to his family and friends. His/her "Idea" becomes a huge target for everyone to shoot flaming arrows. That's were conviction and steadfastness is needed. One must be able to see the general terms of what is to come in all aspects. One must be able to see in his mind where the future business could be 1 year from then, 5 years, 10 years and 20 years. One must be able to plan in his mind what will be the oppositions the traps, the pits in the road to the successful acquisition of a solid market share. It takes creativity, mental fortitude, the ability to dream with eyes wide open and shut off the background humdrum of the Naysayers. 90% of the great ideas are mentally aborted before they have a chance to be birthed.

Businesses, however, are not built in the clouds in Utopia; they are created in the harsh reality of the present world. The business starter besides being a visionary and a fruitful dreamer must also have both feet firmly planted on solid ground. He must be more Cartesian than Descartes. He must be pragmatic and take care of the nitty-gritty details that end up crashing the company right after the take off, if neglected. Little things, as intellectual property protection, proper licensing, legal and fiscal representation can kill a project before it has a chance to reach the very first step. Those details cannot be delegated by the Business starter to anyone. S(he) must seek professional counsel, but must be on task personally particularly on the conceptual and planning phase. S(he) must know every single detail of what, how, where and when and most importantly How Much. S(he) must know his/her business plan better than the back of his/her hand and S(he) must be able to understand it so well that S(he) could explain it to a 5 year old in 10 words or less. The Entrepreneur, must know exactly what it will take to produce the product/service, what means will be required to do so, with projection of 1 year, 5 year and 10 years. Who will supply the necessary parts, ingredients, materials or whatever is required for the fabrication of the product or the delivery of the service? What will be the overall cost of production of such product or service? What are the logistical details for receiving the necessary goods and delivery the end-product or service to the client base? What unit profit margin can be expected? What is the breakeven point below which one cannot afford to remain long particularly in the launching phase? All those pesky little details must be taken under careful consideration. Being able to see the Big Picture is important, but one must also realize that the level of resolution and definition of the Picture is proportionate to the amount of tiny little pixels per square each. Each Pixel is a very important pesky little detail. See the forest and not just the trees is good, but one must understand that there wouldn't be a forest if not for the trees.

Just like it takes a village to raise a child, it takes an entire professional community to start a business successfully. No matter how talented the Entrepreneur, s(he) can't do it all alone. Finding the right team is not limited to finding the right business partners, who will each bring the proper amount of funds and/or knowledge, to complete the Executive team, although it is very important. It is not just about finding the right employees, who would espouse the new company's philosophy and believe in the same goal, although that is also very critical. It is about going beyond the inner circle of Employees and Management/ownership. It is about being able to finding the right suppliers and creating a real relationship with them, not just, based on a "I buy you sell, you charge I pay, You deliver I receive, platonic relationship. There needs to be a symbiotic relationship between the suppliers and the company. They need to be involved at a deeper level. The suppliers financial well being needs to be improved by doing business and by seeing you succeed and jeopardized to some degree, if you are doing poorly. This cannot be done by sheer will. It takes careful planning in the selection of your supplier. Not necessarily the cheapest, nor the leader in the market, but someone who can be relied upon, who gives you a fair price/quality ration coupled with a good delivery lead time and overall someone who needs to grow as much as you do. That however is not the only important aspect of the relationship.

The Entrepreneur must, as soon as s(he) can, establish credit with the suppliers. It is primordial for the company's cash flow. To be able to receive the goods, go through the process of fabrication/delivery of final good/service to the company's clients and collect on such before any disbursement is made to the suppliers is ideal. Cash-receivables before Cash-payables is always preferable to the opposite whenever possible. To be able to do so in the very first months or even the first couple of years is very difficult. That is why it should be planned from the very beginning in the conceptual phase. Obtaining such an advantage doesn't depend only on the agreement between the Entrepreneur and his/her suppliers; after all, the suppliers are businesses also, subject to the same logical rules of arithmetic. The Entrepreneur must provide a way to assuage the fears of the supplier running the risk of not collecting on his goods if the new enterprise fails prematurely. That's why the Entrepreneur must also work with his financial institutions, so they can take the responsibility of payment for the Entrepreneur towards the supplier, in case of default on the payments on the Entrepreneur's part. This brings us to the Bankers. The Entrepreneur has to convince the Bankers to go along with his company and afford him the financial fortitude that will calm the fears of nonpayment of his suppliers. Again, Banks are businesses too and they cannot take on such a risky responsibility without getting something in exchange. That's why, in the conceptual phase, the capital projected must include, not just enough funds to cover the launching phase, but sufficient additional funds to cover at least 6 months, preferably 1 year of a full budget. The additional funds can be safely held at the Entrepreneurs bank and earn interest in a relatively liquid investment vehicle, thus providing the bank benefiting from such safekeeping with a valuable collateral to cover their own risk in this endeavor. They are several financial instruments that can be used to that effect but I will not stray into a description of such details, as it is not the subject of this dissertation.

Every thing mentioned above are basic business management 101. However, even if the Entrepreneur's "Ducks" are all in a row on the planning and financial side, there is no guarantee that everyone will follow his wishes. S(he) must be able to convince the suppliers/creditors to follow his/her plan. S(he) must convince the bankers to follow his/her financial strategy and most likely put up a collateral. S(he) must LEAD so they can FOLLOW. S(he) must know the business plan like his/her own first name, s(he) must be able to communicate and project his/her vision clearly enough and with sufficient confidence to convince everyone to take a chance on the new Enterprise. Projections and planning are just the first part of the equation. It must be solidly realistic, it must show that the Entrepreneur is agile of mind, and extremely aware that nothing, no matter how minutely planned it is, ever goes perfectly as expected. The Entrepreneur must convince everyone that the company is nimble enough, flexible enough to regroup, analyze and adapt at neck-breaking speed, each time an impediment surges on its path.

However, as difficult as this seems, it is not enough. Creditors, suppliers and bankers are not the only groups the Entrepreneur must lead. S(he) must also reach out to the community of his client base. Develop a relationship with its market. Be close, in all the sense of the term, to its clients/customers, so it can keep the finger on the pulse of the market. The Entrepreneur must also reach out to the authorities within the local market to ensure that a lack of communication and compliance does not hinder the launch of an important project. Too many successful companies have neglected that very important aspect and as a result have become over extended financially when a major investment has been blocked by some local government for some reason and ensuing litigation have dragged the company under. As the former Mayor of New York City, Rudy Giuliani, famously said, "Don't mess with City Hall". The Entrepreneur must LEAD the entire community into following along with his objective in order to have a better chance at success.

If there is a Market for a particular good or service, chances are there is one if not two major market leaders. Even in the smallest niche markets, there is most likely an established company dominating that market, if not locally, at least abroad. The new Entrepreneur should be able to identify these leaders and study them. They are not only the competitors, (if sharing the local market), they are the single most valuable source of data for the budding entrepreneur about his client base. One should learn from these leaders, learn from their successes and most importantly learn from their early mistakes. The reason for their success should be discovered. Their success is the evidence that they know what makes the clients of that market tick. The Entrepreneur must be able to follow the blue print drafted by his/her peers in that market, adapting is as s(he) progresses to its own strategy. Follow their path like a road map where the treasure troves and the pitfalls are clearly marked. The Entrepreneur should also listen to the advice of his team of experts, that is the reason why s(he) has contracted or hired them. Ignoring their input is not only foolish, but a waste of human and financial resources. Following sound advice with a wary mind, eyes and ears wide open is an additional trait the enterprising mind must have. Knowing how and when to follow is just as important as knowing how and when to lead.

Just like everything in the Universe, everything that has grown to great dimension, did so from a humbler beginning. The mustard seed may be one of the smallest seeds but it produces one of the tallest tree. Most start up business, begins small in terms of capital resources, but also in human resources. The "Skeleton Crew" is usually what gets things started until better days further down the road, affords the business to get some Human resource "Flesh" on its metaphorical bones. Thus the starting Entrepreneur must have enough general knowledge about each and every position required for the enterprise to function and s(he) must wear several hats for as long as necessary. "Jack of All Trades" is usually a fitting moniker for the new Entrepreneur. That general knowledge is necessary because the "Boss" needs to fill the positions himself until s(he) can afford to hire the staff to fill the different positions starting with the most critical after the 'Boss". It is also very critical to have the knowledge so the new staff can be trained by the boss to his/her specific requirements and company philosophy. Not to mention, being sufficiently knowledgeable to enable proper supervising, goal setting and performance evaluating for each position. A ship Captain must know how to navigate, even if he has a chief navigator on staff.

