Entrepreneurship 103: Creating A Business

Back To Main
Creating A Business Plan

Carry out the business plan, or find people who can fund it

  • Look at how much money it will take, then budget and save up
    • It’s best to make a product that a small number of users will love than one that a large number of users will like
  • If you need more money than you have, first make sure your plans will accommodate it
    • Offer equity as an incentive if you want to avoid borrowing money, but be extra careful who you make a stockholder
    • Before borrowing money, make sure you understand how loans work
    • Try to create lending options that fall back on the business and not on your own assets
    • Find out what other entrepreneurs were funded with using WhoGotFunded.com
    • The number of investment options will depend largely on how feasible the business actually is, so go over the business plan a few more times
  • When finding an investor, pay attention to how reputable they are
    • If they’re not under the SEC or other governing authority, they might change the loan’s terms on you
  • Look for investors and lenders within your network
    • Be careful about who you’re borrowing from, since it can ravage your reputation forever
    • Don’t borrow from family members unless you can guarantee that you’ll pay it back
    • As a general rule, the closer the person is the more careful you want to be about borrowing from them
    • Look at university, MBA and technology incubators
    • Connect with your local city’s Chamber of Commerce for opportunities for funding
  • Look outside your social circle
    • You should be networking constantly with everyone you meet, and this is for opportunities of every capacity
    • Try crowdfunding with Kickstarter, GoFundMe, Indiegogo or many others if you’re willing to work harder to give incentives for investing
      • This can be risky since there’s very little guarantee of anyone actually funding it
    • There are multiple networks for Angels (people who fund startups), though they require some research to find and convince
    • Conventional banks like Citigroup or Wells Fargo are the most reputable, but you will probably need to put down collateral for it
    • Look for trade-specific startup groups
    • Look into Republic or Pave to find crowdsourced financing

The company will start off with every worker doing a lot of various responsibilities, especially the owner

  • Starting a business requires a few legal steps
    • File your articles of organization/incorporation
      • If forming a partnership, it’s best to enter a buy/sell agreement
        • No matter how well you know someone, you don’t know when they will want to retire or leave
        • Sometimes money can corrupt people, and this is the only way to stay legally safe
    • Apply for an Employee Identification Number (EIN) or Tax ID
    • Open a small business bank account
    • Obtain business licenses, permits and relevant insurance policies
    • Pick retirement and health insurance plans for you and any employees
    • If you have any employees, start on writing an employee handbook
      • Use software or download forms to create your own
        • Don’t use another company’s or you may be forced to do something later that you don’t want to do
      • Always include some issues
        • Harassment and discrimination
        • Wage and hour issues
          • Hours of the workweek and rules for breaks and meals
        • Safety policy that complies with state and federal regulations
      • Stay legal but flexible
        • Clarify expectations for employee behavior
        • Don’t spell out disciplinary action in the employee handbooks
          • This can obligate you to do things you don’t always want to do
  • Authentically ask for someone’s advice if you want their devoted help
  • Your spouse can be a vital co-creator in the business
    • Declare boundaries by establishing job definitions and working conditions up front
    • Make sure you are both on board
    • Leave work at the office
    • Thank them consistently
    • Consistently review if it’s really working
  • Create a legitimate website, then create an email that references that website
  • No matter how well-prepared an entrepreneur is, they will still be oblivious to many things until their launch date
  • The owner is going to work 20 small jobs for a while
    • An entrepreneur absolutely NEEDS to keep their normal job until they have enough income to cut themselves a paycheck without hurting the business
      • They will need to keep a safe amount of cash to keep investing, and they will still have to survive during that time as well
    • They will be doing most of their company’s work all alone
      • Learn to be productive and not simply busy
        • Brainstorming possible ideas
        • Advertising
        • Networking
        • Researching legal limits
        • Managing finances
        • Taking out the trash
      • There are some warning signs about being unproductively busy
        • Holding plenty of meetings to discuss what to do
        • Multiple people are doing the work that one person can do
        • Paying too much attention to numbers that don’t matter, like number of employees or number of people contacted
        • Constantly going to networking events without generating any leads
      • This work will pay off late, if it ever does
    • This is all driven by the motivation from their perceived vision
      • This is going to be a lot of chaos, and the art of good entrepreneurship is directing the chaos to a meaningful end
    • However, an entrepreneur should never blur the line between personal projects and actual work that produces results
      • It can be tempting to mix personal endeavors with work, but it will be very hard to scale as the work increases
  • When the owner isn’t creating, they’re selling
    • The owner needs to constantly maintain customers
      • Tenaciously looks for new customers all the time
      • Finds ways to employ guerrilla marketing
      • Has the trustworthiness, character and happiness to keep customers
    • The best selling focuses exclusively on the customer’s needs and wants
      • Ignore what the customer feels about it or what potential customers outside of the marketing focus think
      • Ignore what the product or service actually is, since it’s ultimately whatever it’s sold to be
      • Focus in more directly on the market and consider adapting product lines to fit the target demographic
      • The owner needs to understand and observe the movement and fluctuations of the market’s economy
    • If the product is a service, fully clarify the terms of the agreement before getting them to sign it
      • If this isn’t clarified, it will be hard to charge for extra work performed
      • This is absolutely necessary to be legally safe from lawsuits
    • Every dollar must be focused into creating the most profitable sales
      • Avoid impulse spending at the startup
        • Carefully assess every dollar spent, since your financial decisions will define how well it succeeds
        • Don’t sponsor conferences to appear larger, it’s not cost-effective
      • The entrepreneur is selling themselves, not the product, and their personality will close the deals
        • The sales pitch for the product should be tailored individually for the potential clients, a bit like public speaking
        • The loyal customers should be advertised and celebrated, since their value is worth more than money
      • There is no room in a startup budget for a hit-or-miss marketing strategy
        • Only sell for a familiar market, an unfamiliar market will cause massive losses
        • Social media networks need to be used intentionally, a wrongly used communcation channel might be worse than not using it
        • Look for ways to give referral bonuses and perks to loyal customers
        • When dealing with dissatisfied customers, it’s more cost-effective to lose them and gain new customers than try to keep them
      • Only hand the product over after getting paid
        • Bargaining power always sits in the hands of the person holding onto the product
        • It’s not a sale until it’s been paid for, so only open lines of credit with others with a backup plan if they don’t pay
      • Micromanage relationships with vendors
        • Take pictures of business cards people hand you just in case you lose it
        • Trust your gut instincts with them
        • Rate the vendors and suppliers correctly
          • Establish performance indicators
          • Classify multiple suppliers and vendors
          • Determine who’s really calling the shots
          • Maintain good relationships with them
          • Cut loose weak links
  • The company will not make much money for a while, which will test the entrepreneur’s patience and resilience
    • The only way to carry through unsuccessful times is to remember that low points are opportunities for growth and learning
    • It’s good to re-analyze after a while, which may include new market research or segmenting the market
      • Re-think about the product in a different light
      • Revisit the business plan
    • Sometimes a company won’t make money simply from poor expense management, and that’s not hard to resolve
      • Use more modern software or use new technology to speed up the work flow
      • Improve the morale of the staff by improving relationships with employees or giving incentives
    • Sometimes an entrepreneur simply needs a vacation to think about what really matters

