What is my next step? To business, or not to business..
April 15, 2008 9:33 AM Subscribe
I have a business idea. For the last 8 month I have day-dreamed about making it happen. I find myself ironing out all the details that would make the business run, but I lack the funding and experience of running a business. There are also personal issues that I keep me from moving on to the next step (not that I know what the next step is). Come on in for the rest…
Ok. Let’s get it all out on the table.
I am 25 years of age.
I am two years away from completing a degree in Multimedia Writing & Technical Communication, which does somewhat relate to the business that I want to start (I started my degree with a different plan). I work the normal 9 – 5, making $35k a year, before taxes. I have a small side business doing websites that generates about $4k-$5k a year. I have a 5 year old, who I put through Montessori schooling, costing me roughly $4.5k a year. I pay just over $800 in rent, and another $700 in bills (car, insurance, elec, water, gas, etc.). I am able to save roughly $400-$500 a month, although that savings has recently been brought back to zero. Because of the small amount of savings, I find that every 6 months to a year, an issue will pop up that require this savings, such as vehicle repairs or a family emergency. This is partly what the savings is for though, and I really don’t plan on getting rich saving $500 a month. I don’t live paycheck to paycheck, but I am not advancing in my financials either. I have debt. All of my debt was generated between the ages of 18 and 23, other than my school loans that I am currently taking out for my education. That previous debt is probably between $10k-15k. I also have about $15k to pay off on my car over the next 3 years, but this is included in the $700 in bills mentioned above.
So that is my personal and financial status.
I have been completing a business plan, so I have a pretty good idea of what I need and can expect back in my first few years. I am not going to tell you too much about the business I want to start, but there are some details that I can share that may be useful. From what I have researched, I will need roughly $100k to get the company on its feet and through the first year. I believe the company could profit up to $500k in that first year. My honest opinion is that I will have a hard time keeping up with demand and need to take on somebody who is more business minded and has the experience to make smart / correct decisions. The company has to do with advertising. While there are companies out there that have a similar service (hard for me to say similar, I need a word for ‘kind of alike, but not really’), our approach is 100% unique and can easily expand to cities throughout the US and the world.
Ok. So… Knowing what you now know about me, and what I think of my business idea, I have some questions. Please feel free to answer any of these questions. I really want as much input as possible.
At my age, and with my lack of experience, should I go any further with this right now, or is there something else I should focus on first? While my idea is unique and untouched as of now, the advertising industry is expanding at amazing rates right now. I feel it is only a matter of time before somebody else does catch on to my great idea.
How will my current debt and financial status affect this? Should I start by taking care of my current debts? This could honestly take me a couple years, or more. Even after taking care of my debt, it will take some time to get my credit to a decent state. I know that with these debts, getting any type of loan is going to be just about impossible (I think I know anyways).
What materials or communities are out there for people wanting to start their first business? What other materials should I look into? What resources do I have in Arizona (the state I reside and would start the business in), and how about nationally?
Where should I start looking for financial backing to get up and running? I have started a business plan, and have done a good amount of research so far. I really don’t have wealthy contacts, or family members to put in on this, so it appears that I will need to look into stuff like grants, loans (?), investors, anything else (?).
Ok. Let’s get it all out on the table.
I am 25 years of age.
I am two years away from completing a degree in Multimedia Writing & Technical Communication, which does somewhat relate to the business that I want to start (I started my degree with a different plan). I work the normal 9 – 5, making $35k a year, before taxes. I have a small side business doing websites that generates about $4k-$5k a year. I have a 5 year old, who I put through Montessori schooling, costing me roughly $4.5k a year. I pay just over $800 in rent, and another $700 in bills (car, insurance, elec, water, gas, etc.). I am able to save roughly $400-$500 a month, although that savings has recently been brought back to zero. Because of the small amount of savings, I find that every 6 months to a year, an issue will pop up that require this savings, such as vehicle repairs or a family emergency. This is partly what the savings is for though, and I really don’t plan on getting rich saving $500 a month. I don’t live paycheck to paycheck, but I am not advancing in my financials either. I have debt. All of my debt was generated between the ages of 18 and 23, other than my school loans that I am currently taking out for my education. That previous debt is probably between $10k-15k. I also have about $15k to pay off on my car over the next 3 years, but this is included in the $700 in bills mentioned above.