That being said, there is one expertise, the Entrepreneur must have in the absolute. S(he) must be the ultimate expert in his/her own market before the company is even launched. S(he) must know all that is possible to know about the client base, what makes it tick, what were the past trends, what were the successful products/services of the past, which are enduring till today, what are the clues in the client base's behavior that may herald the upcoming trends. The Entrepreneur must be a super absorbing sponge, soaking all the information about his/her industry and the targeted market. Nothing can be left to chance, chance is already a very large factor one must contend with, there is no need to allocate it a larger space than absolutely necessary. The Entrepreneur must come to know his/her clients better than they know themselves. That is the only way to stay ahead of the game. The only way to recognize rising opportunities and forecast future fasting periods soon enough to prepare for it, reassess the direction and adapt to the new situation as it presents itself. That is the only way to be pro-active. The alternative is to have to react to every single upset and jump from one problem to another, always one step behind at best, eventually losing complete control and ultimately failing. I hate to cite such and overused phrase but the Entrepreneur must Eat, Sleep and breathe his business, his industry, his client base. That may be an all consuming proposition, too overwhelming for most, but that is what separates the successful Entrepreneur from the rest. As the business grows, this task doesn't diminish, but it does get easier because, as the financial and human means grow, the Entrepreneur is no longer required to wear all the hats. S(he) will be able to shed hats, one at the time, until s(he) can focus solely on the navigating of the Enterprise and ensure the team s(he) put together, work to the best of their abilities in their own field of expertise and, most importantly, with each other for the best interest of the company.

In conclusion, a person with great vision but practical enough to pay attention to details. Who can inspire people to follow his/her vision and who knows how to follow great examples of success in his/her chosen field, should start a business. S(he) needs to be the Skeleton Key that opens all the doors of the company to be started. All rests on the shoulders of the Start Up Entrepreneur. For that reason, s(he) must be the most knowledgeable, the most dedicated, the most diplomatic, the most decisive, the most fearless and the most confident of all the staff members. Because S(he) is above all, a member of the staff, the most important member of the staff, but a staffer nonetheless. It is a grave error for a business leader to put him/herself above his/her staff, no matter the size of the organization s(he) leads. If the company rules do not apply to the Leader, chances are, s(he) either won't remain in that leadership position long, or there won't be much of a company, much less staff, to lead very soon. Someone who is prepared, ready, willing and able to be at all times the MODEL FOR THE BEST EMPLOYEE OF THE COMPANY and has all the qualities described above is WHO SHOULD START A BUSINESS. Anybody else will just waste their time with an exorbitantly costly and hopefully not lengthy exercise in futility.

Volume III

What Do You Need Before You Start Your Own Business?

In Volume I of this series, we discussed why anyone should go into business. It is not as obvious as one may think. Volume II pertained to who should do so. Not everyone is cut out to take on the pressure and responsibilities. We now will discuss, what is needed to open a business. What preparation must be made before considering applying to register the corporation? What the budding Entrepreneur must have firmly in mind and in his/her hands before anything else. It is imperative that you know all there is to know about the product or service you wish to produce. You must know who your costumers/clients are, and know them better than they know themselves. Just as important as the previous two points, you must have a deep knowledge of your competitors, their history, capabilities and their share of the existing market. Finally you need to have a very clear and precise idea of how much all of this will cost you for the first year. In other words you need a solid, well thought out, plan of action.

The Product/service to be produced:
As the future owner of the company that is to supply the product or service, it is of the utmost importance that you know all there is to know about it. Compare your product with those already being offered in the marketplace. Analyze the competition's design, from a functional and an aesthetic standpoint. Compare the customer service being offered with what you are planning to offer. Compare the Market price of the competition to your projected sales price. Compare the delivery time of the other products and see if you can match those or do better. Study you delivery time with precision, from the time your customer places the order till the time you deliver it to his door, what will it take to improve the delivery time without affecting the quality of the product nor its cost to you and consequently the sales price to the consumer. Study the materials and semi-products you will need to supply your service or manufacture/assemble your product. Chose carefully, not just based on price, but also on lead time of delivery, terms and conditions of sales, stability and reliability of the enterprise supplying. Their financial strength is very important to you. The stronger they are the better they will be able to give you better payment terms, and the less chances they will fold at the first sign of economic slowdown, leaving you stranded and under-supplied at a time when you cannot afford to disappoint a single customer. Do not neglect to factor in your logistical transport cost in the analysis of your product. Transportation of materials and semi-product from your supplier to you is a necessary consideration, even if you just offer a service. In addition to that, you will of course consider the transport from you to your customer, if you are in the Manufacturing sector.

The Consumer:
Study the demographics of your target market. You need to know who is buying a similar product and service. You need to know how old is the average client, where he lives (urban, Suburban or Rural area). How many of the products does he purchase in a given time period. Does ethnicity and culture play a role in his buying decision of your product, if yes, find out exactly which role and most importantly why. Knowing this will help you better target your customer from a communication point of view as well as in terms of new product launch. If different segments of the population buying different products for their own reasons, knowing such would allow you to produced products targeting each slice of the demographic pie, thus reaching your target more effectively than if you tried to come up with a "One Size Fits All" type of product or line. Knowing who buys that product is important, but even more important is knowing why. This knowledge will allow you to stay ahead of the trends and predict up and down buying trends. It will therefore be much easier to plan ahead for increases staff and materials purchasing when you expect upcoming increase in sales, and by the same token, you will be able to slow down your production in prevision of an expected slowing down. That way, you will not be out of stock and miss potential sales when a boom in sales comes by, neither will you overstocked and overstaffed when business slows down, which will eat away at your profits. Finally, there is one point of which you must absolutely know, particularly concerning your own product/service: You MUST know why the consumer would NOT buy your product. It is often necessary to do a test run in order to know just that. That knowledge will give you more insight in your customer base that all the above info combined. If you ask a customer why he buys or uses a given product, he will give you a myriad of reasons, none of which are very crisp in his mind and they often changes based on a multitude of factors. He himself is never completely sure why he would by this one over the other. However, ask anyone why they are NOT consciously buying a particular product and service and you will receive instantaneously, unequivocally the reason WHY. He may not be sure why he buys, but he is certainly very sure of why he is not or would not buy a given product or service. That is often the clearest message you will get in your study of your customer. So don't overlook that point, too many do to their detriment.

The Market:
Knowing your product and the product of your competition is important. So is knowing your customer. However, knowing your market is equally as important. Too many starting Entrepreneurs neglect that aspect. You need to know what is the size of the current market for your product (how many Dollars are being spent in a given market for a product similar to yours right now). Yes, even if the market is very large and you are planning to start very small. You must know the size of the market, you must know what share of that market each of your competitors have carved for themselves. This will tell you what is left of the pie for you to conquer. If the slice is too small for an additional supplier of that particular product, then you must know if you can carve your share out of one of your competitors, by tweaking your product to compensate for the eventual lacks of the competitor's product, in quality, functionality, price, presentation, delivery lead time...etc. If that is not feasible, then it is better to know it now and abort the launch of the company rather than forging ahead, spending time, money, effort and credibility to eventually lose it all for naught.

The Starting Capital:
All the above information adds up the cost of launching a business. Your projections of cost of product or service, for design to delivery will give you the cost of operation that can then be projected on a 1 year and 5 year expectations. Don't rely on your own calculations for this. Invest in the services of a professional auditor, preferably someone certified in accounting with experience in start ups. Choose carefully your accounting firm. Plan to build a relationship with your accountant. He will be your objective adviser and your evaluator during the first years of your business. He will help you navigate your business through its growing pains. You must be confident of his abilities, trust in your fiscal and accounting counsel is very important. It is as necessary as a compass is to the Navigator fighting an Ocean Storm at night. Do not neglect such a point, you'll do so at your own peril. For those of you located or wishing to be located anywhere along the Eastern Seaboard or the USA or in the Caribbean, I can only recommend a trusted friend, Joseph L. Rosenberg CPA. The capital require is not just what you need to open the doors. You must have enough reserve to create a positive cash flow. You may not get your first sale the very first day and even if you do, you cannot expect to pay for your first month expenses with your first sale. Ideally you should have at least the initial amount of funds required to operate fully for the first 12 months of your business existence even if you do not take in a single penny. (Hopefully you will not need to wait a full year to register the first revenue, but that safety reserve will afford you the benevolence of your financial institutions. It will allow you to let your money work for you rather that the other way around. This of course is the ideal situation, but if you cannot have the first 12 months of budget safely tucked away on your business account, you must have at least the first quarter. We will cover the details of this advantage and how it relates to both your financial/banking associates and your suppliers in Volumes VIII and X.

Each of the above points are quintessential knowledge for the Start-up Entrepreneur. Without in-depth knowledge of anyone of these points, the risk of premature failure increases ten-fold. No matter how prepared you are, life, the world, the market will plot together to throw a wrench in the gears of the "proverbial machine" that represents your best laid plans for your new enterprise. Expect it, plan for it and overall prepare for its devastating consequences. If you are prepared, you will be able to recover faster, won't be as affected as much emotionally, which will speed up your reaction and adaptation time so you may learn from it and keep going without stopping, slowing a little perhaps but not stopping. Each point above is required to construct the most rudimentary of business plan. The Entrepreneur needs to work on the details of the elaboration of the business plan personally and on his own. This is not a task that can not and must not be delegated to anyone. The owner of the future business and his partners if he/she has any must put together the business plan, going through each of the above points. Even if it is not perfect, it is required to ensure that the owners understand what it will take to start. Only after that exercise is done, will you be able to present your vision of what you wish to do accurately to the professional business plan writer. S(he) can only address the points you have presented, rearrange them, fine tune them, research the facts and the data behind them, but they must be there in the first place. Otherwise, the business plan will be about a business they envision, not the one you have in mind. Since they are not the ones who will be running the business, their vision is of no use to you if you plan to run your own business. You present what you need and they put it in proper perspective, but they must have something to work with. A business plan is important. It is your road map for the first 5 years. It will help you evaluate your progress and help you keep track and make the necessary adjustments. You need it for yourself, even if you do not need a financial institution's financing or an equity partner's funding capital. It is as important as your mission statement. It will keep you on course and true. .

