CHAPTER 1
Starting a Small Business
Enthusiasm finds the opportunities, and energy makes the most of them.
— Henry S. Haskins
There are many reasons why you might be reading this book. Maybe you have alwaysdreamed about having your own business, and the timing is now right for you toconsider it more seriously. Possibly you have been recently laid off or havejust retired. Friends of yours may have started up a business part-time or outof their home, and have been talking to you about it. It may be you are justfrustrated at the insecurity, lack of challenge, or potential for advancement inworking for a large institution. Possibly you already own your own business andwant to be better informed in areas that are important to you.
The decision to go into your own business may be one of the most importantcareer decisions you make, with implications affecting all aspects of your life.Many people are impeded from proceeding any further than the dream by fear offailure, risk, or uncertainty. Fear of failure is a legitimate concern, asstudies indicate that over 75% of all new firms will fail within 3 years ofstart-up. One of the main reasons is lack of knowledge. This book will thereforeprovide you with that survival edge.
Small business in Canada is a vital part of the economy and fabric of oursociety. The small business sector accounts for a massive portion of thecountry's gross national product (GNP), and creates the majority of all newjobs. Approximately 85% of all employment is created by small business. Onaverage, over 350,000 small businesses register for the first time every year.This number, of course, varies depending on the economy and other factors, andincludes proprietorships, partnerships, and corporations. The estimate is basedon statistics from provincial government proprietorship and partnershipregistrations, as well as provincial and federal new incorporations. In manycases, the small business person does not show up in provincial or federalstatistics because he or she is self-employed and has no employees, or has notregistered the business. At the same time, there are a substantial number ofbusinesses that cease to operate every year, many of which do not show up instatistics.
The small business sector is a dynamic, innovative, and growing force thatprovides challenge, fulfillment, and financial security to over one millionsmall business owners in Canada. Studies show that over 75% of these smallbusinesses have fewer than five employees. There are many definitions of whatconstitutes a small business. The Canadian Federation of Independent Business(CFIB) generally uses the number of employees as a yardstick, with independentlyowned firms with up to twenty employees considered as small businesses.
This book has attempted to minimize the potential risk in starting up a smallbusiness. It will not only be a practical guide for you, but a reference sourcefor future needs as your business grows. Not all the chapters may be appropriatefor your needs at this stage, and the chapters do not have to be read insequence. Other parts of the book are designed to provide you with furtherpractical assistance, including the appendices, glossary, samples, andchecklists. At the very back of the book, there is a section entitled "ReaderInput." Our contact numbers, e-mail, and address are noted, as is our website.We would appreciate any feedback you have for improvement. You also might likemore information about our seminars or consulting services.
This chapter will cover:
• the advantages and disadvantages of small business ownership
• the traits of successful entrepreneurs
• self-assessment
• recognizing consumer and business trends
• sources and types of business opportunities
• evaluating business opportunities
• choosing a business
• women in business
• home-based businesses
• dealing with growth and expansion of your business.
ADVANTAGES AND DISADVANTAGES OF SMALL BUSINESS OWNERSHIP
Many people have an idealized picture of the rewards of running your ownbusiness. There are benefits, of course, but there are also risks andfrustrations. It is important to objectively look at both sides in order to makerealistic decisions.
Advantages of Going into Business
You have the opportunity of making more money working for yourself than by beingan employee. You have no ceiling on your potential income, as it is limited onlyby your energy, management skill, and good judgment. However, studies show thatmaking money is not one of the main motivating factors of small business owners.
• You have the opportunity to satisfy your creative drive. Studies show thatsmall businesses are more creative, productive, and responsive to changingconditions in the marketplace than are large corporations.
• You can't be laid off. In that sense, you have job security as long as yourbusiness is successful.
• You have definite tax advantages over people who are not self-employed.
• You set your own priorities as the decision-maker. You have control over yourown destiny, as you are the only person responsible for the success of yourcompany.
• Your workday will not be routine, as you are constantly faced with a varietyof challenges.
• You have the opportunity to see your ideas through to completion.
• You have the opportunity to control the nature and direction of your ownfuture.
• You have flexible work hours that can accommodate your personal and lifestyleneeds.
• You can determine your own style of work environment.
• You will receive prestige, status, and recognition if your business issuccessful.
Disadvantages of Going into Business
• Your income may be irregular, depending on the nature of the business, theeconomy, competition, and other variables.
