Starting a business after being laid off

incubator,entrepreneur,laid off

Unfortunately, but all too common given our current economy, I have recently been consulting with a number of people who have been laid off from their jobs, and are now considering opening thier own business. Their stories are crushing.

Yet, I must caution - even in the face of real need and difficulty - not to jump from one bad situation into another. Need cannot in and of itself be the business.

In one case, an engineer was considering cashing in his 401K to open a franchise. He had been provided three franchise opportunities by a 'consultant' brought in by the outplacement service his previous employer gave him as a severance account. The franchise he wanted was clearly a terrible fit for him, yet he plaintively argued he had to do something to feed his family.

Stories on the internet or in entrepreneurial magazines about people who have successfully made the transition from laid-off to entrepreneur seem always to circle on people such as a marketing executive who did culinary arts cooking previously, now opened a successful bakery. Or the engineer who had tinkered with some software at home, now writing Itunes applications.

There are opportunities out there that can be taken, and within a short time. But no amount of immediate need can overcome the need to know your market, have a product that solves a problem, and priced accordingly.

Use the library (free) or come by your local business development office or incubator (usually free) and get yourself a plan of action first. Then make a firm decision.

This also will allow you to avoid having the weight of your previous layoff overhang your new business. If every time you go into an account with your new business, you predicate your pitch with "I was laid off from ABC, and now am selling X" - people will be sympathetic, but not buyers.

By being organized and ready, rather than just needy, you send a great message to new customers and will allow you to move into the ranks of new business owners.

Sorry I've been quiet

Sorry I have been quiet during the month of March - it has been a bit hectic. Back to entries today!

Interview with an Entrepreneur: John Avellanet

incubator,entrepreneur,avellanet,cerulean,fda compliance

I recently had the opportunity to interview a good friend and entrepreneur, John Avellanet of Cerulean Associates. Cerulean is a specialty consulting shop focused on FDA quality systems and regulatory compliance.

Brad: John, now that you have been in business for a few years – what has been the most unexpected aspect of running your own business?[JA] The marketing never stops – clients do.

2. Did you or have you taken advantage of business services offered by community or governmental groups: whether SBA, local business incubator, chamber of commerce, university? If not, why not? If you did – was it helpful?[JA] The SBA I did not approach because I didn’t want a loan; I did plow through their very, very helpful website and resources. The local business incubator recommended that I contact them once I had at least 3 employees (or temps) working for me. The chamber of commerce I tried to use, but this is really just a networking group and lobby group for the local community; if you’re not selling to local businesses, carefully evaluate any impetus to join. That said, the chamber does have the SCORE folks (retired executives who donate their time) and depending on your type of business SCORE may be very helpful so don’t overlook it. As for local colleges, I ended up guest lecturing at the local business university on entrepreneurship.

3. Did you put together a business plan when you started? [JA] Yes and like everyone says, it’s a good exercise, forcing you to conduct market analyses, etc., but realistically, unless you plan on keeping it a living document, revising, etc., every six months to a year, it sits in a drawer collecting dust. I would suggest you put together one, but then do a simple 3-4 page annual summary every year, and make those addendums, to help you craft your business. You’ll be surprised at how much your target changes after 2-3 years from what you first conceived.

4. Did your expectations regarding competition and market size when you started your business match up to what you’ve experienced? [JA] Yes and no. There is definitely more competition out there than I had originally surveyed – things crop up over time, so in hindsight, that’s something anyone looking to start out should expect. Depending on the business model – and the economy – competition will go up and down. Despite the tough economy right now, I expect the market size to continue to expand – not because of some imagined miracle cloud of new customers that will “poof” appear, but because we continue to be globally connected and this increases the number of folks looking for my services. That said, given the economy, several of my competitors (particularly the larger ones) have already gone out of business or filed for bankruptcy (see the part above, when a couple of years ago I didn’t want to start by taking out a loan), so that’s created more elbow room for me and continues to increase the number of folks wanting to work with me.

5. Have you considered co-working or professional office space to house your business? [JA] Yes, but until I need to (as in, have to hire at least a couple of full-time folks), I don’t anticipate it. Currently, I operate out of a home office and love it (especially since I spent 8 years commuting 1 hour 15 minutes each way to and from work – now my commute is approximately 7 seconds).

6. How do you locate and develop your pipeline of new clients? [JA] This is the million dollar question. I’ve tried cold-calling; it really doesn’t work for the small business person – it’s just a numbers game and to get a greater chance of success requires more calls, so when do you actually have time to work? Plus, frankly, I’m not a big fan of telemarketing. I’ve had the best luck through those things I do best: writing, speaking, and giving great service (so the latter translates into referrals). Every business is different, though, and entrepreneurs and owners should focus on what they do best and like to do in order to generate clients. Several colleagues of mine really dislike writing and speaking, but love networking – that’s how they get almost all their business.

7. What’s been the toll or effect on your family life with you running your own business? [JA] Well, this is another reason why I like working from home. I read somewhere that the average entrepreneur works at least – that’s “at least” – 60 hours a week. I don’t doubt it; I suspect that number is probably low. So, if I were out of the house 60-80 hours a week, I’d never see my family. Now, I can take a break here and there, go meet the kids at the bus, and so on. And I’ve got a lot more energy without the commute….

