Startups - 4imprint Learning Centerinfo.4imprint.com/wp-content/uploads/1P-13-0715-Startups...believe is the next best product, hanging your own shingle may be the way to go. Yet,

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A how-to guide for start ing your own business

Starting your own business can be one of the most exhilarating life experiences.

It also can be the scariest. When you are good at something or have what you

believe is the next best product, hanging your own shingle may be the way to go.

Yet, along with it comes a bit of fear about making it on your own.

Those fears are not unfounded. The truth is, nine out of 10 startups fail.1

There are many reasons a new business may not stick around for the long haul.

Competition may play a big role—more than 50 percent of restaurants and retail

stores, as well as those in direct sales and consulting, do not make it to their

five-year anniversary.2

What can you learn from the 10 percent of businesses that do make it? It

turns out that successful businesses have many similar characteristics, from the

personality of its owner(s) to the business practices that are carried out day to day.

This Blue Paper® will outline the character traits needed to succeed as a business

owner and what you must take into consideration—including the marketability

of your product—before you even dip your toe into entrepreneurial waters. It

will provide tips on developing a budget and raising the required funds to get

your startup off the ground. It will describe the considerations of starting a

business while still employed at your full-time job. Finally, it will assist you in

finding resources both online and in your community that will guide you when

you need help.

Before you begin: are you cut out to own a business?

According to the Ewing Marion Kauffman Foundation, 476,000 U.S. businesses

were started every month in 2013.3 That may sound like a lot, but in reality,

very few people start businesses. In fact, that monthly total translates to 280 in

100,000 people, or .28 percent.

1 Patel, Neil. “90% Of Startups Fail: Here’s What You Need To Know About The 10%.” Forbes. Forbes Magazine, 16 Jan. 2015. Web. 04 May 2015. <http://www.forbes.com/sites/neilpatel/2015/01/16/90-of-startups-will-fail-heres-what-you-need-to-know-about-the-10/>.

2 Shuteyev, Paul. “StartUp Business FAIL/WIN Statistics.” Email Marketing Blog Atompark Software StartUp Business FAILWIN Statistics Comments. Mass Mail Software, 15 Apr. 2013. Web. 04 May 2015. <http://www.massmailsoftware.com/blog/startup-business-failwin-statistics/>.

3 “Ewing Marion Kauffman Foundation.” Kauffman Index of Entrepreneurial Activity. Ewing Marion Kauffman Foundation, 8 Apr. 2014. Web. 04 May 2015. <http://www.kauffman.org/what-we-do/research/kauffman-index-of-entrepreneurial-activity>.


It takes a specific type of individual to take such a big leap in life. Typical

assumptions about entrepreneurs are that they have Type A personalities, earned

high grades in college, and likely came from corporate management and are

now looking to make big money. Those assumptions don’t fit many of today’s

entrepreneurs. Some are introverts. Nearly one-third never even went to college.4

Most are not in it for the money—rather, they have a passion for what they do

and can visualize how their product or service can make a difference.

Overall, however, entrepreneurs share common personality traits. The list of

descriptors for successful entrepreneurs can get long, but Joe Robinson of

Entrepreneur magazine boiled the list down to seven in a January 2014 article:5

Figure 1: “The 7 Traits of Successful Entrepreneurs,” by Joe Robinson.6

Essentially, Robinson said entrepreneurs have to adapt when markets change and

must handle uncertainty and possibly failure—from small weekly mishaps to the

possibility that the business may not exist someday. They must also be visionary.

Entrepreneurs are the people who see opportunity and not only grasp it, but also

communicate their vision to family, investors, customers and staff.

It’s not just any communication, but persuasive communication that will allow

others to see what you see, according to the U.S. Small Business Administration

(SBA). Persuasiveness, or the ability to sway others’ opinions, is just one of the

traits the SBA says an entrepreneur needs.7 Another is negotiation. Negotiation

4 Ibid5 Robinson, Joe. “The 7 Traits of Successful Entrepreneurs.” Entrepreneur. N.p., 10 Jan. 2014. Web. 04 May 2015.

<http://www.entrepreneur.com/article/230350>.6 Robinson, Joe. “The 7 Traits of Successful Entrepreneurs.” Entrepreneur. N.p., 10 Jan. 2014. Web. 04 May 2015.

