Finance & Grow Your New Business. Angie Mohr

by a few very large players who have built name recognition and goodwill over many years.

      Ensure that you choose an industry where there is room for new participants to grow.

       5. Can the business weather downturns?

      Every industry has up and down times. For example, travel agents book more vacations for their customers when the economy is on an upswing than when it’s in recession. A business can also be affected by how many new businesses in that industry are opening up. A flood of new providers can siphon off some of your customers, at least in the short term.

      Look at whether the business you are contemplating will be able to survive external changes to its operating environment. Is your product or service easily adaptable? For example, in poor economic times, a spa will focus on advertising the basic services, such as haircuts. When times are good, it will promote higher-end services, such as massage, facials, and pedicures.

       6. How easily can I expand this business?

      If your goal is to grow your business over several years, it’s critical to determine upfront whether the business has the potential to do that. For example, if you start a grocery store in a small town, your customer base is limited to the residents of the town. You may find it difficult to grow such a business without offering new products.

      Ensure that the business has the potential to grow quickly and expand either the customer base or the range of products or services.

       7. Will my product or service endure?

      The only constant in business is the knowledge that consumer tastes are ever changing. The product that may have been all the rage last month may be passé this month. Think back to pet rocks, fruit-flavored potato chips, and Rubik’s Cube. These items sold extremely well for an extremely short period of time. If you had built your business around one of these fads, however, you would soon have found revenues dropping precipitously and you would have been out of business quickly (unless, of course, your business hopped from fad to fad).

      It’s important to make sure that your service or product is not a fad and will be needed long into the future.

       8. Will I actually be able to make money with this business?

      If you feel that you have found an under-serviced market niche, you need to examine why there are no other businesses serving that market. Many small businesses are able to create a toehold in an industry because large corporations would not be able to make enough profit serving that market to satisfy their investors. A small business has the advantage of lower overhead and more flexibility to move in and out of markets and can often create greater profits than its larger counterparts. However, if you want to do more than simply eke out a living running your business, make sure that the profit potential is there right from the beginning.

      Chapter Summary

      • In order to start and run a small business by yourself, you need to have skills in business building, business management, and doing what the business does.

      • There are three main types of businesses: manufacturing, retail/wholesale, and service. When deciding what type of business to start, it’s important to look at the pros and cons of running each type of business.

      • Ensure that your personal goals fit with your plans for your business with respect to finances, freedom, and risk.

      • It is critical to examine your choice of potential business to make sure that the product or service is viable and will stand the test of time.

      2

      Is It a Business or a Hobby?

      How do you know whether your interests will produce monetary returns? We look at decision planning for your great idea.

      Introduction

      It’s inevitable. If you’re a true entrepreneur, you will eventually begin to analyze every possible venture to see if it would make a viable business. You will look at your spouse’s scrapbooking project and think about the possibility of opening a scrapbooking store. You will think about ways to leverage your son’s after-school lawn-cutting venture to provide service to twice the customers at half the price. When a kind-hearted jogger in the park comments on how she wishes she had a dog, you will mentally calculate how many times you would have to rent out Fido to “dogless” people to break even.

      Entrepreneurs are always thinking about business. It’s what sets them apart from other people and makes them visionary. There is, however, the dark side of the moon where ventures that are pure hobby are turned into businesses that are doomed to fail. It’s critical to be able to tell the difference between a business and a hobby. Just because you love to go fly-fishing doesn’t mean that you can make money at it.

      Many highly successful entrepreneurs build and invest in businesses without having any personal interest in what the business does. They are only concerned about what growth potential the business has and its profitability. Think about Warren Buffett and Donald Trump. But there are other small-business owners who have parlayed a personal interest or hobby into a highly successful business. These business owners have, however, conducted the same analysis of the business potential as have the Buffetts and Trumps of the world. They have realized that something they enjoy doing has the potential to be a thriving business enterprise. That is not so, however, with all hobbies.

      Case Study

      The first idea Craig came up with for his new business was operating a taxi service. He had driven a taxi part time when he was in college and he knew a lot about the business. He had even helped the taxi service’s owner develop new routing procedures to lessen the drivers’ down time. After drawing up some preliminary plans, however, Craig realized that owning a taxi service would violate two of his personal goals: having a balanced work/family life and not having a huge upfront investment. A taxi service would require a strong hands-on manager and he would have to fill that role until he could find someone to replace him. It also would require the purchase or lease of a central dispatch office as well as several cars. His estimates showed that he would be working approximately 60 hours per week on average and would have to find an initial investment of $120,000. He decided to leave the taxi business to someone else.

      The next business opportunity Craig investigated was cheese-making. Craig had a passion for cheese-making that dated back to his days at his father’s bakery. His father’s brother, his Uncle Nino, had been the cheese-maker in the family. He ran a small cheese shop next door to the bakery for almost as long as Craig’s father had run the bakery. Craig had worked at the bakery out of duty to his father, but he loved the occasional opportunity he got to work with his Uncle Nino making cheese. They made hard cheeses like Parmesan and Romano, and soft ones like Brie and Gouda. Craig still made cheese for his wife in a small basement room.

      It made sense to Craig that he start a business based on a skill he was good at and loved. He quickly came to realize, however, that he was following the same path as his father, without the assurance of success. High-quality cheeses appealed only to a small segment of the market, and Craig would once again have to be at the business all the time as he was the one with the skill to produce the cheese. Rather reluctantly, Craig shelved the idea of building a cheese-making empire.

      What Is the Difference Between a Business and a Hobby?

      Let’s look at the characteristics of a business versus a hobby.

       Characteristics of a business:

      • Designed on sound business principles

      • Tailored to the needs of its customers

      •