Over the last few days on different threads, several of you said that you own or owned successful businesses. That got me thinking.

See, like most Americans, I can see myself owning my own business. In fact, this desire rises to the level of a dream. The dream goes something like this . . .

I get an idea or see an opportunity, having heard many times that all you need to do is have an innovative idea to fill an unfilled need and work hard. In my dream, though, things go awry. I raise funds and pour my own money into the venture. I sign a commercial lease, pledging my shelter as collateral. I forego other opportunities. I have a grand opening. No customers turn up. Little money comes in. Friends drop by to patronize my sad little establishment, which only adds to my humiliation. Finally the business collapses, taking with it everything my husband and I have built over 14 years of marriage, leaving us middle-aged and unemployed and teetering on the edge of bankruptcy.

Then I wake up.

I'd be *very* interested to hear how any of you folks started businesses, in as much painstaking detail as you would like to share. I know the slogans and platitudes, and I even know a fair bit about business. What I don't know is how it is done from the ground up.

How did you get your idea? Did you buy an existing business, and if so, how did you evaluate it? Did you start from scratch? Did you buy a franchise? Was the business in a field you already knew, and if not, how did you prepare yourself? Were there established competitors, and how did you wrestle business away from them? Where did you get the financing? How much risk did you take, and how did you eat during the lean years?

Cindy -- wondering if it is OK to keep calling Susan "Plays"

Sad to say for our family this was not a dream..except when it came to mortgaging our home (where I put my foot down ), most of the other scenes were reality for us. Throw in a meeting with a potential investor on September 11, 2001! Disaster..UGH...

Now we are faced with a sadly diminished life savings, time spent with no income and strained relationships among friends... That and constant contact from the state tax board who seems to think we are still in business...Sigh...

It is a risk, some folks are willing to take and win or ...lose...

Start small and you will have less to lose..

This will probably be long.

My company started out as an engineering consultation partnership. We got 50% of our seed money from the state of NY in the form of a cost-shared research program. We made up the other 50% in sweat equity. The idea came out of my graduate work. We soon began expanding as opportunities appeared, and took on new employees with the hope that a product we developed for one of these companies would turn into a revenue stream through a roaylty agreement. That never took off, so we are in the process of turning out some of our own products.

The liability risk to you can be reduced by choosing the correct type of business structure. The two more common ones now are LLC (limited liability company) and Inc. (Incorporated). The LLC is less expensive and less complicated to set up.

If your company borrows money from a bank to fund any operations, you will need to personally guarantee it. That means your portion of whatever assets you own is at risk. It is an uneasy feeling that you get used to. You can try shifting assets around if you trust your spouse, but even so, some of those transfers do not protect assets. The rule of thumb is that banks will extend loans to you when you don't really need them, so when things are flush, get lines of credit in place so that you can draw on them to cover paytoll and other expenses if there is a mismatch in income and liabilities on a month-to-month basis.

Don't grow too fast. A company in transition makes lenders antsy. If you go from $100k to $500k in one year and take on 5 more employees, you might find that you have difficulty covering all of your expenses. Your overhead goes up with more people; it gets more expensive to do business and bankers are less inclined to help you out.

Understand your market as best you can. What's your widget and why will the consumer choose your product: cheapest? Only one in town? Unique? Does web-commerce help or hurt your viability? What does it cost to rent office-space/store-space? What benefits do you need to buy and what do they cost?

It's hard to just step off a cliff into business, but I know some that have done that. Most transition and test the waters from a safer position. I've known teachers that teach during the school year and paint houses during the summer. They let their painting business grow until they are hiring 10 or so kids in the summer until they are ready to "retire" from teaching. If the business slows from supporting the two of them and the 10 kids in the summer, they can let some people go. There is some security in having people working for you.

Once you know what the business is, you can get a better sense of start-up costs. You shouldn't be personally liable for commercial leases if the business fails. Have a decent attorney and accountant available to help with planning, particularly with regard to taxes.

You need to decide if you will be a growth company or a lifestyle business. The pizza shop in town that has bee there for 10 years is a lifestyle business, even if they tripled in size. McDonald's is a growth business. If you a lifestyle business, you will get money from banks, friends, family and yourself. If you are a growth business, you'll look for capital investment (investors) that will give you cash in exchange for part ownership and contol of the company. They are looking for a 10x return on their money in 4-7 years. You will see these investors referred to as venture capitalists (VCs), whi tend to invest hundereds of thousands of dollars or more, or "angel" investors, who invest less, but tend to be more hands-off.