<http://www.entrepreneur.com/article/230350>.7 “Is Entrepreneurship For You?” U.S. Small Business Administration, n.d. Web. <https://www.sba.gov/content/

entrepreneurship-you>.


skills are needed for a variety of reasons—from signing a lease on an office space

to agreeing to a rate you will charge for your services. The art of negotiation

keeps business costs as low as possible so funds are available when needed most.

Finally, it’s true that plenty of introverts are successful business owners. However,

those who are more reserved than others still must have a solid set of networking

skills.8 These skills are valuable when pitching a business idea to potential

investors (more on that later) or when inspiring prospective team members who

must agree to follow along on this unchartered journey.

Do you have the r ight product?

Once you’ve determined that you have the skills and characteristics needed to

start a business, the next consideration must be your product or service. First

and foremost, your product must be right for the market in which you are

trying to sell.

“If the dogs don’t like the dog food it’s bad dog food,” says Paul B. Brown in a

Forbes® commentary.9

In other words, you only know whether the dog likes the product when it’s

feeding time, and at that point you can’t force it to eat. Likewise, you can’t make

your customer like your product, no matter how much you believe in it. Just as

dogs may be picky about their food, customers are picky about the products they

buy. And putting more money into marketing the product or discounting its price

won’t heighten customers’ desire for the product.

According to a survey of failed startups, 42 percent of those entrepreneurs said

“lack of a market need for their product” caused them to close their doors.10

Steve Tobak, a manager partner with the Silicon Valley-based Invisor Consulting,

says new products or services have to solve a problem. Along with that, they need

to offer a better solution than others are providing.11

8 Prive, Tanya. “Top 11 Reasons Startups Succeed.” Forbes. Forbes Magazine, 29 Mar. 2013. Web. 04 May 2015. <http://www.forbes.com/sites/tanyaprive/2013/03/29/top-11-reasons-startups-succeed/>.

9 Brown, Paul B. “23 Things Every Entrepreneur Must Know.” Forbes. Forbes Magazine, 22 Sept. 2013. Web. 04 May 2015. <http://www.forbes.com/sites/actiontrumpseverything/2013/09/22/23-things-every-entrepreneur-must-know-2/>.


11 Tobak, Steve. “9 Reasons Why Most Startups Fail.” Entrepreneur. N.p., 31 Jan. 2014. Web. 05 May 2015. <http://www.entrepreneur.com/article/231129>.


It may take several tries to get the right product into the market you wish to serve. Here is what you should consider as you hypothesize and test the market:12

• Don’t judge your product on a handful of early adopters. You may have early success with a few people. However, if you find that it’s difficult to attract more customers or that you are spending more on acquiring customers than you are charging, you may need to retool your product or service.

• Along with that, decide in advance how long you are willing to wait to achieve success. When that timeframe arrives, take the lessons you’ve learned and rework the product.

• Would you or a family member use your product? If family members would not use it or don’t understand its value, you may not be communicating clearly or you are not solving a problem.

I s there a plan in place?

Benjamin Franklin once said, “If you fail to plan, you plan to fail.” That’s true for startups. A great number of startups go out of business because their owners did not develop or follow a business plan.

Chris Baskerville, a Forbes contributor who has experienced personal business insolvencies, said a business plan should look much like a family vacation plan:13

Figure 2: A business plan is much like a family vacation plan.14

12 Cachette, Ellie. “5 Tips for Getting to Product-Market Fit.” Inc.com. N.p., n.d. Web. 05 May 2015. <http://www.inc.com/ellie-cachette/springboard-five-tips-for-finding-product-market-fit.html>.

13 Baskerville, Chris. “The Top 5 Reasons Startups Fail.” Forbes. Forbes Magazine, 6 Mar. 2015. Web. 06 May 2015. <http://www.forbes.com/sites/quora/2015/03/06/the-top-5-reasons-startups-fail/>.

14 Ibid


Unfortunately, startup entrepreneurs often stop planning after the concept

stage, Baskerville says. He suggests the business plan help answer the

following questions:

• Why are you in business?