So that is my personal and financial status.
I have been completing a business plan, so I have a pretty good idea of what I need and can expect back in my first few years. I am not going to tell you too much about the business I want to start, but there are some details that I can share that may be useful. From what I have researched, I will need roughly $100k to get the company on its feet and through the first year. I believe the company could profit up to $500k in that first year. My honest opinion is that I will have a hard time keeping up with demand and need to take on somebody who is more business minded and has the experience to make smart / correct decisions. The company has to do with advertising. While there are companies out there that have a similar service (hard for me to say similar, I need a word for ‘kind of alike, but not really’), our approach is 100% unique and can easily expand to cities throughout the US and the world.
Ok. So… Knowing what you now know about me, and what I think of my business idea, I have some questions. Please feel free to answer any of these questions. I really want as much input as possible.
I have my own business in a multimedia field. To get into it, I reduced my expenses (no debt, etc.), got a job in the field, started freelancing on the side, and then went on my own when I had a good pile of savings. I didn't take out any loans because I don't like debt of any kind. Instead, I've been reinvesting profits in the business to grow it slowly. I'm not saying that's the only way to do it, and I realize some businesses really do need a cash influx at first.
I agree that at a minimum you need 6 months of living expenses. I also suspect that $500k profit in the first year is optimistic. Most importantly, you need to make sure that the execution of your idea is what's unique about it. Someone will copy what you're doing, so you have to do it in a way that can't be copied (in other words, have a unique & strong brand). This could buy you all sorts of time in which I'd suggest you aggressively pay down your debt. This will put you in a safer financial position and make it more likely that you'll get financing.
If you're really eager to get going now, you might (carefully!) find yourself a more experienced partner.
For advice, you might see if you can get help from ReCourses, which advises small advertising & interactive firms. You should also check your local Small Business Development Center (SBDC), which will be able to tell you about grants, incorporation, and such. The SBDC is free; I think it's part of the federal Small Business Administration.
I've also talked with SCORE volunteers, another free service, and got good encouragement from them. You might Google "SCORE" and your city.
There are many online discussion forums for people who are starting businesses, but the ones I've seen have bad advice mixed in with the good, since it's basically the blind leading the blind. I've learned a lot more by reading stories of other small businesses in Inc. magazine.
posted by PatoPata at 10:18 AM on April 15, 2008 [1 favorite]
I agree that at a minimum you need 6 months of living expenses. I also suspect that $500k profit in the first year is optimistic. Most importantly, you need to make sure that the execution of your idea is what's unique about it. Someone will copy what you're doing, so you have to do it in a way that can't be copied (in other words, have a unique & strong brand). This could buy you all sorts of time in which I'd suggest you aggressively pay down your debt. This will put you in a safer financial position and make it more likely that you'll get financing.
If you're really eager to get going now, you might (carefully!) find yourself a more experienced partner.
For advice, you might see if you can get help from ReCourses, which advises small advertising & interactive firms. You should also check your local Small Business Development Center (SBDC), which will be able to tell you about grants, incorporation, and such. The SBDC is free; I think it's part of the federal Small Business Administration.
I've also talked with SCORE volunteers, another free service, and got good encouragement from them. You might Google "SCORE" and your city.
There are many online discussion forums for people who are starting businesses, but the ones I've seen have bad advice mixed in with the good, since it's basically the blind leading the blind. I've learned a lot more by reading stories of other small businesses in Inc. magazine.
posted by PatoPata at 10:18 AM on April 15, 2008 [1 favorite]
It is a very large risk, I doubt you can seek financing from any bank. If you know someone in the advertising industry who you trust, that may be the best way to obtain funding. Someone who has an intimate knowledge of the industry and can discern from your business plan what the actual risks and rewards are.
