WHO WILL BUY FROM YOU?

At this point, you should know that your business will contribute to your ideal life and exactly what benefits you plan to offer to your customers. So who exactly are these customers, and how will you go about reaching them?

Avoid the urge to appeal to a broad audience. In fact, you should seek to appeal to the narrowest possible audience. Yes, this does reduce the size of your potential market. On the other hand, think of this as a distillation process that will allow you to spend less on your marketing and get far better results. Think of it like fishing. If youre after trout, youd do well to fish where the trout live.

How much do you know about your ideal customers? Traits such as age, gender, ethnicity, income level, home ownership, profession, education and location are just a few examples of demographics. Religious or spiritual beliefs, political alignment, hobbies, interests, goals, dreams, desires, etc., are examples of psychographics. What magical combination of demographics and psychographics does your ideal customer possess?

Armed with this information, your next step is to familiarize yourself with these people as intimately as possible. Where do they live? Where do they get their information? What do they read, view, listen to? What criteria drive their buying decisions? What appeals to them? How can you use all of this information to start creating a step-by-step process that converts people to leads, prospects, customers, clients, and referral sources? Remember that marketing is the business equivalent of a courtship ritual that ideally leads to a lifelong relationship.

Now for two really challenging questions: How many ideal customers live within your service area? Out of that number, what percentage can you count on attracting? The first question is fairly easy to answer. The second one is where the guesswork truly begins. Youre going to have to make some assumptions about your ability to penetrate the marketplace and the market share you will gain. As a general rule of thumb, I recommend being as conservative as possible and then halving that number for extra safety.
There are plenty of resources for doing this market research. The US Census Bureau has lots of demographic information. Local newspapers, bulletin boards, churches, schools and more can give you a good feel for the psychographics in your area. Your local Chamber of Commerce can be an excellent resource. Its as easy as attending meetings and listening to what business owners are saying. Parking yourself outside your competitors and checking out the people going in and out can also be amazingly effective. Heres one method you can try: Chat up the competition. Ask questions. Youd be amazed how much information you can get simply by asking for it.

Industry associations, government agencies, universities, trade publications, conventions and more are laden with even more valuable information. Take advantage of it. Hey, if you dont, someone else will.

All of this research is leading you to one critical question: Is your business concept viable or not? Well explore this concept next week. In the meantime, I reiterate what Ive been saying all along: This series of articles is geared towards starting up a new business; however, all of these concepts are equally applicable if you are reexamining an existing business or even mulling over buying a business.

WILL IT FLY?

This article continues my series on starting or restarting your business. By this time, you should know your business and how many prospective customers you can reasonably expect to buy from you. Now the moment of truth: Given everything you know so far plus your (hopefully conservative) assumptions, is your business concept viable? Answering this question requires some number crunching. This may not be your idea of fun but if a few hours of math avoids major problems down the road, then its time well spent.

Remember that your business must serve your needs, so you are the logical place to begin. How much does your ideal lifestyle cost? Think abundantly and in terms of your ideal life. Im not saying you need expensive tastes; I am saying that your tastes and then some must be covered.

Armed with the number youd like to bring home, you must now decide how many hours you want to devote to your business. Do you want to work in your business every day? If your business is your passion then the answer may be yes. The basic equation is simple: More personal involvement equals lower cost but lower equity, meaning that youll probably need to look to retirement accounts and other tools for ensuring your prosperity when you can no longer work the business. Less personal involvement equals higher cost and possibly lower profits (especially in the beginning) while buying you more time off, greater independence, and higher resale value. My default suggestion is to plan for a hybrid model that allows you to start your business as quickly and easily as possible and then put systems and processes in place to allow you to separate from its daily workings in the future. Will this work for you? Possibly. See my article Whats Your Exit Strategy? for more information (email me for a copy if you like).

How much can you charge for your products and/or services? Anthonys First Law of Pricing begins by finding the low and high ends of the range your competitors charge and then placing yourself at 80% of the difference. For example, if the low end is $1,000 while the high end is $2,000, then you should be somewhere around $1,800. This is a very general rule of thumb that you must adjust based on your businesss unique benefits and your goals, but it is a good place to begin. Multiply the price for each item by the number of customers you expect to reach each month to find your target income. Got a mix of products and/or services? How much will your average transaction be and how are you arriving at that assumption?