• What need are you satisfying?

• Why has it not been done before?

• Why can you deliver a better result than your competition?

• How will you obtain your “first mover advantage?”

Quite often, investors who are considering putting funds toward a startup will

require a business plan. Keep these points in mind when writing for investors:15

1. Keep it brief. Entrepreneurs are passionate, often wanting to expound

on their business dreams. Instead, the business plan should be succinct,

providing a clear pathway toward success and how you plan to get there.

2. Yet, be thorough. Entrepreneurs must show that they have thought of

every detail. In addition to describing the basics of the product and its

market, a plan should include how you are going to produce the product,

a description of the team (even if it’s a team of one) and projected profits.

3. Be unique. Numerous business plan templates are available online, but

don’t let a cookie-cutter approach keep you from showing the uniqueness

of your business. Think of your business plan as a resume and write it for

the audience. Intrigue investors and make them want to “hire” you.

Budget ing and f inances: Love the numbers

The final step of your business plan is projecting financials—income and

expenses.16 By writing your business plan, you should know the available

opportunities, your customer, the price of your product and your competition.

These will all help develop a financial forecast.

It’s easy for new entrepreneurs to love their idea or product so much they think

the numbers will follow. Don’t let that happen to you—instead, love the numbers.

Forecasting a budget will take time, but it’s time well spent.

15 Hockenson, Lauren. “3 Elements of a Successful Startup Business Plan.” Mashable. N.p., 15 Apr. 2013. Web. 06 May 2015. <http://mashable.com/2013/04/15/business-plan-elements/>.

16 Zwilling, Marty. “5 Rules of Thumb for Startup Financial Projections.” The Huffington Post. TheHuffingtonPost.com, 28 July 2013. Web. 06 May 2015.


Startup costs are defined as the costs incurred before the business realizes any

income.17 It is sometimes difficult to estimate how much money you will need to

launch a startup. The SBA says some entrepreneurs need as little as $3,000 to start

a business, while many businesses need $30,000 or more to get off the ground.18

Startup costs may include:

• Market research

• Costs in locating and securing an office

• Advertising/marketing

• Staff training

• Wages

• Professional consultant fees to lawyers and accountants

• Capital expenditures like inventory or vehicles

Be careful not to underestimate expenses. To be safe, you should:19

• Double initial estimates for marketing, as they generally are higher than

new business owners project.

• Triple estimates for licensing, insurance and legal fees because they are

simply too difficult to predict if you’ve never been in business.

• If you are starting as a sole proprietor, keep track of your time conducting

direct sales and customer service. This will help forecast future costs should

you add staff to conduct these functions in the future.

New business owners have lofty sales goals. That’s great! But, it means you should

do two projections—one that assumes your dream sales projections and another

that is more “conservative reality.”20 The first will keep you motivated. The second

will give greater assurance that your business will be here long into the future.

If the numbers are not working in your favor, consider ways to cut or share costs.

The SBA suggests co-working or shared office spaces, as well as cloud-based

solutions that can replace software licenses.

Entrepreneur John Brandon has specific online and cloud-based tools he uses in

his business. He uses online interfaces for accounting to email invoices, run reports

and manage expenses; tracking project tasks; conducting online discussions;

managing social media platforms; storing data, including business reports and

marketing literature; and taking notes on bits of knowledge you gain, contacts

and reminders. 21

17 Beesley, Caron. “How to Estimate Starting a Business from Scratch.” SBA.gov. U.S., 26 Jan. 2015. Web.18 Ibid19 Cooper, Natalie. “How To Forecast Business Revenue and Growth.” Banking Sense RSS. N.p., 9 Dec. 2014. Web.

08 May 2015.20 Cooper, Natalie. “How To Forecast Business Revenue and Growth.” Banking Sense RSS. N.p., 9 Dec. 2014. Web.

08 May 2015.21 Brandon, John. “6 Tech Tools for Managing Your Early Stage Startup.” Inc.com. N.p., 11 Feb. 2015. Web. 08

May 2015.


You may not need all of these tools, or you may find others that work for you.

The trick is to find ways to simplify and streamline your business operations so

you can focus on the big tasks of producing a product and selling it.