8. Do you have a personal network or peer group of individuals you meet with regularly to discuss business ownership, what’s happening and generally to bounce ideas? [JA] Yes – both virtually and in person. I like to talk over ideas with friends who run their own businesses (all different from mine) locally; I find they are a source of interesting ideas and challenges – after all, if they do a promotion that succeeds, how can I adopt that and make it succeed for me…those are the types of discussions I love. From a virtual aspect, I use the phone and email a lot to keep in touch with old colleagues whom I trust implicitly to give me perspective and wake me up from getting too carried away with some idea or other. I think advice from both those sets of folks has helped me survive so far.

Hey, wait a minute - thatlast question was supposed to be answered "Oh yes, Brad Rickelman is the greatest!" [JA] You said I was supposed to answer truthfully - and I did intimate that I talk with 'old collegues'.

"Startup in Thirteen Sentences" and "Three things you need if you want more customers"

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Two great short articles this week - both with simple and straightforward messages for those wanting to start a business.

Seth Godin's Three things you need if you want more customers - here I will give them to you -

1. A group of possible customers you can identify and reach.
2. A group with a problem they want to solve using your solution.
3. A group with the desire and ability to spend money to solve that problem.

and Paul Graham's Startups in 13 Sentences.

Paul says if he had to pick only one: "Understand your users."

Both Seth and Paul are striking on the same stake: if you don't identify/understand/know your market, you are done before you start.

But Brad - if people only understood my great solution, they would love it! Maybe. How do you know what people you are trying to get to understand your solution?

If you can come in to the CBD with answers to 1,2,3 - now we can take advantage of the services and offerings available to entrepreneurs. Too often people come in with everything else - then try to find a customer base.

alla garibaldina

incubator,entrepreneur

The italian phrase alla garibaldina refers to 'an enterprise begun with carefree audacity, little preparation and a lot of risks' Paul Hofmann

Is your startup alla garibaldina?

While Garabaldi succeeded in bringing Italy together into a country, your enterprise is more likely to fail. We love the myth of the entrepreneur - striking out on his or her own and making it big. And I certainly don't want to downplay the importance of passion for what you want. When you investigate our mythic entrepreneur, we often find that they did have preparation in their previous experiences - skills gained or learned - that carried them through. What seems to be effortless, is instead the result of endless work.

Every entrepreneur who comes through my door tells me of his passion for whatever idea he has. Yet almost none return for a second visit. This could well be a critique of my advice - and maybe they go off and do succeed. But we could use less myth and more realism.

Your pain is not the Customer's pain

retail,incubator,entrepreneur

I recently have been trying to sell a Belstaff shoulder bag. I bought it when in UK, in pounds. The dollar was weak at the time and so now as I try to sell it, due to my arbitrage, I won't recover what I paid.

In pricing my bag at what I'd paid, rather than what the market was buying, I was confusing my pain with the customer's pain - just because I had overspent, does not mean I can have the customer also overspend. He might be sympathetic to my plight, but won't cover my mistake.

When you sell your product or service, remember you are trying to hit the intersection between the customer need/pain and your desired return. A Rolex does not cost $5000 to make and distribute - but it is bought and sold at that price because it crosses the customer's desire for a swiss watch and the profits they want to get from it.

If you are a retail store, don't be afraid to move out slow selling items - take your hit and move on. Then do a better job next time at choosing products to sell to your market. When Circuit City said it would close its stores, people went there looking for bargains - not finding them, they left (with the stores even slower than before they announced closing).

BTW - I still have the bag!

The Business of Incubators

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Allow me to do a bit of navel gazing...

There have been a couple articles the last few weeks about business incubators having difficulties. Here is a link to a Business incubator program suspended (the Adirondack Regional Business Incubator in New York). These articles usually contain some statistics about the return value of incubator programs, how many businesses were created, and other reasons why they should not shut down the programs.

While I have no specific information about that particular incubator, the article notes that they did not have enough sustainable financing to continue. What I find interesting is that for entities that are created to help businesses become successful, we in the incubation industry seem to have a hard time doing the same for ourselves.

It seems to be relatively straightforward to get grants and other sources to open a facility, get the mayor with the big scissors to cut a ribbon,..., but once open how do theyexpect to keep going? If it costs $400,000/year to run an incubator, but revenue from a full facility will bring in $100,000/year - where will the rest come from? Usually the rest comes from local funding agencies (Chamber, Economic Development Agencies, Grants) - but when there is a down turn in the economy, or change in a funding agency, the money disappears and the facility shuts down.

The problem is caused by something I occasionally see in a client business: the person paying for the product is not the end user. The incubator's operational expenses are largely covered by some other agency. The success of the programs are in local businesses - but they don't pay the incubator beyond the rent.

When we give reports to the agency, we say '50 jobs were created with incubator businesses, bringing in $x to the local community.' But those $x don't pay the salary or expenses of the incubator - the funding agency does.

At least in those incubators that take equity in their clients there is a clearer connection between the success of the program and success of our clients.

If a local community wants to setup an incubator, they had better be clear about where their dollars are going. Does the local community realize that they will be carrying a facility and staff indefinately on their budget? That is not in and of itself a bad thing - local communities fund police, fire, and other departments. But if there is some implied "well, the facility will become self-sustaining" I think that sets the community up for heartbreak.

That is why I was heartened to read Benton Harbor area not ready to sustain incubator - a community that realizes it is not ready for one yet (and maybe not ever). Instead they already offer a good set of services, and with some iintegration they can gain most of the benefits of an incubator.

Local businesses and entrepreneurs need and can take advantage of the services we offer. But we need to be fair to our stakeholders.