Ediam blog
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julReady to Start?
Posted by John16 comments
Am I really ready to run my own business? This is the main question that needs to burn at the heart of every would-be entrepreneur.
There are thousands of reasons to launch a small business venture. I have heard many of them as I consult with would-be entrepreneurs in the area. From losing a job and facing unemployment to inventing an innovative new solution to change every day life, the reasons vary greatly.
The reality is that not every person is prepared to start and operate a successful business. While being your own boss may sound luxurious in concept, in practice it involves long hours, spans of inadequate pay, and a high risk of failure.
I had a professor in college who on the very first day of class walked up to the front and drew a large letter "F" on the board. Then he turned to the class and grimly stated, "This is your current grade in my class. I have not seen anything that proves otherwise. Until I do, the grade will stand."
How would you react? The professor was counting on one of two reactions. The weak of heart quickly dropped the course. The rest of us dug in our heels with the attitude of, "Oh Yeah? I will show you what I can do." The professor gained from both reactions.
Many who dream of starting a small business are in the same boat. The risk of failure is so high, every entrepreneur starts out with a big letter "F" on their chalkboard. Unless you are one who can dig in and prove the naysayers wrong, you might do best to simply drop the course.
For those who are stubborn enough to forge ahead, what does it take to succeed?
While each business will vary in its purpose and objectives, the basics of starting and operating a successful business generally come down to the same things.
One is money. I cannot stress this one enough. It takes money to launch a successful business. Even good business plans will typically not generate profits for two or three years. The owner must have enough to survive that long. If you need to borrow money to launch, you will be expected to provide 20% or more of the total funds. Grants are mostly a myth, so plan to use your own money or prepare to find investors.
The second is time. Most entrepreneurs report 60-70 hour workweeks as normal. Small business owners generally have 12-hour workdays. Holidays are often a thing of the past, particularly in retail businesses. This can take a toll on families and relationships.
Lastly is determination. Many people seem threatened by someone with a vision. I do not know why. Perhaps when we see someone with a dream it makes us feel guilty for giving up on our own dreams. But entrepreneurs need to have a tough spirit to bring a small business dream into reality. Many will try to label you with the big "F." How you react will largely determine your final grade.
While I have not succeeded at every business venture I have started, I can report that after one of the toughest semesters of my academic career, I did earn an "A" from that professor. It feels good to prove someone wrong that way.
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junAspen Groves
Posted by John6 comments
In today's column I want to start out in an area outside of business. I spent the weekend in the outdoors with my kids. We went up to the mountains to hike, to play with rocks in a rolling stream, and to enjoy being outside.
It was glorious. The sky was clear and crisp. The sun was warm. We saw many "V" formations of geese heading south, we explored signs of local wildlife, we caught a glimpse of a coyote, and we remarked in awe at the colors starting to show in some of the trees.
We were in an area where the aspen leaves were starting to change color from a vibrant green to a bright yellow. As we watched a gentle breeze shimmer the leaves of the aspen groves, I started to think more and more of the aspen as an analogy to business.
Bear with me.
Aspens grow very well in the high altitudes of the Idaho mountains. They are a beautiful tree that provides critical habitat for more than 500 species of wildlife.
Aspens are not solitary trees. They grow naturally in stands with many trees coming out of the same expanding root system. An immense grove in Utah is ranked among the largest living organisms in the world as scientists have discovered that the whole forest shares a single root system and common DNA.
Aspens are remarkably able to survive hard times and forest fires. As the roots are well protected from heat and damage, groves of aspens are often the first growth to come back up after a fire.
These are a few reasons why I have started to see the aspen as such a perfect analogy for business networking.
Small businesses are stronger when the communities and networks they share are also well fortified and strongly interconnected. When small businesses realize that they share a common root system, they can better establish a larger business organism that can withstand dangerous economic winds and forest fires.
Local networking groups and business clubs provide a rich root system that makes all the trees grown atop them stronger and healthier. I have seen this time and again with the local Chambers, local Rotary Clubs, and others.
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febPreparing for a Business Loan
Posted by John4 comments
Many of my small business clients either need a bank loan immediately or will in the near future. Finding access to funding is critical to any entrepreneur. Banks are often the best source for capital when your own funds are not enough.
Last week I presented at a training seminar put on by bankers in the Boise area. During the other presentation, I saw the process of business loans from the banker's perspective.
The information is worth sharing as so many small business owners will eventually go through the process of applying for a business loan at a bank.
The first thing I learned is that credit standards have not necessarily tightened. Many in the media, myself included, have reported that banks have made applying for loans tougher in the recession.
The banker I spoke with said this was not the case. The reality is that due to the increased number of people struggling, losing jobs, spending their back up reserves, and encountering hard times, the number of qualified borrowers has dropped. The loan standards are actually the same. It is just that fewer people can meet those standards in a down economy, so it seems tougher.
Bankers have many reasons to deny a business loan application. Bankers are in the business of risk management. They try to identify candidates who have a good chance of paying back the loan in full and also weeding out those who run the risk of default. Their job depends on their good judgement.
The top reason bankers give for issuing a loan denial is not pay bills regularly and on time. Missing past bills is a red flag that the person will also miss their new loan payment. If you are someone who may seek a business loan, you must establish the practice of paying all your bill on time.
Another top reason for loan denial among business loan applicants is lack of experience. The person seeking the loan does not have the experience to run the business they wish to open. I have often said that starting a business requires several key job interviews. The bank loan application is a big one. If you can not convince your banker that you have what it takes to succeed, then you will have to find funding elsewhere.
Bankers may also deny a bank loan application if there is lack of collateral and lack of a 25% down payment. Such assets are offered as proof of commitment as well as loan security to hedge losses on a default.
Many small business entrepreneurs get frustrated that they must have money or assets of their own to get a bank loan. They throw their arms up and say, "If I had the money myself, I would not need the bank."
Yet, if someone is serious about going into business, they should be financially prepared as well. Knowing that a business will take $100,000 to get off the ground, a prepared entrepreneur should have saved or collected from other investors at least $25,000 of that money, if they want to impress the bank.
No one believes they will fail when they apply for a business loan. Many think that if they just get the loan, then success is assured. This is not the reality. Many businesses do fail. Therefore, a banker has to be very careful to select the entrepreneurs that have the lowest risk and the highest chance of paying back the loan.
Bankers have much personally riding on the success of the loans they make. Failure by a client can both hurt the banker's reputation as well as his or her future credibility.
Those who seek business loans need to understand that a loan is not free money. It represents someone else's hard earned money. You must bring good credit, good experience and your own assets to the table to get a business loan.
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