I think the successful business owner never feels like their business is successful until they sell it. You always feel vulnerable. In some sense, I guess you always are.

Good luck...

Hic

I have two different vantage points on this.

1. Kathyk has her own business...a law firm with one partner and a half dozen of more staff. They started out slowly with very little capital needed up front and grew quickly over the first 4 years or so. No loans required, but both partners had a spouse with a professional income to carry the cashflow requirements at home. The first year was not easy. Kathyk took home about $12k, which is not much for a lawyer, even in Maine. The key to this sucess story was low overhead and controlled growth.

2. I have a lot of small business clients and I have seen some fail. When the failure involves personal guarantees of bank financing, it can be heartbreaking. I have also seen a lot of tremendous success stories. Those who succeed have a good idea, work hard, and are not risk averse. They believe in their idea and their ability to make it work. They are willing to sign away their savings and home and kids to have a chance. I have a number of clients who teetered on the verge of bankruptcy in the beginning and then came back with a flourish.

3. I guess there is a third thing....more than half of all new restaurants fail.

jf

...and if you buy a going concern, it is probably overpriced unless: (1) the seller has a reason for selling, the most common of which is retirement, or (2) you have a strategic plan to grow the business in some way, ie., access to new customers, an idea to cut costs or expand markets, a strategic fit with something you are already doing....

I own my own business in the sense that I and 8 partners own a law firm that employs 35 people and a respectable number of dollars, but having 8 partners often makes you feel like an employee, especially when you are in the minority on some issue.

jf

I have friends, who did sadly, put everything on the line and lost everything they had accmulated their entire life, including their home. They gambled big and lost big time. It was/is not a pretty picture.

This was one of those couples trying to establish a way to make a living in the US, when all the skills that enabled the bread winner of the family to make a living in the US had gone off shore, textile manufacturing, who is now eeking out a living for them working in the Ukraine.

Like I said, it is not a pretty picture.

Well, I must add to this. Both my partner and I had doubting-Thomas husbands. Hers was a very well compensated psychiatrist, head-hauncho at one of Maine's largest hospitals. He poo-pooed the very idea that she needed to dirty her pretty little hands working, now that they had their 3rd child and the big firm thing had proven a collision course for her. Then, me, also on baby #3 at a small firm where the (d****) managing partner didn't have the foresight to give me part-time for one year post-partum and my husband who quaked at the idea of my giving up the security of my emabarassingly low-paid job. Weeeeell, as in most instances when I felt strongly about something, I plunged in headlong, in spite of my inate inability to do projections and business plans (to the horror of hub). I knew it would work, my ADD aside.

Two years later, partner and I started our laughing to the bank routine. Her husband suddenly realized she had nearly the earning power he did, and "gee, this buys us a vacation home." Mine, just drew a big sigh of relief (I think). It's not without bumps. The worst part for me are the personnel glitches. I'm way too emotionally entrenched in all of that.

Now, I'm buying a building, which has its own sets of anxiety inducers. But, all in all, it's been very satisyfing. And, if I have to agree with Tomk on anything, it would be - I could never work for someone else again.

PS

And yes. Starting small worked for us. We started with no support staff. Most people thought we were nuts. But, personnel is the biggest expense in most service industries. We recognized this, and knew that we could fill in that part until we had enough work to justify paying others to take it on.

kathy was right (as much as I hate to admit it,) to start up her business with no loans or large expenses. Undercapitalization kills more business that you can imagine. No loans = no (or almost no) pressure. No pressure means you can make smart decisions rather than expedient decisions. Personally, I believe if you ever have a brilliant idea for an innovative product don't make it. Find an idea that someone's already making money on and do that.

Look at the number of guys making a fortune selling pizza. And dry cleaning is the number on producer of millionaires in America.

Another thing is: sell. Your success depends on it. Get out there and meet people and get them to buy your product. There's no money in being a manager, you need to sell whatever you do to as many people as possible. Also have a game plan--I like to sell my businesses when I grow them to a certain size--I don't want to be a professional manager, I kind of like being a cowboy, so that's what I do.

Decide what you want to do when your business reaches a certain size.

So, STEAL someone's else's already proven idea, don't under capitalize yourself and sell. You'll make a ton of money.

(And NEVER personally guarantee ANYTHING!)

I started a business when I was laid off. Back in 1997 I took a job with an IT consulting company that wanted to grow its business in the south-eastern US. Hired in October, sold the house in Virginia and moved the family to Florida in November, bought a new house in January, and laid off at the end of April. They were somewhat decent about it, keeping us on the payroll through the end of May, and giving us a month's salary as severance. Wouldn't let us keep the laptops, though.

