Write Your Own Plan

Ever since I returned to academics, I have gotten frequent calls from people wanted someone to write their business plan. Not help writing it. They just want someone to write it for them.
Those who are looking for a bargain ask if our students would write a plan for a class project of some sort. There was a time several years ago, when we might be able to find a few students with an interest to do such a project. But not any more. Students today want to start their own ventures as soon as they can, and express no interest in doing free consulting for someone else.
A few of these callers explore my interest in consulting (which I do very little of any more no matter what the project–too much to do helping our students and alumni). When they ask how much I might charge, I give a really high figure that they’d be nuts to pay me. (No takers so far, but even I can be bought in this situation).
When I’m asked why I won’t help or prefer that my students don’t either, I offer my advice to all aspiring entrepreneurs about business plans:
1. Business plans should be the last thing you do, not the first. The common wisdom seems to go like this: “I’ve got a great idea, so I guess I better write a business plan”. Wrong.
2. Figure out how much you need to make in income and look at all of the non-financial factors that are important in your life. That becomes the standard you use to evaluate each feasible business that you identify. If it can’t meet your needs, go on to the next idea.
3. Research the market to make sure that there is really a market. Try to figure out what a customer might pay for what you want to sell. And look carefully at all of the competition to see if that market is already being nicely taken care of. And by the way, there is always competition, no matter what you try to tell me to the contrary. If the market potential is marginal, go on to your next idea.
4. Examine what it will cost to provide the service or make the product. Compare this cost to what you figured out you think you can charge in the previous step. If there is enough profit, keep going forward. Enough can be a difficult standard to nail down. But I like to see at least a 50% profit margin at this early stage. (Of you can’t calculate profit margin, take an accounting class somewhere to learn how–you need to know the “language of business”). If there is not enough margin in your idea, give it up and go on to your next one.
5. Make sure you know what you’re getting into. Lifestyle issues matter. Know the hours and the investment a business requires before jumping in. Make sure it is something that builds from your experiences in some way, and is something you can be passionate about. There will be some long days and weeks and even months, so do something that excites you and can carry you through these low points. If your hear can’t be in this deal, go on to your next idea.
6. Now it is time to write your plan, but first you need to figure out why you need a plan. A plan you write for yourself is very different from a plan you write for an investor. Know the audience of the plan. You probably will need to write a couple of different versions for different uses: one for you, one for your investors, and one for creditors. If the plan starts to break down financially or in your ability to make it happen, give it up and go on to your next idea.
As you can see, a business plan starts with you and your needs. And equally important, it provides a process that helps you learn about the business. It is a process with many exit points that you need to pay attention to so you don’t get in too far too fast.
You’ll need to intimately know all the details and nuances that are discovered. And when it comes time to use the plan to raise funding, the banker, creditor or investor will expect you to know the plan inside and out. Only the person who writes it will have that knowledge. And it would not look good for you to drag me or some group of college students along to explain everything for you.

Making a Difference

Entrepreneur.com tells of three entrepreneurs who measure success by more than their bottom line. In their commitment to make a difference in their communities they are examples of truly “good entrepreneurs”.
“The role of businesses in civic responsibility–actively working in communities for positive change–blows past charity donations and in-house recycling programs as businesses take an aggressive, hands-on approach to making change happen in their communities. Despite the tarnished image some business leaders have sustained in recent years, there are shining examples of those who work to build successful communities as well as successful businesses.”
The first was Kowalski’s Markets in Woodbury, MN.
“The Kowalskis had an opportunity to flex their civic muscle when they purchased four store locations in 2002. One of the stores was located in Minneapolis’ Camden neighborhood, a lower- to middle-class community unlike their typical upscale customer demographic. Rather than sell the property, the Kowalskis decided they had an obligation to provide a neighborhood grocery store to that community since the former tenant had failed to do so, and the civic experiment began.”
James Tufenkian uses his carpet business to make a difference in Armenia, his ancestral homeland.
“(H)e brought several Tibetan craftsmen and revived ancient Armenian carpet weaving through his business, which now employs more than 2,000 people in Armenia and nearly 10,000 in Nepal. Tufenkian also started the Tufenkian Foundation, with about 15 different programs to benefit Armenian society; Armenian Forests, a nongovernmental organization to stop deforestation; and Tufenkian Heritage Hotels, with three locations open so far, to drive tourism to Armenia.”
Michelle Rathman is the owner of a St. Charles, Illinois-based marketing/PR firm.
“Her mother abandoned her and her three sisters when Rathman was 4 years old. Rathman left her home and her abusive, alcoholic father and lived on the streets at a young age….(S)he shares her story with inner-city youths. She provides insight and advice in hopes of enabling them to make good choices.”

