Recently a writer for a national magazine (that’s not about business) interviewed me for a story he was working on about starting a small business. As such interviews usually end up getting whittled down to a sentence quote from me, I thought I’d post the long version of what I said, as it captures several thoughts I have on that topic — yet it’s a topic I historically have not written about much on this blog, as I write about it elsewhere.
What are some of the reasons I might want to hold off on starting my small business right now?
There’s always an endless list of reasons for not starting a small business — in good economic times, as well as bad. That said, I think starting a small business that is capital intensive is especially difficult these days if you need to finance it through a bank loan. You’d better have a proven track-record in the business you are trying to finance if that’s the case. Despite what banks say in their TV ads about supporting small businesses, they require more personal guarantees, financial collateral than I’ve seen in my nearly 30 years of owning small businesses. Even if the SBA backs your bank loan, the bank and the SBA will require personal guarantees and a long list of requirements.
What are some of the reasons I might want to move ahead with my small business idea, bad economy or not?
If your business requires little or no capital — just your time as a consultant or contractor or free-lancer, adversity is often the motivation that forces individuals to pursue a small business idea they’ve long considered, but put off. Indeed, lots of established small businesses have had to find new ways of making money during the past few years.
I have a sense that many companies are in that post-recessionary period when historically, they focus more on utilizing contracted services to fill in gaps, rather than hiring — somthing that is making the employment picture look so bad. However, much of that contracted service work is going to people who used to be employees, but are now, in effect, small business or self-employed individuals. Many free-lancers, independent sales reps, consultants and contracted laborers are so busy, they have no desire to return to the 9-5 world.
What are some of the challenges I can expect to face that are unique to starting a business in a bad economy?
If you want to be self-employed or, what the government calls, “nonemployer businesses,” then you only need one thing to start a business: enough customers or clients that generate more revenue each month than the expenses required to fulfill what it is those customers and clients are paying you for. The better you deliver on what they’re paying you for, the more solid a business you’ll have — in good times and bad.
Likewise, if you start a small business with only a concept, and no paying customers, you can expect every day to be filled with bigger challenges than you’ve ever faced in business.
How can I overcome those challenges?
Study up on what is being called these days, a “lean startup” (from the book, The Lean Startup, by Eric Ries). If refers to an idea from the software development world that, rather than creating something with all the bells and whistles, start with the “minimum viable” version of something that you can sell. And that word, “sell” is critical. Starting with that approach, you can get to market quickly and constantly adjust to what you discover will actually sell, not what you imagine will sell.
Another thing I’ve discovered over the years of hosting the wiki SmallBusiness.com is how there are multiple organizations in every city and village in the U.S. that are all dedicated to providing help and support to small businesses. Community colleges, SBA-supported groups like SCORE and local Chamber of Commerce programs are just some of the groups. (We have a list of such groups in a state-by-state directory on SmallBusiness.com.)
Using those services, and engaging in the networks of small business owners that may be a part of them, can also help you face such challenges.
What are some of the ingredients to ensuring that my business will survive and, in the longer-term, thrive?
The smaller a business is, the more it has to compete on the basis of quality and service. Trying to compete in an arena where price is the only factor in purchasing decisions is a train wreck waiting to happen. If you can help a customer or client be better at something they want to be better at, you’ve cracked the formula on long-term success.
What is the overall outlook for small businesses in 2012? Are there any industries that are in such a slump that I’d be unwise to start a business in that particular sector?
I’m not an economist or forecaster, but that never stops me from pretending to be one. Despite a sense that there is “one” U.S. economy, the reality is that geography and industry vertical and economic diversity mean that opportunities are not evenly distributed. That said, if you are an expert in some business niche or have a passion for an activity and you can demonstrate the ability to turn that expertise or passion into revenue and profit, then it doesn’t really matter where you live or what industry you’re in.
[Photo credit: Jewish Historical Society of the Upper Midwest, via: What is the Annual Median Revenue of a U.S. Small Business?