5 Essential Tips for Starting and Running a Small Business
I recently received an unsolicited email from a woman named Georgia who works for “a bias-free lender marketplace for small businesses that need to fund their dreams.” She asked about writing a blog about tips for small businesses. I had a nice email exchange trying to understand the purpose of her email, and if she wanted endorsement for her company or cross promotion. She replied, “We really want to just have you write your top tips for small businesses. By working with experts like yourself, we are hoping to gain insights on best business practices. As I mentioned in my previous email, we would love to hear your tips for small business financing, as well as leadership, marketing and other advice.”
I always appreciate when I get specific requests from my readers about topics that they would like to know more about, especially if I know something about the topic based on my experience! It is worth looking at What Makes a Successful Startup in Three Words to see my view on the fundamentals of building a business. Aside from that, here are my Top 5 Tips for Small Businesses.
(1) Have an Initial Plan and Be Willing to Adjust
I am a proponent of having a plan. I know there are some business advisors that are not really fond of planning, and think it is a waste of time until you have customer engagement and then can clearly articulate your plan and business model. While I understand this point of view, I think it is a bit naïve that you can even start on a business process without having an idea of what you want to do, where you want to go and how you expect to get there.
That said, I am not a proponent of spending months of time fleshing out a detailed business plan that is likely to change within the next few months, and maybe multiple times over the next year. I suggest working off of a well established and tested strategic planning framework that will systematically allow you to define your target market, customers, competitive landscape, value proposition, and sustainable competitive advantage. I also think it is good to have key goals and milestones that allow you to measure your progress. As you gain customer feedback, you will likely need to course correct and make product or service refinements, but you are starting from a baseline from which you can adjust.
(2) Focus on Customers and Listen to Feedback
It is critical for business success to do market research, and markets are really a collection of customers with similar characteristics. I like the idea of developing a customer avatar at the beginning of a business, and having that as part of your plan. Even though you know it won’t be 100 percent correct, again you have a baseline and a process from which to adjust. You should have a systematic way to collect costumer feedback that puts the burden on you and not on the customer. I always have to laugh to myself when I am completing a transaction with a merchant, normally a car dealership or an auto repair shop, and they say, “You will be getting a survey, so please rate me at the highest level.” First off, most customers hate surveys. If they do complete a survey it is for one of four reasons:
- The are the type of person that feels guilty if they don’t fill out the survey
- The had an exceptionally good experience
- They had an extraordinarily bad experience
- They are incentivized in some way to fill out the survey
I am not saying don’t use surveys since they can be valuable if you don’t try to game the system. I like that every time you take an Uber you get a 5 Star rating system about your driver. As I understand it, if Uber drivers don’t maintain at least a rating of 4, then they will be terminated. I believe that Uber drivers also rate the passengers, and that is likely used in part in determining a driver’s overall rating. It is simple and easy for customers. However, it doesn’t give as much qualitative feedback.
What you want is to get feedback that allows you to refine your product or service. That means you solicit the feedback, listen without getting defensive, and then use your judgment about what to change, if anything. This is usually based on “critical” feedback. What you don’t want is for someone to “walk”, or discontinue using your product or service without ever knowing why.
The best ideas on product refinements come from customer feedback. Listen to your customers. Understand what they find valuable. That is why I like to use the term “unique value proposition” instead of “unique selling proposition”. I like to try and look everything from the customers’ point of view.
(3) Stay Positive and Get a Mentor
Starting a new business is REALLY hard. The vast majority of new businesses fail. This happens for a variety of reasons. Regardless, it is really hard to stay positive and passionate in this kind of environment. People will always doubt you. They will ask questions such as, “How is your business going?” You think to yourself, “Should I be honest and say it is really hard and it sucks? Or should I paint a rosy picture and say, Things are going great!?”
If I am focused on a new business, I have a plan, I’m getting some valuable customer feedback that I’m on the right track, and I have a clear idea of how long things take and how hard the road can be sometimes, then I am able to remain positive. I think this is one of the areas where having a coach or mentor can be immensely valuable, especially for younger of newer entrepreneurs or small business owners. Having a “guide by your side” that has travelled the road before and knows some of the stumbling blocks and challenges can be immensely valuable. As an entrepreneur or small business owner you need to learn to listen to ALL the feedback, and decide which parts are valid and which parts are not. A mentor can definitely be helpful here as well.
Find a mentor that you can trust and that works well with your style. Find someone who will be honest and candid with you, and that will also listen to you. Find someone that has domain expertise in your target vertical markets, has run businesses successfully, and possibly has specific technical or function knowledge that you lack.
(4) Be Frugal and Test Different Ideas
I don’t think you need to spend a boatload of money to prove-out most business ideas. I also agree with the former entrepreneur and venture capitalist, Mark Suster, who talks in his blog, Both Sides of the Table, about having a plan that focuses on getting to “base camp” and not to the “summit” as your initial plan.
I also think that you should try different ideas based on what customers like and whether the business model works. There is an old saying in sales, “Are the dogs eating the dog food?” If the customers don’t like what you “are feeding them”, it is very unlikely that you can force them to “eat it”. At the same time, if you are selling something that they absolutely love, but you can’t make any money off of it, then you really can’t call it a successful business. There are businesses that lose money in the beginning before they reach critical mass or “scale”, but there needs to be a path to generate profitable growth or the business really isn’t attractive. In some small businesses that never have an exit or go public, you can still have a nice “lifestyle business” that provides a good cash flow for you and your family, and maybe that business doesn’t have to grow much more once it gets to a certain level. If that is your goal, then that is totally OK too. Just understand, you won’t ever be able to raise outside equity capital with that type of business.
(5) At the Right Time, Raise Sufficient Capital to Fuel Growth and Build the Team
Once you have proven your idea on some reasonable but small scale, and there is evidence that you have a business model that can generate profitable growth, and a product with a unique value proposition and a sustainable competitive advantage, then it is the right time to plow more money into the business. This may require you to raise outside capital.
If you have a business that could have spectacular growth and eventually get sold or taken public, then raising equity financing could be the right path. Check out 10 Things You Must Do Before Connecting With Investors.
If you have a business that cash flows well, and you don’t want to dilute your equity position, borrowing money from a bank or alternative lender could be a good solution. A key element of using debt financing is your ability to service that debt.
Whichever path you decide to take, just make sure you educate yourself about what downside exposure you are creating for yourself and your business when you use other people’s money, or “OPM”.
This is the stage where you also want to scale your team. In the early stages your team is usually comprised out outside resources including interns, freelancers, and consultants. As you have the capability and need for scaling the business, you want to recruit a team that has the same values and passion about your business that you do. Don’t compromise when building your team and include culture and skill set in making hiring decisions.
I hope that Georgia, her company, her clients, and all the small business owners enjoyed this post and found it educational and informative. I also hope you found it informative as well. I am always interested in your feedback and ideas for topics on my blog. Make sure you subscribe to my monthly newsletter, and let me know if you are interested in using me as a coach or mentor.
This is Patrick Henry, CEO of QuestFusion, with The Real Deal…What Matters.
This article originally appeared in QuestFusion.