• Your involvement with the business is generally very time-consuming,especially during the early start-up years. This tends to have the effect ofreducing time with friends or family, and recreation time.
• You will be under pressure to succeed from family, friends, investors, andcreditors, because you have invested so much time, energy, and money.
• In most cases, you must commit considerable financial resources towards theoperation of your business. This could vary, of course, depending on partnershipor investor involvement or bank financing. Home-based businesses tend to requireless start-up capital.
• You are faced with the risk of losing all your money in the business venturedue to circumstances outside your control. Factors such as health, family,marital and partnership issues, and competition problems may not always beavoidable or predictable.
• You must be conversant and deal effectively with various management areas atthe same time, in order to maintain proper control over the business, especiallyin the early stages.
• Considerable paperwork may be required by various levels of government, whichrepresents non-revenue-generating time and expense.
TRAITS OF A SUCCESSFUL ENTREPRENEUR
What kind of person becomes an entrepreneur? What characteristics must asuccessful entrepreneur have? Whether people are born with these traits or learnthem is material for good debate, but what we do know from numerous studies isthat successful entrepreneurs tend to have several important personalitycharacteristics in common. They are often strong individualists—optimisticand resourceful—and they usually have a high degree of problem-solvingability. There are many other traits that describe an entrepreneur, some ofwhich are listed below.
• Strong goal orientation. Ability to set clear goals that arechallenging but attainable; ability to continually re-evaluate and adjust goalsto make sure they are consistent with one's interests, talents, and values, aswell as personal or business needs. Rather than being content with theattainment of goals, successful entrepreneurs enjoy the challenge that settingnew goals brings.
• Persistence. Steadfast pursuit of an aim; constant perseverance;continuing to strive for a goal despite obstacles; strong determination to reachgoals regardless of personal sacrifice.
• Ability to withstand business reversals without quitting. Thoughperhaps disappointed, not discouraged by failure; ability to use failures aslearning experiences so that similar problems can be avoided in the future;attitude that setbacks are only temporary barriers to goals; strong capacity tobuild on successes.
• Business and product/service knowledge. The entrepreneur mustunderstand basic principles by which a business survives and prospers. Thatmeans comprehending the roles of management and responsibilities of employees tomaintain a viable business. Although the entrepreneur must be in control ofoverall goals, he or she can't perform each task without help. Awareness of thefunctions of marketing, accounting, tax, financing, planning, and management,and how to deal with them, is therefore required. Must have a good level ofunderstanding of the product or service.
• Willingness to accept calculated risks. Ability to identify risks andweigh their relative dangers; preference for taking calculated risks to achievegoals that are high but realistic. (Contrary to the stereotype thatentrepreneurs are gamblers or high–risk-takers, the risks involved areoften moderate, due to the amount of planning behind them.)
• Strong desire for independence. Genuine desire to be your own boss,free from external direction and control; sincere willingness and proven abilityto be self-disciplined in sometimes isolated working conditions; ability toorganize activities to reach personal goals. Successful entrepreneurs are notusually joiners by nature. They often join only to network; that is, to makebusiness contacts, further their ventures, or obtain useful information to solveproblems. Studies have shown that reliance on social interaction and friendshipmay inhibit entrepreneurial behaviour.
• Ability to handle uncertainty well. An entrepreneur must have anability to live with the uncertainty of job security. He or she must face manycrises, take risks, and allow for temporary failures without panic. Successfulentrepreneurs accept uncertainty as an integral part of being in business.
• Self-confidence and self-reliance. Strong but realistic belief in selfand ability to achieve personal or business goals. Successful entrepreneurs havean enduring faith in themselves that gives them the capacity to recover fromserious defeat or disappointment.
• Versatility and resourcefulness. Capable of dealing effectively withmany subjects or tasks at the same time; can assume different roles and switchback and forth as required. During the early stages of the business, theentrepreneur will assume numerous and diverse business responsibilities,including marketing, sales, credit and collection, finances, employee selection,accounting, planning, and negotiating.
• The habit of seeking and using feedback. The skill to seek and usefeedback from employees, the management team, and professional advisors onpersonal performance and goals for the business; the skill to take any remedialaction required.