From this figure, subtract your COGS (Cost Of Goods Sold). If you buy items for resale, how much do you pay per item? Multiply this by the number of items you sell to find your total COGS. If you manufacture items, how much do you pay for materials, tools, maintenance, etc? If you offer services, what costs are associated with providing that service? At this point, only look at the direct cost per item. Well deal with other expenses later.

Right off the bat, youve lopped a significant portion off your target income. Time for your first reality check: Is the remainder enough to support your desired lifestyle? If so, great! And if not? If you find yourself in this unenviable position, then something has to give. Do you need to reduce your expectations? Can you expand your market without risking the validity of your assumptions? Can you live with the reduced income as your business grows? Is there a reasonable likelihood that your income will grow to the target level and beyond?

All of these questions and more boil down to one simple yet profound question: Is your business model viable? If so, congratulations! If not, did you overlook anything or is there anything else you can do to make it viable? If so, do it, and then crunch the numbers again. In this case, be very careful if you arrive at a different result to make sure that you have corrected some error and/or modified some key part of your business model. In other words, be totally honest with yourself. If you think discovering that your idea wont fly is tough, imagine taking off only to crash and burn. As my flight instructor says, Its better to be on the ground wishing you were flying than flying wishing you were on the ground. Ive been there. Hes right.

Were not done yet! In my next article, well continue looking at your expenses. Will your idea survive? Stay tuned�

YOUR EBIDTA AND YOU

I went to Les Schwab Tires this week. Not only did they do a great job with the pair of new tires I purchased, they found some problems with my good tires and fixed them up at no extra charge. Ive seen this superb standard of customer service every time Ive shopped there and I no longer even bother calling other stores because I know that Les Schwab is a quality outfit. They are a national chain with big marketing money behind them but they havent lost sight of the fundamental truth that good marketing will bring people in but excellent service is the only way to keep them coming back. Far too many small businesses havent learned this lesson. I hope you have.

OK, back to your business startup. Last week you looked at your projected revenue and sliced your share right off the top. If youre still with me, then its safe to assume that your ideas have passed this first step of the financial planning process. If not, then you need to rework your model until the numbers make sense before you can possibly move on.

EBIDTA stands for Earnings Before Interest, Depreciation, Taxes, and Amortization. Its whats left over after youve paid yourself and your operating expenses. What will it take to:

� Hire employees?
� Rent, lease, or buy office space and equipment?
� Purchase raw materials or items for resale?
� Create your marketing (Web site, logo business cards, etc.)?
� Get the legal, financial, and other help youll need?
� Pay utilities, insurance, licenses?
� Cover your many other expenses?

Add everything up and then subtract that figure from whats left over after paying yourself. Remember to always pay yourself right off the top because (you guessed it) your business must serve you, not the other way around.

Having hacked and burned your way through your expected revenue, whats left? If your EBIDTA is greater than $0.00, then your business has a fighting chance for success. If not, then you need to go back to the drawing board to see whether or not you can make it work. The operative question here is not whether you CAN launch this endeavor but whether you SHOULD. Hey, would you rather find out now or would you rather risk losing everything you have in addition to everything youre trying to build?

All of this assumes that your business is up and running at its designed capacity. So far, we havent covered the startup phase. Youre going to need to invest a lot of time and money before your business earns its first cent. Youll then need to keep infusing resources into the business until that magical day when your revenue finally catches up to your expenses, or cash flow breakeven. From there, youll need to pay back the initial investment. Only once all this is behind you will your business be truly profitable.

The trick is to figure out how soon your business will begin earning revenue and how fast that revenue will grow (with comfortable margins of error just in case). You then need to figure out the bare minimum you need to get up and running, when you can add additional components and take on more expenses, and under what circumstances. Dont think that you need a big bang to get started at full capacity. On the contrary, determine the bare minimum you need to get going and how to parlay that into realizing your grand vision.

