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Ideas/Section-5
Produced in cooperation
with the American Association of
Community and Junior Colleges
About the Author
Lynne Waymon designs and delivers continuing
education programs in
the fields of small business management, management skills, and
personal development. She has worked with private corporations,
government agencies, and community groups to develop courses
specially designed for their employees. Programs under her
direction at Montgomery College in Maryland received awards from
the Small Business Administration for "outstanding performance
providing consistently high quality business management training
of
substantive value to the small business community" in 1978
and
in 1982.
Introduction: "There's No Place Like
Home"
The cottage industry, an old-fashioned
enterprise, is enjoying a
revival so strong that it's difficult to find out just how many
Americans are now working at home. Estimates range from two to
five million and the numbers may double by 1990.
Because women now enter business at a rate
five times faster than
men, the trend of operating from home is growing. A natural starting
place for many businesses seems to be the garage, basement, or den.
A recent Census Bureau study showed that over 300,000 women's
businesses are operated out of the home.
Homemakers, hobbyists, retirees, people
interested in a second
income, and the disabled are just a few of the groups attracted
to home enterprises. A young mother's craft business began when
she started appliqueing decorations on her children's clothes.
A retired government worker bought 36 beehives and sold honey
to local health food stores and at craft fairs. A teacher did
typing and secretarial jobs for her husband and friends until
she realized the potential market and opened a full-time
secretarial service from her apartment. Others have become home
business owners by using their skills in catering, counseling,
teaching, day care, sewing, writing, photography, consulting,
market research, and landscape design.
The list of services that have been successfully
operated from
home is endless: chimney sweeping, maid services, messenger
services, wake-up and answering services, home nursing, mail
order businesses, party planning, dog grooming, kitchen and
closet planning and organizing, and others too numerous to
mention. As you explore the questions asked in the first chapter,
"Home Entrepreneurship: Is It For You," let your thoughts
run
freely through the possibilities until you can target exactly
the right type of business for your skills, your home space,
your market, and your part of the country.
Home Entrepreneurship: Is It For You?
The first step in deciding whether to start
a business is to
ask yourself this important question: "Do I have what it takes
to
be an entrepreneur?" Studying the characteristics of successful
business owners will help you to tell whether your personality
traits, experiences, and values are similar to those who have
succeeded. And assessing your experience, skills, and life goals
will also help you decide if you want to invest the energy, time,
and resources that successful entrepreneurship requires.
Who is the "Typical" Entrepreneur?
What makes an entrepreneur successful is
a hotly debated and
vigorously researched subject. In Success And Survival In The
Family-Owned Business, Pat B. Alcorn, an expert on entrepreneurial
problems, has developed the following questionnaire to help you
determine your "Entrepreneurial Quotient." Write your
answers in
the margin. Then read on to discover what she believes characterizes
the typical entrepreneur:
Do you reconcile your bank account as soon
as the monthly
statement comes in?
Entrepreneurs are careful about money.
They usually know how
much money they have so they can seize opportunities on short
notice. They know what things cost, whether prices are going
up or down, and whether they are getting a bargain.
Did you earn money on your own from some
source other than
your family before you were 10 years old?
Most people who are going to make money
in business show an
affinity for making money at an early age--by babysitting,
selling lemonade, delivering newspapers, or some such strategy.
Do you get up early in the morning and
find yourself at work
before others are out of bed?
Entrepreneurs sleep and eat enough to keep
up their strength,
but they don't usually tarry at these pursuits.
Do you tend to trust your hunches rather
than wait until you
have a lot of information on hand?
Hunches are judgments based on factors
that cannot be quantified,
A big part of entrepreneurship seems to be risk-taking based on
these hunches.
Do you keep new ideas in your head instead
of writing them down?
Entrepreneurs keep a lot of things in their
heads, including
their most creative ideas.
Do you remember people's names and faces
well?
Ease in remembering names and faces is
very important in the
business world.
Were you good in "hard" subjects--mathematics,
biology,
engineering, accounting, and so forth--in school?
