Now Is Always the Best Time to Start Up
We’re brothers, best friends, neighbors, and lifelong business partners. We began working together on the Battery Buddy, an invention of ours that prevents dead batteries on cars and boats, in 1987. Remember that year? Specifically, October 19 of that year? They called it “Black Monday,” the day the Dow Jones Industrial Average fell 22.6 percent, the largest one-day decline in the market’s history.
For the next six years, America’s economy was in shock.
But we persevered and cobbled together a successful business. In 1990, we nailed a lucrative licensing deal for the Battery Buddy with a multibillion-dollar industrial colossus named Masco Industries.
In the early 1990s, when the economy was still weak, we leveraged our success as inventors and built a business around helping other inventors license their inventions to big corporations. In exchange, we would receive a portion of any future royalties generated from the licensing deals. Building on that success, we’ve gone on to develop a portfolio of companies over a 10-year run, along with a venture capital fund to seed new ventures. Ultimately, this path led us to the launch of StartupNation, our current company–and our total passion.
Through it all, we weathered some scary years–two stock market crashes, two wars, terrorist attacks, the implosion of the “New Economy,” not to mention the multitude of challenges that we faced inherent in starting and growing our own entrepreneurial endeavors. But we worked our way through the obstacle course with a combination of resilience, tenacity, and a sheer love of what we were doing. In fact, we managed to flourish.
Perhaps you have your own business idea but you can’t quite seem to get started. Maybe you’re still suffering from a New Economy hangover or just the fear and confusion that’s so common if you’ve never “gone for it” before. Perhaps you think you should wait just a little longer before making the leap to pursue your own dream business.
We beg to differ. Something we believe emphatically is:
NOW IS ALWAYS THE BEST TIME TO START YOUR OWN BUSINESS
That’s right. Right now. We truly believe that it’s possible for your business to succeed no matter what the economy is doing, no matter what stock market sectors are up or down, or what niches venture capitalists think are hot or not. Many of our country’s most successful companies were born during the toughest of times.
We believe that many of the reasons businesses fail have far more to do with factors you can control than the ones you cannot control. Certainly, unexpected events, such as the terrorist attacks of September 11, 2001, can serve up a situation that could be impossible to overcome for a business–big or small. You can’t control world affairs. You can’t control the economy. You certainly can’t control the stock market, and you’re never going to control venture capitalists. But in general, events and issues outside your control do not have to ruin your chances for success as an entrepreneur.
You can control how much research you do on your big idea. You can control which strategies you choose to include in your business plan and how you spend your money. You can control whom you hire, and you certainly have control over charting your business’s course for the future.
5 Reasons to Start a Business Now
1.Technology levels the playing field between you and big business.
2.Today the phrase “corporate job security” is an oxymoron
3.The Internet provides an unprecedented opportunity to start at online business at minimal cost
4.Like never before, business can be done from home.
5.Corporate outsourcing to smaller businesses creates an abundance of opportunities
Bonus Reason: The only person who can boss you around is you!
Where do we get this somewhat crazy idea that no matter what the rest of the world is doing, now is always the best time to start your own business? From our in-the-trenches experiences riding out two major gyrations in the economy in the past 16 years. From our exposure to thousands of other successful entrepreneurs in our StartupNation community. And as hosts of a live syndicated radio show where we interact with entrepreneurs nationally. We know of thousands of businesses that have hung the “Open for Business” sign on their doors just before and just after the dot-com bust. Many of them have succeeded beyond their wildest imaginations. Indeed, for many, believing that “now is always the best time to start your new business” has put them in a far better position for success than if they’d waited for the economy to turn around.
Now, we know it’s all too easy to push back, to stick with whatever you’ve believed up until this moment–whatever has kept you from starting up. We deal with those roadblocks from quagmired callers all the time on our radio show. What we’ve found is that people hesitate for one of two reasons–either they’re immobilized by fear of what they don’t know, or they’re scared away by what they think they do know. Myths about starting up a business are rampant, leading people to use those myths as the crutch that keeps them from moving forward.