Going into business is not a flight of fancy. It is a vision that needs deep, careful and patient though and analysis to bring it to reality. You also need to add to it a healthy dose of courage, sweat and a boat load of elbow grease.

So now we know why you should go into business. We also who should start a business and we just discussed what are the basic requirements you need before you take the plunge. Next we will talk about WHO should go into business with you, as equity partners if you need them.

Volume IV

Who Should Be Your Partners If You Open A New Business?

Once you have gone through the careful thought process that led you to making the decision to open your own business, as outlined in Volume I and Volume II of these series, you need to decide if you can start this adventure on your own or if you will need to share the risk and responsibility with one or more persons. Volume III describes what you need to have before you embark on this journey, so it should be relatively easy to know whether or not you will need help. The question is simple: Do you have all that is required, all that it takes to start, as it is specified in your business plan? If your business plan is your recipe for success, can you bring all the ingredients to the table?

The main elements required for a successful enterprise are simple to recognize. The very first one is the Product or Service that is going to be supplied. So in that regard, you need to know how you are going to produce it, how much it will cost your company to do so, to whom you should sell it and for how much. The difference between how much it cost per unit to bring that product or service to market and how much you can sell each unit will give you a gross profit margin per unit. Once you have that information, you need to know how much your company will cost to operate for one single year including all fixed and variable expenses, interest and taxes and do not forget to factor in your salary as the "Manager" of the operation. Dividing that overall cost by the unit market price of your product or service will determine how many units should be produced for that period of one year, just to break even. Factor in a percentage for unforeseen expenses (10% is a reasonable number for most sectors), add another 10%-20% to be able to have a profit, half of which should be reinvested in the company to fund its growth. You will have then a fair idea of what you must strive to accomplish that first year. These figures can be broken down on a monthly or weekly basis for easier control and tracking, depending of which industry you belong.

The above is a necessary exercise to determine a number of vital sets of Data(Information). Without that information, you will be flying in the fog without navigation instruments, you'll only know where the ground or obstacles are once you have already hit them. Again, all that information should already be included in your business plan with the figures showing that in detail in the first year projections. So we know you need Capital and how much of it, to start on the first day. Not all of it is required all at once, only access to it is necessary for the first year. The question is, can you access it on your own, either because you have saved up that much capital and have it in a bank, freely available to you, do you have any personal collateral that be put as guaranty to raise funds in the form of a loan or credit line? If yes do you wish to put all of that personal asset at risk for the company? Would you rather share the risk with a partner who could put up his financial assets to raise part of the necessary capital for an equity share (a share of the future company) proportionate to the funds that partner is able to raise.

But Capital is not the only ingredient required. Knowledge of the product or service, particularly fabrication or production Knowledge is equally as important. Do you have the overall knowledge required to bring the product or service to the market all on your own, with just specialized staff or could you again share the burden with a person that would complete you in terms of knowledge by bringing that person's expertise in a field you know but are not as knowledgeable as that person. A symbiotic relationship in terms of Know How is usually the ideal scenario, where you specialize in the Design and the partner in the actual fabrication. A complete team, without knowledge Gap is always preferable in the top management.

What about the distribution and sales of the product or service? Do you have the time, the knowledge and skills set to launch a full marketing and Sales campaign to introduce the company and the products to the market? A partner with the contacts and knowledge and the skill sets required to bring in the first customers is as valuable as if he brought to the table the capital required to survive the first year without any sales. A company, no matter which industry, is like a body without a heartbeat, if it does not have any sales force. Even a Mom and Pop shop, has a sales force. It usually is just Mom and Pop but they wear the Salesperson Cap every time they face a client or customer.

In most cases, the partners are a group of two or more people who pull their resources together to spread the financial risk among themselves as well as to add to the knowledge, skills and contacts base necessary to get the start up business off the ground. From a practical stand point, whether you decide to do it alone or partner with others, you should have the minimum resources to launch the company and survive the very first year, even if the "Worst Case Scenario" develops (i.e.: few or no sales for the very first 12 months). Many of my clients, attempt to put everything together, short of the start up capital and then come see me to help them bring the missing and most important ingredient, the life blood of the business: Money. That is always an exercise in futility, even if hundreds of thousands of dollars have been spent to come to the point where the company is ready to be launched, except for the total lack of capital. Sweat Equity, Professional fees, testing, Patenting costs...etc are necessary and have their value, but when it comes to Corporate funding, through a financial Institution or through Venture Capitalists, that point is invalid, not worthless, far from it, but invalid. That is the minimum requirement for the concept of the New Project to be proposed, the Project itself must exist, be tested and proven as a project. However, it requires funds to bring the Enterprise from Project to a bona fide Corporation.

Going into business is a risky endeavor at best, the biggest element of the risk is the loss of capital. A financial institution will analyze the request for funding and base its decision on two major points:

The merits of the Business plan and the quality of the project itself
The amount of risk to the Project Owners should the company fail. Project owners should have more to lose than the financial backers, should the company fail. To put it crudely, the owners must have some skin in the game so they can feel the heat if the Fire gets too close.

As Ziad Abdelnour of The Financial Policy Council puts it in his book*: "Angel Investors need to know that project promoters have something at risk. If they have nothing at risk, they have nothing to lose. They don't put forth their best effort, or they will walk away when things don't go as smoothly as planned" (see my review of Mr. Abdelnour's book here).
Funding is the most common reason, project promoters take on equity partners. The common mistake is to go with the investor that will offer the most funds for the smallest equity stake in the company. Money is the life blood, but it is not the only important ingredient. If you have a choice between several partners who believe in your project and wish to be part of it by bringing you funds, choose carefully. Choose the one who will bring you something that is currently missing in the mix, besides money. If your product should be marketed through big box stores, then choose an investor with experience in dealing with such market outlet. If the investor can bring his contacts and experience to create a more symbiotic relationship, even if he requires a larger share, it would still be more valuable than an investor who brings just money but has no knowledge of your product or your market. There isn't One single Magical ingredient that will guarantee the success of your company, it is certainly not money alone. The Defunct Solar Energy Panel Manufacturing Company, Solyndra has proven that point beyond any possible doubt. Political connections, abundance of funds and privileged licensing did not save it from utter failure with the first year of it existence. No matter how they tried, they could not compete with Chinese solar panels, sold on the US Market to the consumer for less that it cost Solyndra to manufacture it here, without the shipping, delivery and installation cost. No Political magic and public money could change that fact.
So if you must take on partners, ensure that besides funding they bring, production, distribution and administration know-how to complete your own set of skills.

Volume V

What's The Best Size For A Business Start Up?

Everything that grows does so from a smaller size. That smaller size, however, varies depending on the nature of the very thing that is growing. The smallest size is defined by its minimum required nucleus that will enable growth. In other words, the smallest size of anything that grows is defined by the size of the sum of the essentials elements required for it to exist and start developing. Therefore each enterprise will be of the size necessary for it to be self sufficient and growth capable. The nature of the company will determine the ideal size. The sector of industry gives an idea of general size of companies but as a general rule, a start-up company by definition should start as small as possible, how small is what needs to be analyzed on a case by case basis

No matter how much capital you dispose of, to start your company, you do not want to waste it. That would poor management and a sure sign of failure. An enterprise is supposed to use capital as fuel to ultimately produce more capital than it consumes. If not it is called a charitable organization and not a For Profit Enterprise. With that in mind, you need to assess what is the minimum your company needs to be able to function properly and deliver a profit, so it can fuel its own growth, without additional injections of capital into the company from your personal pocket of that of your partners. That will be the minimum in terms of resources, be it capital, human resources, equipment, tools, furniture, accessories and real estate.

As previously stated, each company's minimum will be different. If you are a consultant, your minimum will be yourself, and office equipment such as a computer, a telephone and your brains. That is what will enable you to prospect, meet your clients (using public transportation), open your first account, provide your intellectual service and get paid for it. As you develop your business, you will get more clients and there will be more work to be done in less time than you can physically process on your own in a regular 24 hour cycle. Then you will need to get better equipment (additional software) to improve your administrative tasks in quality and speed. This will free up some time for you to dedicate to the extra consulting work. As you grow more, you will need to hire from time to time an assistant to handle your administrative tasks (a virtual assistant comes to mind, which allows you to pay only for the work being done and only when it is needed). That will enable you to dedicate all of your time to working for your clients. ultimately you will continue to grow and you will need to hire administrative staff full time (at one point it will be cheaper to have an administrative assistant on staff than a virtual self-contractor) and even hire other consultant to share the work load. Eventually, more equipment such as company cars, better telephone systems, office equipment...etc, will be required but by then you'll be well on your way.

