You might be thinking of improving your financial lot, generating and accumulating wealth or just living out your passions through entrepreneurship, if you are considering going into business, there are a couple of things you might want tot get right first, as well as questions you may need to answer to yourself to help you determine your readiness or otherwise.
When people ask me how to start a small business, I say, “Go open one up.” Then grind it out. Make a profit. No one wants to hear that, but it’s true. Nobody’s going to tell you anything worth hearing until the customer tells you at the cash register.
Pete Boinis, a great businessman and a true innovator in the restaurant industry, has a very sound philosophy about starting a business. He says innovation comes first, but after innovation, two other factors are just as important: motivation and realism. If you don’t know how to attract and motivate the best people, it’s not likely the business will get off the ground. If the business can only succeed if everything goes one hundred percent as planned, forget it; it won’t go anywhere either. You have to have all three ingredients.
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Lots of people come to me with ideas for business deals. They want my advice, but most of the time they want my money, too. The first question I always ask is,’ “What’s your plan?” Remember, I didn’t have a formal plan. I also wasn’t asking anyone to invest in me, either. That’s a big difference. If you want investors, you better have a plan you can spell out and it better be convincing. The plan can be exciting and original, but it’s even more important that the person behind it be totally committed.
1. Are you willing to go open one up?
A young man opened up a sandwich-and-ice-cream place. He had a possibility. I told him to work at it and make a profit. But, he had a fantasy: didn’t make any money. Like so many start-ups, he wanted to be a chain overnight. Wendy’s made a profit by the sixth week it was in business, but it wasn’t a lot of money. Use the first place you open to learn everything you can about how the business works. Most important, will people actually pay money for your product or service?
2. Do you know how your personal plan meshes with your business?
What’s your goal? Are you really challenged by this idea, or is it just something to do? What do you want to achieve? How do you feel about working long hours? How much knowledge and experience do you have in the business you are planning to start? How much of your own money do you have on the line? Are you really ready to do what you want to do? It’s all in the timing. Timing includes having all the education, all the on-the-job training, and all the knowledge about that business that you’ll need to succeed. And then there is a certain feeling inside that tells you when you are ready. You just know it. Now, it’s O.K, to change your mind. You don’t have to have the same plan your whole life, but you have to have a plan. And, at any point in time, you have to be truly serious about that plan.
3. How much are you willing to sacrifice?
A lot of people think they’re ready, but they get trapped. They work for a company and can’t afford to make changes because their standard of living is too high and they won’t give anything up. Sometimes they pay for a big promotion for the rest of their life because they lose control. They have to join country clubs, buy a bigger car and a bigger house. Each thing takes more money. It’s not the original cost; it’s the upkeep of maintaining the life-style.
When a person is ready for a change he has to pick a point and stop. He has to be honest with himself and ask, What do I really want to do and can I do it? Am I willing to put everything I have at risk? How much would I and maybe my family have to give up to make a new start? Does my family understand the risks as well as I do? How will it feel to live in a world without pensions and profit sharing? A world with limited expense accounts and no bonuses?
A world without company cars or the status of being with an established company. The most important thing you’ll have to sacrifice is time. You can’t start a new business sitting in an armchair. You can forget about a vacation, or if you get one, it’ll probably last no more than a couple of days. And your family life may well suffer … but that can be worked out if they support you and you are committed to supporting them.
4. Do you have enough confidence to succeed?
Sometimes, people are ready and qualified but they haven’t got the confidence. Mainly, you look at the experience you have and how successfully you have performed. But you better know what is driving you, too.
Give yourself good reasons why you really want to do something and tell yourself that you CAN make it happen.
5. Are you willing to stay small until you really have it right?
If a small businessperson was just starting out in a new concept strategy, the thing that any smart investor or bank will want to know is if you are going to staff small until you get your organization together. It’s the “I’m not going to have any overhead.” Don’t hire people until you can afford them. Once you hire them, you may end up paying them out of your own pocket if the business falters. Or you could lose them as friends or business partners. One of the benefits of starting small is that you can make mistakes “”anonymously”
6. Are you focused on the right things?
I remember watching the TV show “Moonlighting” with Cybil Shepherd. In it she plays a model – Maddie Hayes – who takes over a detective agency and has gorgeous offices overnight. That’s not the way it works when you open a business. The biggest mistake small businesses can make is to build fancy offices. Offices are one of the worst things in the world. But I shouldn’t talk. Today we have beautiful offices. Mine overlooks a miniature garden and it has fancy paneling. There are also two handsome chairs by the desk, which Duke University and Ohio State presented to me… in honor of the fact, they said, that they could never find a seat in our restaurants. Wise guys.
