"Gumpert successfully captures a significant shift in the way leading entrepreneurs are launching companies and attracting investors."
John R. Thorne, Morgenthaler Professor of Entrepreneurship, Carnegie Mellon University

What's New at Lauson?

How to Really Start Your Business!

Reality Therapy for Entrepreneurs

As you peruse this book, you may ask yourself: Why do we need another book about starting a business?

That is a natural question, since many books have been written about the topic. The answer is the guiding philosophy behind this book, and what makes it unique. It also helps explain the title: How to Really Start Your Own Business.

Even though many books have been written about starting a business, this is the first that provides a truly realistic view of the process‹reality therapy, as it were, for would-be entrepreneurs. Many other books tend to fall into either of two traps: in an effort to be positive arid enthusiastic, they make the start-tip process sound easier than it is, or they are so academic they make the start-up process appear mundane and technical.

In my view, starting a business is a major life event As such. it is neither easy nor boring. It is a huge challenge that is frequently misunderstood by would-be entrepreneurs.

Starting a business is tough under the best of circumstances. To go into it with a misguided view of its special demands and requirements is to invite disaster. The reality therapy offered in this book comes from two sources: a handful of highly successful entrepreneurs who have recalled in detail their start-up experiences and my many years of observing and reporting on start-up entrepreneurs.

Reality therapy is essential for today's start-up entrepreneur. By knowing what hurdles lie ahead, you can anticipate and plan more accurately and thus save yourself unpleasant surprises.

I even feel that if you read this book and decide against starting a particular business because you determine it is too risky or you aren't cut out for being an entrepreneur, then you have been well served. Not all great sounding ideas are truly viable, and not everyone is cut out to be an entrepreneur. Starting a business that fails, while not the end of the world, is expensive and emotionally upsetting.

In line with my comment describing the start-up process as a major life event, the life event it most closely resembles is marriage. That's primarily because, like marriage, it's much easier to get started in your own business than it is to make it work over the long haul. (The marriage comparison reappears later in the book, in considering relationships with partners.) Hundreds of thousands of people start businesses each year. But from 60% to 80 % (no one knows for certain) get "divorced" from their businesses within five years.

There's no magical solution to such a problem, but the best one available isn't unlike that required to make a marriage work: Know what you're getting into and what's necessary to make it succeed.

How to Really Start Your Own Business is intended to help you begin a company the right way‹allowing you to steer around the more difficult hurdles being thrown into the paths of all new businesses.

The Deception

One of the confounding factors in the start-up process today is that in many respects, starting a business has never been easier. A number of important trends helped lead to the boom in entrepreneurship in the 1980s and 1990s, and are playing an even larger role during the fast-changing 2000s.

But in important ways, these trends are deceiving. They make it easier to open a business, but they make it difficult to lay a proper foundation for growth and long-term success. These trends include the following:

Increasingly sophisticated technology at ever-lower costs. Personal computers, fax machines, cell phones, color printers, and other equipment have become fixtures of the modern office. For start-up entrepreneurs, though, they play an additional role. Such tools enable them to do two things that entrepreneurs of a previous generation could never hope to accomplish:

1. Get started with fewer people. A personal computer may obviate the need for a secretary and a bookkeeper at the start. Voice mail eliminates the need for a receptionist. A cell phone enables the start-up entrepreneur to be available for calls from prospective customers‹while driving to meet with other prospects. A web site and email allow entrepreneurs to solicit prospective customers and to communicate with existing ones 24 hours a day. Such improved productivity allows the new entrepreneur to save huge sums in start-up costs. The technology may be acquired for less than $2,000. If you figure the cost of each new hire from $30,000 to $60,000 annually (including Social Security taxes and benefits), it becomes apparent that being able to eliminate the need for two, three, or more people adds up pretty quickly.

2. Look well established. All that sophisticated technology also makes even the smallest business look very professional-and established. It's possible for the start-up entrepreneur to create professional looking stationery, presentations, and proposals from day one. Voice mail and a fax machine similarly convey an impression of stability and experience.

Moreover, the cost/benefit ratios of technology continually become more favorable to entrepreneurs. Today's computers are faster, have more memory, and cost less than those of five years ago. The same goes for cell phones and fax machines. And you can bet that trend will continue.

Subcontracting by major corporations. As major corporations have restructured and reorganized, they have in many cases moved to reduce their overhead by doing fewer tasks in-house. They are subcontracting many jobs they used to do themselves, ranging from doing public relations to developing web sites that promote their products to maintaining their buildings and grounds. Increasingly, the beneficiaries of this trend are small businesses.

The start-up landscaper who can line up a contract handling a major corporation's nearby sales office may be off to a great beginning. In some cases, an employee leaving a corporation to start a company may be able to do his or her job on a consulting basis, enabling the individual to have clients immediately.

