Starting a business can be relatively simple with two principles in place: Do what you know and find customers willing to buy what youre selling.
Thats the advice of Jon Fjeld, professor of the Practice of Strategy and the executive director of the Center for Entrepreneurship and Innovation at Duke.
Fjeld talked with Shop Talk editor Jessaca Giglio about what it takes to start and fund a business, and when to call it quits. Here is an edited version of his comments.
Q: Where do you begin when you want to start your own business?
Its a combination of two things. 1. Know something about what you want to do. Whether its a service, retail or product, make sure you know something about it. 2. Make sure theres a need in the marketplace for your business. That second step, which people sometimes forget, is to find something that consumers cant always get. Supply something that people want and cant currently get. If you know that your product would appeal to a specific group, then you have to reach them and bring them to you.
Q: What should you do first?
Do some upfront work. Sometimes its through word-of-mouth or through marketing. Use primary market research to find who your business resonates with. Once you find out who your service will primarily reach, use the right method such as online, sporting events or your local paper to get your message out there. Be careful how you invest your marketing and advertising dollars.
Q: What about financing?
Its important to start as quickly and cheaply as you can. ... Figure out what resources are required. Do you have to rent a space? Do you need to hire someone? Come up with a plan. And realize that most businesses operate at a loss for some time.
To finance your business, you can take out a mortgage on your house, take out a loan, borrow money from a relative or incorporate as a business. Many investors wont invest in you as a human but will invest in you as a company. They have to have some way to get a return on their investment. Having a corporation gives you some sort of legal structure.
Q: Whats the advantage of incorporating?
The best thing to do is to have a corporation. The process means you create a legal corporation and have limited personal liability. It makes sense to limit your downside risk. To get a loan, you must have assets that will secure the loan. Or you can have a good track record with a bank. Or find an investor willing to invest and use that money to fund your operating losses. If you borrow money against your personal assets, you will still owe money if the business goes south.
Q: How long should you give yourself to succeed?
Map out in advance how long you think it will take. Give yourself the opportunity to restart a reasonable number of times before stopping. If its not working, maybe your business model needs adjusting. Give yourself time to try before pulling the plug. If you have on blinders, you may not be able to adjust. The amount of time it takes to get established versus your startup costs varies. If you have a lawn service and you need a lawn mower and some tools, it wont take long to recoup your money. However, if you start a company that is trying to cure cancer, it could take 20 years before you see cash flow.