Issue Date: April 20, 2003
Want to join the nation's 19 million entrepreneurs? Here's what you need to know.
How to FIND your dream business
Being your own boss means showing up -- always.
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Last year about 600,000 small businesses opened, says the Small Business Administration. By 2008, only half of those will still exist (although not all closures represent failures). To give your new venture a shot at success, here's what to do:
Make sure you can hack it. The most necessary skill is the ability to show up, says Jane Pollak, the author of Soul Proprietor (Dimensions, $14.95), who parlayed an egg-decorating passion into a business. In the early years, you'll feel isolated. And don't confuse talent with the ability to run a business, says Gene Fairbrother of MBA Consulting. You may be a brilliant floral arranger, but you can't be a successful florist if you don't know something about accounting, management, marketing, etc.
Target what people need. The country is holding its collective breath, but people are still buying, notes Entrepreneur magazine editor Rieva Lesonsky. They may not be buying what they want, but rather what they need. If your dream enterprise involves luxury goods, Lesonsky advises sticking to small indulgences. People may not spring for big-ticket items, but they're still purchasing makeup and Starbucks coffee.
Test your business idea first. How do you know whether your idea will fly? Get last year's Yellow Pages, call firms similar to your dream business, and see how many are "no longer in service." Invest time before you invest dollars; educate yourself, and seek help from local business development centers, networking groups and the Small Business Administration's Service Corps of Retired Executives. If possible, keep your day job while you start your venture on the side. "You're not in business until you have a paying customer," Pollak says.
Stay in touch with the trends. Giving kids a scaled-down version of an adult product (Pottery Barn Kids, PB Teen, Abercrombie Kids) is hot right now, Lesonsky says. That's because baby boomer parents want their tots-to-teens to have the best. Women pushing 50 who want to be stylish and comfortable are always up for something new, too.
Consider servicing established businesses. In times of layoffs, often the first people let go are those who provide peripheral services: IT departments, benefits departments, even human resources. They may be considered expendable initially, but they're never that way for long. Some companies hire non-benefit-earning consultants to replace them. With the right skills, you can start a business servicing those corporations.
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How to FUND your dream business
Eight out of 10 new businesses are financed via credit, including the means below, says the Small Business Administration. The rest use equity, by selling shares in their enterprise to investors. First draw up a budget -- a bare-bones idea of what it'll cost you to keep your doors open at least a year. Then:
Sell something. Time to let go of the convertible you drive only in summer. Selling assets you don't need -- time shares, real estate, jewelry -- is far better than borrowing, because you're not robbing your future or sabotaging your credit rating.
Borrow from your home. Look for the cheapest capital possible when borrowing. And with rates below 6%, mortgage money is about as cheap as it gets. If you haven't refinanced in a while, you can lower your rate and pull some cash out of your home simultaneously (a "cash-out refinance"). You also can borrow from your home using a home equity loan or home equity line of credit. The line of credit is probably a better bet; you'll be spending the money over time rather than all at once, so you pay interest only on what you use.
Borrow from a cash-value life insurance policy. Consider this option only if you're nearing retirement, your kids are on their own, and you think your spouse could manage with a reduced benefit. (If you die while the loan is outstanding, your heirs will receive the death benefit minus the amount you borrowed.)
Borrow from friends/family. Here you're putting your finances and your relationships on the line. That's why it's critical to provide a written business plan explaining what you're trying to do, how much it will cost to accomplish, how much cash you've raised so far, and what your estimated payout will be. Just like any Wall Street prospectus, include a big section on risks. Make sure investors know they could lose every penny. Then take only what you know they can afford. (Check CircleLending -- on the Web at circlelending.com -- a firm that administers these loans. It's nicer when dunning notices don't come from Mom herself.)
Charge it. Bootstrapping a business with help from Uncle Visa isn't unheard of. Minimum payments also make it surprisingly easy (and cheap) to tide yourself over for months, if not years. Shop around for cards with low interest rates (check bankrate.com). And be sure you make those payments (minimum or not) on time. If you ever try to borrow a larger sum later, you don't want a lousy credit rating standing in your way.
Jean Sherman Chatzky is the author of "Talking Money" (Warner Books, $24.95). Additional reporting by Amy Wilson.
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