If your company is in the business of Buying and Selling things, you will need at least a place to store the goods and most likely a place to sell them from. Your minimum requirement in this particular case would be for you to lease a small warehouse that includes some office space, or simply a store with a back office. This will be where you will store your goods, administer your company and receive your clients, like a regular store, retail or wholesale. As you grow and acquire more goods to keep up with the pace of sales, you'll increase the size of your business premises for storage, your office space to receive more clients and house more administrative staff so you can sell more.... so you can buy more, so you can sell more... and so on.

In the case of a company that is in the business of making things, like a manufacture. You will need a place to store your materials, space to house the machinery and the staff who will make the things you sell. You'll need to store the finished product even temporarily until you either deliver to your customers or they come and pick it up. You will need an office to administer and receive the customers and suppliers. Between the investments in a larger facility, than the previous two company examples above, investment in the acquisition of the machinery and equipment for the manufacturing process, and associated logistics requirements (receptions of materials and delivery of goods), your minimum size for this company could be twice or more the size of a regular buy and sell business.

If you are in the Mining or Agricultural business, your minimum requirement, requires larger land investment, either as concessions or outright acquisition, more equipment, costlier logistics, large office staff and larger producing staff. The same applies to even the smallest of Construction business, which often requires a minimum investment in tools, materials, equipment and transportation.

The fact of the matter is that you do not wish to start your business as a "large" business. Assess what you need to produce to exceed your minimum financial requirement in terms of sales to break even, and equip yourself to meet twice that minimum requirement. This will give you time to develop your sales gradually. So by the time you need to reinvest into your company, in order to grow, you would have generated sufficient income and acquired the needed experience to increase the size of your company, just enough so you can keep a steady pace of growth, without overextending yourself.

In conclusion size only matters in terms of the least amount of the resources required to function properly to generate and deliver on the first sales. As the sales grow, the rest of the company will grow along with it.

Volume VI

When Should You Go Into Business?

We now know who and why one should leave the relative comfort of being an Employee, and venture into the scary world of Entrepreneurship. We also know what we need and with whom we should go into Business. We know what is the best size to start with, depending on the nature of the business. Another important question is when. If you've recognized yourself in the details of the portrait that are starting to appear within the lines of the Volumes I through V of this Blog Segment, then you know that part of the answer to that question is, when you have reached the ceiling of your professional progression. When working for someone else offers you no upside any longer. If you've reached that impasse, you know that if you wish to keep going up and forward is to go into business on your own. You also know that you have the skills, focus, vision and overall knowledge required to do so. However you still do not know when. Today, tomorrow, next season, next year? Is it a question of timing? If yes, timing with what? So you see, "when", is a complicated question to ask oneself, and a complicated question requires a simple answer and that in itself demands deep thought and long consideration. You need to have your capital ready and available. You must know with whom you are going to partner if necessary. You have already identified who is going to work with you, for how much and when they will be available. You have already selected all the equipment you require and know where to find it and when it can be obtained (delivery lead time). You have a clear idea of what materials you need, in what quantity and delivery frequency. You have located the premises where you need to be established, evaluated your logistics requirement and already have planned either the purchase of the transportation equipment or have an estimate and draft contract from a logistics and transport company to respond to your needs. You know what product or service you are going to provide and most importantly you know to whom you should sell. so, if you know all of this, how do you know when to start? It should be easy to now, right? As soon as possible is what comes to mind, but it doesn't really answer the question. When is as soon as possible? What is possible and what is not? The earlier you are completely ready the earlier you may start. So let's see if we can determine when that could be.

Your Capital:

Unless you have the entire sum you will need to sustain your enterprise for the first year, already deposited in a bank account somewhere, you will need to know, how much your funding partners or financial lenders can make available to you, when and under what conditions. You need to know that, so you can plan your launch and immediate development. Most Angel investors and Financial Institutions will not give you a lump sum for you to "blow" it all in a few days of euphoric spending fever. Most likely, you would have included a funding schedule in your Business Plan, detailing chronologically the various phases of your development stage and the funding requirement for each of these phases. It provides flexibility to both you and your funding associates, which allows for corrective maneuvering in your business navigation as you move along the path of early growth. Some phases may require less or more funding depending on how the market reacts to your input in it (as a consumer for your supplier and as a provider for your customers). Always keep in mind that the Market is a fluid mass of data, ever changing, always variable, influenced by uncounted factors and is thus very, very difficult to predict with detail and precision, besides a general direction of a trend, but always surprising at the local level. So stay observant, alert and prepared. That is the definition of flexibility in business. Plan for a specific course of action, but ensure that you have Plan B, C, D...all the way to Z and back. Always be ready to scratch your plans and move in a different direction at full speed without blinking. This applies to all points in business, not just your finances and capital needs. You may have a certain amount of capital you are counting on, and suddenly be faced with a sudden loss of that capital, for whatever reason (bankruptcy of the bank in which funds are deposited, dramatic loss of the value of your securities portfolio if that's where you had your funds invested, inability to sell an asset at the opportune time, because market may have turned against you (i.e.: Real Estate Asset… Etc). So ensure that you have the capital needed, have it available to you in quantity and in time as per your projections.

Your Partners:

If you have gone through all the phases described in the first 5 volumes of this series, then you have already determined whether or not you will need financial and equity partners. In the event you do need partners, you've chosen them carefully, you've selected them not only for their funding abilities, but also for their knowledge and skills, as well as for their contacts in the Industry in which you wish to evolve. If at all possible, those contacts should be on the Supply side as well as on the distribution side. If you're going to take someone's money to put into your adventure, it behooves both of you to take advantage of every asset you both have. This will further increase the chances of success of your company for both of your interests. Equity partners, who do not bring in funding, are partners because they, along with you, bring to the table, exceptional know-how, and skills. Thus, they will occupy an intrinsically valuable position within your organization. Just like your funding partners and your lending institutions would require of you, your equity partners must have "skin in the game" at least as much as you do proportionally to their equity share. Their efforts will be compensated proportionally to their share of equity when all goes well, then they should share in the losses in the same proportion, should the affairs take a negative turn. This will keep them motivated and give them the proper incentive to strive for the success of the enterprise as much as you would. A boat goes faster and smoother if everyone on board, rows in the same direction towards the same goal. On the other hand, your funding partners, even if they are "Silent" partners who do not directly participate in the day to day activity of the company, are not exempt to put in their best efforts. Most likely, those are wealthy individuals. Nobody stays wealthy out of sheer dumb luck. These partners, have a plethora of contacts both in your market as potential customers and among potential suppliers, or service providers. They may have contacts with authorities which is always advantageous to have to speed up administrative processes of permits, licensing... etc. They may have contacts among with the local, regional or even national press, which is always advantageous for Public Relations and Communication purposes. Everyone must pitch in and have its interest directly tied to the success of the Company.

Your Staff, suppliers, providers:

As a start up, you must start with only the absolute essential, the skeleton crew. This is important for many reasons. Theoretical knowledge is good but its value is compounded with actual practical experience. Each of the Staff members, including you and your partners, may have skills, knowledge and even experience in each of your allocated tasks individually, but most likely this is the first time all of you will work together. There is always a required time of adjustment for any team. Everyone must learn to work with the new unfamiliar tools, equipment, unfamiliar surroundings and unfamiliar procedures. Therefore, it is important that everyone is on the "same page". Before the company is launched, you must already have your staff selected. Everyone must be ready to step forward when the time comes. You cannot start your business with half of your necessary staff missing because of remaining prior obligations. It is better to postpone the opening of your business until you are sure that everyone needed will be on board and ready for duty, fully committed. The same goes for your suppliers of goods and materials. You must iron out the details of quantities and delivery time, prior to opening your business officially. Most of the time, financial arrangements must me made prior to that date to ensure all is ready in a timely manner. Deposits may have to be made in advance, as well as licensing, permits and whatever required authorizations are issues that may have to be resolved prior to the actual start of business. That includes, registering the corporation, retaining professional services, such as legal counsel and accounting services depending on the nature of your business. Your Enterprise may or may not produce income from the very first minute it is officially open for business, but it will start costing you from right then and every second of every day thereafter. That is the one single thing that is constant to all businesses no matter what sector of industry, market it caters to or country in which it is established. So be sure everyone is ready exactly when you need each and every one of them, whether they are your staff, your materials or goods suppliers, professional or other service providers. Business is a never ending war for survival; make sure your army is ready for battle from the very first skirmish.

