HOW TO START A BUSINESS FOR FREE
The Ultimate Guide to Building Something Profitable from Nothing
SILVER LAKE PUBLISHING LOS ANGELES, CA ̶̶̶ ABERDEEN, WA How to Start a Business for Free The Ultimate Guide to Building Something Profitable from Nothing First edition Copyright © 2003 by David Caplan
Silver Lake Publishing 111 East Wishkah Street Aberdeen, WA 98520
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Library of Congress Catalogue Number: pending
How to Start a Business for Free The Ultimate Guide to Building Something from Nothing Includes index. Pages: 308
ISBN: 1-56343-856-9 TABLE OF CONTENTS
INTRODUCTION: Getting Started 5
CHAPTER 1: CHOOSING A BUSINESS 11
CHAPTER 2: MEETING THE CUSTOMERS…AND THE COMPETITION 47
CHAPTER 3: THE NUTS AND BOLTS OF BUSINESS OWNERSHIP 67
CHAPTER 4: GETTING MONEY FOR FREE 99
CHAPTER 5: MOVING FROM THE PLAN TO OPERATIONS 137
CHAPTER 6: OFFICE SPACE, EQUIPMENT & OTHER SUPPLIES 171
CHAPTER 7: BUILDING A WEB SITE FOR YOUR BUSINESS 207
CONCLUSION: The Free Mentality 251
APPENDICES:
APPENDIX A: WHERE TO GET A BUSINESS LICENSE 253
APPENDIX B: LIST OF PATENT & TRADEMARK RESOURCES 257
APPENDIX C: LIST OF RESOURCES 261
APPENDIX D: LIST OF BUSINESS PLAN TOOLS 277
APPENDIX E: LIST OF SBDCS 281
APPENDIX F: LIST OF WOMEN’S MENTORING ORGANIZATIONS 285
APPENDIX G: LIST OF BUSINESS INCUBATORS 293
INDEX 303
Introduction: Getting Started INTRODUCTION: GETTING STARTED
There are many reasons to go into business for yourself. Maybe you want to expand your earning potential or you want flexible work hours and the best parking spot. Or, maybe you’re just tired of working for someone else and commuting two hours a day. Some people want to start their own business because their current employer is downsizing and it seems easier than pounding the pavement looking for a new job. Others want to start a business to gain the freedom they’ve always dreamed of because being “self employed” affords you the freedom to control your own destiny. Let’s face it, everyone—from newspapers, magazines and TV to radio, Learning Annex seminars and the Internet—is touting why you should go into business for yourself. You’ve probably seen the signs on freeway on ramps that entice you to think about self employment. Have you ever wanted to be your own boss? Set your own hours? Work from home? Want the freedom to work when you want? Are you thinking about starting your own company but don’t know where to start? The list goes on and on. Being in business for yourself, however, isn’t always what it’s cracked up to be. Being in business for yourself often means working long hours— starting early in the morning and working late into the evening most days and even putting time in on weekends. Being in business for yourself means
5 How to Start a Business for Free
postponing that vacation to Jamaica because there is no one else to run the business when you’re not there. And, the little things, like movies, golf, hiking or catching an occasional ball game, are no longer recreation when you own your own business. They become luxuries. Whatever the reason, starting your own business requires an inde pendent spirit and a strong sense of self motivation to stand out from others in your marketplace. And there are plenty of other entrepreneurs in the United States willing to take that risk and prove to the world that they have those qualities. Why not? According to the U.S. Department of Labor, firms with fewer than 500 employees employ 55 percent of the private, non farm work force, contribute 48 percent of all sales in the country and are responsible for 51 percent of the private gross domestic product. In addition, small business dominated industries produced an estimated 68 percent of the 2 million new jobs created during 2000, ac cording to the U.S. Departments of Labor and Commerce. If that’s not enough motivation to get your business plan up and run ning, according to the Small Business Administration, small businesses: represent more than 99 percent of all employers; employ 52 percent of the private workers; employ 61 percent of the private workers on public assistance; employ 38 percent of the private workers in high tech occupations; provide virtually all of the net new jobs; provide 51 percent of the private sector output; represent 96 percent of all exporters of goods; receive 35 percent of federal contract dollars; and are home based 53 percent of the time and are franchises 3 percent of the time. This means if you decide to start your own business, you will not be alone…not by a long shot! Moreover, as you start to plan what kind of business you will start and how you will finance it, it’s a good idea to find
6 Introduction: Getting Started other entrepreneurs in your community to help you keep your head above water. Other entrepreneurs can help you avoid some of the common pit falls tied to owning your own business. They’ve been down the same road you are about to take, so find them and ask as many questions as you can. We’ll go into greater detail on mentoring resources in a later chapter, but it’s never too early to ask for direction. As you begin to talk to others who have made the small business leap and look at other businesses that are operating in the economy around you, you’ll see that the opportunities for entrepreneurship are abound, waiting for the taking. You can turn anything you love into a money mak ing opportunity, and this book will show you how. Hundreds of busi nesses can be started for little or no capital at all. For example, a house sitting or tax preparation business. Or maybe you’re more into the dog grooming or diversity training business. Take the founders of Nantucket Nectars for example, otherwise known as the “Juice Guys” who took a sloppy boat business and turned it into a multimillion dollar company. Tom Scott and Tom First didn’t want the corporate job with the corporate car or the morning commute. They had flunked accounting, the only business related course under their belts, but knew when they gradu ated from Brown University in 1989 that they wanted to live on Nan tucket year round and make something work—on their own. Scott had already worked in the harbor the previous year as a taxi driver. He didn’t want to work for someone else, so he started Allserve, a floating conve nience store, on a 19 foot Boston Whaler that drove around the harbor servicing the Nantucket boating community. Scott sold muffins, delivered newspapers, disposed of trash and even did some people’s laundry—and he loved it because he was working for himself, outside, on a boat and making money. The following summer, First joined Scott and the two expanded the business to include boat towing, repairs and rescue. Getting through the cold and slow winter, however, was rough. One night, First made a juice blend for dinner and within five minutes, the two Toms were joking with one another, “Let’s sell this off the boat next summer. We’ll call it Nan tucket Nectars.”
