Entrepreneurship, Starting a Business

Advice for Young Entrepreneurs

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Dear Young Entrepreneur,

Do you have a dream of owning your own business?

In my role as facilitator, I help women and men into self-employment. For the most part they are 30-something and older, and I often wonder how we might encourage more young people to get interested in business.

There are many reasons why young people would opt for a job over the uncertain world of entrepreneurship. Jobs can offer a steady paycheque and security, while business is risky and anything but a slam dunk. If you’re new on the job market and thinking about starting a business, here are a few points to consider.

  1. Risk your own money to get started, even if you’re fortunate enough to have loving grandparents willing to invest in your venture. Don’t rush into debt. Debt can drain the profit from a business. It tends to up a lot of the energy you could instead be using to serve customers.
  2. Start small and learn all you can while your business is tiny. The inexpensive lessons learned during the early stages will serve you well once your enterprise starts to grow.
  3. Learn how to manage money with the smaller amounts that filter through your life while you’re young. Good personal financial habits will be an advantage as you learn to manage your business.
  4. Save 10% of all the cash that flows through your bank account. Start as soon as you read this. Even a small amount of saving will improve a negative financial situation, almost immediately.
  5. Before jumping into a partnership, get to know the person or people you are teaming up with. A great partnership can serve you well, a bad one is sure to bring the business down. Have an exit plan going in.
  6. Be cautious about deals that look too good to be true. These tend to have a flavour of “get rich quick without breaking a sweat.” If a deal looks too good to be true, there’s a good chance it’s false.
  7. A business is a lot of hard work, if anything it’s a “get rich slow” plan. There are many reasons, beyond profit, to start a business—making a difference, pride in providing a great service in your community, lifestyle, and recognition for a job well done.
  8. Most of what you need to know to run a business, you probably learned in school— treat others fairly, say please and thank you, and smile—all essential business skills.
  9. If you’re risking any more than pocket change, write a business plan. It will help you learn about your venture and the industry around it. Be a learner.

It’s the start of 2012 and there are more business opportunities than ever before. A number of trends make this an ideal time to begin dabbling in the world of business. Demographics tell us that a large percentage of our aging workforce will soon be retiring, which will open up career and business opportunities right across the marketplace. Over the past decade, technology and the Internet have propelled us into the information age. These demographic and technological changes create an ongoing flow of new business opportunities for those with the vision to recognize them and the urge to take action.

Related Articles:

Myths About Owning Your Own Business

Riding a SnowBoard is Like Running a Business

Reality Check – A Pre-Business Physical for Business Planner’s

Business Growth, Starting a Business, Writing a Business Plan

5 Ways to Use Your Business Plan

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It takes guts to defy chaos and predict the future of your business, and yet that’s precisely what an entrepreneur does when writing a business plan. Considering it’s a written roadmap that can be used at any point in the future to measure whether the business succeeded or failed, most people will put it off as long as they can. Of course, most people don’t own businesses either. But those who develop business plans quickly come to realize an abundance of benefits.

The most important reason to do a business plan is to gain understanding about, and create a blueprint for starting or growing a business. Once the plan is done it can easily be adapted to communicate with different audiences.

Here are 5 different ways to reconfigure your business plan, from longest to shortest.

1. The Complete Business Plan. Your full business plan will include an executive summary, the narrative and financial components, and a number of supporting documents. By adding well-crafted, personalized cover letters for each contact, you will be able to use your business plan to communicate with potential partners, grant fund managers, bankers and other debt financing agencies.

2. The Investors Business Plan. Right up front, investors will want to know your pitch; what problem your business solves, what value you place on your business, how much money you need, and what are you are offering in return. They will also need to know whether you are seeking debt or equity financing, the expected return on the investment, how you plan to deal with the risks, and what your exit strategy is. Most importantly, investors will want to know all about you, the owner.

3. The Employees Business Plan. The scope of the business plan you present for employees will be guided by your philosophy on how much employees should know about the inner workings of your business. For example, you might use the narrative portion of the business plan plus the sales forecast, but exclude the historical and current financials and supporting documentation. The main benefit of sharing relevant parts of your business plan with employees is to have all members of your team on the same page.

4. The Business Plan Brief. Also known as an executive summary, this 1 to 2 page version can be used to introduce your business to various audiences. It can be added to presentations and proposals, or hung on the office wall to serve as visible reminder of the corporate direction. The brief can include things like the business vision, the mission statement, the strategic and marketing goals, sales, and profit targets. It provides most of the content needed to build a business website or to design flyers, brochures, prospectuses and other marketing materials.

5. The Elevator Pitch. An elevator pitch is a brief introduction to your business. The term is often used in the context of an entrepreneur pitching a business idea to someone during the time it takes for an average elevator ride. It might be as long as thirty seconds or 100 words.

Those who do step up and develop a business plan will usually discover that it’s not quite as formidable as it seems at first. Business planning can be a lot of fun, and whatever else can be said, it’s a remarkable confidence builder and an amazing learning experience for those who go for it.

Entrepreneurship, Owning a Business, Self-Employment

Cheaper Prices Don’t Build Goodwill

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By Dan Boudreau

You’ll never build goodwill by under-charging your customers. Those new to business are prone to undervaluing their products and services. This is one of the great pitfalls when starting a new business.

Whether from insecurity or just not knowing the costs, new business owners tend to want to shower their customers in great value by charging less than the other guys. Aside from the fact that undercutting is a sure recipe for going broke, it invariably leads to problems down the road when you want to increase your prices.

