You’d be surprised how many new business owners will tell their consultant about a miracle barbeque sauce Auntie Bertha concocted so many summers ago. And how, out of this recipe, will rise a global empire, Bertha’s Best BBQ Sauce Company. And that this empire will be the fulfillment of any entrepreneur’s dream: fame, fortune, fun and freedom.
Before the entrepreneur continues his breathless rave, he may ask you to sign a nondisclosure statement. “The only question is,” he whispers behind cupped hand, “How do I patent this recipe?”
At this delicate moment, a business consultant has several options. He or she can suggest that even a grand idea should walk before it flies, explain that sauces aren’t the stuff of patents, or give examples—from Rockefeller to Bill Gates—about how empires are made of hard work, guts, luck, occasional ruthlessness…and sometimes produce blood and tears instead of fame and fortune.
The consultant must choose wisely between the kind of cautious encouragement a mother gives her children and the type of therapeutic criticism a teacher showers on his or her students. Mother, teacher, therapist and critic often do better when they ask the right questions than when they give the wrong answers. So, too, does the business consultant. Good questions will help the entrepreneur, guide the enthusiast and caution the budding business tycoon by prodding them to find the right answers themselves.
Five questions for your business idea
Can you clearly explain it? It’s easy to talk at length about an idea. But when asked for a 30-second infomercial, you need the essentials. Start by crafting a three-minute conversation piece, something you might chat about at a party with a glass of wine in your hand. Then whittle it down to a 30-second elevator ride speech: “My comfort food restaurant will serve pizza, pasta, daily fish specials, salads, draft beer and house wines. The rustic atmosphere will have 20 tables and be kid-friendly. Entrées will cost up to $16.50. The downtown location has plenty of parking and good foot traffic from the nearby movie theaters.” Once you’ve defined the core concept and settled on a few key sentences, write a five-minute executive summary for your business plan and a 15-minute presentation for a loan committee.
Do you really know the industry? If you’ve worked in it, you know the main players and the successful competition. Are you new to it? Then you need to do research. What are the trends of the trade? Standard tools are the Yellow Pages and the Internet. In addition, use the Book of Lists, which is the Who’s Who of small businesses in the North Bay. Study newspapers, and read the up-to-date publications of the Sonoma County Economic Development Board.
Have you seen it succeed elsewhere? If not, that’s not necessarily fatal to your venture. It’s sometimes an advantage to be the first mover (for instance, Netflix beat Blockbuster to the punch). On the other hand, if no June bride wants anything to do with your “pagan wedding labyrinth,” you should ask, “Is anything wrong with my idea?”
Can you reach customers? Most small business owners think that, in principle, their product could benefit the entire United States. But it’s smarter to carve out a well-defined niche, based on demographics, and to find customers willing to pay to get your products by mail, truck or directly from you.
What will you do better, faster, cheaper? Why are you special? Are you the licensed and bonded contractor with the best customer testimonials? Does your food taste better? Are your massages cheaper? Service and convenience are important selling points, equaling price and quality.
Four questions for the entrepreneur
Have you “slept on it”? Fly-by-night ideas lead to seat-of-the-pants planning and shoestring financing. If you try to wing it, you’ll have a crash landing. Mull over the idea for a few more weeks, discuss it with professionals. Failing to plan is the best plan to fail.
Can you commit to it for five years or more? Statisticians say 80 percent of all small businesses fail in the first five years; pundits add that, if you survive five years, you’ll thrive thereafter.
Are you qualified? Passion isn’t enough. You need talent, skill and, even better, experience. Bankers like experience more than a degree.
Do you have the right network? The best business, especially at the beginning, comes through referrals and word-of-mouth. Join professional associations such as BNI, Tipsters, Connections and Chambers of Commerce.
Three questions about your family and friends
Is your spouse or partner enthusiastically supportive? This is a must. If he or she’s merely “tolerant,” that means they’re suffering already.
Will the income from your business be able to feed your family? A business isn’t a hobby. Eventually, it has to create a profit from which the owner can draw a salary and buy food.
Will your friends help? You’ll need some volunteers for moving, stocking, painting, telling others about you, even bookkeeping.
Two questions for your CPA and your attorney
Have you run the numbers? You’ll need to prepare a snapshot of your finances: the balance sheet. You need a profit and loss statement with projections based on extrapolations from the past and reasonable, conservative projections for the future based on plausible assumptions. And you need to watch your cash flow.
What liabilities do you have? This includes product liabilities. And remember, you’ll be responsible for your employees’ mistakes.
One final question
Business or job? Is your venture a job, or are you serious about starting a business? If you’re working in your business (like a plumber), then you’re merely suffering from an “entrepreneurial seizure” (a term used by Michael Gerber in The E-Myth). You need to work on your business with a long-term vision and a plan, like an architect.
Wulf Rehder, Ph.D., is a business consultant specializing in small business financing opportunities and business planning. He is also the workshop chair of the North Coast chapter of SCORE, Counselors to America’s Small Business.
