Wednesday, August 26, 2009

Starting A Small Business: How Up from the Ashes was Germinated

I recently sent a friend some information on starting a small business. I realized while I was typing up the information, that some of this could be useful for artists who are looking to break from the studio and into entreprenuership. I have spent oodles of time and energy researching how to make our business a success, so I thought I would take some blog space to share what I have learned and present resources for artists and artisans to use to start their own businesses.

How Up from the Ashes was Created in a Trial by Fire:
I graduated from college with my degree in fine art and no practical knowledge what-so-ever about how to start and run my own art career. Typical of my former self, I jumped in feet first and realized I had no idea how to swim.
A dear friend and I created Up from the Ashes in 2004, based on our mutual desire to create amazing and magical products to sell, and the hope that one day we would be able to have a booth at the PA Reneiassance Faire.
I'm not kidding, that was our goal.
Our only discussion about business structure was that since there were two of us, we should form a partnership. And the business plan? What is a business plan? Do we need one?
So we sent $70 to the government and filed our ficticious name. We applied for an EIN and a tax resale number. My dad suggested we get a website, so we registered for a domain name. We had business cards printed with our charming new logo designed by my long-suffering boyfriend, Jason. He also pasted up our first website, which was not much more than a convoluted description of our intentions pulled from our EIN application and some pictures of things we made. Yes, they were horrible pictures.
We applied to some fairy festivals and craft shows, and surprisingly were accepted to some considering our level of disorganization. We learned the hard way that some craft shows one of us would sell great and the other would sell nothing, thus generating some tension, since both of us were spending money on the fees and travel.
We both worked full time and my partner was earning her masters, so we had very little time and energy to contribute to our fledgling company. We had no practical experience or backround in management, and had no idea who to turn to for help. I think, that if it were not for my obsession with making things and then having to find places to sell them because I was running out of room in my tiny apartment, we both would have given up after the second year.
We made all the usual mistakes: we spent waaaaay too much on supplies (well, I did at any rate-my credit card still hates me), we had no set goals or plans about where we wanted to go, we did not do more than basic research to create the entity, we underestimated how much time we would need to devote to the cause, we did not create an exit strategy in case on or both of us wanted or needed to get out, we did not properly track our finances, we did not perform market research, we did not spend enough time developing products-new and old. And we have not even made it to the Reniassance Faire yet. We both, at one point or another, wanted to give up.
At the moment, our little company is five years old, and finaly starting to make a little profit. My partner is taking a break while she works on getting her doctorate, so I am working hard to continue getting our name out there. We have a long way to go, but the road is starting to look a bit less rocky.

That being said, here are some things to think about if you are thinking about starting your own small business:

(these are things to look out for so you can prevent failure)
Statistic: According to Dunn & Bradstreet, 88.7% of all businesses fail due to management mistakes.
1. Mistaking a Business for a Hobby.
2. Asking Friends and Relatives for Advice: unless Uncle Joey actually successfully runs the type of business you want to have, ask a professional-they have the experience and they answers (Lawyer, Accountant, Banker, Insurance Broker are the Big 4)
3. Asking Friends and Relatives for Money: Big no-no because relatives and friends are emotionally involved, and if the business fails, it can ruin good relationships. This is what banks are for.
4. Mismanaging Money: Your Accountant can help with this or you can take courses to learn what you need to do online or through small business associations. Also, don’t go first class from the start as overspending is a serious problem for beginning companies-if you are not making money yet, that $2,000 suit and first class plane ticket could be a nail in your business’s coffin. Allocate your limited start-up resources to where they will make the most profit.
5. No Business Plan: the business plan directs your focus and establishes your goals. You need to have your focus written down before you can get to work.
6. Inadequate Pricing: you need to charge the going rate for your services from the start, so know your competition, your clients, and know how you do things better.
7. Inability to Manage Growth: this actually is a major issue; if you have a surge, you need to be able to plan to meet demands.
8. Lack of Commitment: you are gung ho now, but that may change as pressures increase and you get worn out from working all the time. You need to be sure you are committed to your business success, and find new ways to recommit if you feel yourself lagging.
9. Failure to Set and Revise Goals: this is where your business plan comes in. Once you set your initial goals and get to work, you may realize that your focus needs to change to a different aspect or you need to broaden your horizons; this is not only okay, it is a very good idea-revision ensures you are directing your focus to make your business the biggest success it can be.
10. Inability to Develop and Monitor Financial Statements: Financial statements monitor the pulse of your business. Banks use them to evaluate what type of funding they will give you. You need to track all of your incoming and outgoing funds, and this can be done with simple programs like quickbooks or peachtree.
11. Inability to Balance Family and Business: think of this business as your baby; you need to be prepared to care for it 24/7. You may be working 12 to 16 hour days during the start up phase (which can be more than a year based on the type of business and product you have) and you and your family need to acknowledge the drain and strain this will put on you. You can work from home if your office needs are small, but you need to be able to work without interruptions.
12. Underestimation of Time Requirements: this goes with the previous. Many small business owners think that if they hang up their shingle, customers will come running to partake of their services. In reality, you are going to need to be marketing yourself and your product 24/7, and always be thinking of more ways to get your name out there. If you plan on doing this full time, you may actually be working those 12 to 16 hour days. You will get tired, but you need to prevent burn out to succeed.
13. Lack of Market Awareness/Poor Marketing: you can’t buy a product you can’t find. KNOW YOUR CUSTOMER: it is a complete waste of time and resources to market your product to someone who cannot use it or pay for it! Be sure your product is ready for your customers before you start marketing it. Know how much of your product you need to sell to stay in business and make a profit. Understand that it will take time for you to show a profit and make back your start up money.
14. Failure to Research Industry Norms: If you have no experience in field you are planning on jumping into, check with professional associations to find the statistics for the industry. This will help you know what to expect from the economy, your competition and your customers.
15. Insufficient Startup Capital: It can typically take 2-3 years before most businesses begin to make money. You need to plan where your funds are going, and you need to make sure you will have enough to cover expenses until that profit begins to arrive. IF you have employees, make sure you can pay them (this includes your own paycheck).
16. Over-Reliance Death Trap: DO NOT have one good customer that makes up 70-80% of your business. This may make you money short term but you will be screwed if they fold or choose to go with another provide. Change your marketing strategy and re-evaluate how you are getting your clients to avoid this.
17. Entrepreneurs that Fall in Love with a Product that Does not Sell: if you are not getting a return on a product, no matter how wonderful you think it is, scrap it and move on to something else if you want to stay in business.
18. You Will Make Mistakes: it is call being human, so get over it. It could be your lack of focus, it could be your pride, it could be that you spent all your petty cash on widgets: it is part of your entrepreneur experience, so take that information, file it in you mind, learn not to do it again and move forward.

This list came from a class I took about starting small businesses (oh, about a year and a half or so after we started our comany!)-the list is from the class, the comments are mine. ;)
More to come!

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