Is Starting a Business Right for You?
Starting a business can lead to personal and financial freedom. That said, starting a business can have some risk. Therefore, a lot of thought must go into the planning process and there may be some sacrifice initially. Some questions to consider:
- How does starting a business align with your life goals?
- How certain are you of your products’ financial viability?
- How would your quality of life change?
- How much of your time are you willing to give to your business as it will be all consuming in the initial years?
- What are the tradeoffs of having a business versus your current life?
- Can you survive without a paycheck for three to nine months while funding is secured or if your business crashes?
- Could you have something in between a startup and working for a business?
- Do you like continuous change?
What is the difference between a small business and a startup? For our purposes a small business is less than 20 people and is independently owned. A company expanding more than 10% in a year is considered fast growing. Your business could be considered as personal income substitution or wealth building. If you simply don’t want to work for someone else it can be a fairly straight forward to substitute income with something as simple as a lawn mowing business. These types of services are limited to the income you generate as a sole proprietor and could range from consultancy to family business. That said, if your small business does not have a high growth objective and is not team oriented then it will likely not become the wealth building vehicle that you may hope it to be.
If you goal is to start a life style venture where autonomy and independence are the main driving factors then you may not want the aggravation of trying to grow fast. Keeping a business small and highly profitable can also be a good alternative where you may not want to relinquish equity and ownership control. Finally, high growth ventures that lead to national and sometimes international reach will require significant external funding and will need to seek to maximize the market value that the company can provide.
Your Role as a Founder
Initially as a founder you will have to do everything from creating strategy to emptying the trash until you have the financial resources to bring on a staff. You also must take on the legal responsibilities of incorporating and licensing a business from insurance, taxes, rents, utilities, bank accounts, letterhead, etc.
At a high level you will need to figure out the following things:
- Create a team to help you along the way
- Define your target market
- Create your product/s
- Create a plan
- Get money
Because this is your venture you will likely start as the president and CEO. However, you’ll need some people to help you:
- Board of Directors – within the board is a chairman who is the highest ranking officer in the company. Sometimes this position can be honorary.
- Chief Executive Officer (CEO) – principle executive responsible for all activities of the company. Usually in most startups the founder is both president and CEO.
- President – After chairman of the board the president is the highest ranking officer and can be appointed by the board of directors. In smaller companies this is usually the CEO.
- Chief Operating Officer (COO) – In larger companies the CEO is usually the chairman of the board so that makes the president or executive vice president the COO who is responsible for the personnel and administration on a daily basis. The COO reports to the CEO.
- Chief Technology Officer (CTO) – This position is responsible for the company’s technology.
- VP of Engineering and Development – This position is responsible for ensuring that the product meets market demand and continues to stay on the edge of innovation.
Success and Failure
Most people fail because they don’t start. Realistically, 10-30% of startups look for venture funding and actually get it and one venture firm will fund a very small percentage of the businesses out there. That said, if you are able to get funded and become successful it is statistically likely that you will earn $6.5 M within 5 years. That said, completely failing in a business is a lot harder than you think once you’ve started getting revenue as very few are liquidated or go bankrupt.
Work Life Balance
Initially you will be totally involved with your startup venture every hour of the day. Small business owners will find it difficult to take time off due to the pressure and fear that customers will disappear as they will be reluctant to let someone else step in to help out as they will convince themselves that they are indispensable. That said, while sometimes the internal and external pressure may prevent taking time away from work is a must have as burnout will lead to failure.
Market Versus Technology
Focus on delivering benefit to the market which is not the same as selling technology. You can’t just focus on technology but instead focus on understanding your market which is essential to any successful startup.
You must understand if you are entering into a new or existing market with a new product or existing product. The safest place to be is a new product in an existing market as you can leverage a new capability to meet a demand that already exists. While an existing product and existing market place can work you will likely not be in a very profitable situation. Bring an existing product to a new market can be a good opportunity but your focus must be on marketing. New product and new market have the highest risk but the highest reward.
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