As the work grows, the company needs to scale

  • Re-invest every dollar possible
    • The more money that’s put back into the business, the more it can grow
  • Avoid overpaying taxes
    • Keep track of every single receipt, and make sure you have a solid accountant reviewing the information
  • Ignore the competitors’ financial statements
    • It’s tempting to look at how much money they invested, but instead pay attention to how well you can take advantage of your own resources
  • Scale the company slowly
    • Diversifying too quickly will leave the company unprepared to take on the new challenges
    • Expanding too quickly will stretch resources too thin to recover from an unexpected circumstance
    • This will be an act of patience as well as flexibility
    • The larger a company gets, the practices will slowly harden into company policy, which needs to be directly maintained to prevent bureaucracy
  • Don’t split large-scale goals
    • Go after one venture at a time and build that business up, then move to another as responsibilities are freed up
  • The owner should be focused on the big picture as they do all of their tasks
    • Some tasks don’t scale with a company, and those are often the most important
    • Each person’s work will slowly become more niche-focused on core abilities, especially the owner
      • The work can never be done alone for long if it’s successful
    • Eventually, a true entrepreneur does more of what they are good at and less of everything else
      • Specialization allows each person to be extremely good at what they do
      • One sign of a company reaching its limit is if the owner is over-worked in tasks that aren’t part of their expertise
  • As the company grows larger, its ability to adapt and change will slow down
    • This is partly because of how more people means more thoughts involved and partly because the tasks become more complex
    • When this happens, it’s best to consider restructuring the business or making it small again
    • Once the company gets to a certain point in size or trajectory, there is no shame in selling the company
      • In fact, many entrepreneurs love the thrill of making a business out of nothing that they sell companies just to start new ones
  • Always act like a startup, since most of the basic entrepreneurial skills in startups don’t change as the organization scales
    • The limits of a startup eventually become based on the leadership capacity of the owner
Next: How To Be A Leader