Your Equipment:

Some Businesses do not require any equipment, other than what is now, common to everyone, meaning communication equipment such as Personal Computer, cell phone and very little beyond that. Most consulting businesses fall in that category. Until you have developed it to a scale where you need to hire full time staff, your equipment may be limited to what you already have and use in your private life. Most companies however require a minimum of equipment. Retail stores, need at least, cash registers, appropriate software, a location opened to the public with sufficient space to display the goods for sale and store the reserve inventory. Make sure you have the proper equipment that will allow you to do your daily tasks with the least amount of effort, time, and cost for the most amount of revenue. Verify that it is the right equipment for what you require and that it is in proper working order. This defines your business' efficiency. You must also ensure that you and every one of your staff know how to properly operate all of the equipment or at least the one each staff member is assigned to. The training of your staff on that regard comes before you open for business, before the first customer walks in, if you are in commerce or before your very first order comes in, if you are in the manufacturing sector. This goes back to the same mantra of being as prepared as you can be before the task is undertaken. There is always a certain amount of "on the job" training, but you must minimize it as much as possible by getting your crew all the prior training you can. Errors cost more than time; they may cost an order, or worse a customer. Although you can never eliminate the possibility of human error, you must reduce the eventuality to the minimum chances of occurrence.

Your Location:

There are several reasons why, where you business is located matters. The 2 most common reasons are for logistics on one hand and proximity to your market on the other. If your business caters to the public directly such as a Retail Store, then you must establish yourself where most of your customers will find you easily. The easiest place to pick is either close to where your customer base lives, or where it works. This nuance is determined by the nature of what you are offering. A baker will better serve his customers if his store is close to where they take most of their meals, which would be home. A Breakfast-Lunch Restaurant however will be better located where his customers are at the time they need his fare, meaning during their work day, so close to business and other places of work. Nevertheless, some restaurant who only open for dinner, depending on the standard of cuisine it serves may find that close to nightly entertainment centers or high end neighborhoods with mixed activities, (both residential and commercial) may be where they will see most of their customers. If you market your goods and services to a broader geographical area than just the local one or if you are a national distributor or an exporter [or both], then proximity to your client base will become irrelevant. In this case, proximity to a logistics center, such as an Airport, a Train Station or Highway may be more important. Access to qualified and skilled labor pool may be the determining factor for choosing your location if you are in the manufacturing sector, particularly if your product fabrication is labor intensive. Finally, fiscal incentives may not be a factor all by itself, but certainly a contributing factor in electing your business location. Given equal advantages between two locations, you may chose the municipality, state or even country that will be the most advantageous in terms of regulations, taxes, government attitude toward businesses. So you must have considered your business location very carefully before you decide to open your business. Your hometown may not always be the most suitable. Give it some serious thought before you open. The cost of moving your business is always much more than estimated.

Your Product/Service:

Whether you manufacture a product or are reselling it. Whether you simply provide a service, you must have tested it before you launch the business officially. As you know, nothing is ever exactly as planned. Test your skills, the materials, the tools, the finished product or the way your service is provided in a controlled environment before you do it for a "Live" costumer. Make sure that what you are providing is exactly to your satisfaction and, most importantly to the satisfaction of your eventual customer. Use a sample of population that approximates as much as possible your customer base. Do so using your family and trusted friends, if you cannot afford a professional testing program. A homemade test is better than no test at all. Everything is better on paper or in your own head than in the real world. So ensure that your vision of what you are providing is in tune with the "Real World" by testing your product and service.

Your Client/Customer:

Prior to the official opening, or launching of your business, before you start incurring all the daily expenses of the day to day operating a full blown business, study your client/customer base. Survey it directly. Visit it, communicate with it directly. Make sure you know exactly what they would expect from your product or service. What would satisfy them to such a point that they will repeat their business with you and become loyal.

Knowing your market base is important, almost as important as your customer base knowing you before you open. You may be the best manufacturer/supplier of the best product/service in the entire Universe, if no one knows you and your product exist, it is all for naught. Opening your business without communicating your existence and that of your product/service and its future availability to your customers may be one of the costliest exercises in the life of your business and may even ensure that its life is so shorten that it may never take off beyond the first installment of monthly bills. Tell your customers, who you are, what your product is, how much it is compare to your competitors and most importantly, tell them why they should buy that product and why from you and not anybody else. Do it and do it before you are officially open, you cannot afford to wait for the sales to come on their own, you must sale as much in advance as it is reasonable to do without harming your reputation by overselling sooner than you can deliver the orders.

So you see now, that choosing when to open your business is almost as important as deciding what type of business to open. Misjudging when can be so costly that your business may fail before it has a chance to live to take its first breath, being essentially aborted right when it is ready to step into its intended market. You must open your Business, whichever type of business it is, exactly when... ALL YOUR DUCKS ARE IN A ROW. Exactly when you have made sure that you and everyone and everything around you and your business is ready. Not a second before. Success in business is difficult enough as it is. You do not want to open timidly, blindly, unprepared, unassisted, and empty handed. Make sure that you hold as many cards as you can possibly hold before you enter the game and be ever alert. Business is war and war kills. Your goal is to be as agile, strong and alert as you can so you can survive the journey until you exit according to your strategy.

Volume VII

Where Should I Establish Myself?

A business should be strategically located where it would be easier for it to conduct business. That being said, there are a few things to seriously consider to determine that location. A business in general, needs to be able to produce a good or a service and deliver such to its customer base, in the speediest and most cost efficient way, therefore the choice of the business location is critical. There are several factors that influence the choice of a location over another, and those are not the same for all businesses. For the sake of this argument, I will speak of the most common factors that will influence an executive's choice for a new business location. Generally, the nature of the business plays an important role, so does the market segment being targeted. The local skilled labor pool must also be considered as well as the suppliers, professionals and subcontractors presence in that geographical area. Finally, for logistical reasons, the area's infrastructure in terms of highway, rail, airport, sea/river access for transportation must not be forgotten.

The Nature of the Business:

Service sector: For professionals, consultants and all businesses that offer a service to consumers or businesses, being able to reach that consumer is the most important aspect, since a service cannot be shipped. In this case, the main consideration is to be as centrally located as possible, within the very market you are targeting. This way, you and your staff can go to your customer to perform that service, or your customer can conveniently come to you to receive that service.
Wholesale and Retail sector: Retailers, whether we are speaking of big box stores, discount outlets or neighborhood family owned stores, must be close to their customers workplace or residential area, depending of which segment of the population they target and if their goods are affected by the time of the day (i.e.: Department stores get more affluence in the evening after 5 PM when people finish their work day and go shopping before going home. Other business cater to business people and workmen and therefore will close around 5 or 6 pm as the work day ends for everyone as well) So Department stores will be located close to residential areas, in outskirts of Large cities, to remain close to their customers as these go home. Space is more available in the suburbs as well, and property cost are usually lower than in city centers.
Manufacturing sector: Sales territories of Manufacturers are customarily very large, often regional, national or even international. Therefore being close to your customer base geographically is not as important as other factors because if you have to cover the entire globe, you can do it from basically anywhere since it will involve a complex system of logistics. However, local legislation may become an important factor in most cases of large Industrial groups, particularly when it comes to regulation and especially with regards to taxation.

Targeted Market Segment:
Not every business caters to everyone. If you are an agricultural machine or tool manufacturer, you are most likely to make a better choice in a rural area close to the large agricultural states of the Midwest rather than in the middle of Manhattan or Malibu. On the other hand if your business is a high end Designer Salon & Spa, you'd be better located in a larger metropolitan area where you are more likely to get a steady amount of business to fuel you growth.
If you cater mostly to the Elderly, you might choose to open your business in Florida, Southern Texas, New Mexico or Southern California where a rather large portion of the Retired Population elect to reside once they retire. However if your product or service is more geared toward young adults and youth in general, you may wish to set up shop in a State that has a lot of Universities, like Florida, California or New York.

Skilled Labor Pool:
Manufacturers and Craftsmen must consider the local pool of skilled labor, and do so very carefully. They should ensure after all, that there are people living in the area they are about to choose, with the skills that are required to open such business. You should not want to build a plant or a workshop, only to realize, after the fact, that the skills required to work in your business are sorely lacking from the local population's talent. In that scenario, you would either have to relocate your company or dislocate your employees from wherever it is that you are bringing them.

Suppliers, subcontractors and professional availability:
For the same reason, it is always an advantage to have all the services and goods, your business requires, as close to you as possible. It cuts down on logistical costs and facilitates communication with your suppliers and professional service providers. The added flexibility that proximity provides can sometimes make a difference in opening an important customer account, or losing one.

Infrastructure:
Last but not least, where you establish yourself must be a area easily accessible in all aspects. Not just from a freight and logistics issue, but also from a human resources point of view. Skilled labor will be more willing to come to work for you, if you are established in a town or city with a superior choice of schools, entertainment, proximity to administrative centers, highway, airports, train station...etc.

Depending on the nature of your business, the city in which you establish your enterprise, may not have any large throughways for freight forwarding. It could be to far from the closest Airport or simply have no hotel accommodation adequate to receive your clients if you need to receive them regularly. Regional Infrastructure can be a very determining factor in your final election of the location.

Volume VIII

Who Do I Need?