This may seem a little unorthodox for several reasons; however, think of it this way: Sure, a grand opening is a lot sexier than a slow start, but that sexy beginning requires a massive infusion of resources that greatly increases your exposure and subsequent risk. If you seek outside capital (investors), youll have to fork over a much larger share of your company. Start small and youll need a lot less, which means youll get to keep a lot more. You know me well enough to know why I think the latter is the way to go.

Heres a real-world example: Im building a business plan to greatly expand my own business. My initial guess was that Id need up to $1.5 million in venture capital to get going. I then implemented a phased approach and its looking like Ill be able to start with less than 10% of that amount. Think this will pay off big time down the road? I do too.

LOCATION, LOCATION, LOCATION

If youve come this far in the business planning process then youre ready to make an extremely important decision: Where will you locate this enterprise? The simple answer is: wherever your ideal customers congregate. For example, if youre opening a hamburger joint, locate yourself right next to or even among the chain stores. Counterintuitive? Yes, until you consider that everyone who goes to the chain burger places already wants exactly what you have to offer. Most of them will opt for the mass-produced products but a significant number will choose the homemade option.

In this case, the big chains are doing the hard work and spending the big dollars to attract customers to you. Combine that with excellent products and service plus some creative means to keep people coming back (and bringing your friends), and youll have a winning combination. Locate yourself in another part of town and youll have to convince people to go someplace theyre not accustomed to going for hamburgers- a long and potentially expensive process.

If you dont deal with customers directly, then you have the luxury of setting up shop wherever you like. For example, most of my clients work with me by phone and email, meaning that I can be almost anywhere. My challenge is locating myself in cyberspace, which I am doing through strategic partnerships and other methods.

Does your business rely on foot traffic? What kind of foot traffic (students, tourists, workers, etc.)? Which part(s) of town have the highest concentrations of the right kind of foot traffic? A friend of mine was considering opening a pho shop in Ashland (pho is a cheap, delicious, and nutritious Vietnamese soup). If you were opening such a restaurant, where would you locate it? If you guessed right across from the college, then Im right with you.

One of the single biggest mistakes you can make when opening a new business is basing your decision solely on size and cost. Sure, you need adequate facilities and there are certainly zoning and other considerations that must influence your decision.

Will your potential locations be able to grow as your business expands? Establishing yourself at one address only to close up shop and move across town years later can be disastrous. I dont care how loyal your customers are, relocating your business will drive at least some of them to seek other alternatives. In this case, opening a second location might be the way to go. Why are you thinking about future needs now? Because your business wont grow unless you plan for that growth.

What if there are no suitable locations? You have several choices. You could opt for a less-than-optimal location that may or may not have the correct traffic or that may or may not suit your needs. Can your business survive under these conditions? Sure. But dont you already have enough challenges even under the best circumstances? You dont really want to lower your odds of success, do you? Actually, many people do indeed set out to fail, but that is a topic for another day.

You could alter your business model to suit the current environment. This can save you a lot of headaches down the road. Just remember that youll need to start the planning process right back at the beginning and take an entirely fresh look at what you want to do and how. Anything less increases your risk.

You could decide to place your plans on hold until the time is ripe. Disappointing? Sure. The good news is that nothing ventured, nothing lost. Yes, you can start a business, but the real question is whether you should. You have full control over when and how you take the plunge. If the time isnt right, then you have nothing to lose by waiting.

Any realtor will tell you that the three biggest considerations in real estate are location, location, location. This rule is even more true for your business. You can buy a house anywhere you want. Your business does not have that luxury.

STRUCTURING YOUR BUSINESS

There are lots of ways to structure your business, each with its own advantages and disadvantages. Your decision about the correct path to take will depend on many factors including how big your business will grow, how you plan to raise capital and pay taxes, and liability concerns.