There were four of us in the Orlando office that was getting closed. We fairly quickly agreed to throw in our lot together and start our own business. We asked the company we were leaving if we could keep our existing customers, pointing out that those customers would appreciate the continuity of seeing the same faces. We also pointed out to our ex-employers that they really didn't have any staff that could cover the contracts, and would be in breach. They agreed.

Next we started incorporating, as an S corp., through a lawyer one of us knew. A few hundred dollars on a credit card for that (watch these pile up fast). Then medical insurance, which we had to start out paying monthly as we had no cash reserves big enough to make an annual premium payment. And some errors and omissions insurance, again monthly. The E & 0 wasn't too bad as we weren't doing any direct Y2K work, but the medical hurt. Plus, it's not a deductible business expense for S corp owners when bought for the owners. It would be if bought for the employees, but we didn't have any. We started keeping records on QuickBooks, which was setup with a decent chart of accounts by a good CPA that one of us knew.

The first two months were a bit of a squeeze. Only two of us were billable, and major corporations pay net thirty days on a monthly bill. They won't accept weekly bills for services, although they will accept weekly expense reports and pay them immediately. That helped, as these were both out of state contracts, requiring plane, car and hotel reservations every week. So we did see expense checks weekly, but no receivables whatsoever for two months.

During those two months a few more things were going on. Turns out we didn't get quite so clean a handoff from the former employer as we thought. They never told the customers that the consultants (us) they'd grown accustomed to would be a new company starting in June. We'd been telling them that, but it took a while to sink in. When it finally did, everybody realized that the prior contracts were actually void, and had to be renegotiated. Through a couple challenging weeks I managed to get my non-billing coworker in front of my customer, and picked up on a new contract with both of us on it for a six month minimum gig, with an option to continue afterwards.

During these two weeks the other customer was being sticky. We were a new vendor, and had to go through a vendor approval process before we could get paid. About six months, they said. Almost walked off that site a number of times because of stupidity like that. We found that we could subcontract through an existing vendor and get paid that way. One of the other consultants we'd been working with a few cubicles over had been through a similar phase in his startup and volunteered to cover us. Usual rate for this deal can be anywhere from one to four percent of the passed through value, he was decent and did it for one.

We managed to get through those two months on severance and credit cards without too much pain. Started to get excited by the prospect of our very first check coming through, and found the accounts payable department was very strict about their net thirty policy. They would put the check in first class mail on the thirtieth day, and not a moment sooner. We were able to pay them to overnight it, but they wouldn't let us pick it up in person. We also received our subcontractor check from the other site.

Okay, pay some credit cards! Did that, and then tried to check in at the hotel again next week. Card declined, reason was I'd made a large payment recently so they froze the whole card while checking for fraud. Froze it for about a week, if I recall. Had another to check in with, but it was not what I expected after having just put a lot checks in the mail.

But we did this for a couple more months, and the cashflow started to even out. Three partners billable, and one doing marketing to find us more work. This started to show where the cracks were in our new company. Three months in, and marketing had not developed any solid leads.

Stress. Meetings. Stress.

Meanwhile, another payment glitch. Turns out the guy we subcontracted through at the other site hasn't been getting paid by our common customer, although he's been paying us. Good checks, too, out of his own float. Had some more battles with that customer that went on for months. They're huge, had tons of money, S&P 500 company, just a horrible internal system for paying vendors. I think they didn't pay the prime contractor for five months on our work. It finally came through, and we gave him another few percent for all the float he extended. His personal horror story was a fourteen month holdup, so we didn't feel too bad. He gets dinner on us whenever our paths cross.

More months go by, marketing still hasn't developed any solid leads. Made some plans to try to bring in a high-priced CEO person, but that started a brutal round of e-mails. I did a complete financial analysis of our position, the likely future path of the company, and a net present value of that path. Which included a near certainty of more work requiring one hundred percent travel to work a contract. Calculated a present value in the very low six figures for a job with five years of travel, and said it was worth approximately a warm bucket of spit. I put it a little nicer, but only barely. With two young kids at home, and me on the road Monday to Thursday, I wasn't seeing them grow up. The two other billable partners had been doing travel for four to five years, each with kids. Marketing was doing no travel, had no kids, no billable hours, and was producing no leads.

Company pow-wows. Stress.