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The rest is history. But it’s not history without a few low points and some major hits. In the start up phase, the two Toms did everything they could to stay afloat. They sold their juice concoctions off their Whaler and eventually out of a little storefront on the Straight Wharf of Nantucket (which is still there). They never lost sight of their goal to survive on Nan tucket year round and maintain a business. And, knowing that their float ing convenience store was too seasonal to work in the long run, however, the Toms settled on making the juice company work. Without fancy fund ing, the two Toms resorted to making money elsewhere until the business got going. They performed oddball jobs here and there, including shuck ing scallops, painting houses, bartending and pumping waste. They also focused on the quality of their juice product (innovative bottle design and flavors). The two Toms paid bills slowly, collected receivables as fast as pos sible and paid themselves nothing. At one point, Tom Scott lived in his car or in a group house with no heat to make ends meet. Eventually though, the business grew and an angel investor (coincidentally a client they had serviced in the past) kicked in some money to help move the company along. In 1999, Nantucket Nectars reported $60 million in sales. One thing, however, did have to change with such rapid growth: the company grew too large for Nantucket and moved to Cambridge, Massachusetts. But by then, the Juice Guys had made their mark in the juice world. They could sail over to Nantucket in their own boat whenever they needed some island healing.1 The lessons from the two Toms are clear: Success in business doesn’t necessarily start with an expensive MBA or a windfall of venture capital. It starts by asking yourself the most basic of questions: What do you want in life and where and how do you want to live? Focus on those essentials and other things will likely follow. And it’s always key to make friends, even in bars and harbors, whom you can call when you need some cash.
1 Ocean Spray Cranberries, Inc. bought a large piece of the company in early 1998— which was later sold to Cadberry Schwepps—but Scott and First retain a large piece of the company’s ownership and remain active in its management.
8 Introduction: Getting Started
Never underestimate your own financial power. Between boot strap ping your business and asking Aunt Betty for a loan to start your com pany, digging deep into your own pockets first is a step toward getting what you need. Raising capital outside your close network of friends and neighbors is a hard thing to do these days. Capital is scarce. The late 1990s had people wrongly believe that venture capital is easy to snatch up—for even the rookie entrepreneur in need of start up cash (to also finance a fancy car and lavish parties.) That may have been the case back during the heady dot.com days, but those days are over and the current venture capital market is closer to how it usually works. It takes a lot more of a sales pitch to get noticed. In reality, the vast majority of successful new businesses are self fi nanced. Among the honored businesses that made Inc. magazine’s 500 list over the past 20 years are Microsoft, Domino’s Pizza, Oracle, Jenny Craig, Pete’s Brewing, Jamba Juice, The Sharper Image, Princeton Re view and Patagonia. When those companies made the list, all were pri vately owned and at least five years old. Few, if any, started with institu tional capital. And, in 2001 only 3 percent of the Inc. 500 companies received venture capital funds at start up.2 This book answers the questions you may have about starting and running your own business, and attempts to resolve those fuzzy lines be tween writing a business plan and actually putting the plan into action. Starting and running your own business takes hard work. You need the wisdom, discipline, courage and persistence to know how to best protect your investment whether you’re running a carpentry business or doing consulting work as a motivational speaker. This book explains in simple terms the types of business structures that exist, and provides a working knowledge of how to develop the fi nancing, marketing, product development and operations of your own business. Whether your idea for a business is big or small, you’ll want to
2 “Brief Profiles of 2001 Inc. 500 Companies”; Inc. magazine, 11/01.