People who major in business administration
in college are
more likely to be successful entrepreneurs than anyone else.
They prefer subjects in which the answers are conclusive
rather than open-ended conclusions full of contingencies.
In school, did you pretty much stay away
from such organizations
as Scouts and student government?
Most entrepreneurs tend to be loners rather
than joiners,
unless joining is a useful tactic for making contacts and
gathering business information.
In courting the opposite sex, did you tend
to go for one person
at a time as opposed to playing the field?
Most entrepreneurs preferred one person
because to play the
field would have taken too much time away from business activities.
Do you close deals with a handshake rather
than insisting on
written contracts and guarantees?
Good entrepreneurs are often comfortable
with something less
binding than written contracts. When the only bond is a word,
it becomes a matter of honor, and no entrepreneur can afford
to lose honor.
Do you devote considerably more time and
thought to work than
to other activities, such as hobbies?
Entrepreneurs may have some leisure time
activities, but their
principal hobby is their work.
A similar test was developed by John Komives,
director of
Milwaukee's Center for Venture Management. Again, write your
answers in the margin, then read on to see the expert's answers.
Was your parent an entrepreneur?
Having a close relative who was an entrepreneur
is the single
most telling indicator of a successful entrepreneur.
Are you an immigrant?
There is a high correlation between immigrants
and entrepreneurs.
In this sense, "immigrant" includes not only those who
were born
outside the United States, but also those who moved from farm to
city or from the Midwest to the West Coast.
Did you have a paper route?
The entrepreneurial streak shows up early
in life.
Were you a good student?
Typical entrepreneurs were anything but
model students and often
were expelled from school.
Do you have a favorite spectator sport?
The best answer is "no." Entrepreneurs
are poor spectators.
They often excel at individual, fast-paced sports such as skiing
or sailing.
What size company do you now work for?
The typical entrepreneur comes from a medium-sized
company --
30 to 500 employees.
Have you ever been fired?
Entrepreneurs make poor employees. That's
why they become
entrepreneurs.
If you had a new business going, would
you play your cards
close to the vest, or would you be willing to discuss problems
with your employees?
Typical entrepreneurs have a secretive
streak. If they confide
in anyone, it is likely to be another entrepreneur.
Are you an inventor? A Ph.D.?
Not a positive indicator. Inventors fall
in love with their
products, Ph.D.s with their research.
How old are your?
The typical age for starting a business
seems to be 32-35.
When do you plan to retire?
In still another study, Jeffry A. Timmons
asserts that entrepreneurs
are people who have high energy, feel self-confident, set long-term
goals, and view money as a measure of accomplishment. They persist
in problem solving, take moderate risks, learn from failures, seek
and use feedback, take initiative, accept personal responsibility,
and use all available resources. They compete with themselves and
believe that success or failure lies within their personal control
or influence. They can tolerate ambiguity.
Are You Ready, Willing, and Able?
Now that you have studied the characteristics
of others who have
succeeded, survey your reasons for wanting a home-based business.
Are you dissatisfied with your current job? What are your skills?
What is your business experience, especially in the business you
want to start? What are your life goals? What resources do you have
that might help?
Answering these questions will provide
reality testing for ideas
that can sound incredibly glamorous when chatting with friends or
seductively attractive when you are irritated or bored by your
present job.
Order a copy of the SBA pamphlet Checklist
For Going Into Business,
MA 2.016 (see For Further Information). Answer the questions and
discuss your reactions with friends and family. Or better yet,
ask several people close to you to think carefully about you and
fill out the checklist for you. Have you underestimated your
abilities? Overestimated them? Sometimes an evaluation by a friend
is more useful than a self-evaluation.
How does your family react to the idea
of a home business? Will
you expect them to help out? What changes would your business use
of the house mean for them? Will you have to remodel to create a
usable business space?
What resources are available to you? Will
you start by keeping
your job and "moonlighting" for a while? Do you have a
small nest
egg, inheritance, or retirement income to live on until you get
the business going? Do you already own tools or machines that will
help (for instance, a word processor for a secretarial business
or
professional cameras and a darkroom for a commercial photography
business)? Are you able to go back to school for training if
necessary? Have you built up a network of contacts and possible
customers through your previous lines of work or will you be
starting from scratch?