Marketing person finally got the clue, and setup something local. Had a few preliminary meetings, but it ultimately fell through. Never got to speak with customer about why, but I suspect the billing rate was a major part of the issue. I'd worked out what our minimum, survival rate had to be, given something like an 80% workload for the three billable partners, and some prudent expenses. I'd managed to negotiate about double that rate at the customer where I'd started (and ultimately all three of the partners would work). But marketing and I did not see eye to eye on how fast to ramp the rate up. I wanted to start smaller, and take local clients who might pay less, but didn't take so long to cultivate as the large corporate accounts. Marketing was greedier, looking to go for the gold, figuring a cashout plan in a few years, and go on to something else.

I quit in December, having been 100% on the road since March. The two billable partners offered a decent sum for my share and I took it. Marketing never even showed up to our last meeting. I took a corporate job for a bit less money, and have been having a much better life. A couple years later the two billable partners, whom marketing had landed a very non-plum, non-big account for, but still requiring 100% travel, bought out marketing's share of the company. One of the guys was so stressed he slept maybe ten hours in a whole week. He's better now, but he's been on the road for nine years of his daughter's life. The other guy, ten years, and without being too specific, he has more than four kids.

I truly don't know how they do it. I've heard them gripe about it some, but they keep getting on the plane every Monday morning at zero-dark thirty. Company website hasn't been updated in five years, and there's no sign of a change in customers to something local.

We were fortunate in that though we were laid off, we were actually handed some existing contracts to work. Not the same as buying a functioning business, because we had to go through all the setup activities, but the only real dry spell was waiting for the first receivable check.

Once my kids are through college I will look into starting my own business again. I've been working on my marketing skills, since that gap was the most painful lesson of the whole experience. There were some others, but this is probably long enough as is.

Marketing is everything I am afaid to say. If you don't have customers or clients it doesn't matter how good you are or how hard you work.

jf

Right Jack. That's all there is to business. There's NOTHING ELSE. Don't be fooled. THERE'S NOTHING ELSE.

Amen to that and word of mouth can be the best marketing. People trust the judgment of people they know and if the people they trust trust you then you have your foot (maybe both feet) in the door. I have been a contractor for ten years now and my best marketing is that I know what I am doing and shoot straight even when things don't turn out as planned. Most people would rather hear you say that you got some detail wrong than a bunch of BS to cover it up. They will respect you for it and will come back to you again and again. Assuming, of course, that it is a rare occurence.

That's the hardest part of owning a business - at least for me. I have to sell, all the time. I'm not terribly good at it, I don't much enjoy doing it, but I do it.

Slack off even for a week, and in a month there will be nothing to do and the crew will go to work for someone else. It's not so bad now - I've built up a bit of a clientele - but even when things are busy I have to set down the tools, go out and sell some more.

I left the phone in the truck all morning today so I could get some work done. By lunch time I had 14 new messages. None of them represented immediate work, but each must be handled as though they are the most important customer I have, and so I do. 1123 cell minutes last month (18 hours!) - it's amazing I get anything done at all. Sometimes I wonder if my customers have anything better to do than to talk about work.

The upside. Eventually all of this yakking pays off. I got a months' work handed to me today out of the blue - no bid, just get 'er done - full rate, top quality, no questions asked. I've worked for these guys in the past but not a whole lot. Mostly I've done little things for them, helped them out when their tenants start howling. That's selling too, and this time it paid off.

Yes! I'm hiring...

Thanks so much, folks! I'm still absorbing all of this, and I hope you won't mind some follow-up questions. I need to get my thoughts together, though.

Marketing = 10% contact (sales) and 90% follow-up. If you fail in the follow-up arena all effort to make contact is lost and no sale is the net result.

I see loan requests for new businesses all the time. Several factors appear to be related to the eventual success stories.

1. Buy or start a business in which you have solid experience. Every type of business is different and experience at one type of business is *not* necessarily transferable to another type.

2. Do not start up with a lot of financial leverage. I'm still always amazed at folks that want to start a new business and want to buy a piece of real estate to house it as a first step. You don't want to be saddled with a mortgage payment while getting started. A lease payment is a lot better than a loan payment; you're not committed for as long and lease payments are fully deductible on taxes.

3. When buying an existing business, try to arrange for at least part of the acquisition to be owner financed. This makes the seller have a strong financial interest in your success if he/she wants the loan repaid.

And a warning: If any of your financing will be through government loans or loan guaranties, be prepared for exhausting levels of paper work, red tape and severe delays.

Hope this helps.

Worth repeating.