Market ing a l locat ions

The cost of marketing is one of the more difficult financial predictions to make.

That’s because determining a marketing budget is not definitive and often

is based on several factors. The most common way to determine a marketing

budget is to base it on a percentage of sales. In practice, marketing budgets

range from 1 percent to 30 percent of sales, and most fall below 10 percent.

According to a study of the CMO (Chief Marketing Officers) Council, 58 percent of

respondents said they spend less than 4 percent of sales revenue.22 Two percent of

CMOs said they spend more than 20 percent of the sales budget.

If you plan to base your marketing budget on sales, you should consider

the following:23

• Volume: In general, the higher the volume of sales, the lower the percent

of sales is spent on marketing.

• New product: A new product or new product line may take as much as

20 percent of sales for marketing. Established products generally require

a lower spend.

• Brand awareness: If the market isn’t familiar with your company or

your product, you’ll need to spend a higher percentage of sales on

marketing efforts.

The drawback of basing a marketing budget on percentage of sales comes to

light during months or quarters when sales are slow. With a decline in sales

comes a decline in the marketing budget, yet this may be the time when you

need marketing the most. Another option for budgeting marketing expenses is

to allocate a percentage of your total budget. As a guideline, startup businesses

should allocate 20 to 30 percent of total budget to marketing in the first and

second years of business.24 If you are buying an established business, 7 to 10

percent of your budget should be adequate.

22 Bransom, Ann. “The Recommended Percentage of Sales for a Marketing Budget.” Small Business. N.p., n.d. Web. 06 May 2015.

23 Ibid24 Joyner, Jeffrey. “What Is the Average Marketing and Advertising Budget for a Company?” Small Business.

N.p., n.d. Web. 06 May 2015.


Rais ing the necessary funds

Startups often run out of cash. Avoid this by raising the necessary funds at

the start and budgeting wisely as you go. Baskerville stresses the need for daily

cash flow.25

“Having only 95 percent of necessary capital to start your business is not enough,”

he says. “You need 100 percent.”

Funding can come from traditional sources, or you can find creative ways to

finance your venture.

First, you can stay close to home and look at your personal resources. Besides

dipping into a savings account, you may sell assets like a car or a boat. You also

could take out a home equity loan or open a business credit card.26 Warnings

come with each of these options, however. If your business fails, you may risk

home foreclosure when using a home equity loan as financing. Having a line

of credit may be the riskiest way to fund a startup, because interest rates can

skyrocket quickly and the financing does not go away if you cannot pay off

the card.

Friends or family members may be willing to offer no-interest or low-interest

loans without the hassle of bank contracts.27 The risk here is harming a

relationship if you are late on payments or are unable to pay the loan back.

Small business loans are available through banks, although they are not as readily

available as they were before the recession of 2008. Banks will want to know

every detail of how the loan will be spent, and many banks will not loan to a

first-time business owner who does not have a proven track record.28 The SBA also

has loans available, but it only loans to entrepreneurs who have been in business

at least two years and are generating a cash flow.29

Opportunities exist to obtain funding from people or groups of people who want

to invest in businesses in which they have a common interest. Some well-known

companies began with angel investors. Angel investors often work individually

or in a small group to invest in companies, with the expectation that they make a

25 Baskerville, Chris. “The Top 5 Reasons Startups Fail.” Forbes. Forbes Magazine, 6 Mar. 2015. Web. 06 May 2015. <http://www.forbes.com/sites/quora/2015/03/06/the-top-5-reasons-startups-fail/>.

26 Mielach, Dave. “15 Creative Financing Methods for Startups.” BusinessNewsDaily.com. N.p., 26 Mar. 2014. Web. 07 May 2015.

27 Ibid28 Heitzman, Adam. “5 Best Ways for Funding a Startup.” Inc.com. N.p., 25 Nov. 2014. Web. 07 May 2015.29 Mielach, Dave. “15 Creative Financing Methods for Startups.” BusinessNewsDaily.com. N.p., 26 Mar. 2014.