Answering these questions honestly and
completely will help you
assess not only your chances for success but also which type of
home-based business to choose. For instance, if your past professional
life and contacts are all in the educational, teaching, child-oriented
school area, then you should have powerful reasons for leaving that
and opening a mail-order seed business. Possibly a tutoring business
or a tot exercise franchise would use more of your resources and
networks. On the other hand, if your assessment of your life goals
and preferences helps you realize that you are burned out from working
with kids, then perhaps a business planning birthday parties could
later be built into a general party planning and catering business.
You would be using your old contacts to build a long-range business
plan that focuses on a service business for adults.
The Advantages of Home-Based Business
Why have millions of Americans chosen to
work and live in the same
place? Why are cottage industries sprouting faster than we can
count them? Some home-based businesses start by accident rather
than by conscious design. Secretarial services, day-care centers,
craft ventures, and the like may start out as weekend activities
in the recreation room. After a while their owners are surprised
to see how profitable or enjoyable the venture has become. The
glimpse of a healthy market lures them into a full-time venture.
This low-risk, low-overhead, gradual kind of start-up is very
attractive to new business people.
Many home-based business people cite decreased
commuting time and
other lessened business expenses as advantages for working at home.
If your place of work is just 30 minutes away, that's five hours
a week in commuting time, many dollars in gasoline and car maintenance
or transit fares, and untold stress fighting traffic. Getting out
of
the high-fashion rat race is a plus for many who dislike having
to
dress up and continually buy new clothes to feel comfortable in
settings outside the home.
Homemakers--mostly women but also an increasing
number of men--are
choosing a home-based business in order to have a more flexible
lifestyle and to be closer to family. A parent who has a home office
can eat lunch with the children or more easily attend special school
or sports events. The home-based business person has more control
over work hours than someone with a 9 to 5 job. Night owls who like
to work until 3 a.m. can then sleep late (remembering, of course,
to turn on the answering machine and let customers know the business
hours). On the other hand, early birds can work without the usual
disturbance from the telephones.
The tax advantages of operating a business
from home are numerous
but sometimes complicated. Wise business owners keep careful records
and work with accountants, attorneys, and financial planners to
make
sure they are filing for the legal maximum write-offs and benefits.
The Disadvantages of a Home-Based Business
If you were hard at work in an office downtown,
it is unlikely that
three children would come storming in to ask for snacks or that
you
would end up using the ironing board for a bookshelf or have to
think
twice about hiring others because they might resent working at your
kitchen table. These are just a few of the problems that make the
glamour of working at home fade fast. Some disadvantages of working
at home can be minimized by self-discipline, by setting clear limits
with family and friends, and by projecting a professional image.
Other disadvantages "come with the turf" and just have
to be lived
with. If a delivery man comes to the door, you will probably be
the
one to interrupt your work and sign for the package.
It takes time and discipline to establish
steady, at-home work
patterns. Often it seems easier to water the plants or do the
laundry than to call a client, design a new brochure, or prepare
bills for customers whose work you've completed. Without the deadlines
imposed by supervisors or peers, it can be hard to do the least
appealing jobs on your list. To make matters worse, others may not
take you seriously. Neighbors may stop by to chat or friends may
call
your business number knowing you will answer. Without supervisors
or
managers, you are the one who must set limits and plan your time.
There also is the problem of isolation. While you are now your own
boss, you won't have the chats, the parties, the companionship of
fellow workers. Losing such social contact requires adjustments.
As the business grows and changes, the
home entrepreneur has to put
up with cramped or inappropriate space. No more simply putting in
a request for a bigger file cabinet or a new copy machine; now you
must visit showrooms or garage sales, evaluate features, compare
prices, and probably pick the item up yourself.
