Hiring Down, but Entrepreneurship is Up: Is This a Good Time for a Startup?
December 22, 2009
Faced with an unemployment rate of 16% for 20- to 24-year-olds, a growing number of recent college and grad-school graduates are launching their own companies. But is this a good time for you to form a startup? Maybe, but now more than ever, you had better go in prepared.
I see this a lot. Many young professionals are confused; they have spent thousands, sometimes hundreds of thousands of dollars getting the education they need to land that right job so they can get on with their lives. But the economy has thrown them a curve. However, America is built on entrepreneurship, and what the recession did by sending young business men and women scrambling for work is ultimately what will bring the world back to prosperity.
See, a lot of young professionals are short on job prospects, but they are long on solid business education, energy, enthusiasm, and youth. And they have a ton of really good ideas rolling around in their otherwise unemployed brains. Many of the young professionals I see are too pumped about business and making money to simply wait around for the Investment Banks to start hiring again. They need to do something beyond cold calling that firm yet again in hopes that someone got fired. And frankly, most are probably too naive to realize the thousand pitfalls between them and entrepreneurial success. But that’s what successful business needs–the willingness to take risks, the time and brainpower to commit whole-heartedly to a single concept, and the ability (consciously or blindly) to put aside the naysayers and the numbers that tell us it just can’t be done. That’s why the young professional with the proper background is one of the best candidates for helming a startup.
Maybe you’re fresh out of B-school, but you cannot find a job that will pay your bills. Are you a candidate to start a business? Perhaps. But you need to keep a few things in mind:
1. You Need an Idea. Bill Gates (another young professional starting up a company) didn’t just open a store and start selling whatever fell into the shipping dock. He had a product in mind. You need an idea, that tiny spark, that ‘aha’ moment, when an idea hits you that no one has done before, or at least not done well. But the spark isn’t good enough either. You need to blow on that spark, to kindle it into a flame. The idea has to become rational, based in sound business theory and thinking. You need to toy around with the idea, kick it off of some trusted (preferably older) business minds (be careful here just who you share your ideas with. If your idea is really something, don’t think for a moment an unscrupulous individual would not try to exploit you for it). Think about it objectively. Is there a market for it? Probably the number one reason new businesses fail is not because they were run poorly but because there just wasn’t enough of a market to consistently create demand and turn a profit (see no. 2). Is your idea feasible to create or produce? Will you enjoy doing it for the rest of your life? Never, ever, jump into a startup without having thought out these things thoroughly.
.2 Do your Research. A bright idea is just an idea if you don’t know if it will work. I can’t emphasize this enough–research thoroughly, then do it again. You need to know exactly how many widgets you can expect to sell, at what price, at what margin, and at what rate. You need to know who the other widget makers are, how they go about their business, and what works for them. You need to know if your town is large enough to need a full time widget manufacturer. You need to know what it will take to start the company up in dollars for the first year, and what the lag time will be between your business launch date and the date that the income is rolling in steadily (in the business of legal practice, for example, that lag time is very long, sometimes up to three years before a new firm begins to see a revenue stream). Will people want your idea if you paint it purple? Research cannot be overlooked.
3. Plan Plan Plan. This is the first actual step you take towards seeing your business realized. I know you know you need a business plan, yet so many people, especially young entrepreneurs, figure that they can just “wing it,” and adjust accordingly. But this is the point where you take your great idea and apply your research in order to make the idea conform to create value and profit. Run the numbers as accurately as you can. Look to as many places for comparables, then compare and contrast them with your own situation. You need a start up list of bare essentials, a six month goal for staying afloat, a plan for a year, a plan for three years. The plan needs to be clear and precise. It needs to reflect your own vision, and yet be written to persuade others (the bank, venture capital, your rich uncle) that your idea is not only interesting, but profitable. This needs to be on paper. Often you will find businesses that fail with a business plan. The number is far smaller of the businesses that succeed without one, and I would venture to say that it’s close to zero. B-school should teach you everything you need to know about planning to achieve profitability. If you aren’t a grad with a business degree, consider taking classes until you understand the ins and outs of running a business, financial and accounting terminology, and industry strategies and valuation formulas.
4. Get as much Support as You Can. You cannnot succeed in business on your own. It’s as simple as that. Business, by definition, requires the interaction of two or more individuals at some level. From day one, you need to assemble your team that will stand behind you and help you achieve your vision. First, you need personal support. Your spouse, your parents and family members, your closest friends; all these people need to be behind you before you can win. You need financial support. Cultivate relationships with those who might be able to make investments in your vision. Get to know your banker. Especially in this credit climate, oftentimes the only way to get bank financing is to have a personal relationship with those making the loan decisions. You need your business circle, which consists of your employees, partners, managers, and contractors. You need the support of trusted advisors, including an accountant and a business attorney dedicated to your vision. Your attorney can provide invaluable assistance in choice of entity formation, taxation issues, raising capital, and overcoming any regulatory hurdles you might face. Finally, you need the support of your customers. There is no greater value than generating and maintaining good business relationships with your customers. They provide the support of the company itself; they provide the revenues every month. Begin strategies to develop a reliable customer base.
5. Begin Decisively. If, and only if, you make it through the above steps and you are still convinced that your company can turn a profit within acceptable deadlines, you must launch your venture. It will likely come after much thoughtful consideration, and months of careful planning. Once however, you become convinced that it is worth doing, you must plunge in decisively. The water will almost certainly be icy cold, but it is especially so in a recession. This is when you must be able to ignore all the reasons why you shouldn’t launch your startup, and just do it. If you have the money set aside and budgeted out, do not be afraid to spend it. Set up your operations as quickly as possible to generate revenues as quickly as possible. Swim ahead confidently and do not look outside your lane at the obstacles around you. If you do not keep your mind focused squarely on where you want to be in five or ten years, you will not succeed. A startup begins with careful and tedious consideration. But when all consideration is finished, you must act, and once you act, you cannot stop.
Perhaps you are that person who is ready to launch their own startup in this economy. It will not be easy. But if you carefully map out your goals and ideas, rely on your objective business plan and advisors, and move forward swiftly towards profitability and stability, you can and will succeed. And all recessions come to an end. If you can survive in this economy, just think of how you’ll thrive in the next.
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