Franchising Fever

Small Business Trends reports on a study by the International Franchise Association (IFA) Educational Foundation and PricewaterhouseCooper, which reports that franchised businesses make up 9.5% of our economy (they provide a direct link to this study, but beware that it is a 181 page pdf file).
It is important to keep in mind that the IFA is an advocate of franchising. These figures reflect the very broadest definition of franchising, which includes distribution companies such as car dealers, bottlers, and gas stations. It is not just the small retail business, such as a bagel shop, that most think of when the term franchise is used.
Franchising is often not the happy partnership that the marketing packages franchisors send out to interested parties. Franchisees will often band together in an almost union-like manner. In fact, one of the most common seminars for franchisors done within this industry addresses the litigation issues they face with their franchisees. Broken promises, unmet expectations, and a perception of little value for the often high monthly fees paid to the franchisor lead to these legal battles.
So although franchising can be a good entry into entrepreneurship, do your homework and go in with your eyes wide open.

Entrepreneurship Education Has Even Made it to the Rain Forest

Entrepreneurship education has even found its way to the rain forest of Costa Rica. This article from the Chronicle of Higher Education examines Earth Universtiy, a program that integrates entrepreneurship and conservation.
“For decades environmentalists have warned that destructive farming techniques and cattle ranching were destroying the world’s rain forests. But it was not until the late 1980s that a group of entrepreneurs and officials in Costa Rica — a country known for its progressive approach to conservation — joined forces to create a new university to teach sustainable agriculture in the ‘humid tropics.’
One of the measures we like to use to assess the effectiveness of entrepreneurship programs is to look at the economic impact created by their graduates.
“Of the more than 900 students who have graduated from Earth University, 75 percent are working in the for-profit private sector. Of those, a quarter own their own agribusinesses, says Mr. Breve. The remaining 25 percent are working for nongovernmental organizations or in government, helping to shape environmental policy.”
Markets even work in the rain forest.

Non-Farm Employment up in 47 States

From the Congressional Joint Economic Committee:
* “Over the past year (since August 2003), the unemployment rate has fallen in 45 states. 34 states have unemployment rates at or below the national unemployment rate of 5.4 percent.
* Non-farm payroll employment has increased in 47 states over the past year. The largest over-the-year gains in employment occurred in Florida (+155,400), Texas (+116,600), California (+112,300), Virginia (+85,000), and New York (+69,500).
* In 2004, 48 states have added new payroll jobs.
* Non-farm payroll employment increased in 30 states in August. The states with the largest payroll job gains during July were Florida (+16,600), Georgia (+15,000), Texas (+14,400), Arizona (+10,200), and Colorado (+8,200).”

Small Business Acquisition on the Rise

It seems that the increase in entrepreneurial aspirations among baby boomers that I wrote about just yesterday is creating another trend within small business.
Anita Campbell at Small Business Trends writes about the increase in small business acquisitions. She rightly cautions against assuming that acquiring a business will greatly reduce risk. “(B)uying a business can bring risks of different kinds. As the article points out, failure to do due diligence can lead to nasty surprises. A business may turn out not to be as attractive or profitable as the buyer expected.”
Quite true. And a more significant risk can actually occur if the purchased business is turned around and begins to improve. The growth of a business is the stage that creates the most risk and is the stage where failure is more likely to occur and most costly to the entrepreneur (just ask any banker).

More Evidence That Baby Boomers Can Be Entrepreneurial, Too

The trend toward more entrepreneurial careers for young adults finds a parallel with those of us in the “baby boomer-s” generation (as discussed earlier at this site). StartupJournal cites a study by AARP finding that “16% of those over age 50 are self-employed, compared to 10% of the general work force. About a third of the self-employed seniors also are first-time entrepreneurs who had previously always worked for others.”
The stories of two “seasoned” first time entrepreneurs are told in this article written by Mark Henricks. Each found the path to entrepreneurship in different ways. For some it is life circumstances, while for others it is a choice to take a new direction in life.
“Janice Taylor is an example of an older American who chose to become an entrepreneur largely for the fun of it. Not long after she turned 50 last year Ms. Taylor gave up an investor relations position at a New York City media company to pursue a venture that mixes weight control with art.”
“Mary Rooney Sheahen lost her job as a Chicago hospital CEO in 2000, but eventually opted to start her own company rather than seek another position in health-care administration. ‘It gave me an opportunity to step back and say, ‘Do I want to keep doing this?’ Ms. Rooney Sheahen recalls.”