You’ve long been contemplating going solo—starting your own business. You have witnessed the rise of the dot com and felt you should have been starting up. But then again, you felt somewhat smug when you saw it all go bust. Yet the desire still burns within you; you still want to try to start your business. Can you do it? Can you afford it? Should you quit your current job? When should you do it? Where should you begin?
Needless to say, you will have many questions and much anxiety. This article will provide answers to some of these questions.
What are you selling?
The first question you must answer when planning your business is, “What are you selling?” Ultimately, you have a business only if you are making money; if you don’t know exactly what you’re selling, you are not likely to make money. No money, no business. If you are unsure, perhaps a brief discussion of different business models may be of interest. Here is a high-level view of the two most common business models:
- Service-based business—Generates revenue through the sale of services billed by the hour, or perhaps by the project
- Product-based business—Generates revenue through the sale of one or more products. The term product can mean many things, not just tangible products.
Many businesses combine these models and sell both products and services. Typically, these businesses offer products and services that complement one another. Consequently, these businesses form value chains and can be considered either product- or service-based businesses. We will begin our discussion by focusing on the service-based business model.
As an information technology professional, you may be considering striking out on your own by selling your services. For example, you can sell your programming services as a contractor or provide training to companies wishing to migrate to a Java platform. This business model is good for people who do not have the resources to invest in the lengthy development cycle inherent in all product-based businesses. Service-based businesses are typically easier to start because they do not require the initial outlay of capital for product development.
If you are, despite the odds, hoping to raise money, then you should be aware that service-based businesses are not as attractive to venture capitalists. Such businesses are typically worth less in terms of company valuation. There are many reasons for this; one reason is that the business is largely dependent upon the relationships that exist between the employee and the customer. If the employee leaves, it will adversely affect the business much more so than it would if the business were product-based. Another reason is that there is less opportunity to scale up a service-based business as opposed to a product-based business.
Does the market need your skills?
You must take inventory of your skills if you are intent upon following a service-based line of business. Doing so allows you to make an informed decision about whether or not your skills are in short supply. You probably don’t want to begin selling your HTML programming services because HTML programming is not a scarce skill set. On the other hand, many Enterprise JavaBeans (EJB) developers have had some degree of success because this is a skill in short supply.
Beware, though—as time passes, there will be more and more people who acquire skills that are in demand. This is known in economics as the invisible hand principle, which states that whenever a market exists where there is an unusually high rate of return, then people will gravitate to that market to satisfy the demand until such time the rate of return equals that of other markets. You may not think this economic principle has any impact on your decision to start your own service-based business, but it does. You may currently have a skill that is in high demand (for example, EJB development on BEA application servers), but you should not expect the demand to remain constant. If you do decide to start a service-based business, you must be prepared to constantly acquire the skills in greatest demand lest your business rate of return begin to diminish as a result of the invisible hand principle.
Perhaps you believe that selling services and being employed by a company are so similar as to be indistinguishable. If so, then you are probably considering a product-based business. Product-based businesses incur more costs and require more planning due to the nature of product-development life cycles. However, the benefits of starting a product-based business are significant, because such businesses scale up much more easily to different markets and thus are more attractive to investors. An example of a product-based business might be an educational software package that helps students attain higher SAT scores.
Choosing a model
How do you decide which is the right approach for your business? The decision is often a simple one. Do you have an innovative solution for an existing business problem? If not, you are probably positioning yourself for a service-based business.
Before you quit your current job…
Regardless of whether you decide to start a service- or product-based business, there are certain things you can do prior to relinquishing your current job. For example, every business must have a corporate presence/identity. Typically, this includes a Web site, phone number, logo, and marketing literature. There is absolutely no point in quitting your job to work on these things; these are easy to do while you continue with your current job. You can also prepare your home development environment.
You will find that your continued employment can serve to subsidize many of these tasks. In fact, many software developers have found they can develop their products on nights and weekends. For example, the development of a Web-based training product could be done while you work. If your new venture has a legitimate need for you to be available during the day (to meet with prospective clients), then you should first explore options that permit you to keep making money. You may be able to schedule all your appointments during your lunch hour, or perhaps you might request flextime, work part-time, or even take a leave of absence. The reason to keep your job as long as possible is that it will provide you with much needed income, which can be used to pay for business expenses such as marketing.
Many people see this as a weak approach to starting a business because they claim that it lacks commitment. The reverse can be stated as well. It is a strong approach providing you with the opportunity to endure difficult times. If you do decide to go for it full-time, then you should have enough savings to sustain yourself and the business during the initial stages. In the book Craft of Power, author R. G. H. Siu states that a “Power play without money can only be a farce”; businesses cost money to launch. If you have no resources, you must acquire them. Jason R. Belanger, CEO of NoFeeListing.com, started his business on a shoestring budget while working as a software developer.
Critical success factors
Timothy Glenn Stockstill, CEO of DigiRep.com, started his business in 1994. Stockstill advises that you address the following critical success factors prior to rushing into a lengthy development cycle (the term critical success factors is often used in management speak; it means things you must do to succeed):
- Know how you are going to sell your product (develop a marketing strategy).
- Establish a corporate presence (at the minimum, a domain name and Web site).
Stockstill advises that it is more important to determine how you intend to sell your product rather than rush into development. Without this knowledge, you may be developing a product that you will not be able to sell.
Vision + effort = success
To start a business and succeed, you must have a vision and be willing to execute that vision on a daily basis. Tony Robbins advises that you must make some progress every day in pursuit of your goal. I use two simple metrics to gauge the probability of success of any venture: vision and effort. Use my two by two matrix in Figure A to predict the success of your business.
|Vision and Effort matrix|
Businesses that have the best opportunity for success require that the founders not only have a solid company vision, but also that they exert themselves in the direction of that vision. A lack of effort results in stagnation, while a lack of vision results in a business never reaching production and failing to generate revenue. A lack of both results in no business at all.
Starting your own business is an adventure filling your waking and sleeping hours with excitement and frustration. It is well worth the effort; however, always remember to work smarter, not harder. Good luck.