To be blunt, nothing turns on the bullshit detector than claims like "5x on your original investment in a year." That's crazy. That doesn't mean it won't work, but you're not going to find a random stranger (e.g., the market) willing to help you. Do what everyone else with an idea does: go to their friends and family. Really your only source of financing will most likely come from them. They are also the type of people foolish enough to go for such an investment. I say this as a good thing from your perspective, because without them you wouldn't stand a chance.
Good luck but realize that these types of ventures have extraordinarily high failure rates. Yes, the returns are amazing, but saying that you'll have any profit at all, let alone a windfall of 500k within a year, is way out of whack. Perhaps you have clients lined up already with good credit lines, but if you have to sell and market a product without clients knocking on your door to deliver it -- you have a long road to go.
Well, I've always been under the impression when one has debt it isn't wise to rack up more debt.
This is not necessarily true. There is good debt and bad debt, good savings and bad savings. If I can get an intrafamily loan for $100,000 at 1.85% (or whatever it is hovering around) and put it even in an incredibly conservative investment vehicle, I've come out on top.
But that is with fairly known risk profiles (long tails, yadda yadda yadda), where this is as speculative as you can get. At the end of the $100,000 in a service company, what do you get? A product with literally no-intrinsic value? You can't liquidate marketing ideas like you can plant and equpiment.
posted by geoff. at 10:57 AM on April 15, 2008
To be blunt, nothing turns on the bullshit detector than claims like "5x on your original investment in a year." That's crazy. That doesn't mean it won't work, but you're not going to find a random stranger (e.g., the market) willing to help you. Do what everyone else with an idea does: go to their friends and family. Really your only source of financing will most likely come from them. They are also the type of people foolish enough to go for such an investment. I say this as a good thing from your perspective, because without them you wouldn't stand a chance.
Good luck but realize that these types of ventures have extraordinarily high failure rates. Yes, the returns are amazing, but saying that you'll have any profit at all, let alone a windfall of 500k within a year, is way out of whack. Perhaps you have clients lined up already with good credit lines, but if you have to sell and market a product without clients knocking on your door to deliver it -- you have a long road to go.
Well, I've always been under the impression when one has debt it isn't wise to rack up more debt.
This is not necessarily true. There is good debt and bad debt, good savings and bad savings. If I can get an intrafamily loan for $100,000 at 1.85% (or whatever it is hovering around) and put it even in an incredibly conservative investment vehicle, I've come out on top.
But that is with fairly known risk profiles (long tails, yadda yadda yadda), where this is as speculative as you can get. At the end of the $100,000 in a service company, what do you get? A product with literally no-intrinsic value? You can't liquidate marketing ideas like you can plant and equpiment.
posted by geoff. at 10:57 AM on April 15, 2008
I think the smartest thing for you to do financially right now is to finish your degree, pay down your debt, and build up some savings. As you said, that will take some time (possibly years), but starting your own business is a big risk, and it doesn't sound like your financial situation can handle that big of a risk right now. You're still young, and it sounds like you are on a healthy career path already with the things that you are currently doing, so I don't think there's any need to rush into starting a business.
I obviously don't know your particular situation, but I hear the "I just need $100k, and I can turn that into $500k in a year" thing all the time. Nearly everyone who starts a business thinks it will have massive profits right away, but in reality must small businesses fail and even successful businesses are often unprofitable for the first few years. Investors know this, which is why they probably aren't going to want to give you any money.
Also, most people think that the important part starting a business is the idea or business plan, but in most cases it's actually the execution and hard work that goes into it that makes or breaks the business. You can have a great idea for a product or service, but if you don't have good enough marketing, for example, nobody is going to buy it. If you're going to try to run the company without much help, you need to be able to do all of those things that make a business successful.
posted by burnmp3s at 11:00 AM on April 15, 2008 [1 favorite]
I obviously don't know your particular situation, but I hear the "I just need $100k, and I can turn that into $500k in a year" thing all the time. Nearly everyone who starts a business thinks it will have massive profits right away, but in reality must small businesses fail and even successful businesses are often unprofitable for the first few years. Investors know this, which is why they probably aren't going to want to give you any money.
