Starting a New Business

December 1, 2010


Working for yourself can be liberating and terrifying at the same time. Perhaps you have already joined the ranks of "self-employed" and work directly with a client or two while still employed, or maybe you are thinking of venturing out on your own. In this economy the latter may be a result of you being (or expecting to be) the victim of a reduction in workforce.

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Here are some interesting statistics from small business counselors, Score.
The estimated 29.6 million small businesses in the United States:

  • Employ just over half of the country's private sector workforce
  • Hire 40 percent of high tech workers, such as scientists, engineers and computer workers
  • Include 52 percent home-based businesses and two percent franchises
  • Represent 97.3 percent of all the exporters of goods
  • Represent 99.7 percent of all employer firms
  • Generate a majority of the innovations that come from United States companies
    Source: U.S. Small Business Administration Office of Advocacy, September 2009

    Small Business Openings & Closings in 2008:

  • There were 627,200 new businesses, 595,600 business closures and 43,546 bankruptcies.
  • Seven out of 10 new employer firms survive at least two years, and about half survive five years.
  • Findings do not differ greatly across industry sectors.
    Sources: U.S. Small Business Administration Office of Advocacy, September 2009; Survival and Longevity in the Business Employment Dynamics Database, Monthly Labor Review, May 2005. Redefining Business Success: Distinguishing Between Closure and Failure, Small Business Economics, August 2003.

    The good news is that establishing a business is fairly easy, but running it, and more importantly keeping it running, is the hard part. Statistically, three out of 10 small businesses do not exist after two years and five of 10 fail after five years. According to the U.S. Small Business Administration (SBA), the primary reasons for failure of these businesses are competition, poor marketing, lack of experience, insufficient capital (money), poor location, poor inventory management, over-investment in fixed assets, poor credit arrangements, personal use of business funds, unexpected growth and low sales.

    Planning for a business is the most critical part of a new venture. There are a few additional pitfalls to avoid.

    Starting a business for the wrong reasons: Unlike in movies, the real world doesn't respond well to the "build it and they will come" mentality. Sometimes what you think may be an important service (or product) is not as valuable to a potential client. If you have a service or product that someone wants, how does your idea of the value (read money) line-up with a potential buyer's view?

    Falling in love with your idea: Don't fall into the trap of "falling in love" with your idea without being absolutely sure the potential market for that idea has also bought-in. Do not ever assume that a client needs your services. This is a common trap I've seen broadcast engineers fall into, when trying to market services to stations.

    Becoming a specialist: By specialty, I'm talking about the person who is the greatest transmitter engineer, or can set up processing beyond the limits of mortal humans, or can modify audio equipment so any dog within earshot of the radio will bark -- you get the picture. While on the surface having a specialty seems highly marketable, it severely limits your opportunities to sell other services that you may be equally capable of providing.

    -- continued on page 2



  • Becoming a generalist: The generalist knows everything about everything. In some cases he also has his colleagues believing this; however, in practice much of his knowledge is limited to only the highest levels of a particular subject. When they try to put it into real world practice, these people tend to fall short on the deliverable.

    Being sloppy: I've run into some very talented people who are either incapable or for whatever reason unable to work neatly and efficiently. For example, whether you are wiring a circuit board or an entire facility, it should always look professionally built. During a project, is the work area kept clean and safe for other people occupying the area? Are you (and your employees) dressed appropriately and professionally for the particular job? And have you provided complete post documentation to your customer? How many engineers (and service companies) have you run into that believe not providing documentation to an employer or customer ensures that they will get some kind of job security? This never works!

    Keeping commitments: You have heard the phrase "Over commit and under deliver." Unfortunately this is all too common, especially among small business start-ups. There is a natural tendency for a new business owner to make promises in order to get new business. Don't do this -- unless you want to be sure that the business will fail quickly. Here are the likely scenarios you can expect with a poorly crafted proposal:

    You provide a proposal, the customer (who has some experience) already knows the proposal is flawed either disqualifies you for lack of experience, or worse case, the customer accepts your flawed proposal, you both sign a contract and they wait until you fail. Now you could be on the hook for some legal/financial issues and have your reputation pretty much destroyed.

    Make sure you have a complete understanding of the work the customer desires, define exactly what the scope of work entails and be certain both parties are in agreement. Have a clear understanding of all other limiting factors such as access, time period you can work, who purchases materials, etc. If this work is performed under a contract, I suggest letting an attorney review before signing anything.

    Have proper licenses and insurance

    This may seem obvious, but before engaging in any work for a paying customer, be certain you are properly covered with the appropriate insurance products. You should engage an insurance agent that specializes in business coverage. This is a very litigious world and you need to ensure that you and your family are protected.

    Also ensure that you have the proper licenses and certifications (if required). As an example, you are contracted to find land in order to move a transmitter site. In most states unless you are a licensed broker in that state or an employee of the client, it is illegal to represent a third party in the transaction. Also be careful when you are dealing with construction for a third party, doing things like electrical work could land you in trouble, particularly if that work causes some damage in the future. Unless you hold a valid Professional Engineers license in the state you are working, stay away from all things structural, mechanical and electrical, that fall under the applicable building codes.

    Create your business plan

    The reason I started this article pointing out the pitfalls is to reinforce the idea that all good businesses start with a strong written business plan. A good starting point is the SBA's website.

    A good business plan should contain the following information: Executive summary, company description, product or service, market analysis, strategy and implementation, Web plan summary, management team, and financial analysis.

    These are essential not only to form the basis of how you will operate your new venture, but to be able to secure financing in the future, which will be necessary to grow the business. The business plan should also be written in a manner where you can identify measurable benchmarks that give you a tool to understand the performance of the business against your original expectations. This will allow you to make changes as needed to achieve your end goal.

    Establishing the business

    As I said at the beginning, establishing the business is fairly easy these days. You will need to establish the business structure of the company i.e. sole proprietorship, LLC or corporation. Each of these has certain advantages depending on your situation. I recommend you consult an attorney and search the many resources on the Web to see which is right for you.


    McNamara is president of Applied Wireless, Cape Coral, FL.



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