Four Keys for Your Start-Up

Posted: May 05, 2014 12:01 AM

America’s entrepreneurial spirit seems to be regaining momentum. And thank God for that, because our economy depends on it. So for those considering the transition from dream to reality, here are my four keys to success for your startup operation:

ONE: Provide a service or product that enough consumers are willing to pay for.

I just heard a collective, “Duh” from the readership. But trust me, this is a frequently overlooked essential. Most cool ideas do not become successful operations because the demand does not meet the preconceived supply. And to progress from avocation to vocation, there must be enough revenue to cover operating costs plus risk plus profit. Let’s talk about each of those.

Operating costs include the entrepreneur’s salary as a fixed cost. Engaging in a part-time home business is admirable. But the true entrepreneur generates enough revenue to cover every ongoing cost. And while he typically survives on what remains in the checking account after paying every other expense, the smart entrepreneur figures his full salary into the budget before determining the price of his product or service.

Entrepreneurs think efficiency at all times. There is little waste with resources; time, materials, equipment, printer ink, utilities and employee energies. Variable costs will follow the volume of customer orders. And as heartless as it may sound, employees are variable costs. Do not sacrifice the company in order to save employees.

Risk is a measurable percentage of the customer engagement. This could be from 5% to 15% of revenue to cover things like unexpected expenses, product returns, and insurance. The less you know about a project or customer, the higher the risk. Deliberately figure this margin of error into your pricing.

Profit is the money that you and your fellow investors get to keep as a reward for taking the chance on the business venture. Where there is no profit, there is no reason to avoid simply working for someone else who already owns a going concern. And while the shortsighted statists foist shame on the concept, profit is a beautiful phenomenon. And consider this; Only profitable ventures can afford to be charitable.

Two: Effectively outsource those areas not essential to your product/service.

It is my theory that people launch their business ventures at the moment that their fear of regret exceeds their fear of failure. I never met an entrepreneur whose dream was to maintain a status of “In good standing” with the Secretary of State for their LLC. Rather, they talk at high speed when asked about their invention, daydream nonstop about ways to improve delivery, and spend an inordinate amount of time on logo development.

But no matter the product or service, every business is subject to effectively the same set of federal, state, and local requirements. These include organizing the legal structure (C Corp, S Corp, LLC, etc), acquiring an Employer Identification Number from the IRS, establishing a banking relationship, withholding payroll taxes, collecting sales taxes, filing timely tax statements with payments, complying with operating regulations, collecting payments, paying expenses, managing benefits and dealing with employee quirks.

An entrepreneur is incorrectly defined as a person who works for himself. Yes, by definition they own the company. But whether or not it is their intention, entrepreneurs are simply those enterprising souls who are directly responsible to the customer for product and service delivery. There is no boss to tell them what to do, nor to soften the blows from unhappy customers.

In order to focus on the customers through quality of delivery, it is imperative that the entrepreneur surround himself with outside, part-time expertise to take on the necessary but peripheral business essentials. A mature CPA is worth her weight in gold. Find a good one and interact frequently for bookkeeping, accounting, and taxes. Also, engage a business attorney who is experienced and not overly talkative.

Three: Develop a system of recurring revenue to fund basic operations.

This may be the most difficult component of a successful entrepreneurial venture. Rollercoaster revenue kills many a business and many a marriage. Whatever your product or service, think of it in terms of keeping customers long term. Develop those relationships for repeat business, product upgrades, and brand loyalty.

Perhaps the most difficult balance for service startups is finding the time to sell the next engagement while performing the current project. To be successful in this area, manage the customers’ expectations of your attention. You cannot be onsite fulltime unless the revenue is perpetual. Barring that unlikely condition, set aside one day two to four times per month to focus on pursuing the next source of revenue.

Once your footprint has been established, add a Research and Development budget to your Operating Costs. Remain resourceful, relevant and reliable in the eyes of your customer by routinely investing in the freshness of your products, your service, or your storefront.

Four: Manage employees well

Many, if not most, entrepreneurs begin their operation by employing only themselves. Depending on the nature of the product or service provided, this may be the preferred, continuous state. Delivering a service directly with your own talents is entirely different from delivering a service through your employees’ talents.

I well recall this moment of decision for me about three years into my first company which had I launched in partnership with two colleagues. We were three cyber security technologists working together on every project. When the first opportunity came for us to engage in a larger project that would require us to staff up, the three of us sat down to talk about the challenges of growing into “a real company.”

Ed said to me, “Aren’t you our president, Mark? Go be our president.” While that may have been received as a complement by most, I found it an unnerving rejection. But the truth was that both Ed and Dean were naturally more technical than I was. This was a growing up moment for me. I needed to transition from being the best technician I could be to becoming the best business operator that I could be.

Good personnel management is rare. And great personnel management is extremely rare. This truth presents the opportunity to differentiate your company above your competition. The secret: Learn to accomplish your customer’s goals through the aspirations of your employees.