"Perfect time" to start a business?

In this MSN story, a serial entrepreneur espouses the belief that right now is actually the perfect time to start a business. You can read Mr. Hoffman’s rationale through this link. There is no doubt that, with so many executives out of jobs, and, with so much supply and little demand today, becoming a self employed entrepreneur is a very logical decision. But, to create a business that can hold its own in this economy, or be sustainable over time, shouldn’t be taken lightly.

I agree with a few of his points (which I’ll discuss here). But, mostly, I think his belief in the fact that most anybody should and can “follow his/her dreams” to become a successful entrepreneur is a bit naïve and not always realistic.

Let’s talk about why some of Mr. Hoffman’s points make sense first. Yes, the cost of doing business (often referred to as overhead) is as cheap as ever right now. Whether it be office rent, supplies, travel or even paying other employee/freelancer salaries, a newly minted business can be assured of demanding very low costs, if strategically handled. This can play a large factor in being able to go months without needing to churn in serious sales or revenues at the onset of the venture. That creates real time and opportunity for an entrepreneur to create the right product/service or business and sales strategy to address the marketplace.

Looking at this from the lens of the marketing services industry, the other clear positive that I see is that corporations (or, in this case, marketers) are trying to keep all their costs down. Why is that good? Well, it isn’t necessarily positive for established agencies that also have firmly established rates and fees. But, for a one-, two- or three-person consultancy willing to do a lot of work for a greatly reduced rate in an incredibly flexible way, there are lots of opportunities.

As a matter of fact, I’ve probably met with 10 different former corporate communications/marketing executives over the last few months. Each is seriously looking for his/her next corporate gig. My advice to most was that they should think of temporarily hanging their own shingle out for a while until the market comes back. The most talented ones will certainly find a variety of short-term strategic and/or tactical projects from the very type of large and small corporations they used to work for. These companies need smart consultants who can do highly skilled work at cut-rate prices. And, that’s just what they can get now.

The last point that I agree with Mr. Hoffman on is that each entrepreneur needs to seriously think long and hard about what prospect/client problem is being solved with this new business. That’s where I believe we might start to disagree as well because figuring out what the marketplace pain is the first time isn’t typically too hard (as a matter of fact, it often smacks young entrepreneurs right in the face, as they experienced the pain firsthand in their corporate jobs). What is exceptionally arduous, though, is understanding how to package one’s offering around that problem or pain point, as well as figuring out how a no-name entity with zero credibility will market itself, build a brand and convince potential employees and prospects to come aboard, all while learning how to operate and handle cash flow/financial issues that need a high degree of attention.

Let’s say these entrepreneurs create a good recipe for success over the first year or two. A sincere congratulations is in order. Except, very quickly, that market they are so comfortable with will shift, with current trends quickly becoming old and an entirely new set of problems now emerging for those same prospects and clients. These market shifts can create real opportunities or serious brick walls for many entrepreneurs/new small businesses. My feeling is that it’s during these shifts that the men are separated from the boys (with the boys often running hard into those nasty walls).

The winners (or those with long-term profitable and sustainable businesses) are quick to catch on to marketplace changes and find ways to create their own offerings that not only can help clients with new pain points but are likewise positioned in a way that the industry clearly finds their service or product compelling. The leaders actually spot those trends as they are first occurring and are typically first movers in soothing the pain as it is initially emerges into the marketplace. These organizations typically experience tremendous growth. And the losers play catch up, which means that they are still trying to find ways to make their old model work. You guessed it: many of these companies end up calling it quits and, instead, go to work for the competition.

Starting a business might be the only option right now, and that could be a really fulfilling dynamic for many. Others always wanted to be their own boss, and, from a timing standpoint, taking the entrepreneurial plunge could make a lot of sense. It’s important, though, to understand that the numbers don’t lie. Something like 80 percent of small businesses fail within the first three years. There really is no “perfect time” to start a small business. Instead, the focus should be more about building a compelling, long-term model that is flexible and an infrastructure that is rock steady.

Comments

[Steve]

A very good point from your blog that I'd highlight, Ed--it's not enough to figure out what's hot *now*, but you need to be on top of the *next* big thing as well. The economy and the national zeitgeist are changing so rapidly that if you look only to fill today's obvious need, by the time you've secured financing, created the minimum necessary infrastracture, and begun marketing yourself or your services, you may already be behind the curve--especially if you're jumping into what everyone else thought was hot.

Just as it's too late to invest in a market sector or type of asset if you wait until the bubble has already swollen, if you pile on to the tail end of a product, service, or business cycle, you risk being the johnny-come-lately who's left w/out a chair when the music stops.

[ed]

Very astute comments, Steve.

Any lessons learned that you (a successful small business owner) could point out to the 3-4 readers of my blog?

Ed

[Steve]

Thanks for the kind words, Ed.

In addition to the above, and to repeat some comments you've made in previous blogs:

1) Provide great customer service--it keeps people coming back and generates favorable word of mouth. Good CS is good marketing.

2) Similarly, provide good product or services--high quality, good value. A powerful marketing and sales effort *can* sell a bad product to someone--once. They will not rebuy your product or service if they were burned the first time.

3) Along the lines of 1) and 2), don't overprioritize prospecting for new customers over retaining your existing ones. Your existing customers provide the base that you then grow from; if you don't retain them, you will spend your time and effort constantly trying to attract new customers just to hold revenue even.

And on a non-sales, marketing, etc. note:

4) The single biggest reason most small business fail is insufficient liquidity or cash flow. You need to be able to meet operational expenses. Keep your fixed costs as low as possible and make more costs variable that scale up and down with volume. When budgetting, plan for sales to be lower than you hope, and costs to be higher than your business plan; if you build cushion into your finances from the get go, you'll better be able to survice reversals.

5)Like with investing in the market or going to AC, don't bet more than you can afford. As Ed says, the majority of small businesses will fail; knowing that, don't put your retirement savings, home, or children's college on the line. Start small, with an investment you can afford to lose--you can always build later on your success.

6) One last one--don't sweat it if it's not perfect. You will make mistakes, and occasionally (despite points 1 and 2) you'll need to cut a few corners owing to cash or time constraints. Don't make a habit of it, but also don't obsess, or put more into one transaction or one client, than you can afford. Having a business is a constant juggling act and you *will* occasionally drop a ball.

Actually, I lied--I have more point: enjoy. Not only is your business where you'll spend most of your time, but if you hate what you're doing, it will show in your efforts and interaction with customers or vendors. Let yourself enjoy being your own boss, take satisfaction in what you're building, and once in awhile play hookey from your company to take your spouse or partner out for a romantic evening, or to catch a movie or ballgame. The more you enjoy what you do and how you do it, the better you will do it.

[freelance management]

Nice post!!