Is the fact that there is competition a reason not to start a new business?  Not if you build a realistic competitive strategy into your business model from the beginning.

One of the fatal flaws we see in business plans is when the entrepreneur is in denial about the fact that they will face competition.  Every new business faces some form of competition. 

I always chuckle whenever I read a business plan that, while admitting there are competitors out there, will dismiss them as incompetent or irrelevant.  Remember – they are already up and running and have customers, so they have must have something going for them!

Keep in mind that competition can be beneficial to your start-up business.  The competition has already built awareness about your product or service with customers.  That means you won’t have to spend marketing money educating your customers about the benefits of what you are offering them.

The competition has already spent money learning what customers really want.  You can learn from their successes and their shortcomings as you craft your business model.  

A competitive strategy should always start with the customers.  Learn how your customers make the decision on where to buy the product.  Determine the key decision making criteria they will use to choose your product over your competitors’.  It does not matter what you think they should consider in the decision – all that matters is what the customer thinks and how they actually make their choice. 

How do you gather information about what your potential customers prefer? You need to get out and talk to them, observe them, or do whatever it takes to learn how to think like they do. 

Also gather information about how well your competitors are satisfying these customers.  You can gather this information by talking to customers, visiting your competitors’ businesses, interviewing suppliers, and by meeting with others in the industry.  All of this information should shape your business model and define how you will attract customers.

Understanding the relationship that already exists between your potential customers and the existing competition helps to determine how you should enter the market. 

If your competition is strongly entrenched it may not be wise to try to compete with them directly, no matter how good you think your product is.  Think of your own buying habits.  We all get in patterns of where we like to buy things.  Changing those patterns can become quite difficult, especially if the competition has a good relationship with the customer.

Instead, it is usually better to find a niche of customers in the market.  Find a group of customers whose needs are not being met by the competition and tailor your business model to satisfy them.  They will be the easiest and least expensive to attract.

This strategy gives you the best chance of building your initial sales, while avoiding a head-on confrontation with well-established competitors that may have a much healthier bank account than your start-up business.

“Make sure you put 80% of your efforts on your bread-and-butter line of business (the one that’s feeding your business cash flow). If it is making money, you must grow it. The remaining 20% of your time should explore new ways to bring in other business that can make money.”  (author Barry Moltz, writing about focus).

Remember when the government pushed banks to lend to people who could not afford mortgages?  That’s right.  We had the housing bubble that first over inflated our economy and then led to its collapse.  We have all been suffering ever since.

Well, Washington is at it again.

It seems that Fed Chief Bernanke is pushing banks to more lend to small businesses.

Lack of credit is not the problem facing small businesses right now, so using a small business government induced stimulus is not the answer.  The latest survey of business owners by the NFIB clearly supports this.  They found that 90 percent of the owners surveyed reported all their credit needs are currently being met (or they did not want to borrow). 

If we push loans to small business owners, especially new entrepreneurs who are bad credit risks, we will create yet another bubble that will inevitably burst, sending our economy into an even worse decline than we have already been experiencing.  And since small businesses have almost always led the way out of recession, such a bubble will also make the recession last much, much longer.

“These findings imply that America should be thinking differently about the standard employment policy paradigm. Policymakers tend to focus on changes in the national or state unemployment rate, or on layoffs by existing companies. But the data from this report suggest that growth would be best boosted by supporting startup firms.”  (Robert E. Litan, vice president of Research and Policy at the Kauffman
Foundation, on a new study showing the overwhelming role of start-ups as the job creation engine in the economy).

I have been observing more and more business owners who, although their businesses have survived the economic downturn, seem to be losing heart.

The stress and strain caused by these difficult times has worn on them. But doing business in today’s economy requires a steady hand, a sharp eye and most of all — a calm mind. There are four steps that can be taken to help to cope with the emotional toll of being an entrepreneur in difficult times.

First, adjust your expectations. The growth in revenues and profits that you experienced during the good times may not return for quite some time, if ever.

Don’t burden your business with unrealistic profit goals. It is time to reset your personal budgets to reflect the new reality of what your business can generate for you in terms of income. Also, be patient and understand that it will probably take longer for you to get to retirement.