Also, most people think that the important part starting a business is the idea or business plan, but in most cases it's actually the execution and hard work that goes into it that makes or breaks the business. You can have a great idea for a product or service, but if you don't have good enough marketing, for example, nobody is going to buy it. If you're going to try to run the company without much help, you need to be able to do all of those things that make a business successful.
posted by burnmp3s at 11:00 AM on April 15, 2008 [1 favorite]
I agree with burnmp3s. Starting a business is risky. Even if you have a great idea and a great plan, there's high risk of failure. The fact that there isn't another business that's doing the same thing means its riskier-- you're trying to create or develop a new market.
You may be able to find some resources with the SBA (http://www.sba.gov/), but I strongly recommend getting at least some savings before looking for loans. You'll have a hard time getting other people to put their money on the line for your business if you don't have any at risk.
posted by justkevin at 11:13 AM on April 15, 2008
You may be able to find some resources with the SBA (http://www.sba.gov/), but I strongly recommend getting at least some savings before looking for loans. You'll have a hard time getting other people to put their money on the line for your business if you don't have any at risk.
posted by justkevin at 11:13 AM on April 15, 2008
On the other hand ... you sound pretty level-headed, cautious and realistic. I can't tell you how many ideas I've had that I didn't pursue, and found they were realized by someone else in a way that was close enough to mine to make it hurt. As a marketing advisor to numerous start ups, I can tell you in my experience, it's about 50/50 -- experienced team vs. a guy with an idea who will not be denied. Keep your day job/s, but be relentless in learning how to make your thing happen fast while minimizing risk. Don't let it take years while you pay down debt, go to school -- if your gut is telling you someone else could do it at any moment, I'd think long and hard before ignoring it. Good luck.
posted by thinkpiece at 11:19 AM on April 15, 2008 [1 favorite]
posted by thinkpiece at 11:19 AM on April 15, 2008 [1 favorite]
You sound confident but realize that there is a huge difference between $500K in profits and $500K in earnings. Saying $500K in profits will make you sound like a rube to investors (This would usually indicate somewhere in the millions in revenues)
posted by bitdamaged at 11:44 AM on April 15, 2008
posted by bitdamaged at 11:44 AM on April 15, 2008
If you're keen on being self-employed, either with this idea or another one, I'm not convinced that there's a reason for you to finish your degree.
A degree in communications doesn't teach you how to run a communications business, it just makes you more attractive to employers. If your life's goal is self-employment, you need business management skills, not communications theory. However, if this idea is your only idea and isn't part of a larger plan to be self-employed, then your degree might be useful to get you a job if you decide to bail on the business.
When I was your age I already knew I couldn't be an employee and I started planning for my freedom. Starting a business is a lifestyle choice. It's nothing like having a job, and the usual recommendations (get a degree! polish your resume!) are irrelevant.
Re the common belief that new businesses don't make a profit in their first year: This depends on the business type. My business was profitable from the beginning because it was 100% services and my marketing expenses at the time were just web site design and business cards. Of course, other types of businesses will have far higher expenses and might not see profits for years. And I would be skeptical of $500k in profits, as I said earlier.
posted by PatoPata at 12:09 PM on April 15, 2008
A degree in communications doesn't teach you how to run a communications business, it just makes you more attractive to employers. If your life's goal is self-employment, you need business management skills, not communications theory. However, if this idea is your only idea and isn't part of a larger plan to be self-employed, then your degree might be useful to get you a job if you decide to bail on the business.
When I was your age I already knew I couldn't be an employee and I started planning for my freedom. Starting a business is a lifestyle choice. It's nothing like having a job, and the usual recommendations (get a degree! polish your resume!) are irrelevant.
Re the common belief that new businesses don't make a profit in their first year: This depends on the business type. My business was profitable from the beginning because it was 100% services and my marketing expenses at the time were just web site design and business cards. Of course, other types of businesses will have far higher expenses and might not see profits for years. And I would be skeptical of $500k in profits, as I said earlier.
posted by PatoPata at 12:09 PM on April 15, 2008
As someone running a small business, I found The E-Myth Manager to be a very valuable read. It details what goes wrong with many small businesses, and really resonated with me.
posted by tomble at 5:37 PM on April 15, 2008
posted by tomble at 5:37 PM on April 15, 2008
FWIW, I co-founded an entrepreneurship-supporting organization. I have biases and I feel very strongly about entrepreneurship. So that's about me. Now you.