On another note...the teacher/paint contractor is an idea that has succeeded here, also. The largest residential, and light commercial painting contractor in town, started the same identical way.

Guy now has 20 some-odd guys working for him, and a small fleet of vans...

One rule of thumb I've always heard is that you'll never get rich doing it yourself, you have to have other people doing the work.

That said, I *think* I've found something. I don't want to really say anything more about it now other than I don't have to finance any of it. And if it flops, well, I've lost larger amounts of money on much more idiotic ventures.

Derick

Wow! I am so *stoked!*

I went to my exercise class today, and for some reason there was only one other person, which is quite unusual. So this lady and I worked out together, chatting amiably. We've known each other through exercise for about a year.

Toward the end of the workout, she blurts out, "Man. I'd love to start my own business!" She, like me, is trying to figure out what to do now that the kids are older, and we are both in telecom and want nothing more to do with the field.

Long story short, we've exchanged e-mails and are going to start working toward a business opportunity. She has an issue to research, and so do I. And we'll take it from there.

This is just what I need -- an energetic, smart partner.

The only thing that worries me is the first bit of advice Wynnbear wrote: start in a field you already know. I don't think I can do that. I don't want to practice law anymore, and she doesn't want to do what she's doing.

I don't want to say what the idea is just yet, but it is certainly timely. We know the industry in our capacity as mothers/consumers, so maybe that will help.

Anyone got any advice for someone who would be starting out in a totally new field, other than snooping around and talking to people who are doing it?

I hesitate to post this.
But once again I am not in this box.

I don't want my own business.
I love someone else having all the headaches.
I am very good at what I do.
I am not competitive.
I am a team player.
I am very happy and content and feel I have found myself, career-wise.
Once again, there is not a lot of social support for feeling this way.

I don't post to poo poo starting a business.
Just to stick my head up and say it is not for everyone.
Many people don't get this.
They assume *Everyone* wants to be alpha dog, and there is something wrong with anyone who doesn't, espicially if it's their kids.

Cindy...in my experience, the ideas that you think are great lose their luster with time. Make sure you try to generate *several* ideas, and do some of your own market research on those ideas by talking with potential customers. In my area, I am forever asking people "would you have any interest in [insert idea here]...?". You'll find that in a week's time you'll abandon most of your ideas.

If you are determined (which you appear to be) you will find something that fits you perfectly.

Be cautious of business partners that you don't know. You can get into a lot of trouble with them as you need to trust them enough to assume liability for what they do on the company's behalf. You'll also end up sharing a lot of personal financial information.

Good luck...

I think anyone that would treat you this way probably has not owned their own business. Owning a business is not right for everyone. It's not even right for many people...if you don't enjoy the risk, you don't want a business.

I've not encountered anyone with that attitude, but people never cease to amaze...

NY1911:

You ain't just whistlin' dixie! I had an idea just yesterday that I've already abandoned.

There's no doubt that having a partner is a seriously mixed bag. But I've found that I just don't do well on many things if I am totally on my own. I exercise better with a group, and I need a lot of social interaction generally. And the mountain might not feel quite so high if there's someone else working with me. It feels a lot less scary, too.

The main risk for me is, erm, that I don't suffer fools gladly, and I can't abide laziness. That's why I think this arrangement with this woman could work out -- she seems to be on the ball.

We'll see, we'll see. It sure wouldn't be the first business to burst into flames!

ny1911 I think your advice about generating several ideas is a good one, as well as waiting a bit to see if your ideas lose any of their initial luster. But I don't think, at least not in all cases, that asking people their opinion is the best idea. Invariably someone will shoot it down and tell you it will never fly.

Although I have no experience in starting my own business, I have thought thru my idea and have done as much research as I could on the subject (there is very little) and I'm going to go forward with it. I know if I were to tell the forum at least half of you would tell me it's a lousy idea.

It may very well be, but I feel passionate about it and believe it will work. This brings to mind those Lexus commercials that initially start back many years back where a guy proposes the idea of cornflakes to the board of directors and they laugh at him. Or another guy proposes overnight shipping and he's also told it's a lousy idea.

I think all you can do is do your homework, recognize the risk. What's the worst that could happen? If you can survive the worst that could happen and you feel very passionate about your idea, then go for it. That's my opinion.

Derick

Just to clarify...I think you should ask knowledgeable customers if the product were available, would they buy it. It is more complicated if your market is the general consumer.

If I have a good idea for a vehicle accessory, I don't discuss it with the consumer (they almost always don't like new ideas). I talk with the automakers and parts suppliers.