Your teenager may resent having to keep
the stereo low because
you're meeting with a client in the next room. Your spouse may
be irritated by having to fry that freshly caught trout on the
backyard grill so your office won't smell of fish. Your son
may not want to give up the recreation room pool table so you
can cut out 100 doll patterns this weekend. Neighbors may
comment on the extra traffic your customers create on their quiet
street. Family privacy and lifestyle patterns may be disturbed.
And
you will probably find yourself wrestling with laws and regulations
you never dreamed could exist before you went into business.
Your Professional Image
Developing a professional image may be
hard if you work out of
your home. Projecting a businesslike image is an important part
of building credibility with your customers and contributes to your
own professional self-image. Design a logo or have one designed;
order business cards and stationery. Set regular business hours.
Use an answering machine or answering service. If other members
of
the family also answer the phone, make sure they know what to say.
Have a businesslike office or "showroom" if you meet customers
face
to face. Consider referring to your apartment number as your "suite
number" or rent a post office box rather than using your street
address. Such practices might improve your chances of doing business
with potential customers.
Your Next Steps
Now that you have reflected on the characteristics
of successful
entrepreneurship and assessed your skills, experience, and life
goals, it's time to plan your next steps. Ask yourself: Given the
disadvantages of working out of my home, do I still want to? Now
that I know more about what's involved in starting a business, is
it still for me? Do I need further training or experience? Should
I begin part-time in order to test the waters, check out market
potential, or refine my product or service? Do I need more time
to
research possible products or services? Have I decided on a particular
business? The next chapter will help you define your business, the
market, and the price to charge for your product or service.
Others Have Succeeded--Why Not You?
A former teacher tells how she started
her own tutoring business:
I taught languages in high school for seven
years. Whenever I needed
a little extra money, or during summer vacations, I tutored individual
students. As my reputation grew, people began to ask me if I could
recommend tutors in other subjects.
As my enthusiasm for teaching in public
schools waned, I began to
research the possibility of a tutoring business. I started one summer
by turning my second bedroom into an office and having stationery
printed. Summer is a peak time because parents hire tutors to help
their kids catch up on subjects. By the end of that summer I was
managing 48 tutors in 23 different subjects or grade levels all
over the metropolitan area. I hired a part-time assistant who worked
at the kitchen table. We added other services, such as classes to
help high-school students prepare for national exams. Operating
from home was perfect for me since I needed to keep my overhead
low and keep a good cash flow to be able to pay my tutors.
A computer programmer tells his story:
I longed to get enough work doing computer
programming so that I
could avoid the long commute to work and be closer to my two young
boys as they grew up. I started working in an office I built in
the
basement doing small jobs and working for friends in the business
who
were up against tight deadlines. When I got my first big contract,
I
took the leap and gave notice. Now, two years later I've established
a good track record with clients and have hired two others who work
at terminals in my recreation room. I like being able to work late
at night after the family is asleep. And I enjoy being around when
the kids get home from school. I don't need a fancy downtown office.
If I meet with a client. I make sure it's at his office, not mine.
Answering The Big Question: What? Who?
Where? How? and How Much?
What's the perfect home business for you?
You've listed your skills.
You've outlined your interests. You've described your family's
preferred lifestyle. You've come up with a business idea. Next,
consider such questions as: Are there customers for my product or
service? How do I know? How will I find them? Who are my competitors?
What will I charge? How will I promote my product or service? Finding
the answers to these questions is the challenging and sometimes
tedious homework that will help you determine your chances for
success, and whether you should look for another more marketable
idea.
What Is My Product?
"I bathe and groom poodles and small
dogs." "I design, construct, and
sell roll-top desks." "I provide accounting services to
small business
clients." "I make dried flower arrangements." "I
teach intermediate
and advanced piano to children." "I design and implement
direct mail
advertising campaigns for small businesses and nonprofit
organizations."
The first step in creating a business is
to decide what your
product is. What are you selling? Practice writing a short,
specific statement describing your product or service. Getting a
clear idea of a business concept is one of the most difficult
tasks in creating a business. Your statement may change several
times as you experiment with the market and test your skills.