Accessible marketing data. Not long ago, someone thinking about starting a business had to do a lot of legwork to track down marketing information. Some was contained in books that were already out of date when printed. Some was in magazines stored in the depths of the local library, where one could spend days seeking the essential data. Now, thanks to the Internet, it's much easier and cheaper for entrepreneurs to obtain industry studies, competitor information, and related data. The Internet is like a giant library, enabling entrepreneurs to search through vast quantities of reference material as well as lists of prospective buyers to determine far more accurately than ever before the existence of a viable market.

Acceptance of low-overhead operations. It used to be that start-up entrepreneurs went to great lengths to provide the appearance of stability and experience. They would rent high-priced office space, acquire fancy furniture, and lease expensive cars to impress potential customers. Special conference room chairs at more than $1,000 apiece became the symbol of such excess during the Internet boom of the late 1990s. Today's discerning customers are often turned off by opulent trappings. They know who winds up paying the costs associated with high overhead. That changing perception helps make it easier for the start-up entrepreneur to begin his or her business from the home or an out-of-the-way suburban or rural location and attract growing legions of value-oriented customers.

The Land Mines to Avoid

It's only after the business has started that entrepreneurs often learn about the new and dangerous age of business ownership. A fast-changing environment, which favors entrepreneurs in the earliest stages, can conspire against them once they are up and running. Consider the following:

More intense competition than ever. The growing availability of information and the speed with which it travels can become a liability once you have achieved some success. Once you begin to do well, other entrepreneurs will hear about it and begin to compete with you. Think back to how quickly online grocers and travel outlets sprouted on the web as soon as the first outlets showed signs of life.

The competition doesn't just come from other entrepreneurs. Increasingly, major corporations - both domestic and foreign - are honing in on markets that they might have considered too small a few years back. They are opening chains of restaurants, dry-cleaning establishments, consulting firms, and many other kinds of businesses. Because corporations often have tremendous financial resources to put behind advertising, these competitors can make life quite difficult for the early-stage entrepreneur.

Fast-changing customer demands and tastes. As people become better informed, they become more demanding buyers. They want the best values, the latest features, the most attractive prices-and if they don't get these from you, they will go elsewhere.

The problem for the start-up entrepreneur is that what consumers prefer keeps changing. Restaurant owners suddenly discovered that more people wanted to take home prepared food and save money. Video-store operators found that numbers of people wanted their videos delivered. If you don't find out about such changes before your customers get the new product or service from somewhere else, you are in big trouble.

Need to be global. The movement toward a global economy means that it is increasingly difficult for the startup entrepreneur to base his or her business entirely on local customers and local economic conditions. Many start-up entrepreneurs learned this lesson the hard way in Texas during the mid- and late 1980s, in New England during the early 1990s,

Raising growth capital more difficult. Lenders and investors of all types are increasingly skittish about committing to start-up and early-stage businesses, especially after the Internet blowoff in 2000 and 2001. Should your start-up business suddenly prosper and grow to the point that you need to raise money, you may encounter difficulties obtaining that money from traditional sources. As I discuss in Chapter 8, some less traditional sources are filling part of the gap. But a rapidly growing business that is unable to find capital can encounter serious long-term difficulties coming up with essential cash.

Harder to find and keep the best people. Demographic forces are at work that are reducing the skilled labor pool. The implication is that small businesses are increasingly in competition with large corporations for workers. Corporations can typically afford to pay higher salaries and offer health insurance and other expensive benefit programs. So more and more small businesses are scrambling to get and retain good workers.

The Real Challenge

If you're starting a business, it is essential you do it right. That means carefully evaluating your idea, getting the best people to work with you, anticipating your cash flow, writing an effective business plan, and accomplishing the endless additional tasks that are part and parcel of the start-up process. As I pointed out, it's possible to get up and running doing much less than what this book advises. What's important in today's environment, however, is to build a foundation for long-term success. That's what this book is intended to help you accomplish.

Chapter 1

The New World of Start-Up Businesses
"Seest thou a man diligent in his business He shall stand before kings."
The Bible, Proverbs

Today's entrepreneur really does stand before kings Politicians from mayors up through the U.S. president extol the spreading entrepreneurial spirit. Major corporations can't say enough wonderful things about business owners. Worldwide, the entrepreneurial spirit has taken hold aster mer socialist and communist countries promote business start-ups.

Politicians have come to the realization that small businesses create the majority of new jobs in our economy. And corporations have come to see startup businesses as an important, growing market for assorted goods and services ranging from office supplies to space in office parks.

Consider that during the 1950s, less than 100,000 businesses were incorporated cacti year. By the 1990s, that figure had grown to approximately 600.000 annually. The trend has become a global phenomenon: the Ewing Marion Kauffman Foundation in 2001 estimated that in 29 countries it studied, an estimated 150 million people were "creating or growing new businesses."