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be informed about things like networking resources, grass roots advertis ing, meeting the competition and license and registration. None of the material here will make you an expert on running a multi million dollar business. However, we hope to take some of the mystery out of the nuts and bolts of start ups so that you can make conscious decisions in your endeavors—business or otherwise—minimize costs and maximize profits. And minimizing costs is probably the most important aspect of start ing a business. Since so many new businesses fail within the first year or two that they exist, surviving the early going can be an end in itself. Your struggle is to stay in the game while your name or brand gets established…until your channels to market get set…until you can attract the right people to help you grow. This is where what I call the Free Mentality comes in to play. Obvi ously, starting a business requires spending some money along the way— but, because survival is so tough, saving every dollar possible is essential during the first years. You need to get everything that you can as cheaply as possible. Free, if you can. Pressing that point is what this book is about.
10 Chapter 1: Choosing a Business CHAPTER 1: CHOOSING A BUSINESS
Many start up businesses thrive on little or no capital. They are the result of executing at least one good idea, whether it’s a new product or a new or better personal or professional service; an advertising or fundraising campaign; or a concept for an accurate translation, proposal writing or lawn mowing service. Exactly what kind of business can you start up on your own? The decision often is a personal one. The decision is one that relates to you and your life…and the things you enjoy. Running a business is not always easy, and there’s no reason to struggle and work at it unless you’re doing something you truly enjoy. In other words, you don’t want to run a busi ness you hate. So, choose something that you’re interested in doing and that you like. If you can’t stand dogs, don’t run out and open a dog grooming business. Unless, of course, you’ve invented a whole new and innovative concept for dog grooming that inspires you. You also don’t have to limit yourself to just one type of business. If one idea doesn’t make enough money, you can supplement it by broad ening your business offerings and expanding into a related area. Let’s say you love butter, but you can’t stand the way it’s sold. You don’t like the sticks, you don’t like the tubs…or the convenient squirt top bottles. Try inventing a better way to dispense butter or margarine, some thing you might call the Butterfly and start up a kitchen appliance com pany.
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Choosing a business starts with asking yourself a few basic ques tions. The most important question: What do you enjoy doing? Can it be translated into a business? Does it revolve around a service or product? Compile a list of businesses that you would like to start. The business can be derived from a creative idea or a unique and new invention or service. Or, it can be derived from something you already know how to do. Try not to think so much about money when you make this list. For now, let your imagination wander and see where it takes you. There will be plenty of time to hone that idea down to a realistic endeavor.
Service-Based vs. Product-Based Businesses An important thing to consider when you’re brainstorming for busi ness ideas is the type of business you want to start. In other words, decide whether you want to start a service based business or an item or product based business. These are the two basic types of businesses you can start quickly and easily. The first, service oriented businesses, allow you to perform a service for your client, such as pet sitting, dog walking, catering, writing, consult ing, etc. Service oriented businesses are easy to start with little seed money. All you need to get started is an idea for a service that you want to pro vide, some recommendations and a lot of word of mouth advertising. The other type of business you can start is an item or product ori ented business. With this type of business you provide an item or product for your client. You can offer customized shirts for hunters, handmade birdhouses or back scratchers. Any of these products could be the route to starting a successful business. One thing to keep in mind: Product oriented businesses take a little more start up capital than service busi nesses because you need to come up with the resources to make the products and find outlets to sell them, but they can be profitable and re warding, too. Although service based businesses are designed to sell expertise and assistance rather than concrete or tangible goods like product based busi
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nesses, the goals of service based and product based businesses overlap in many respects. As with all businesses, economics play a pivotal role in the decisions you make as an entrepreneur. Although there’s a risk involved in starting your own business—service or product based—and filing the paper work for a business license and obtaining a legal trademark or applying for a grant seem like a hassle and a huge burden on your time, if you play your cards right, you’ll be successfully rewarded for your time, energy and research. When choosing a business, you must first determine the value of your business idea before you can do something useful with it. Weigh the po tential value of your business idea against: 1) the probability of others seeing that value; and 2) the costs of securing and maintaining that idea. Remember: There’s nothing more subjective than value; what you may think is valuable is probably worthless to someone else. If you’re not sure, ask around. Input from others can save you a lot of time and money in the long run. Another factor to consider when choosing a business: the Internet. The boom of the Internet Age adds another factor, and possibly more value, to your business idea. The Internet offers a new delivery system for transmitting business ideas—books, software, data, customer lists, ad vertising campaigns, manufactured products, professional services, news letters, etc. We’ll go into more detail on using the Internet to your benefit later in the book.
Providing a Service The most commonly recognized types of businesses that can be started for free are service based businesses, which fall into the following catego ries: personal services; consulting services;
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