So, the first thing we have to do is start busting apart those myths.
Startups–Debunking the Myths
Myth #1: “Four out of five businesses fail within five years.”
Truth #1: The fact is, research shows that 40 percent of businesses actually succeed beyond the five year mark.
For as long as we can remember, conventional wisdom has held that more than 80 percent of businesses–four out of five–fail in their first five years of operation.
Bruce Kirchoff, a former chief economist with the Small Business Administration and now a professor of business at the New Jersey Institute of Technology, confirmed for us that nothing could be further from the truth. The “four out of five” statistic has bedeviled him ever since his boss asked him to find out whether the statistic “four out of five businesses fail” was accurate enough to use in a speech. His first brush with the data revealed that there was no sound research to support the statistic.
Bruce was intrigued. If that number wasn’t right, then what was the failure rate? By culling through millions of pieces of data about business success and failure, he was able to come up with what he believes is a more accurate reflection of reality. Forty percent of the businesses he researched were still thriving and succeeding six years after startup. Only 18 percent of the companies he researched actually filed for bankruptcy during that period.
As Bruce combed through millions of records of small businesses, he realized much of the data was incomplete. Records didn’t show if someone had simply retired. The records didn’t do a good job of keeping track of businesses that changed their names or the way they were incorporated. The data certainly didn’t follow companies that shut down and then opened in a different location. Erroneously all of those circumstances had been incorrectly lumped into the “failure” category, when in fact they really just encompassed events that were part of doing business. As Bruce found, those stats are extremely misleading.
It’s true that businesses do fail, and at a higher rate than any of us would like. Hector Barreto, current administrator of the Small Business Administration, shared with us his view on how to reduce that failure rate significantly. “We’ve found that if small-business owners do their homework, use the right technology, and heed advice about how to run their business, their chances for success go up exponentially.” We couldn’t agree more!
Myth #2: “The dot-com bust proved that technology is not all it was hyped up to be.”
Truth #2: While many of the dot-com companies went bust due to bad business fundamentals, the technology spawned in the late 1990s is here to stay.
Technology is having a profoundly positive impact on the way business is done. In fact, it’s the game changer–the single most significant enabler for startups today. We can’t think of a time when so many great technologies at ever-decreasing prices have been available to such a huge swath of society. More significantly, many of these technologies–complex software programs, wireless communications, and the Internet, to name just a few–are making it possible for small businesses to act “big” while maintaining the flexibility and innovative qualities inherent in being small.
Here’s a quick look at how three technologies are already helping small businesses “act big.”
• Software: A decade ago, software programs that managed inventories, payrolls, or customer contacts were out of reach for many of the smaller businesses. The companies that offered great customer-management or inventory-control programs– IBM, Oracle, and Siebel–required multimillion-dollar contracts that only major corporations with thousands of employees could justify. But today, even the 16 million home-based entrepreneurs can easily access such software systems by purchasing “off-the-shelf” versions like QuickBooks or through web-based products from companies like Netsuite.com.
• Wireless: There’s no doubt that wireless technology is making it far easier to be a business owner, increasing the flexibility and freedom that have long been the hallmarks of being an entrepreneur. Today, with wireless technology, you can be on a sales call while monitoring your inventory levels on your wireless personal digital assistant. With a wireless connection for your computer, you can take a meeting at your local Starbucks while staying on top of the orders coming into your website in real time. And you can take one more important call on your cell phone before the door on the airplane closes. The thing about wireless technology is that it allows you to always be “plugged in” to your business for maximum efficiency.
• Internet: Want a worldwide market? Want to do exhaustive research? How about low-cost marketing and advertising? Or how about creating a storefront viewable by people well beyond your Main Street? Through the Internet you can do all of this–from business logistics, to customer communications, to selling what you offer–and it’s all possible without ever leaving your home office.