Basic business types include:

� Sole proprietor: This is the oldest and simplest form of business there is. A single person launches a business that may or may not have employees, a storefront, etc. The advantage of a sole proprietorship is simplicity. All business income and expenses are reported as schedules on your personal income tax. The drawback is that there is no separation between you and the business. If the business owes money or is found liable for any damages, you are personally responsible. It is entirely possible that a business mishap could ruin your personal finances.
� Partnership: Same as the sole proprietor except with two or more people. Here again, simplicity is the main advantage. Also, the liabilities are spread among all of the partners according to their share of the business. The bad news is that disagreements between the partners can wreak havoc on everyone.
� Corporation: Think of starting a corporation as giving birth to a separate entity that exists on paper. This entity has many of the same rights and responsibilities of a natural person. Because a corporation is its own entity, it pays its own taxes and handles its own liability, meaning that individual officers (executives) and shareholders (investors) are normally not liable for any expenses or damages. This protection is not absolute, however. For proof, one need look no further than the Enron trial. Liability and financial protection plus the ability to sell shares to investors are a corporations biggest advantages. The drawback is that the paperwork and other legal requirements can be quite complex. There are also tax ramifications. Corporations in the United States come in two flavors: S (typically for smaller companies) and C (typically for larger companies). Corporations have lives of their own, meaning that they continue after their founders leave or pass away.
� Limited Liability Company: What if you could have the simplicity of a sole proprietorship with the liability protection of a corporation? The Limited Liability Company (LLC) is a fairly recent phenomenon that has become increasingly popular because it offers the best of both worlds. Like a sole proprietorship, an LLC ceases to exist when the owner passes away or leaves the company.
� Limited Liability Partnership: An LLP is the same as the LLC except owned by two or more people. This is very similar to the partnership discussed above. The biggest drawback that I see with an LLP is that it ceases to exist when one or more partners leave or pass away.

How youll structure your business will be one of the single biggest decisions youll ever make and one that could have major, even dire, consequences. This article provides a brief overview of the different types of businesses and is meant to get you thinking about how youll structure your own business. Do your homework and learn all you can before even thinking about making up your mind.

There are many companies who will handle the paperwork of filing your corporation and/or LLC. These companies will tempt you with offers like Incorporate Today for only $99! Are these companies fast and easy? Certainly. So why spend $1,500 or more having an attorney walk you through the process? I asked an attorney that very question and got a very simple and compelling answer: security. On the off chance that your business gets into trouble, your attorney will stand behind her or his work and represent you in court. Strike off on your own and finding someone to help you in your hour of need will be more difficult. In my never-humble opinion, this one falls under the category of cheap insurance.
Marriage, buying a house, and launching a business are some of the biggest decisions youll ever make in your life. I cant help you with the first two, but I can advise you to take your time, think things through, and always remember that the key question is not whether you can but whether you should.

This is my seventh article in this series on starting or reinventing a business and we still havent talked about your business plan. No, I havent forgotten. Meanwhile, well talk about professional help and when to get it in my next article.

DO YOU NEED PROFESSIONAL HELP?

The short answer is yes. No person is an island and no one has all of the specialized skills or answers needed to open or run a successful business. Your business represents one of the single biggest investments of time and money that youll ever make. Trying to go it alone is a penny wise, pound foolish decision. Try to go it alone and at best youll be leaving profit on the table. At worst, youll blunder your way to failure. Im not saying you need to blow every spare cent hiring every consultant in town. I am saying that you need to assess your skills and knowledge and plug in the gaps. This is especially important when starting or reinventing a business.

Some of the professionals you may want in your corner include:

� Attorney: All jokes aside, a good attorney can be invaluable make structuring, starting, and protecting your business.

� Bookkeeper: Unless you know the ins and outs of tracking your money, this one is best left to someone with those specific skills. You can see your bookkeeper weekly, monthly, or perhaps even quarterly.

� Accountant: This person reviews the bookkeepers work for accuracy and any signs of fraud, and helps you with your taxes and financial matters.

� Cleaning service: Did you know that a dirty shop is one of the easiest ways to make a lasting bad impression on your prospective customers? This small investment alone will return many times its cost, guaranteed.

� Virtual assistant: Lets face it, the many phone calls, letters, errands, etc. that pile up during the day arent any fun. Dont have enough work to keep someone busy fulltime? No problem. A virtual assistant is like having part of a secretary. They work with numerous clients and are both very skilled and equipped with all the tools they need to sweat the details for you. A good virtual assistant can even help with online and other marketing. Another highly recommended investment.

