Spreading Your Wings
At one time or another, many of us become our own bosses. You may be considering such a move now. It may be that, after countless months of internal struggle, you have decided to move from the known world of employment into the unknown world of self-employment. Or you may be traveling from an unknown (early retirement or finding yourself in the wrong position in a repositioning) back into the known world of commerce. Either way, you're on your own.
There are countless pathways to choose from within the broad circle of business. You can become a consultant, a franchisee, a manufacturing or retailing entrepreneur, a broker or distributor. But whichever path you choose, there is at least a fifty-fifty chance that you have important weaknesses in your repertoire of relevant business skills.
"You think you're so hot coming from a big company, and it turns out you don't have a clue what the game's about," is the way one small businessperson described it to the Wall Street Journal a few years ago. And being a business school graduate is not bombproof insurance against inadequacy either. I know more than one MBA who would be hard put to construct a realistic cash flow projection for a small enterprise. Can some of your major potential weaknesses be cataloged and systematically strengthened? Of course, and that is the purpose of this article.
Of all the weaknesses, the most serious one is to lose sight of the fact that businesses are made, not born. To prepare for the task of being your own boss, you will need proper respect for the knowledge and plain hard work it takes to build even a simple business. Given this, the rest is reasonably straightforward -- if an opportunity for business actually exists. Before you take the plunge, you should ask yourself these questions:
- Why am I considering going into business for myself? What specifically do I hope to achieve?
- Who is going to buy what I am selling, and why? What is the hard evidence that there are enough customers out there?
- What resources do I need -- worst case -- to get to positive cash flow on a sustained basis? Do I have those resources or can I -- for sure -- get them?
- Do I have, or am I willing to construct, a plan and a network to improve my odds of building a viable enterprise?
Personal objectives
What do you hope to achieve? Almost everyone will want to make enough personal income to get along. Beyond that, there is a wide range of possible objectives. At one extreme is the quest for big capital gains; at the other, perhaps, is the desire for quiet independence. Between the two lies a big gap, and neither extreme is necessarily better than the other. But without thinking through this fundamental issue, your business runs the risk of becoming like a lot of retail boutiques that open -- and soon close -- using up precious money from the family savings.Personal objectives come in all shapes and colors. Some of the common ones are to: build personal net worth; make a living; gain personal influence over others or events; achieve independence of action or professional recognition; relieve frustration with a present position; or contribute to society. You may identify with many or all of these objectives. You may have others. Add them to the list. The point is to think these issues through. Otherwise, how can you test the appropriateness of your potential new business? If a big net worth is your target, becoming an independent consultant headquartered in the outback is not the business for you.
One warning: If you are entering business with someone else, it is essential that the personal objectives of both or all parties be acknowledged and that they be compatible. The absence of such compatibility has put many a lawyer on Easy Street.
The market
Who is going to buy what you are selling, and why? In pursuing their dreams, many owner- bosses make one of several common mistakes. They may tend to concentrate too heavily on what they have to sell and too lightly on what is being bought. This is particularly true of consultants, engineers, scientists, inventors, and franchisees. The first four tend to be deeply involved in their subject, product, or process -- their shtick. Franchisees start off with a package that may or may not fit well with the local situation.Another common mistake is to generalize about the market. For example, "companies" and "consumers" are meaningless classes of potential buyers. Companies don't buy things; purchasing agents, engineers, and plant managers do, often one purchase order at a time. And consumers, as we all know, are fickle. The aggregate market can be sliced and diced into segments, niches, and so on, but I trust no reader of this magazine will assume that a new gadget for autos is a sure thing just because there are so many cars out there.
I have a friend who left the corporate world and started a business in which he aimed to be the middleman between smaller companies that needed money and nontraditional sources of such money. "There are so many businesses out there the banks are ignoring," he told me. Two years later, it turned out that "so many businesses out there" was a useless generalization. In fact, the actual number of qualified smaller companies for my friend's sophisticated approach is quite small.
A third mistake is to let enthusiasm and infectious optimism blind you to the people who will actually buy the proposed product or service. A short case in point illustrates the problem. Several physicians teamed up to take advantage of the opportunity they saw to use computers in hospitals. They pulled together an exceptionally sharp group of technical people and developed turnkey packages for several perceived needs. In addition, they generated slick descriptive literature and a bound business plan to raise money. One seasoned investor made these notes inside the cover after she read the detailed plan: "I can't tell if you are intending to sell (a) time savings to the doctors, (b) fewer nurses per floor to the hospital administrators, (c) greater net revenue to the accounting people via tighter controls on miscellaneous charges, or (d) shorter hospital stays to insurers."
Resources
What resources will you need to set up your own business? They boil down to people and cash that is convertible to assets like equipment and inventory and accounts receivable. Selecting people -- the right people -- is, I think, the biggest challenge for those who want to be their own bosses. There are two worst-case scenarios: Either the would-be entrepreneur gathers partners too casually, or he or she tries to do everything. Both lead to problems if the new business does poorly in its marketplace -- or if it does well!The first scenario often occurs because the founding group is formed at an alumni cocktail party or during a sail on the bay. Soon personal lawyers, accountants, and bankers are woven in, and, finally, a board composed of spouses and other friendlies is added to complete the starting team. Given the hostile environment most fledgling businesses face, this is no way to start a business. In my experience, the strains of either tough times or great times tend to rip asunder such an enterprise, which is by nature fragile.
The second scenario -- too few human assets -- is equally perilous. In an undertaking of any consequence, you will need quality help. A team and teamwork are not optional, even in a small start-up business. In the early stages, you often can pick up needed skills on a part-time basis from properly selected advisory board members or joint-venture partners. Identifying exactly what human and other resources you need, and determining how you will bring them on line are central to your preparation.
Preparation
What is a business plan? A business plan is a blueprint for building a business. It is a word picture of your dream. A business plan tells why the dream can be economically viable for those involved and how the dream will be constructed over time. Done properly, it is big work. Like writing an article or a book, getting an idea out of your head and onto paper in a coherent form that can be understood and critiqued by others is difficult. It is not merely a task of translation from head to paper; it is a creative act.What should be in the plan? I think there are nine primary subjects to cover: concept, market analysis, objectives, production and sourcing, marketing and sales, organization and staffing, funds flow and break-even analysis, competitiveness, and ownership. It is not the purpose of this article to elaborate on these relatively straightforward elements. Suffice it to say that if it's too much trouble for you to verbalize your thinking on these subjects, perhaps it's too much trouble for you to be your own boss. Over the years, most of the successful self-run businesses I have known were successful because of a combination of market opportunity, a sound concept, both adrenaline- and ice water-driven decisions, adequate resources, hard work in execution, and -- finally -- adaptability. It takes a plan to integrate these dynamic factors.
The last factor, adaptability, is important. Unlike houses, most viable businesses do not end up looking a lot like their original blueprints. But each ends up looking like some blueprint. It is no sin to redo a plan for your business often; it is risky, however, to wing it. If you find yourself at the sort of dead end described by Lili Pratt, MBA '76, in the September 1993 issue of this magazine, consider writing a business plan as your first step in answering your ringing career alarm.
The desire to be your own boss is probably genetic -- it's certainly widespread. But without a practical understanding of the basics of business, that desire can lead to regret.
Steven C. Brandt , MBA '65
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