Creating wealth from your business will be a longer process that will take careful management and planning.

Second, celebrate each small step forward. Set short-term, realistic milestones for your business. What can you get done this week, this month, to make modest improvements in the performance of your business?

While you still may have big dreams for your business, take the time to enjoy the smaller accomplishments. For over time, it is those small victories that will lead to achieving your long-term goals.

Third, focus on the things that really matter. There is so much more to your life than your business. Work hard at being a good spouse. Strive to become a better parent.

Pay attention to your friends. Be a good citizen in your community. These are the things that ultimately define who you are as a person, not how big you can grow your business.

Finally, let go of the things outside your control. Even under the best of times, entrepreneurs who have been well trained in what it takes to start and grow a successful business still face about a 20 percent failure rate. Failure comes from many things that you cannot predict or plan for. Call it uncertainty, call it risk, or call it plain old bad luck.

The reality of 2010 is that entrepreneurs face much tougher odds. Nationally, the prolonged recession has led to skyrocketing business failure rates. And Nashville small-business owners face the added pressures created by the recent floods. For years, I have put a prayer on the syllabus for every entrepreneurship class I teach. It reads:

“God, grant me the serenity to accept the things I cannot change,
the courage to change the things I can,
and the wisdom to know the difference.”

It is known by many as the “Serenity Prayer,” but I like to call it the “Entrepreneur’s Prayer” as it helps entrepreneurs remember that the best course is to focus on those things that they can control.

While times may be tough, it’s still possible to truly enjoy the entrepreneurial journey.

(This post ran as a column this week in the Tennessean).

When starting a new business, entrepreneurs are often brimming with excitement about the possibilities a new venture may bring. If the entrepreneur has partners, there is a collective air of anticipation, like a team in the locker room getting ready for the big game.

The last thing these entrepreneurs are thinking about is what will happen when the partnership ends. Remember this: Although you and your partners get along great as you set up your business, things can change. Partners may need to part ways for any number of reasons: One partner wants to retire; another partner is just ready to go in a new direction; fundamental business disagreements flare up; or the company must deal with the death or disability of one of the partners.

Whatever the reason, the rules of a partnership breakup require a clear understanding of how and under what circumstances the partner can leave, and of what that departure will cost the remaining partners.

Clear buy-sell language needs to be a fundamental part of any partnership agreement because it sets up the rules for the inevitable departure of one or more of the key owners.

The best time to set up a partnership agreement is when you start up the business. At this point, there is little to squabble over. The business exists only on paper, so finding a fair way to deal with an exiting partner is much easier.

While it’s never too late to set up a partnership agreement, the longer you wait the more complex and expensive it can get. Once there is real value in the business, it gets much harder to agree on how to structure the potential exit of one of the partners.

The best approach is to develop a framework everyone can agree on. It should include circumstances for a partner leaving (both voluntarily and involuntarily), mechanisms on how the exit will happen, a clear formula on how the business will be valued and plans for funding the buyout.

Do unto other partners …

Think about how you’d want to be treated if you were the one to leave. Too many entrepreneurs assume that they will be the last one in the business, and they try to find ways to “stick it to the other partners” if they leave first. This is the classic situation in which you should “do unto others as you would have them do unto you.”

Once the partners develop the structure of their agreement, get it formalized by an attorney. While partnership agreements cost money to create, it will cost you much more in legal fees to disentangle a business partnership that has no such agreement in place.

The death of a partner is best addressed using a buy-sell agreement funded with life insurance policies. This offers a pre-funded way of ensuring that the deceased partner’s estate does not become the new partner by default. It also puts in place a mechanism to make sure the deceased partner’s family is taken care of fairly.

These are difficult subjects to talk about, but the end of a partnership is one of the most important issues to plan for in a new business that has more than one owner.

(This post ran in today’s Tennessean).

“When under the pretext of fraternity, the legal code imposes mutual sacrifices on the citizens, human nature is not thereby abrogated. Everyone will then direct his efforts toward contributing little to, and taking much from, the common fund of sacrifices. Now, is it the most unfortunate who gains from this struggle? Certainly not, but rather the most influential and calculating.” (Frédéric Bastiat)