My favorite story about misguided entrepreneurship goes something like this: Someone has a cousin who is a gifted cook. They think, “My cousin can cook better than anyone I know. Her cooking is better than most restaurants I go to that have fancy chefs. I have an idea. I will open a restaurant and my cousin will do the cooking. I am pretty good with numbers, so I will handle the rest.”
If the person in this story has no money, they go out and borrow some, perhaps from friends and family. Maybe they have some money saved so they use that. They open their restaurant thinking, “We just have enough money to get the doors of the restaurant open, but once people taste my cousin’s cooking, they will flock here in droves. Within a few months, we will be profitable.”
This is misguided entrepreneurship because many elements of developing and opening a business are not being considered
The thought process described above turns entrepreneurship into gambling. Time and money are both being gambled. Lamentably, lots of people believe this is the nature of opening your own business, of entrepreneurship in general. These folks believe opening a business is a gamble. Period, full stop.
Certainly, business, in general, carries with it a variety of risks. And starting your own business from scratch might be the riskiest form of business. But that does not have to turn it into an out and out gamble.
Gambling, in the context I am using the word, is simply leaving your fortunes to random chance. Interestingly, good gamblers try to gamble as little as possible. In other words, they look for every edge possible to reduce the amount of risk they face on any given bet.
Smart business people attempt to eliminate or reduce risk as much as possible prior to beginning a given project. How is this done? Three vital keys come to mind:
1.) Have an overall plan – We might have a cousin who is a good cook and we might have a good mind for numbers. We should, however, also have a roadmap to success. This roadmap, ideally, will answer questions like: What kind of cuisine will we serve? What is the competition like in the area? What will our profit margins be? What licenses do we need? What kind of insurance do we need? Where will we be located; how much rent will we pay and will the location draw good foot or vehicular traffic? How will we promote our restaurant? And plenty of other questions along these lines.
2.) Have a specific marketing plan – After the overall plan is laid out, a specific plan dealing with marketing, advertising and promotion of your business should be crafted.
A good marketing plan will identify your market, spelling out the demographic realities of your target consumer base. It will also address the best ways of promoting your services or products to that base.
Certain questions should be answered. How will you promote your business? What is your budget? What are the most cost effective means of attracting customers? Will you make use of flyers, television or radio spots, Internet ads, newspaper advertisements, billboards, etc.? Will you offer special discounts on certain days of the week? Will you employ a public relations strategy so that the media gives your business coverage that in turn helps direct customers to it, along with generating legitimacy? All these issues and more, should be given some thought before you open your doors.
3.) Have enough money – I will guess and say most businesses fail because they are undercapitalized. Assuming a person has good plans and a solid work ethic, the beginning process of opening a business – a restaurant for example, particularly if it is your first time doing it – is like going to school. Sometimes you do well, sometimes you do okay and sometimes you might fail. If you have enough money to begin with, I suspect you will get over your moments of non-profitable performance and go on to succeed. Being properly capitalized helps you deal with those things in the business cycle which might be unforeseeable, as well as helping you through the learning curve.
Business and entrepreneurship are risky. There are no guarantees. How different is that than life in general though? I take no position on whether you should be an entrepreneur or not. However, I do believe that if you decide to go in that direction you should attempt to put the odds in your favor as much as possible. What I’ve mentioned here are only a few ideas. I’ve left out plenty. The real research, investigation and planning are up to you. If you take the plunge, I wish you success.
You can reach me with your questions and comments at Jay@CYinterview.com Like today’s column? Check back frequently.