The Entrepreneur, whether he is the CEO of a Multinational Conglomerate or the owner of the neighborhood coffee shop, should be the only Jack of all trades. As such, he detains enough general knowledge to steer his emerging business through the danger of the business shallows during its launching phase (first 6 years). However he must surround himself with associates, partners and staffers who are at the top of their field. The members of his team must be experts in their narrow field. He, as the leader, must ensure that he gets the best out of them, guiding their skills and abilities expertly, so they all work harmoniously together, for the best of the company. The primary function of the business is to produce a widget or a service, and do so for a profit. So the Production Team must be headed by an expert. The Production team is the "Magic Machine" of the company, its pulsating heart. It needs an input system, to feed it the parts or materials it requires in order to produce the Widget or the Service, and an output system that will deliver it to the market. The Input/output is the responsibility of The Logistics Team it should be lead by an expert in logistics. Logistics is not just about transport of the goods to the customer, it is also the proper "feeding of the magic machine" with what it requires from the suppliers to enable it to produce what is to be delivered to the market. However, for the customer to select the new company's Widget or service, he needs to know that the company exists and that it produces such Widget or service. That is the purpose of The Communication Team. That is the team who ensure that the company is noticed by its market target, and so, in a positive light. It is the team responsible to tell the potential customer, that the company is now established. It must indicate what the mission statement of the company is and show what product or service it is offering to the customer. Once the Company is communicating adequately, and that the magic machine is ready to start producing and the Logistics team is ready to deliver, it is time to go out and start transforming the targeted market's consumers into existing customers. That function is the purpose of The Sales Team. That team's role is to ensure that there are orders coming in. Without those, the entire enterprise is at a standstill. Sales are the fuel that keeps the "magic machine" going. These groups are the main components of a well organized company. There are essential to the survival of the company and ultimately its success. Nevertheless, they are not enough. For all of these teams to work well, they need to work together, they need to be paid, to be trained, to be informed of the day to day happenings, they need support, they need to communicate with each other. In other words, they need a central command and control post where all that is common to all of them can be gathered and therefore made accessible to all of them. The central nervous system of the company is the purpose of the Administrative Team. Its role is to support all the others teams. The CEO is a Team all by him/herself. He is the Conductor of the Grand Orchestra that is the Enterprise.

The Production Team's task will be more or less complex, depending of which business category your enterprise belongs. If you are a service company, the logistics team will play a lesser role in the proper functioning of the Production team than if you were a manufacturer. However, the quality of the service or Product output will be largely influenced by the competence of your production team and particularly by the competence of its leader. If you are a small Mom and Pop shop, most likely, as the "CEO" you double as the Production team leader which is perfectly fine but keep in mind that accumulating two hats, does not exclude the necessity of fully performing both roles. Too many small business owners fail to keep reports and information flow from one department to another just because, the owner runs 2 or 3 departments and that He/She does not need to tell him/herself what is being done. The error comes from the nearsightedness of that methodology. If the goal is to grow the business to a point where the Head of the Company, can shed a Hat, in this case that of the Production Manager, he/she needs to detach the two distinct roles administratively, so whoever comes after, can follow on the same path and follow the establish track record and methodology. If all is "In the head of the Boss" no one will be able to alleviate the burden of the Boss. That is often why so many small business owners, risk their health by taking too much on their own shoulders for too long. The lack of properly laid out system and work process for each department, and within the department for each position, is a recipe for disaster. Should something happen to the "Boss", the company would be left like a headless chicken, flapping its wings aimlessly. The other risk is that of the Owner's chance of reaching a "Burn Out" phase. From the first day, run you company exactly the way you would like it to be run 20 years later, after it reached the size you wish it would.

If you open a restaurant, and your goal is to have a chain of restaurant according to the same theme, then run that restaurant as if it was the first of many. Start working on the duplicability of the formula from the very first day. The service method, the mission statement, the ambiance, the food served, the way it is served, the decoration and layout of the restaurant needs to be selected based on the duplicability factor. Every decision should be made with that in mind. (If I serve this dish, will it be successful in another location, will the theme be as popular in another location... etc).
If you open a manufacture, building Widgets for the consumer, as the CEO you must be the expert Widget builder, if you are not, then you must hire someone who is an expert. You cannot afford to have a production team led by someone who's knowledge and skills in the fabrication of your product, is mediocre at best. You need to have from the first day, someone who knows how to make a superior quality widget in the fastest most economical way. So pick your Production team leader carefully and once you have him, ensure that he/she remains on the top of their game by continuously providing training on better methods and new ways to improve production output, and quality of product. To do so, either hire the services of training experts in that field to come to your enterprise or send your production manager regularly to training workshop with the appropriate experts consultants in the field.

The Logistics Team Leader is usually a highly organized individual, able to multitask continuously on several levels. He leads a team that comprises, purchasing any item required by any department in the company, with the exception maybe, of office supplies, (which come under the responsibility of the Administrative team). His/her team will coordinate the reception of all the incoming goods, materials and supplies for the Production team. They also oversee the shipping of the finished product and its timely delivery to the customer. They negotiate with the Suppliers in terms of quantities, price, delivery terms, modes and conditions of payments as well as the scheduling and frequency of delivery and shipping. As a result, this is the team that must communicate with the sales team the quantities still in inventory and available for sale, what is being discontinued or about to be depleted till further notice. They must also communicate with the Administration team, so billing can be synchronized with delivery and as per the terms and conditions agreed with each customer account. It must also communicate with the inventory team, to let them know what is coming and what must be leaving, but also what has been damaged or lost and therefore no longer available for sale. They must coordinate with the various transportation companies for both the Incoming goods from the suppliers as well as the outgoing goods being delivered and billed on time. Logistics is a key element to the proper functioning of a successful company. Its leader must be an expert adviser to the CEO, a pillar on which many sections of the company lean on for the support needed for their separate tasks.

The Communications Team is the artist that paints the portrait of the company and exposes it to the public. It is also its voice. Anything the public sees or hears of the company must be approved by the Communication team at least, designed and produced directly by it at most. Without communication, the company image is left to the allegoric whims of rumor and disinformation put out by competition. If you don't put out a mission statement, if you don't tell the public who you are and what your company does and stands for, someone else will do it for you. Most likely, the image of you put out there by others will be to their advantage and not yours. The market needs will be fulfilled, if not by your company it will by the existing competition or future competition. Just as in the Universe, markets abhor a vacuum. If there is a need for a product or a service, sooner rather than later, someone will open a business to fulfill that need. If you are such a company, you will need to inform the market that you exist and that you do have the very product or service that is currently needed. Even if you do not have any competition (never assume you do not, rather assume the contrary), your market base must be informed that you exist if you wish to sell your product or your service. The Communication Team's duties go beyond, putting together and implementing a marketing and advertising campaign. Besides, the logo design, the print and other media messaging and branding, it is the voice through which the company communicates with the outside world. Every visible aspect of the company must be under the direct supervision of the Communication's team. The way the products are presented by the Sales Team, the message, the sales pitch, the color of the Buildings, the color scheme of the offices and plants, the type of cars and trucks and their colors, down to the very name of the company, the name of the products and even what the various company representatives say, to whom, when and where. All must be orchestrated by the Communications team, even what the CEO does, wears, says, goes, what he drives in public. It is very similar to what the politicians go through during the Electoral campaigning, and for good reasons. What is electoral campaigning if not a massive branding campaign of a Political figure? Politics imitate business not the other way around.

