In Part 1 of this series, I talked about why now is a good time to start a business. But without Part 2, Limiting Your Risk, you may be setting yourself up for problems. Now is a great time to start a business, but part of starting a business in this kind of economy is playing it smart.
How You Can Limit Your Risk:
When you start a business in challenging economic times, you’ll want to limit your risk as much as possible. There are several ways to go about this, but here are my top recommendations:
Get it right at the beginning. A lot of budding business owners skip crucial steps on their way to a business launch. I can’t tell you how many clients have come to me, a year or two into their businesses, without having set up their companies with the Secretary of State, the IRS, or having met with an attorney to help them set up their operating agreements. These are things that could get you in a lot of trouble if you don’t do them the right way.
There are other steps that won’t necessarily get you into trouble, but may cause some headaches if you don’t get them right. Branding is an excellent example of one of the most-missed (and most misunderstood) steps in entrepreneurialism. It’s also one of the things that can make or break your company. Choose a generic business name like “ABC Consulting” or create a brand that doesn’t intrigue your target market and you’ll start your business heading down the wrong path.
Choose an industry that’s hot or one that’s a “need.” Generally, you want to go with the industry you know best, but at the same time, you can’t ignore what most business experts define as the wave of the new future. Currently, the hottest trends are green businesses, health care, natural beauty, discount retail and luxury, credit and debt management, and technology. If you can find a way to spin what you already know into one of these hot business areas, you’ll take advantage of the coming upsurge in these industries.
On the other hand, I also believe in going after the “needs” of your consumers. For example, I once worked with a guy who was a chimney sweep in the winter (something people need) and a custom SUV builder in the summer (a luxury people want). His winter need-based business was one that provided enough income for the whole year, just in case his want-based business waned in the summer.
Start with a low-risk business model. When I work with a client to design a new business, we typically use what I call a “leap-frogging” or “dovetailing” approach. This is where you start your business using a low-risk business model and build from there, using the income from the first model to fund expansion and growth into more complex business models. This approach almost always allows my clients to start their own businesses without seeking any type of funding from lending institutions, venture capitalists, or other investors.
Plan ahead. If you lose your job, there isn’t much you can do about that. And in this economy, you’d have to work a part-time job in addition to your regular full-time job to save up enough for the six to twelve months of living expenses I generally recommend when clients want to start a business they can work full-time from the beginning. But if you can keep your job and start your business part-time, you’ll reduce your risk substantially. This allows you to maintain a steady income while you’re building your business, and eventually, you can make the transition to being self-employed, full-time.
Market research can save you a lot of time and heartache. Before you head into any business startup, you want to know your market inside out. More than that, you want to know your target market. There are lots of ways to do the research. You can do your own research (called “primary research”) or you can use information compiled by others (“secondary research”). Both have their pros and cons, but the questions you want to answer are:
- Who is my target market?
- What do they want?
- Can I deliver it to them?
- If I deliver what they want, will they buy it?
Leverage free and inexpensive marketing methods to build your business. A lot of new entrepreneurs develop complicated, expensive marketing campaigns before realizing how many ways there are to get the word out about their businesses without spending a fortune. And with the power of the Internet literally at our fingertips, it’s easier now than ever to build awareness for your brand. However, that doesn’t mean you should go out and build a giant Twitter following. There are so many online options, but all of them may not be appropriate for your target market.
Get the right help. Before you launch a company, you want to find professionals who can help you start on the right foot. There are countless people out there calling themselves “consultants” and you have to be careful who you choose. The ideal business consultant for you is someone who understands a lot of different business models, especially the low-risk ones, and who can help you figure out the model that suits you best. You want someone you find personable, someone who knows what they’re doing, and someone you can trust.
In addition, make sure they don’t make promises that are too good to be true. A lot of business “experts” I’ve seen lately offer what amounts to “get rich quick schemes,” while others offer such vague information that you’re compelled to keep buying more books and products to get to the “real” information….which never actually comes. Instead of wasting your time on these folks, find someone genuine, real, and honest, who may not promise you the sun, moon and stars super-fast, but who can help you build a solid, stable income with real growth potential. Work one-on-one with them to develop a sound business model and a strong brand with a viable marketing strategy that you can easily implement. A good business consultant will know how to work with whatever budget you have and tailor solutions to your needs. Plus, they should have an army of other professionals who can also work within your budget, but still offer high quality work.
Build your team. Speaking of other professionals, you will need your own little army. In addition to a business consultant, you’ll also want an accountant, an attorney, a graphic designer and a web designer, and you may also want a virtual assistant and some other consultants, most of whom your business consultant probably has access to.
Starting a business in an uncertain economy can feel risky, and it certainly has stopped a lot of people from moving forward with great ideas. But if you look at history and remember that some of the most solid businesses today were started in just such an economy, mitigate your risk factors and hire the right professionals from the start, you’ll give yourself a fantastic leg up on your competition, and set yourself up for success.