Web. 07 May 2015.


significant percent return on investment—some may want to own as much as 49

percent of a company.30 These angel investors often provide mentorship and may

even have customers or partners for the businesses in which they invest. However,

less than 4 percent of angel investor requests are fulfilled.31

Venture capitalists also invest in companies, but they often look for specific

startups to fund. Venture capitalists have more money and resources, so they

prefer stable opportunities that will provide a bigger return.32 Many times,

venture capitalists want to recoup their initial investment within five years.33

Fewer venture capital requests are fulfilled than angel investor requests.

One of the newest ways to raise funds is to take your idea to the world, literally.

It’s called crowdfunding. Kickstarter® and Indiegogo® are two of the most

common websites on which a business owner can share his or her idea and seek

financing from people who want to contribute money toward the startup.34

Entrepreneurs are expected to provide details about their ventures—basically

business plans. Contributors may simply make a donation or promise to buy the

product in advance. In many cases, donors are expecting a kick-back in the form

of a reward, like a small gift.

Startups as a s ide job: Why part t ime is a considerat ion

Day after day, you sit at your 8-to-5 job, dreaming of being your own boss. You’re

a risk taker, but you know that quitting in favor of going it alone may be too

much to handle. You still need basic necessities, like health insurance benefits and

a regular paycheck, before taking the entrepreneurial plunge.

Many experts would tell you to begin a startup on the side. In fact, Business

Insider® named part-time startup businesses as one of three major innovation

trends for 2015.35 According to entrepreneur Jim Price, who wrote about the

trends, starting a business today takes one-quarter of the time and one-tenth of

the cost, compared to 10 years ago. Mobile payments, Web-based tools and cloud

storage all contribute to the ease of starting a business.

30 Heitzman, Adam. “5 Best Ways for Funding a Startup.” Inc.com. N.p., 25 Nov. 2014. Web. 07 May 2015.31 Zwilling, Marty. “5 Rules of Thumb for Startup Financial Projections.” The Huffington Post.

TheHuffingtonPost.com, 28 July 2013. Web. 06 May 2015.32 Ibid33 Mielach, Dave. “15 Creative Financing Methods for Startups.” BusinessNewsDaily.com. N.p., 26 Mar. 2014.

Web. 07 May 2015.34 Heitzman, Adam. “5 Best Ways for Funding a Startup.” Inc.com. N.p., 25 Nov. 2014. Web. 07 May 2015.35 Price, Jim. “The 3 Trends That Will Drive Innovation In 2015.” Business Insider. Business Insider, Inc, 15 Dec.

2014. Web. 06 May 2015. <http://www.businessinsider.com/3-trends-will-drive-innovation-in-2015-2014-12>.


Staying employed while starting a business allows entrepreneurs to test their

product or idea and build up cash. On the other hand, starting a business will take

up a majority of your time that you are not at your day job. Brandon Turner, who

invests in real estate while working a full-time job, breaks down the numbers: Out

of 168 hours in a week, your day job takes up a minimum of 40, and you should

sleep about 56.36 That leaves 72 hours to take on a side job and still have a life.

Turner suggests that those who start a side job become very efficient and get

rid of busy work—stop spending time on useless emails and phone calls. Eat at

home rather than taking time in restaurants. Do whatever you can to cut out

unnecessary tasks. He also suggests doing those new business tasks you are best at

or those only you can do. Outsource everything else.

Jody Porowski, who launched a startup while working full time, offers these tips:37

• Tell your boss and human resources department about your plans. Make

sure they will allow moonlighting, and if you are working under a contract,

review it. You don’t want your employer to claim ownership of your

company in the future.

• Don’t let your startup affect your day job. Stay on task and don’t burn

any bridges.

• Take time to watch your employer for ideas you can use in your business.

Pick up best practices from managers and processes.

• Eat well and exercise. If you don’t have your health, you won’t succeed at

either job.

• Your social life will suffer, but do your best to stay connected with close

family and friends. You need their support.

You may get to a point where you might start to resent your day job, but you

are not financially secure enough to leave it. Turner suggests turning negative

thoughts and feelings into positive ones. Instead of holding you back, your day

job is the reason your dreams are alive. Use it as a motivator to chase what you

want in life.