� Employees/contractors: If the time you are spending working in your business doing day-to-day tasks is cramping your ability to work on the business by focusing on strategy and growth, then you may want to consider bringing on help. Refer to my past series on hiring for more on this topic (copies available on request). Remember, as the captain of your business, your place is on the bridge, not in the engine room.

� Coach: Is your business running as efficiently and as profitably as possible? Should you run that ad? Are you experiencing frustrations or other problems that you just cant seem to get a handle on? A good business coach provides a fresh pair of eyes that can give you just the new perspective you need. Just because you do things a certain way doesnt mean that there arent other and possibly even better ways to achieve the desired result. Even if you think your business is running like a well-oiled machine, you have nothing to lose by making sure.

If you are starting or significantly changing your business, then you should be figuring out which professionals youll need, what you expect from each of them, and how youll budget those costs. All of this will go into your business plan, which I am working way towards discussing in this series.

Speaking of costs, dont let the outlay fool you. Yes, some of the professionals I listed can cost hundreds of dollars per hour. Focus on the cost and youll miss out on the benefits. For example, if hiring an attorney for $1,500 can stop a $100,000 lawsuit in its tracks because your corporation has been properly constructed and operated to shield you from liability, Id argue that was money well spent. If the cost of a bookkeeper an virtual assistant frees you to close even one more deal per month, the profits could far outweigh the investment. And if a coach charges you a couple of grand to find ways of doubling your profits without having to double your business, well, thats not too bad either. No one can guarantee results because every business is unique, but that does not weaken my argument.

No matter where you are in your business, youre probably surrounded by people offering all kinds of advice about every imaginable topic. I know. Im one of them. This begs a very important question: Who should you listen to? That, dear readers, is my next articles topic.

WHO SHOULD YOU LISTEN TO

In my last article, I presented a small sampling of some of the many professionals you may need at some point in your business, particularly during start-up and major changes. Beyond this, there exists a vast network of friends, family, colleagues, fellow business owners, and more. All of these people will come out of the woodwork offering all kinds of well-intentioned advice. Listen long enough and youll find yourself adrift in a sea of information, much of it contradictory and most of it delivered with a fair degree of passion. This begs a simple yet important question:

Who should you listen to?

A friend of mine once wanted to open up a pho (Vietnamese soup) restaurant. We talked about it and batted a lot of ideas around before she revealed that her family and husband were telling her how hard launching and running a business is.

My first question was How do these people run their businesses? The answer was predictable: Everyone trying to discourage her was running a struggling business and putting in 80-hour weeks. What other kind of advice did she expect from them? To date, she has not opened her restaurant and is stuck in the bowels of one dot-com company after another. Think about this and ask yourself whether you really want to hear how difficult things are at the moment youre on the cusp?

The other extreme is populated by the hucksters and snake-oil pushers of the ilk that normally inhabit late-night infomercials. Let me just say that renting a vacant house, borrowing a boat, shooting the footage, and buying the airtime is a lot cheaper than you might think. Heck, I could almost afford to do an infomercial. In most cases, these people are neither as rich nor living anything resembling the lives of ease they seem to be.

So who should you listen to?

Ive said this before and Im saying it again because it is so critically important for your future success: Learn from people who have been where you want to go. Want to make a lot of money? Talk to people who make a lot of money. Want to run a thriving business? Talk to people who run thriving businesses. Want work/life balance? Talk to people who have excellent work/life balance. Above all, talk to people who love what they do.

Heres a hint: In many cases, the people you need to talk to will not be in the crowd coming from the woodwork. Youre going to have to seek them out. Identifying them is easy. Approaching them? Thats the hard part for many people. How do you do it?

Easy: Ask them. Tell them what youre doing, what you need, and ask for their help.

Ive met and worked with some amazing people and continue forging new partnerships. The one lesson Ive learned is that people who are truly interested in success will always lend an ear. They may not be able to help you but they will almost always point you in the right direction. The key is that you must be sincere about your needs and why you approached them.

I strongly suspect that some of you reading this missive are considering starting or reinventing your business and/or making other lifes choices. Who will you entrust for advice on how to live your dreams?

In my next article, at long last: The business plan.