Strategies: Start with a 'training-wheel' business
Each year, one of the most popular new year’s resolutions is “quit my job and start a business.” If one of your goals in 2016 is to start your first small business, then I’ve got an important tip on how to succeed: start with a “training-wheel” business.
As the head of my fourth small business, I’m what’s called a serial entrepreneur.
I’m not alone: many successful entrepreneurs build more than one company.
That’s good to know, because many start-up entrepreneurs believe they have to be a huge success the first time they’re the boss. You don’t. Or that they’ll only have one idea for a business. You won’t.
Why? Because you’ll learn a lot your first time out. You’ll get used to dealing with customers, making sales, devising marketing plans, handling finances, and adjusting to the risk and responsibility.
Moreover, as you learn more about your market, product or service, and you make additional contacts, you’ll almost certainly decide to change many aspects of your small business and see new opportunities and needs. Eventually, you may choose to close your first company and start another.
By training-wheel business, I don’t mean to be insulting or that it's a business for kids. I mean a type of business that provides enough support to the first-time entrepreneur so that when you make mistakes — and inevitably you will — you won’t fall so hard.
My own training-wheel business was my management consulting practice. It was a real business — if I didn’t attract and keep clients I couldn’t keep a roof over my head. But my consulting business was also a perfect example of a training-wheel business. It cost little to start: I just needed a computer, business cards and a phone. It cost little to run: I worked out of my home. I was in business quickly, giving me more time to learn.
Service businesses, in particular, lend themselves to being “training-wheel” start-ups. You can typically work at your customers’ homes or places of business and often need little equipment or start-up capital.
It’s not just service businesses where you can start small and on the cheap. Making a product? Create inexpensive prototypes or make them in small quantities to sell at local crafts fairs first instead of trying to get widespread wholesale distribution right from the start.
Keys to a training-wheel business
• Low start-up costs. Look for companies that need little equipment, facilities or staff to launch. Otherwise, you’ll need to raise funds, borrow money or use your savings.
• Low overhead. Low fixed expenses make it easier to pay your monthly bills. Avoid businesses such as manufacturing and retail, which require inventory, raw materials, high rent or high labor costs. Instead, choose businesses with low overhead, such as independent sales, consulting and most service businesses.
• Proven product or service. It’s hard to sell customers on a new idea or new product. By selling a proven product or service — even if you have competition — it’s easier to make sales sooner.
• Established marketing channels. If you have to be creative to reach customers, it’ll cost a lot and take time. It’s much easier to sell products or services through proven methods such as trade shows, networking events and online direct sales.
• Simple sales structure. Many first-time entrepreneurs are attracted by multilevel — or network — marketing programs. These have complicated sales structures, focusing on building “down lines.” Instead, look for businesses where you sell directly to customers and there are few layers between the manufacturer and the customer.
• A niche. It’s much easier to compete for customers when you specialize. By clearly targeting a specific market — a particular industry or demographic group — you’ll make the most of your marketing dollars and can command higher prices.
• Fast startup. Look for businesses you can start quickly rather than ones where you have to rent and remodel premises, import goods or figure out difficult production processes.
If you’re new to business, a less complicated business gives you the chance to learn and improve. After all, as I’ve found myself, you’ll likely have other chances with future businesses.