Don’t do i t a lone: Rely on others’ support

Neil Patel, entrepreneur and angel investor, has found that startups led by

co-founders are more successful than those with a single owner.38 Co-founders

provide accountability to each other and bring differing skill sets to the table.

36 Turner, Brandon. “5 Tips to Chase Your Entrepreneurial Pursuit While Working a Full-Time Job.” Entrepreneur. N.p., 01 Apr. 2015. Web. 06 May 2015. <http://www.entrepreneur.com/article/244463>.

37 Porowski, Jody. “I Juggled a Full-Time Job While Launching My Startup.” Inc.com. N.p., 6 June 2014. Web. 06 May 2015. <http://www.inc.com/jody-porowski/why-i-launched-my-startup-while-working-full-time.html>.



Brown suggests that entrepreneurs, whether they are sole proprietors or partners,

enlist the help of an advisory board.39 Boards provide a different perspective and

ideas. Board members also act as a sounding board and will give honest feedback.

When choosing a board, consider the following:40

• Choose people you trust who will help you reach your goals.

• Choose people with diverse expertise so that you can communicate with

them one-on-one about specific areas of business.

• Consider people who are already advising you, and make it official!

Business mentors also can be relied on to provide advice, especially when the

most important decisions need to be made. Mentors may not even be people

you know. The SBA provides a resource guide titled Steps to Finding a Mentor,

a resource guide that outlines organizations and other sources for building a

mentor relationship.

All of this isn’t to say that startup entrepreneurs should not confide in friends and

family. Tobak says entrepreneurs need both mentors and friends in their business

life.41 Mentors will say what needs to be said to keep the business on track, while

friends will provide emotional support, saying exactly what entrepreneurs want

to hear. It’s up to entrepreneurs to tell the difference.

Plenty of community resources are also available, including Small Business

Development Centers, Women’s Business Centers, Veteran’s Business Centers and

SCORE offices. The SBA also offers Starting a Business online courses, a Build Your

Business Plan Tool and a Thinking About Starting a Business guide, which includes

articles and quizzes on most of the topics covered in this Blue Paper.42

F inal thoughts

You’ve determined you have what it takes to be an entrepreneur, and your

product is right for the market. You have built a business plan and a budget. You

have the financing needed to get started. At this point, Brown offers three pieces

of advice:43

39 Brown, Paul B. “23 Things Every Entrepreneur Must Know.” Forbes. Forbes Magazine, 22 Sept. 2013. Web. 04 May 2015. <http://www.forbes.com/sites/actiontrumpseverything/2013/09/22/23-things-every-entrepreneur-must-know-2/>.

40 “Startup Leadership: How to Select Advisory Board Members.” YFS Magazine Startups Small Business and Entrepreneurship Culture. N.p., 01 Apr. 2013. Web. 06 May 2015. <http://yfsmagazine.com/2013/04/01/startup-leadership-how-to-select-advisory-board-members/>.

41 Tobak, Steve. “9 Reasons Why Most Startups Fail.” Entrepreneur. N.p., 31 Jan. 2014. Web. 05 May 2015. <http://www.entrepreneur.com/article/231129>.

42 Beesley, Caron. “How to Estimate Starting a Business from Scratch.” SBA.gov. U.S., 26 Jan. 2015. Web.43 Brown, Paul B. “23 Things Every Entrepreneur Must Know.” Forbes. Forbes Magazine, 22 Sept. 2013. Web. 04

May 2015. <http://www.forbes.com/sites/actiontrumpseverything/2013/09/22/23-things-every-entrepreneur-must-know-2/>.


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• Learn from your mistakes. You will make them, and that’s OK;

• Fail fast and inexpensively. Take small steps toward your goal and reassess

your path along the way; and

• If at first you don’t succeed, get out before you lose too much.

Careful planning and the right attitude all contribute to being a part of the 10

percent of entrepreneurs who succeed. If you don’t get it right the first time,

retrace your path and determine where you went wrong. In business, there is

always a chance to get it right the next time.

Documents

Startups - 4imprint Learning Centerinfo.4imprint.com/wp-content/uploads/1P-13-0715-Startups...believe is the next best product, hanging your own shingle may be the way to go. Yet,