Diamonds Can Be an Entrepreneur’s Best Friend: BlueNile.com
The best way we can describe just how powerful all of this technology is for your business is to tell you about one of the great Internet success stories: BlueNile.com.
The online jewelry store’s founder, Mark Vadon, is one of our favorite examples of a smart, tough entrepreneur who used the Internet to his best advantage, even when many people thought he was going to crash and burn like so many other dot-coms.
As Mark told us in 2003, he was able to harness all the upside of the Internet to create a jewelry powerhouse that could compete against deep-pocketed brick-and-mortar companies such as Zales.
Putting the Internet to work, Blue Nile managed to take on the traditional brick-and-mortar competition, selling well north of $100 million in jewelry in 2004 with just 115 full-time employees and a 10,000-square-foot warehouse. If Blue Nile were a traditional jewelry retailer, it would need about 150 stores and 1,000 employees to do that same level of business. All those stores and employees force jewelers to take a markup of 60 to 70 percent to make profitable margins. By keeping overhead at a minimum, Mark can keep prices low and provide more value to customers.
But as Mark told us, the Internet isn’t just about cheap prices. “Cheap prices would get people to surf our site, but that doesn’t necessarily mean they’re going to buy,” he says. Most jewelry buyers are used to trying on jewelry and having a salesperson nearby to answer questions about size, carats, and quality. Mark knew he had to overcome those two big sticking points. He did it in a simple but smart way. As he built his company, he remained focused on the idea of filling Blue Nile’s website with information he thought his customers would find relevant, like honest, factual information about a diamond’s characteristics. Today he offers comprehensive online tutorials about how to select the best ring. Just in case that didn’t do the trick, BlueNile.com offers a 30-day, money-back guarantee if the person receiving the jewelry isn’t satisfied.
Mark’s experience using technology to build Blue Nile’s success is living proof of how powerful technology can be for a small business.
Here’s a look at just how vast and diverse the Internet audience is today (2004 statistics):
• Worldwide Internet usage reached 813 million people
• Nearly 75 percent or 204.3 million Americans have access to the Internet from home
• 50 percent of Americans with a household income under $50,000 shop the Internet
• 59 percent of African Americans shop online
• 63 percent of Hispanics shop online. Hispanics are the fastest-growing online population and are younger than the Internet population in general.
• 49 percent of senior citizens shop online
• Total online sales in the U.S.: $101 billion
• 75 percent of small businesses have an online presence
• The average male spends more money shopping online per month_than the average female–$204 to $186, respectively._
Sources: Nielsen/NetRatings, 2004, Yahoo! Harris Interactive 2004, Shop.org 2004
Myth #3: “All the money guys are still spooked_because of the dot-com bust.”
Truth #3: The money guys are always spooked! The_explosion of capital in the late 1990s was an aberration, not a reality. That doesn’t mean you can’t get money for your startup; you_just have to present a business opportunity based on solid fun_damentals.
Let’s face it–it’s never been easy to score capital for entrepreneurial ventures. But for a brief, intoxicating moment during the dot-com boom, money was easy to come by, especially for any business that had the moniker “dot-com” as part of its name. We now know that the dot-com era was an ill-conceived fantasy, not reality. In reality, the money guys are always tough to persuade.
They should be.
If someone’s going to invest money in your business, they deserve to have a well-thought-out business plan with a strong focus on how you’re going to reach profitability and create an enticing return on investment. This is what drives rational investing decisions.
We’re happy to see this return to more rational approaches to funding businesses. We think when investors and lenders make the bar higher and harder to leap over, new companies are more likely to really think through their business and financing strategies. We believe that makes for far stronger companies and ups the likelihood of success in the long run.
Don’t misunderstand–we do believe that capital is readily available for your startup. You just need to know where to look and how to position yourself. We’ll give you a lot more detail in Chapter Six on how to find money, and how much and what kind of money are best for you and your startup.