The Sales Team must be highly effective. Their responsibility is the most demanding, although the most rewarding. Their success will enable everyone else to proceed with their respective task. Consequently their failure will engender the failure of all the other teams as well. Again, Sales are the oxygen that allows the company to breathe. Without sales, there is no income to speak of, and without income, there is no budget. The entire company grinds to a halt. Sales are the most demanding and the most stressful of all the tasks. Its success depends not only on the top performance of the team members, but also of the top performance of everyone else in the company. The salesperson's sole responsibility is to convince the customer to part with his money in exchange for a product or a service the company will provide. However, the satisfaction of that very customer hinges on not only receiving the product or service, but on receiving it in a timely manner and for the expected quality/price ratio. That involves the logistics team's performance, which is responsible for delivering the product to the customer. It is also the responsibility of the production team to ensure the quality of the product or service is to the satisfaction of the customer. Nevertheless, should any team fail in their responsibility, the sales team will be suffering directly, since their remuneration is often tied directly to the ultimate satisfaction of the customer. All other teams may share in the bonus plan if things go well, but nobody gets directly penalized in their personal pocket book, if sales go down. Nobody but the sales team members, that is. An account representative is the human face of the company the costumer sees. He/she is the one to whom all the frustrations are vented if the product is not "up to par", he/she is the one who gets the direct call from the angry customer, and he bears the brunt of the assault of the frustrated client. The sales person must be the most prepared, the most informed and the most willing to get out of his comfort zone on a daily basis. Sales are the one task that is not cumulative. Each sales must be built on its own, even a repeat order must be sold somehow, or run the risk to see that order be renewed by the competitor. Customer loyalty is only valid if there is nothing out there that isn't "better". So constant training, motivating, informing must be the reality of the sales team members. It is one of the most stressful positions in the entire enterprise, short of that of the CEO. Not just Sales Management, but even the common account executive position bears an unbalance amount of performance pressure. In many companies, sales position's remuneration is solely on performance basis. Some company offer, basic Salary, but most only allow a "Draw" on commissions. This means that the Income potential of the sales person is directly tied to the sales performance. No sales = No Money in the majority of situations. This alignment of common interest between the Shareholders of the company and the sales people effectively makes them de-facto partners with the owners of the company and ensure their utmost effort in performance. Training and motivation is key. Even the most successful salesperson can use a pep talk once in a while. Most importantly, having someone who is recognized as a very successful person in that field, giving them sales tips and advice on a very pointed situation, particularly a situation that seem, at times hopeless, can be a life saver and often one of the major reason, a downward sales trend is turned around. Therefore, regular, training sessions, seminars, conventions, "Training Vacations Rewards", particularly outside of the Work Environment can be very profitable to a company. Sending your entire sales force on a cruise, or on a trip out of town, all expenses paid, is the perfect opportunity to introduce a new sales promotion, a new line, a new product or any big change. The cost of the travel and lodging is easily offset by the fact that the entire sales force is in one location at the same time, effectively reducing the cost of communication, motivation and training, particularly for a large organization. It also brings down the cost of hiring the services of Professionals Sales Trainers such as internationally renowned Andy Preston, or Tim Robbins or someone of their caliber. Even a Mom and Pop Shop, should attend events such as those. Sales is an integral part of running a business. If your company is a small 2 employee company, chances are you need to attend those training more than anyone else, since one of the hats you are wearing is that of the sales person and Sales Manager. Professionals like Andy Preston, often have seminars open to the public on a regular basis around the world. It is important that the company owner/CEO or Sales Director, have in his/her contact list a number of Professional Training Organizations, who can be called upon for information, training. This shameless plug-in for Andy Preston is simply because I have the privilege of knowing Andy personally and can personally vouch for his professionalism and for the results he produces for sales people. If your sales force is English Speaking, I highly recommend you look up what Andy can offer your company. But, that decision is yours, select Andy or some other organization that you feel best suits your sales training needs, but do not overlook that important aspect of maintaining a healthy team of Sales and Sales support. Their performance is the prelude to the performance of the company as a whole. It starts with them. Do not neglect your sales force.

The Administration Team is the one that fills in the gaps between everyone else. It is the ultimate support team. In fact Administration can be divided into 2 general sectors:

The Executive Team, which includes the CEO, oversees all the departments and keeps track of the progress of every team, monitors their work and efforts and ensures that each team receive all it needs in terms of goods, materials, information, human and capital resources. It guides the progress and leads the Team Leaders. He holds every head of department accountable for their actions and the action of their respective team members. He distributes the rewards and the punishments.
The Monitoring and support team, mostly monitors each department progress or lack thereof, evaluates its needs and processes the administrative requests and all the communication between the department themselves and between the them and the executive team. It is in charge of evaluating the performances in terms of numbers. It is the team that produces all the data reports necessary for each department to function. It is the Central Intelligence Department of the Organization. All is gathered here. How much each department costs as it functions currently, how much will it cost if a particular situation occurs or doesn't occur. All past performances are evaluated and recorded by this team. All projected performance, are likewise calculated by this team. Compliance with the law in terms of licensing, permitting, tax declaration and payment are the responsibility of this team and its Leader. It manages and monitors the income streams and the expense flows. They are the unceremonious masters of the Cash flow, so vital for any company large or small.

The Administrative Team Leader is usually the right hand of the head of the company, second only to the CEO but often on equal footing with the head of Sales and Marketing. Most of the time, the Head of administration is the CFO or the COO depending of the size and structure of the corporate organization. He must be an expert in studying the past and project the future. As an Accountant, he must analyze past financial performances and use them as a solid base to project future expectations based on the various reports and plans from each department. He is the Key Master of the Information vault of the company. Under the leadership of the CEO, he will give the vital information about each department to their respective leaders, and assist them in setting the course for the upcoming quarter, fiscal year or the next 5 years, based on the information of the past performances or existing Market data. This is the team who keeps track of the Account Receivables pertinent to the Sales team [letting them know if their customers have paid for their last purchase, if they are eligible for a particular discount or if they are barred from ordering for one reason or another]. This team also manages the Accounts Payable pertinent to the Logistics team (helping them manage their suppliers and Freight Forwarders). This support team needs support itself and most often outsources auditing duties to external company as may be required by law for fiscal purposes depending on the State, or Country in which your Company is registered.

In a S.M.E (Small or Medium Enterprise) the Administrative team is reduced to simple bookkeeping and secretarial tasks for lack of resources and the CEO doubles as CFO and/or COO. The need for an outside firm's auditing and accounting services is then even more relevant and highly recommended. It is important that you choose a firm with which you will be comfortable and build a relationship. It takes time for any team to really get to know your way of doing things, your philosophy and where you wish to take your company. Your Accountant, can guide you and help you take it there, while avoiding dangerous and costly financial "Pot holes" on the road. Choose carefully, choose wisely, choose a firm with experience in your field of business and knowledgeable of the laws of the various lands in which you actively do business. I can personally only recommend a few, here, in the US. One of these accounting firm is that of Joseph L Rosenberg CPA. I know Joe personally but I urge you to do your own research. Do your own due diligence and select your Accounting firm carefully.

Starting up a business, large or small is one of the most challenging tasks. Give yourself all the chances you can and for all your skills and knowledge, they'll always be only one of you. So surround yourself with the best experts available to assist you, either as employees, partners, shareholders or outside consultants. Don't settle for the 2nd or 3rd best, go for the top of the line your resources can afford you. You need Experts in your board of advisers. You should be the only Jack of All Trades :)

Volume IX

How Much Do I Need?

Here's a subject everyone thinks is a "No-brainer", but is it? That question is more complex that it seems at first thought. Starting a business engenders an investment that encompasses all expenses from the very beginning. The question is: When does it begin? When does the budding Entrepreneur start incurring costs related to the business? There are a few things to take into consideration, like the cost of research and planning your business, the cost to physically establish your business and the cost of launching it. Last but not least, the cost of operating your business on a daily basis. All of these have to be tallied in order to determine how much capital a new business entrepreneur would need to have readily available one way or another.

As soon as you start to seriously consider opening your business, you will need to research your opportunity and start planning by studying the various options available to you. The very first consideration is the market study for your business proposition. The serious entrepreneur will rely on factual information collected from empirical data. Assumptions based on theory lead to misinterpretations which lead to miscalculation and eventually failure to launch at best or bankruptcy in the Launching Phase (first 6 years) at worse. Even if you have the time and the knowledge to do the research and put together the study, you will most likely have to purchase data from various organizations to assist you in that task. Most chamber of Commerce and professional organization offer, for a modicum of a sum, Data collected on a particular sector for a particular market. Those sources bring gravitas to your research as most funding groups, lending institution or equity investors, would require that you provide a reliable source for the data you are using for your projections in your business plan. You will also need to hire the professional services of an accountant or a consulting firm to put together your business plan according to your directives and your business objective. This point is particularly important if you seek funding from a Lending Institution or equity investors. The neutral element of a third party putting together your business plan adds objectivity and therefore additional weight to your proposal. These expenses sum up The Cost of Research and Planning of your future enterprise.

Depending of the nature of your business, the cost of establishment will vary. However, no business will be without a cost. This cost is essentially summed up by tallied the expenses that are valid only that very first year. Some examples of that are the purchase of equipment, the deposits paid for utilities, the cost of operating licenses and permits. Add to that the cost of furniture, fixtures and supplies but do not forget the cost of initial marketing and communication to announce the grand opening or launch of the company. Often forgotten is the cost hiring and training your employees. It generally takes 6 to `12 months before you actually get your team selected and trained sufficiently so the business can operate somewhat smoothly and everyone to be comfortable in their respective role. Those expenses are not repeated on a month to month or year to year basis, so will not be reproduced in the subsequent years. Nevertheless, those are generally bulky expenses and absolutely necessary to the creation of your enterprise. This will allow you to know exactly and in detail what it will cost to physically establish your business.

What remains, is the cost to operate your business on a day to day basis. It is of the utmost importance you know that figure. That is the only way for you to evaluate whether or not your business is productive enough to sustain itself. You need to know how much it costs to keep that door open. Knowing that, you must know what is your profit margin from your gross sales. With that information, you will know what your minimum sales threshold is to keep your doors open. You can break it down on a daily, weekly, monthly or quarterly basis, whichever is more adequate to the nature of your business. That cost must include, the fixed expenses, such as rent, mortgage, interest payments on debt, any regularly scheduled payment that do not change based on your business volume. Add to that the variable expenses, such as Payroll and payroll expenses, taxes, fees, suppliers, transportation and all other expenses necessary to your business and that are not fixed or are set by the volume of business your enterprise produces.