7. Do you have a good handle on the key expenses?
A first-time operator just launching a business has to be real careful about the amount of money that he sinks into real estate. You can’t lock it all up in the location and then have no money to operate with. You need to know all your key costs down to the penny.
8. Do you know about local or national issues that could help or hurt your Business
This is a bigger and bigger concern today, but it was big even when we first opened Wendy’s. For example, zoning really limited where we could go, and that’s what caused all the quick-service restaurants to be clustered in little pockets Today, you have to figure out what your business does to the environment, or if you’ll be able to get qualified workers. There are plenty of traps to steer clear of.
A mail order business better know what will happen to postage rates for the next live years. You have to watch out for issues that don’t seem like they are part of your business operations right now because they can have a real impact later on.
9. Do you have your suppliers lined up?
You better have great relationships with your suppliers. Ed Ourant, who is now an executive vice president and one of our top operations people, was a franchisee for several other chains at the
time I started Wendy’s. He really had connections and helped our people get the right suppliers, and that can be worth gold. You may want to go with cheaper suppliers, but you can pay a big price for that.
At first, we had the wrong cups. (We called them “leakers.”) We also had some problems in distribution. Ed straightened us out.
10. Are all the legal bases covered?
When a little company starts up, there are al ways lots of handshake deals everywhere. They say entrepreneurs hate lawyers and I’m an entrepreneur, but if I had one thing to do differently when I opened up Wendy’s, it would be to involve lawyers more often. You better get the best legal advice because we live in a legal world, and you need to have the best legal advice you can possible buy.
John Casey, our vice chairman and chief financial officer, is a rare blend of wisdom, common sense, and negotiating skill. John is a lawyer who can put a conflict to bed faster than any manager I know. It was John who taught me that you had to involve lawyers in certain things. You have to protect yourself if people or circumstances don’t turn out as you expect.
A lawyer can also protect you from your own mistakes. No matter what happens, my advice is simple: Don’t get greedy But don’t give your rights away either, and find a lawyer (if you can) who believes both ideas because they are your negotiators if things don’t work out. You have to trust them to clean up conflict …be sure they have common sense, not just a lot of two-dollar words.
11. Are you ready to deal with the banks?
I sure wasn’t when I took over the KFC restaurants in Columbus. One of the first things I wanted to do was to install air-conditioning systems in the four restaurants because I know how air-conditioning could build traffic. But, instead of going downtown to the commercial loan department and talking with some- body who knew something about business, I went to the local branch that did our banking. The loan office there knew about loans for cars and refrigerators but couldn’t understand air-conditoning as a business principle. Instead of a loan, what I got was a big lecture on how late these restaurants were in paying their bills and what a lousy risk I was. My early experiences left me pretty sour on banks and the
judgment of bankers. With the savings-and-loan scandal, the junk bond fiasco, and more banks teetering near the brink of bankruptcy, it’s difficult for the businessman to maintain confidence in his bank. That hurts the spirit of entrepreneurship and America’s system of free enterprise.
There are many fine people in the banking industry, but some of the bad apples in banking have done plenty of harm. To me, it’s a big sin when a bank lends money to people who are poor risks and who aren’t likely to pay it back. Every bank should -and the best banks DO – ask the question: “How will you make your payments if things go sour?”
A small businessperson needs a good banker to survive and to expand the company. When you pick a banker, don’t go after the one with the fanciest computer system or the slickest brochure. Pick a bank with experience in dealing with small businesses and a banker with a good sense of business judgment.
As for me, I’ve always tried to do business banking in a very simple way:
- Pay the bills on time.
- Put more weight on the cash balance rather than on “cashflow” and other fancy bookkeeping.
- Learn which banking people you should call on.
- Always take a clear, sensible business plan with you whenever you ask a bank for money.
- Pick a bank with a reputation for standing by its customers. (One who won’t forget you.)
Does this checklist scare you? It should, and it only lists some of the most important things you have to worry about when you go into business for yourself. I’m the last person to DISCOURAGE anyone from going into business for themselves, but I’m also the FIRST person to encourage people to go into business the right way.
Credit: Dave’s Checklist for getting into Business by R. David Thomas, Founder, Wendy’s International.