Instead of "I make toys," you may want to narrow your
product
line to "I make wooden dolls." Instead of "I write
software programs
for small business needs," you may decide to tap into a big
market
and "provide training for employees of small businesses in
the use
of accounting packages." See how it feels to describe your
product
or service to family, friends, potential customers, and fellow
business people. Is your description clear and brief? Can you say
it with confidence and enthusiasm?
Who Will Buy It?
To develop and test your business idea,
answer the question "Who
will buy my product or service?" Make a list of potential customers:
individuals, groups, segments of the population, or other businesses
that need your product or service. If you are making fabric-covered
lap boards for people confined to bed, how will you quickly and
inexpensively find a market? Through hospitals or home nursing
care organizations? Through craft stores by displaying them as gift
items? In mail order catalogues? Is there a market avenue that will
reach children? Ask friends and colleagues for help in brainstorming
all the possible markets (customers) and uses for your product
or service.
Who Is the Competition?
Your business planning must also include
an up-to-date analysis of
your competition. Why? Because you need to plan your market
position--how you will fit into the marketplace. Will your product
or service be cheaper or more expensive than that of the major
competitions? Will it be more durable? Will you be open during hours
that your competitors are closed? What benefits can you build into
your product or service that your competitors don't offer? Will
you
do rush jobs?
In planning your business, look for a unique
niche that will give
you freedom from strong competition or that will make your product
or service more valuable than others in the market. If you plan
to
open a day-care center and find that none in your area is open before
school, early opening might make your service more competitive.
If
you discover that local caterers have overlooked the office party
market, you might highlight that in your brochure. The more you
can learn about your competition, the better you'll be able to
decide how to position yourself in the market.
Newspaper ads and trade magazines are other
good sources of
market information. Check also with the Chamber of Commerce, your
county office of economic development, the Census Bureau, and
business and professional organizations to gather market and
pricing data.
Where Are the Buyers? How Can I Find Them?
As you become more familiar with the competition,
you will also
be discovering where and how to find buyers. Whatever the type of
home business you want to open, you will need to do market research
to determine if there are buyers for your idea, where they are,
and
how to find them. (And in the process, you will also be gathering
information on pricing.)
Visit your local library to compile local
and county statistics on
the size and makeup of your market. (While you are at the library,
check out some books on marketing research so you will know what
you are getting into.) Also, check those of the following resources
that might have data about your product or service or the people
who would use it:
Encyclopedia of Associates. 17th Edition.
Gale Research Company,
Book Tower, Detroit, MI 48226.
Ayer Directory of Publications. Lists trade
publications by
subject matter. Contact the sales, marketing, or research
departments for buying patterns among their readers.
"Survey of Buying Power." Sales,
Marketing, Management Magazine.
July issue each year.
Thomas' Register. Lists companies by product
and service line,
organized geographically and alphabetically.
Directory of Business, Trade, and Public
Policy Organizations.
U.S. Small Business Administration, Office of Advocacy.
Department of Commerce Publications. Data
User Series Division,
Bureau of the Census, Washington, D.C. 20233.
County Business Patterns. U.S. Department
of Commerce, Bureau
of the Census. Available for each state.
When your marketing research is completed
you will have 1) identified
your potential customers; 2) found out all you can about their
habits, needs, preferences, and buying cycles; and 3) decided
how to reach them to generate sales.
How Much Shall I Charge?
Four main factors will help you decide
what to charge for your
product or service: 1) your direct and indirect costs; 2) the profit
you want to make; 3) your market research data on competitors'
prices; and 4) the urgency of the market demand. There is rarely
an exact "right" price but rather an acceptable price
range within
which you will want to fall. Avoid the common mistakes made by many
new business owners--charging too much or too little. Use several
approaches to arrive at a cost and "test" the price. If
your
ego is too involved, your price may be too high. On the other hand,
if you have the attitude that "this is just a little something
I
do in my spare time" or "anybody could do this,"
then your price
may be too low.
Here is a formula for setting a fair price.