  • Once customers are used to your low prices, it’s difficult to train them to pay more, and you are sure to lose a few when you increase your rates.
  • Customers who have received your goods at lower prices tend to think you’re cheating them when you start to charge more.
  • When you do begin to push your prices upward, you are bound to lose a few of the old customers who were just along for the free ride.

If you underrate your goods, your customers are almost certain to downgrade them too. A well intentioned deal might be perceived as worth a bit less, but you don’t want the customer thinking your services are completely worthless.

As a new business owner, one of the first pricing decisions you’ll make is to decide whether you really want to compete on price. If your strategy is to compete mainly on price, keep in mind that a large competitor will almost always crush a smaller business like a bug. Deeper pockets always prevail when price wars occur.

Here are a few suggestions for anyone tangling with the issue of pricing.

  1. Decide whether you want to be the cheapest, the fastest, or the best. Pick any two; trying to be all three is a sure recipe for going broke.
  2. When you’re setting your prices or rates, learn how much your competitors are charging and then position your prices where you want them to be. You don’t have to charge a lot less than the other guys to be perceived as giving a better deal.
  3. When it comes to providing a service, you will need to determine a value for your time. If you’re transitioning from a role as an employee to become self-employed, it’s important to remember that your hourly charge-out rate now needs to be much higher to help cover the cost of operating your business.
  4. Instead of simply attempting to undercut your competitors, find ways to provide more value to your customers; sometimes it makes more sense to compete by offering higher quality, or better service.
  5. If you’re already in business and your prices are too low, it may be time to begin to ratchet them up a bit. Be prepared to lose customers who refuse to adjust. In some cases, you may feel a shameless sense of relief as the more tenacious hagglers head off to buy from your competition.

When all is said and done, business owners need to pay the bills and earn a living. If your prices are too low to achieve these two goals, it may be time to increase your prices or consider winding down the business.

Related Articles and Resources:

Deadly Overhead Costs to Consider When Setting Your Prices

Small Business Goodwill is in the Eye of the Beholder

Free Business Planning Tools and Resources

66  Worksheets to help you write your business plan

Entrepreneurship, Starting a Business, Writing a Business Plan

Setting Prices for Products and Services

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Q: How do I know what my time is worth and how do I charge accordingly?

This is question I am often asked by new and aspiring business owners as they work their way through the writing of their business plan.

The matter of determining what to charge for your time is a personal one. Start-ups sometimes make one of two mistakes in this area: charging too much or not charging enough. The antidote for undercharging is to run a complete set of financial pro formas to ensure that your rates are sufficient to pay the operating expenses and be profitable.  The way to ward off both under- and overcharging is to research your competition, with attention to the rates they charge for similar services. With this in mind, here are a few things to keep in mind when setting your hourly rates (list is adapted from the Online Business Planner’s RoadMap Step 44: Present Prices and Pricing Strategy).

  1. How price sensitive are your customers? If price is a major purchasing consideration for your customers, you’ll have to toe the line. If price is less important than other factors (quality, speed of delivery, brand, etc.), you might have more latitude as to how much you charge per hour.
  2. Do your customers decide to buy based on price or on other characteristics such as quality, location, or convenience?
  3. What is the cost of producing your products or services? Your prices must include the cost of providing the service (cost of goods sold), plus operating expenses, plus profit.
  4. What are your competitors’ prices for similar products or services? Those buying your services are continually comparing with competitors; you don’t have to undercut everyone, but you do have to be in the ballpark!
  5. How many units do you have to sell in order to break-even or earn a profit? Break-even will be revealed when you complete the pro forma financials. You will want to ensure that you break-even early enough in the year to allow time to earn profit.
  6. What are the Industry standard mark-ups or margins for your product or service? Standards or norms should be evident from your research of competitors. In some cases mark-ups or margins might be controlled or influenced by suppliers.
  7. What discount rates will you offer for bulk purchases? Be sure your regular prices are set high enough to allow for any planned discounts, deals, or costs such as affiliate marketing.
  8. How much will your customer pay for your product or service? At the end of the day, your customers will vote with their money. In the start-up stage, you can survey to determine how much they say they will pay, but once in business you will know whether or not you are making sales, and adjust accordingly. For example, you can test different rates to see if price makes a difference in your conversion rates.
  9. What is the relationship of supply to demand? For example, if you use subcontractors to provide services, their rates might determine how much your prices must be. If your subcontractor’s rates don’t leave you enough margin, you might be faced with finding new subcontractors or increasing your rates.
  10. What are the consumer buying trends? For example, an overabundance of providers might means lower prices; a shortage of providers might mean more pricing headroom, at least for a while. In almost any market, more competitors will mean you have to have a sharper pencil when it comes to pricing.
  11. What is your level of risk? Higher risk should equate to higher profit margins. Lower risk might enable
  12. What is your desired profit margin? Depending on how badly you need to work and how necessary your services are – a well qualified and credentialed consultant who doesn’t need a lot of work might command higher prices as long as they get the amount of work they want.
  13. What are your personal and corporate financial goals? Other factors come into play on pricing, such as how much money you personally wish to earn, and what financial aspirations you have set for your business.

Welcome to the tightrope we all walk as entrepreneurs and business owners. Hope this helps you find your niche.

To get started on your pricing, download the free worksheet we’ve created for you #33 Pricing. Use the worksheet to establish prices for your products and services. You will likely employ all three methods: pricing to market, pricing to cost and break-even pricing.

View a complete list of all 66 RiskBuster Business Planning Worksheets here.

 

 

Your Business. Your Plan. Your Way.