NOTA BENE:
One important point, I would like to stress is that of payroll for the owners/managers and their working family members. Very often, in small and mid size business, the owners and their working family members occupy one or even multiple positions in the company and do not take a salary for themselves. That is perfectly fine and understandable; one needs to save as much capital as possible to give the company all the chances of survival, particularly in the Launching Phase. It is however the largest mistake they could make. All positions merit a salary. No one works for free. To ignore that cost is to falsify ultimately the balance sheet at the end of the fiscal exercise. The net profit will not be what it should be had each position collected it due salary. That net profit could even transform into a net loss if the proper accounting is done. If the objective is to grow the business, these positions will eventually be filled by someone other that a family member or the owner. When that occurs, the proper salary for that position will have to be computed in the final accounting. So it is important to plan for those salaries even if they are not collected right away. The non collected salaries can be saved in an "Unpaid Salaries" expense account in the accounting journal until such a point where there are funds to pay those salaries, either to the family members or owner who have been performing those tasks or to their successors in those positions. To add those unpaid salaries to the net profit, is not only foolish, since the company will pay taxes on that "false profit" but more importantly, it gives a false picture of the state of the company at the end of the year. It gives a healthier look to the accounts based on fundamentally erroneous data. It is better to plan for the lowest wage for the position in your preliminary budget and then, if need be, increase those wages as the performance of the position holder and the health of the company warrants it. Plan for success and for growth. Decline and failure need no planning or help; they are always just one step behind a major misstep.

With that in mind, you must compute your operating cost for the entire year, add to that your establishing cost, and to that, the cost of research and planning. That will give you an exact figure, the one you need to know before you go to the bank to set it aside from your savings, or borrow from a lending institution or request from your equity partners.

In conclusion:

Research and Planning Cost + Physical Establishment Cost + 1 year of operating cost

= EXACTLY HOW MUCH YOU NEED TO START YOUR BUSINESS

Volume X

What Should Be The Yearly Objective?

People who have never owned a business, who have never been financially responsible for a business personally, always have a rosy and romantic opinion of what the yearly objective of any business should be. Is that surprising? There is only one objective for a business, how that objective is attained differs according to the philosophy of the top executive and its board of directors or the owner of the company, if it's an S.M.E. In order to stay in existence, a company requires certain essentials. Without those, there isn't much left to be called a business of any kind. No matter what is the type of corporation, the objective remains the same. Yes, even a "Not-for-profit" corporation, a charitable organization or a foundation. The objective is the same: Stay in Business. For that to happen, all businesses need one thing at the end of the year, after all is said and done, after they have paid everything and everyone, they still need to have sufficient funds left at the end of the year beyond the "breakeven point". They need to start the new year in the black.

In this series on "Starting a business" we have covered the essentials required for a successful launch and development of a business in general terms. Those essentials are true and valid for all types of businesses of all sizes. Let's recap the main essentials covered:

A good or service responding to a need in a given market. Make sure the need is not just yours or that of your friends. This is not the time to preach to the choir. If you are going to take a chance in business, make sure that what you are bringing to the market, people are actually willing to trade money for it. Your friends and Family do NOT constitute a Niche Market. Use them to test your product or service and get feedback but you must do your homework and research your market. If there is no market study or ready available Data, compile it yourself or hire a professional to do so for you. But you need to gather the Intelligence so you can elaborate your strategy and plan your business.
A Team of experts to support your business. You must ensure that you are not the only one who understands what needs to be done. That would lead to disaster as you will have to be running every position yourself. Each pair of hands needs an independent, knowledgeable brain to direct them. You cannot be the only brain in your organization trying to direct every pair of hands. So make sure that you are delegating properly to a team leader that is an expert in his/her field and give them skilled people for them to lead.
A sales Team to keep the business running. As we already covered in the previous volumes, without sales there are no funds, therefore no budget and consequently no business. Even if you are a single individual, like a consultant, with no employees, no boss, just little old you and your expertise. Even if you are so good and famous, you still need to sell yourself, your brand, your knowledge. Neglect that point and you will not stay in business beyond the next Brainiest in your field with more flair who comes to eat in your manger. You must be loyal to your clients, but they don't have to be loyal to you, unless you give them a reason to be and... Keep reminding them of that reason. Just assume that your clients are afflicted with permanent Attention Deficit Disorder so you must constantly attract their attention so they don't forget you.
The proper Location for your business. For most businesses, not just real estate and hospitality, the 3 "L" are of the utmost importance: Location, Location, and Location. We covered that in Volume VII.
Funds at the end of the Year to keep going: Last and not least, whatever your business is, it takes money to pay for everything you buy, the taxes you owe, the people who work for you and yourself. That is the required minimum. After all is said and done, at the end of the year, your company must have generated enough margin to cover all of the expenses, and to set aside enough for unexpected future expenses, re-investment and development (each type of business uses a different coefficient to compute how much, but on average plan for 10% of your gross sales as your total rainy day fund should be a minimum). Those funds must be segregated, like a rainy day fund. But the total amount of all I just describe is the bare minimum. One penny less that that total and you are in the red. Maybe not technically, because you can always dig in the "Rainy Day fund" but you will be sooner or later. These funds constitute your operation budget. They will be required year in and year out, just to operate.

As I said earlier, politicians and mostly people who have never had to dip in their own pockets to cover the expenses of a business who is going through a rough economic time, do not understand this and will not understand until they open a business themselves. If and when they do, either of two things will happen. Their Romantic view of the business objective will change, or... they will go out of business sooner rather than later.

Business Objective is not to be confused with the Mission Statement of a company, nor its Philosophy of Operation. It is simply a mathematical and financial objective. For a business to survive from one year to another, it must generate enough funds to sustain itself, even a charitable organization or a "Not-For-Profit" corporation. If the business stops paying its employees it will have no one working and producing what is needed to be sold. Even if the entire staff is made of volunteers, and the goods are donated, there are still expenses that must be paid, therefore funds are needed. In a Charitable organization, the Sales Team doesn't sale a product, but works to raise the funds from benefactors. The work is the same, sell the idea that this organization and its objective and mission is worthy of the benefactors donation. It must raise more than it needs for a given year if it wishes to grow.

Just as any living thing, and in a very real sense a corporation is a living entity, albeit not an organic one, it needs to grow. It starts small and grows. When growth stops, decline begins. There is no such a thing as a stagnating business. If the growth curve is flat, someone is eating away at its market shares and sooner or later, if nothing is done, the changes of the market will make the growth curve a decline curve. Change is the only constant in Business, stagnation is a indicator of inability to adapt to change, and if that occurs, there is only one way to go: Down and eventually out. No matter how many centuries you have been in business. The day you stop growing is the day you start declining.

The difference between a For Profit Corporation and a Not For Profit Corporation is the distribution of that profit. It is NOT the absence of a profit. The former distributes its profits to its shareholders (owners) as a dividend on a prorated basis to the number of shares of the company they own. The latter reinvests 100% of that profit back into the company so it can grow and do more of whatever it is the company does.

The objective is not to create jobs, or to do away with jobs, it is not to provide income for its employees or benefits packages to them. The objective is not even to provide a good or a service to fulfill a need of the community. NO. None of that are the objectives; they are the means to that objective. The only objective of any company is to make a Net Profit. THAT'S ALL!!! Yes, even if it is a single penny. Yes, everything else is a means to that objective, not the end. If a Company made even One Single Red Penny as a Net Profit, it is not in the Black. That means, it paid all its employees, including benefits and bonuses. It means it paid all its taxes, all its Interests and all its suppliers. It paid its rent and its utilities bills. It even paid for the Salary of the owners if they take one. After paying all of that, if there is still one penny left over, then the company made a net Profit. That profit can be reapplied to the company if it is a non-profit corporation or a foundation or charitable organization, or it can be passed on to the shareholders.

Without a net profit at the end of the Fiscal Exercise, the company will not be able to own up to its obligations. It goes without saying that a company who has a philosophy of caring for its employees and community is preferable to one who will cut and slash anything and anyone in the name of the almighty dollar. But it is also not just for philanthropic reasons a company must be a good company to work for and a great company for the community, it has its business advantage. Happy Employees spread the word of mouth about the company they work for in a good and positive way. They also take pride in what they do and generally believe in the product and service they bring to market. That pride and confidence radiates from the employees to people around them and in today's Mega-Social-Media world, it spreads at lightning speed. It is the best form of advertising. If the community benefits from the actions of the company on a social and philanthropic level, the goodwill this generates in terms of positive image and public relations translates into real dollars. The old myth of the mighty and Evil Industrial Barons who care nothing for anything or anyone but the net profit they make is just a myth in the feverish mind of populists left over from the Ye-ye era of the 60's who speak out of ignorance regurgitating facts gleaned from public records and spreadsheets they do not understand and never will. For every Evil Imperialistic Industrial Conglomerate who wish to dominate the world there are hundreds of thousands of small and medium enterprises who just want to grow and survive, making a modest profit by bringing to their community a needed product or service.

Entrepreneurial Warfare for the Independent Mind

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Monday, November 12, 2012

What Aspiring Business Starters Should Know

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