Calculate your price
using other approaches, too, before you make a final decision on
price:
Typical Pricing Formula
1. Direct Material Costs--Figure the total
cost of the raw materials
you have to use to make up your item. Figure the cost of a group
of
items and then divide by the number of items to find the cost per
item. If you can easily and immediately determine the material cost
of a single item, fine. Some items are produced in batches, however,
and it is easier to get an item cost by dividing the cost of a batch
by the number of items eventually produced.
2. Direct Labor Costs--Figure what you
pay to employees to produce
the item (whether or not you have employees now). You must assign
a
wage figure, even if you are the only one producing the item. Take
the weekly salary you pay someone to produce the necessary number
of items and divide it by the number of items. Add this figure to
the Direct Material Costs total.
Materials + Labor = $__________.
3. Overhead Expenses--These expenses include
rent, gas and
electricity, business telephone calls, packing and shipping
supplies, delivery and freight charges, cleaning, insurance,
office supplies, postage, payroll taxes, repairs, and
maintenance. The accuracy of your costing depends on estimating
logical amounts for all categories of expenses. If you are working
at home, figure a portion of your total rent or mortgage payment
(in proportion to your work space and storage areas), or assign
a reasonable, competitive rent figure for the same amount and type
of space. List all overhead expense items and total them. Divide
the total overhead figure by the number of items per month (or time
period you used above). The answer is your overhead per item.
Overhead + Materials + Labor = Total Cost/Item
4. Profit--Include an amount added to the
cost of each item so you
won't end up just breaking even or making the employees' wages.
Check
your competition and see what they are charging. (Retailers generally
double the wholesale price.) If your product is a little better
than
the competition, charge a little more. If your product is comparable,
price it similarly. Remember, you will get the profit from each
sale,
in addition to the salary figure. Add the profit figure you have
chosen to the total cost per item to get your total price per item.
Profit + Total Cost/Item = Total Price/Item
Remember, the main purpose in operating
a business is to make a
profit. Don't undersell your product or service just because
"I'd be baking cakes anyway" or "I'm just starting
out" or"I work
out of my home." If you have a new, rare, handmade product
or
personalized service, the demand may be so high that customers
are willing to pay a little more.
Promotion
Promotion is an overall, long-range plan
designed to inform
potential customers about what you have to sell. Advertising
is usually thought of as the paid communication part of the
promotion program.
To develop a total promotional campaign
you must answer these
questions: 1) What image or message do I want to promote?
2) What are the best media and activities for reaching my
potential customers? 3) How much time and money can I spend
on the effort?
Develop a long-range, consistent program
for building image
and reaching customers. Your image should be reflected in your
business card, logo, stationery, brochure, newsletter, telephone
answering service, signs, paid ads, and promotional activities.
Word-of-mouth recommendations from satisfied
customers are the
very best promotion any business can have. Consider which
promotional tactics will build the confidence and image you are
looking for--giving speeches and interviews (often good for
counselors, teachers, lawyers, consultants), having an open
house or holiday home sale (for craftspeople), holiday recitals
or shows (for music and dance teachers or day-care operators),
free demonstrations and samples (for retailers, decorators,
caterers).
Several small ads may have more impact
than one large, splashy ad.
Conduct a campaign rather than having a one-shot ad or event. If
you hire a public relations firm, look for one that can give you
personal attention and develop a total marketing plan for you,
not just a couple of ads. The plan:
Managing Your Business: Structure, Recordkeeping,
Taxes, and Insurance
You're The Boss.
A telling sign on a new businessowner's
desk read: "Yesterday I
didn't even know how to spell ENTREPRENEUR and now I are one!"
Now that you have decided to open a home-based business, all
decisions will be your responsibility, not just those you
previously enjoyed because they involved your area of expertise.
Of course, as a day-care operator you already knew how to soothe
an upset child, but as the owner of that business, do you know
when to file your taxes? As a consultant you have over 20 years'
experience advising organizations on personnel matters, but do
you know if it's to your advantage to incorporate? You are an
expert at word processing, but do you know how to develop an
efficient recordkeeping and billing system? You are the boss
now and the good health of your business depends on your management
skills.
