Honesty, imagination, perseverance crucial in starting a business

ARE YOU TYCOON MATERIAL?

June 15, 1992|By Gus Carlson | Gus Carlson,Knight-Ridder News Service

So you want to start your own business. Take some advice: Don't.

If you're still reading, you've passed the first crucial test of a would-be entrepreneur -- never let naysayers get you down. The road to owning a business is littered with enough other hurdles.

Among them: fierce competition. The recession and layoffs have put hundreds of thousands of people out of work; many are thinking of starting businesses. And because the white-collar ranks of corporations were hit hard, the new breed of entrepreneur is well-educated, highly qualified and experienced.

The result, economists say, will be small companies that have savvy management, traditionally one of the small business sector's great weaknesses. Mom-and-pop operations, accustomed to getting business through word-of-mouth and handshakes, will square off against newcomers familiar with aggressive marketing, advertising and merchandising techniques.

The Small Business Administration says that 55 percent of all small businesses fail within five years. Poor management is the big killer, said Carla Schworer, business development specialist at the SBA's South Florida district office in Miami.

"I've seen companies that look great on paper that haven't worked because the management ability just wasn't there," Ms. Schworer said.

Recession also has some advantages for new businesses, said John Gabel, a Fort Lauderdale, Fla.-based economist. In many ++ areas, vacancy rates are high for retail and office space.

Studies show the credit crunch, for small business investment anyway, may be exaggerated. A survey by the National Association for the Self Employed showed that the availability of venture capital and loan money was about the same in 1991 as it was in 1990.

Advances in technology favor small business. Fax machines, portable telephones, and sophisticated telecommunications networks allow a one-person operation to tap national and international markets that once were beyond its reach and budget.

If you're still interested, then here's what the experts say you need to know to get up and running. But remember this: In the world of business -- big or small -- there are no guarantees.

Not everyone is cut out to own a business. The SBA's Ms. Schworer suggests that the first step for any would-be business owner is to evaluate your own personality. Being an entrepreneur requires drive, perseverance, resourcefulness and creativity. If you're used to working in a large company, you might not have had the opportunity to develop those qualities or they may have been repressed in the corporate culture.

Money, she said, should not be the main factor in wanting to own and operate a business. In fact, Ms. Schworer said, new businesses run by owners who expect to make barrels of money in the early going are more likely to fail than those whose owners have more modest expectations.

If your self-evaluation reveals too many shortcomings, don't despair. Ms. Schworer suggests buying a franchise operation or buying a business with systems in place.

Before embarking on your new venture, evaluate your skills in three areas: marketing, technical, and financial. Be brutally honest. The purpose is to expose your weaknesses and areas that need improvement. Shortcomings can be overcome easily through study or outside consulting help. Unfortunately, Ms. Schworer said, many business owners don't take a hard enough look before they start.

She suggests going overboard with questions: What is your product or service? What makes it different? Who else sells it, where and for how much? Who are your potential customers -- their age, income level, spending patterns? How much will they buy and what will they pay? Why will they buy it? How will they find out about it?

If those questions sound like common sense, they are. But, Ms. Schworer said, a surprisingly large number of businesses start -- and end -- without thoroughly understanding their market. It is a major cause of small business failure, she said.

Not surprisingly, there is a direct correlation between the amount of planning a new business does and its chances for success, Ms. Schworer said. A business plan is essential.

"It's supposed to be your road map," she said. "It should tell you if the business is going to be profitable and when."

A plan should include these basics: market characteristics, operations, financial details, management personnel, start-up and operating costs and cash flow projections. Don't take shortcuts. Don't wish the numbers higher. Be prepared for negative cash-flow. Set up cushions and safeguards. Ideally, you should do all the legwork yourself.

"Don't just buy a plan," said Ray Kengott, vice president and manager of First Union's business banking unit in Fort Lauderdale. "You really have to believe it. I'd rather see something the person wrote out themselves, even if it's longhand."

If you're smart, you'll assemble two teams: your own management and a group of outside consultants. Members of your management team should be different from you -- they should have skills you don't have -- but should be willing to buy into your vision. An owner should feel confident delegating to them duties that they can do better than he or she can.

On the outside, you will need some professional advice, on things such as taxes, record keeping, banking and any legal contracts you require. Ms. Schworer suggests looking to professional firms that are small, and more likely to work hard for you than some bigger ones.

With everything in place, it's time to take your idea to market. Ms. Schworer's advice: "Be different, be creative and have fun. You've got to distinguish yourself in the market. You've got to have a little dare."

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