1. In my experience, entrepreneurship is more of a calling than a choice. This is probably not your first idea, and the fact that it's been on your mind so strongly for so long speaks to the way your mind works, not necessarily the strength of the idea or your current suitability to see it through.
2. Bearing #1 in mind, hey, you're a smart person, and you really may have a good gut when it comes to picking an idea to run with.
3. So my first piece of advice to you is to find other entrepreneurial-minded people and begin confabbing. Make it an official organization if you want to, or don't, but a coal dies outside the fire. The best way for you to foster this quality that you have is to discuss and refine it with others who are like-minded.
4. Share your idea. Being secretive and worrying about hiding details so that your idea won't get stolen is a rookie mistake. The more other people know what you're thinking of doing, the more they can help. And I can't stress this next part enough...No one cares about your idea as much as you do. Honestly. And if by some chance they do care more about it than you do, then they deserve more than you do to see it to completion. So don't sweat that. Be generous with your ideas, others will follow suit.
5. The grand tradition of entrepreneurship isn't about debt, it's about creative problem solving on a shoestring budget. Embrace that tradition. If you talk to other people and thoroughly explore the cons of your idea, and it still looks pretty rosy, LAUNCH IT. Regret is hard for anyone, but entrepreneurs are a delicate bunch here. Sometimes it kills them.
6. Consider the idea that if you're an entrepreneur at heart, the educational work you're doing now may be more important than launching an idea just yet. If it's part of you already, then practice your idea generation and refinement skills, and when the time is right for you, there will be a project for you. Probably even a better project than the current idea.
I feel that I'm leaving so much out here, but the framework is there. Go. Be an entrepreneur. The world desperately needs you. Maybe not yet, but if you're called, you're called.
Oh and Anonymous, please feel free to Mefi mail me.
posted by SlyBevel at 5:54 PM on April 15, 2008 [4 favorites]
1. In my experience, entrepreneurship is more of a calling than a choice. This is probably not your first idea, and the fact that it's been on your mind so strongly for so long speaks to the way your mind works, not necessarily the strength of the idea or your current suitability to see it through.
2. Bearing #1 in mind, hey, you're a smart person, and you really may have a good gut when it comes to picking an idea to run with.
3. So my first piece of advice to you is to find other entrepreneurial-minded people and begin confabbing. Make it an official organization if you want to, or don't, but a coal dies outside the fire. The best way for you to foster this quality that you have is to discuss and refine it with others who are like-minded.
4. Share your idea. Being secretive and worrying about hiding details so that your idea won't get stolen is a rookie mistake. The more other people know what you're thinking of doing, the more they can help. And I can't stress this next part enough...No one cares about your idea as much as you do. Honestly. And if by some chance they do care more about it than you do, then they deserve more than you do to see it to completion. So don't sweat that. Be generous with your ideas, others will follow suit.
5. The grand tradition of entrepreneurship isn't about debt, it's about creative problem solving on a shoestring budget. Embrace that tradition. If you talk to other people and thoroughly explore the cons of your idea, and it still looks pretty rosy, LAUNCH IT. Regret is hard for anyone, but entrepreneurs are a delicate bunch here. Sometimes it kills them.
6. Consider the idea that if you're an entrepreneur at heart, the educational work you're doing now may be more important than launching an idea just yet. If it's part of you already, then practice your idea generation and refinement skills, and when the time is right for you, there will be a project for you. Probably even a better project than the current idea.
I feel that I'm leaving so much out here, but the framework is there. Go. Be an entrepreneur. The world desperately needs you. Maybe not yet, but if you're called, you're called.
Oh and Anonymous, please feel free to Mefi mail me.
posted by SlyBevel at 5:54 PM on April 15, 2008 [4 favorites]
This thread is closed to new comments.
posted by Penelope at 9:41 AM on April 15, 2008 [1 favorite]