During the 1970s, many politicians had worried that small businesses might be squeezed out of existence by the growing power of major corporations. However, the reverse occurred as entrepreneurship boomed during the 1980s and 1990s, and many major corporations seemed to be in perpetual downsizing mode. Entrepreneurship has become a part of our social fabric and expresses itself in many ways.

Everyone Is an Entrepreneur

There was a time when individuals agonized over leaving the safety of a regular job to become an entrepreneur and start a business. In today's economic and business climate, the lines between work and career roles have blurred considerably.

College graduates looking for their first jobs must increasingly use techniques beyond the traditional one of sending a blizzard of resumes. The graduates must network, take on internships, research unknown companies, and otherwise be innovative beginning while they are still in college if they are to move into a career path smoothly.

Similarly, middle managers in large corporations are being called on to demonstrate an entrepreneurial approach to doing business. They must develop and implement new ways of carrying out their tasks and demonstrate an orientation toward the outside marketplace, regardless of whether they are involved in marketing, if they are to keep their jobs and advance at their companies.

Providers of professional services attorneys, accountants, consultants, architects, and others‹must likewise become entrepreneurial if they are to survive in a new world of sharper competition to sell services. These professionals must identify target markets, make cold calls, and give presentations to prospective clients to build their practices.

Even managers of nonprofit organizations must be entrepreneurial if their organizations are to bring in the funds essential to carrying out the organization's purpose. Those individuals must go beyond simply tugging at the heartstrings to raise money. They must become adept in direct mail, public relations, sales, and other aspects of business development or risk seeing their organizations atrophy and even die.

The message in all this is simple: No longer should you agonize about a decision to "take the plunge" and become an entrepreneur. Even if you are considering starting a business, you have an opportunity to be an entrepreneur doing whatever you are currently doing. Indeed, you should practice being entrepreneurial in your current position or situation to make the transition to starting a business that much easier.

Everything Goes

In discussing small-business start-ups, I used to urge prospective entrepreneurs to consider whether they wanted to establish a "high flyer" type of business or a "lifestyle" business. The high flyer is a fast-growing business, a potential member of the Inc. 500 list of the fastest-growing private companies. The lifestyle business is a company oriented toward providing a nice income stream to its owner based on slow or moderate growth over a long time.

While those designations still have application from a broad planning perspective, the motivations behind starting a business are much more diverse in today's business climate, reflecting the growing diversity of our society. Here are a few of the motivations fueling entrepreneurship:

Individuals considering starting their own businesses shouldn't be reluctant to take into account such factors as family, location, and income. Yes, the fundamentals of the business, as discussed later in this book, must make sense. But the desire to be available to a young child or to avoid moving to a new location are valid reasons for wanting to start a business. Indeed, they may create the desire necessary to make the business succeed.

Matching Needs and Talents

It's no longer enough to identify a market need and rush to serve it. Many of the publications that purport to list the "Top Ten Businesses of the Year" do budding entrepreneurs a disservice by equating the start-up process with taking advantage of a current fad.

Instead, prospective entrepreneurs must be willing to look inward as well as outward. They must examine their own strengths and weaknesses as objectively as possible. Everyone has their share of both. Some people are great at developing new products, but mediocre at supervising employees. Others are the reverse. And some are too anxious or disorganized to think realistically about starting a business.

Those who understand their strengths and weaknesses will focus on how best to capitalize on what they do well and find others to fill in for what they don't do well. Perhaps more important, those who understand themselves well stand a better chance of finding satisfaction in the start-up process.

New Emphasis on Creativity

The conventional way of doing things is not necessarily the right way. For example, the conventional way to sell things through direct mail is to design a catalog, rent mailing lists of individuals in your targeted market, and conduct large-scale mailings.

Many companies succeed using this approach. But smart start-up entrepreneurs have found alternatives to this extremely expensive method. (At costs approaching $1 per mailed piece, including design, printing, and postage, the incentives to look elsewhere are also compelling.) Some are using web sites to collect email addresses of prospects and then communicating with them via emailed newsletters or product updates. Some have developed partnerships with large corporations that can feature their products in the corporations' catalogs or retail outlets.

Anyone considering starting a business needs to be prepared to move beyond conventional approaches. Entrepreneurs must be creative, and they must demand that their employees be creative. Just because something has never been done a certain way doesn't mean it shouldn't be considered.

And related to the need for greater creativity is the need to change quickly. Entrepreneurs must be well informed about changes in the marketplace and in current events. Plans must be frequently updated to take account of changes in the outside world.

In a sense, in addition to being a chief executive, today's business owner must be a sociologist, historian, and psychologist.