• Physical health, with high degree of stamina and energy. Stayinghealthy is essential to the intense demands and ongoing pressures of one's ownbusiness, especially during its early years. The long hours and pressures ofbusiness demand emotional and mental well-being. Also, a high level of staminaand energy is important to meet the intense demands of running a business. Oneneeds the ability to work hard for long hours, often with less sleep than one isaccustomed to. One must be prepared to make personal sacrifices. Because thepressures may be great, the success of a business may be determined by whetheror not one's spouse, family, and friends can pull together and provide emotionalsupport and understanding.
• Self-determination. Belief that one controls one's success or failure,and that it is not decided by luck, circumstance, or external events.
• Objectivity and realism. Ability to distinguish between oneself andthe business, so that when a mistake occurs, one has the strength to admit itand take corrective action; desire to deal with business decisions rationallyand logically rather than emotionally and subjectively.
• Openness to change. Receptivity to change; ability to adjustperceptions, goals, or action on the basis of an assessment of new information.
• Ability to apply ideas in creative ways. Strong desire to originate anidea or product; to develop something new; to be innovative; to make somethinghappen; to imprint personality, dreams, and ideas on a concept in a unique anddifferent way; powers of both observation and imagination to foresee possiblemarketable ideas.
• Sense of purpose. A feeling of mission must motivate the person to gointo business; the activity must have meaning. The mission may be to make anattractive profit, to sell some necessary and unique product or service, or todevelop ideas or skills without the constraints of others' expectations.
• Human relations ability. Ability to understand and interact well withpeople of varying personalities and values. This is important when dealing withemployees, bankers, investors, partners, suppliers, or customers, and isreflected in characteristics such as sociability, consideration, cheerfulness,cooperation, and tact.
• Achievement orientation. Desire to take on challenges and testabilities to the limit. Successful entrepreneurs are not ambivalent aboutsuccess. They concentrate on ways to succeed, not on what will happen if theyfail. Because they are objective, though, they build a "what if" scenario intothe business plan, so that they anticipate problems and develop strategies tosurmount obstacles in advance. Successful entrepreneurs adopt the attitude thatif they do chance upon unexpected obstacles, they will find resourceful andeffective ways to overcome them.
It is unrealistic to suggest that successful entrepreneurs possess all of thetraits outlined. Many of the characteristics are interrelated, and not all arenecessary for business success, so do not be overly concerned if you feel you donot possess every one of these qualities. The key question is how significantthe missing traits are to your type of business and your business goals. Onceyou understand your personal strengths and weaknesses, you are then in a muchbetter position to compensate for them by hiring employees, bringing inpartners, or taking further training.
SELF-ASSESSMENT
Most people start a business without ever completing an honest, thoroughpersonal assessment. Without this self-appraisal, your personal success inbusiness could be limited. This section is intended to assist you in focusing onyour strong points, identifying your weaknesses, and dealing with areas thatneed improvement. This will enable you to clarify your personal and businessgoals.
In the following categories, expand as fully as you like on your answers. To getthe most out of your self-assessment, you should be free from distractions andtake as much time as necessary. Rank your answers to indicate the degree ofimportance or impact on your future business.
• Autobiography. Summarize your own life history. Review and detail allaspects of your past, including credentials you have obtained, education,special projects, leisure time activities (including sports and hobbies), andtravel experiences. List the work you have done, including all full-time, part-time, and summer jobs. Beside each job list all the roles you assumed or tasksyou performed (e.g., coordinating, supervising, writing). Start with the mostcurrent time period and work backward.
• Skills. List all your skills. These are your developed or acquiredabilities, such as researching, administering, instructing, problem-solving,selling, etc. Once you have identified your skills, rank them by frequency ofuse. This will give you a good indication of how important these are in youractivities. Which skills do you believe will assist you in attaining yourbusiness goals? You may wish to refer to the book What Color Is YourParachute? by Richard N. Bolles for a detailed list of skill areas tostimulate your awareness.
• Personality attributes. List all your personality attributes.Attributes are inherent characteristics, such as having an analytical,inquiring, or insightful mind, being compassionate or sociable, etc. Considerthe common characteristics of entrepreneurs discussed earlier in this chapter.
• Accomplishments. List your most important job-related accomplishments.Examples may include negotiating a major contract for your employer,coordinating a major conference, or exceeding sales quotas. Then list your mostsignificant non—job-related accomplishments: for instance, being electedas president of a club, organizing a fundraising event, or running a marathon.Rank your accomplishments from the most important to the least important. Thenidentify and write down all the skills used, talents demonstrated, andattributes shown which were needed to attain each accomplishment.
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