Anyone who has ever tried to start a business knows that it is not easy. In fact, around 90% of all businesses started in the U.S. fail within the first year. Most of them never make any profit at all. Of the 5% to 10% that survive the first year, over 90% fail within the first 5 years. Far, far and away, most businesses that people try to start fail. Very few businesses actually survive. Even fewer make a reasonable full time living for an American family.
One reason that businesses fail so frequently is that people don’t seem to understand that one must learn how to start and run a business before they go about trying to do it. To run a successful business, both education and experience are mandatory. You need a lot of education and a lot of experience. You don’t necessarily need to go to college and get a bachelor’s degree in business but one way or another you need to learn business if you have any hope of running one. Pretty much all successful business operators know that before you can win you must inevitably learn how to fail and then take what you can from your failures.
A business is comprised of 3 main components: Marketing; Operations and Finance. To run a business, you and/or your partners and/or your executive team must know all three and know them well.
The marketing department is responsible for every part of what it takes to sell the business’s products or services. That includes all the up front market research, market positioning decisions, the market strategies, the individual marketing campaigns, the graphics, the copy, the finished advertising pieces and the distribution of all advertising.
Contrary to popular belief (among people who do not know business), the marketing department pretty much leads the way for the entire business. It is marketing, not operations that decides what is going to be sold. A common mistake made by ‘would be’ business owners is to come up with some ‘brilliant’ idea that they just know everybody is going to want. They begin production and then start trying to figure out how to sell it.
Successful business starts with Market Research. Basically, your executive team comes up with a list of potential products and/or services to market. The very first thing that must happen after that is to conduct market reseaerch. That simply means you do everything you can to try to determine, before you do anything else, what out of the list, if anything, people will be most inclined to buy.
Market research is a very broad subject all its own. It is however the most critical component in the process of starting a business or introducing a new product or service. You would generally start by looking for potential competition. That is, other companies selling the product or service. If you find no competition that is a bad sign. Almost never will you come up with some secret idea that nobody else has thought of. If nobody’s selling it, the reason is because nobody wants it.
Other forms of market research might include simply calling prospective customers and asking them what they think of your idea and if you produced it would they be inclined to buy it. Anyone seriously considering a new business start up would do well to spend a considerable amount of time learning market research.
Once you have determined what products and/or services you intend to sell you need to determine how you intend to sell it. The very best place to start is to find out what your competition is doing. A rule about this exists and has been proven time and time again. If certain advertising campaign is continually run, it works. Advertising that does not work disappears in a short period of time. That is, if you see a TV commercial or a classified ad or a Google.com AdWords campaign or any advertisement continually running week after week, month after month, that is a clear sign that it is working. If an ad disappears after a short time, chances are very high that it disappeared because it didn’t work.
Advertising, like market research is an entire career all its own. Advertising includes market strategy which is in a nutshell, the overall strategy that your company will take to ‘position’ itself in the market. Market position is akin to what is called branding. That is, your company will make a certain claim in the market like: ‘We’re the best’ (only if you can back it) or ‘We’re second best. We try harder.’ which Avis did with Hertz many years ago and that position proved very successful. You might position your company as ‘The most innovative’ or ‘Extremely High Quality’ like Mercedes or Preparation H and ‘Prompt Relief’ for hemorrhoid treatment. Study advertising in depth before you try to start advertising. If you take a few courses in innovation training you will gain an understanding of a mindset for success.
Operations is simply the process by which you produce your product or service. It may involve finding suppliers if you decide to be a reseller or recruiting people if you are selling a service. You may need mulitple suppliers to create a ‘package’ of different components, such as a gift basket. You may need to set up a shop to make your products.
Operations does take skill and the skill required is highly dependent on what your business is going to produce. A solid education in organization and business process is critical to the person(s) who will be responsible for operations.
Many people think of finance as the bookkeeper. You can just hire a young girl part time to do that right? Sure, but only if you don’t care to succeed. Finance is extremely important and it involves a great deal more than just counting the beans.
It is finance that is responsible for collecting your money. Finance determines how to handle situations of non-payment and what is to be done with the money once they have collected it. Finance handles the budgeting and determines if and when you need money. Finance decides how to get that money: take on investors or borrow it; sell off assets or cut payroll.
The finance department is responsible for continually tallying the success of the business. If you don’t know how well you are doing, or not doing you will not know how to run your business. Should you cut costs or expand? Should you look for new products or services to add or increase marketing efforts for existing ones?
The finance department tells you what marketing efforts are working and which ones are not. The finance department tells you what products and/or services are making you the most money and which ones you might want to discontinue.
Finance includes the ability to project future successes or failures from a logical position. Finance looks at hard cold numbers to make predictions on what you might expect, in detail, in the future.
The financial department is responsible for handling loans, assets and taxes. This may seem trivial but if you have a good financial department who really knows how to handle money you can save a lot of money.
Being able to position your liabilities and assets with tax laws taken into consideration can make a considerable improvement on your bottom line. Many business owners argue about whether the finance department is itself an asset (makes the company money) or a liability (costs the company money). Finance doesn’t produce anything. Finance doesn’t sell anything. It’s a liability right? If finance is run correctly there can be no reasonable arguement. The finance department alone has a great potential to make the company money. It is an asset.
If you’re interested in learning business but don’t know where to start you might consider going down to your local software store (or finding one on the Internet) and purchasing a high quality (more expensive) ‘Business Plan’ software package. You’re looking for something that helps business owners create business plans. They’re generally used to convince potential investors to invest in the given business. One thing about a business plan. If it doesn’t answer all the right questions; basically ‘how will the business make money’ then the investors will not invest.
You can use a ‘business plan’ software package to help you learn exactly how to run a business. The good ones all come with a detailed help system. Once you have the software and install it, read every single line in the help system. Treat it like a 3 credit college course (which should take about 8 hours a week for 16 weeks).
Once you clearly understand everything, create a mock business plan using the software. By the time you have completed creating your mock plan you are sure to have some great ideas about how to start a real business. From there you need to either train yourself to have all the necessary skillsets or begin to recruit people (partners; employees; contractors; etc.) who do.