Early Years

Outline Of THE COMMON SENSE ENTREPRENEUR

This section will be updated as I add to this BLOG, so you will know when the new stuff becomes available.

Company Structure

My Qualifications To Write This BLOG (Archive)
The Early Years (Archive)
The First Step Is To Pick A Product (Archive)
More On Picking Your First Product (Archive)

Company Structure

Functions You Must Learn, Understand, and Control November 2008
Selling Your Product November 2008


Functions You Must Learn, Understand, and Control

So far in my blog, I have tried to give a pep talk about starting your own company. You can do it if you don’t give up along the way. I discussed some rewards and pitfalls you will encounter. In my first series of articles I outlined how to pick a product and then filled in more details of product selection in the last BLOG. If you missed any of this, you can go to my web site, www.DatavisionImage.com, and order back articles.

Before you write your business plan I think you should start your business. There are pros and cons here, but if you write a business plan before you really know what you are doing, then you’ll loose credibility with investors and waste a lot of time. A business plan can be a very valuable guide to running a business because it will make you set goals and priorities to which you can then refer during the hectic times ahead. On the other side, if you dive into starting a business without a business plan, especially if this is your first business, then you will probably fail. Institutional investors won’t even consider funding a business without a good business plan. Mezzanine investors and what I will call “Off the Street” investors will also want to see a business plan. Mezzanine investors are those individuals or groups of individuals some might call “Angel Investors” who are not connected as tightly with the entire business cycle investment community, but who have made money from entrepreneurial business startups. These investors have experience in investing in startups, and may give you money on terms less favorable than institutional investors. Off the Street investors are those members of the “Thursday Night Poker Club” who want to risk a few dollars in exchange for the promise of big returns. These investors will lend on the most stringent terms of all, and are unlikely to put up more money when the first seed money runs out. You should also know institutional investors won’t fund you even if you have a good business plan unless they believe your plan can result in the formation of a company that can be sold in two or three years at a very large profit. Usually that means your business plan needs credibility, and experience helps. It also helps if your management team has seasoned people, something very difficult for a new entrepreneur to put together.

Here are some tips on how to set up the major functions of your company. These tips are good ones, and you probably won’t find too many of them in textbooks at the business school. There are pros you will need to hire later on that will assist you in expanding your sales force, your accounting, etc. My point is set up the fundamentals of these functions in a way you understand, and then expand. Do not jump in and do something someone else suggests if you have no experience in the area. Get the experience first.

I indicated I would give you some valuable tips about how to sell your product. That’s true, but don’t expect tons of boring reading on sales tactics or how to become a successful salesman. The number of books readily available that are titled how to sell, the successful salesman, etc. could fill a room, maybe a football stadium. Go read them when you can, they are all useful. Also, if you have a chance to get some business school training on accounting, finance, and human resources that also will be helpful, but it’s not a prerequisite. Remember, most successful entrepreneurs are not business school graduates. They have learned the important parts of running a business, and the most successful of them have been lucky enough to be exposed to the key areas before they got run over by them. Once you get a business rolling you can hire professionals to improve the structure you have set up. What’s important at the beginning is setting up a solid structure you have worked in and understand.

I want to boil down the really important things that you will need to know about how to sell your product, how to structure your accounting systems, how to deal with corporate finance issues, and who to hire and when. These areas are important for you to learn and gain experience about before you dive into the business plan. There are a several good reasons for having experience in these areas if you are to become successful. First, anything you do in the new business will influence the direction of your company for a long time to come. If you duck out of learning how to sell your product, for example, and delegate this task to an experienced sales manager then you will have lost control of the area. You will always be saddled with how someone else did it, and you will regret it.

Running a business is not a single-handed job. You need a team, but you should be prepared to lead the team, not just put bodies into slots and hope it all works. For example, in the near future I am going to share with you how to structure an accounting system. You might have thought, why not skip this part and just hire a CPA to do it for me. You may have already found a CPA who will do it for little or no cost, in exchange for a small piece of the company stock. Do not allow this to happen. You might have a lawyer friend who can advise you as to how many shares to capitalize with, and how to allocate them. Do not do this. You may even have a friend in the sales field who can advise you where the market is for this new product you have, and might be willing to do some part time selling in exchange for a large commission or some stock, or both. Resist the temptation.

If you do not speak from your heart in the business plan and simply regurgitate the tons of readily available dribble about selling, accounting, finance, and human resources you are not going to have a very effective business plan. A bad business plan is really something to avoid, because without a track record of running a company, the investor has little to go on but the business plan. If you skim over the sales function for example, you are just putting a sign around your neck that says, “replace me as quickly as you can because I have no clue”. The same is true for all important parts of the company. Nobody wants to invest in a company where the management is thin and weak.

Even if you follow my advice about doing each function on your own at the start, chances are you are going to be replaced if you can get someone to invest in your idea. So, read these next paragraphs and tackle the job of starting your own company aggressively, with abandon, and with an eager heart.


Selling Your Product

There are a few simple concepts in selling that will make you successful. The first concept is “Selling Does Not Equal Convincing”. The second concept is “Sell With Your Ears, Not Your Mouth.” The third concept is “Two People Can Sell More Than One Person.”

Somewhere in the world there is someone who wants exactly what you have. Your job is to locate that person and let them know you have what they have been searching for. If your product is very unique and might be used by only a few individuals, then you‘ve got to set up a plan to encourage those people to contact you. If you make a product that is used by a large population, say one out of twenty people, then you have got to quickly cull out the ones that do not want the product. Never make the mistake of trying to convince the nineteen out of twenty people who do not want or like your product that they are mistaken and they really do want what you have. Move on to a new prospect quickly. Sales is a numbers game, and the objective is to find ways to sort through an overwhelming number of prospects who do not want your product to find the one prospect that does want it. Let me repeat that: Focus on finding the one of twenty people that does want your product. You can do this by saying as little as possible when talking with a prospect. You must realize every time you open your mouth you are wasting valuable and very limited sales time with the prospect. Let him or her do all the talking. They will tell you what they want if you prompt them with the right questions.

If only a small percent of the overall population uses or can use your product then you will have to find ways to cull through hundreds of unqualified sales contacts quickly and efficiently. Fortunately this problem is not new to the business community and the solution is called advertising.
There are two old saws in this business, also. The first is “Content and Consistency” and the second is “Your Staff Will Tire Of Your Advertising Long Before Your Customers Will.” Before you launch into an extensive advertising campaign, keep in mind what you can produce. The objective in selling at the early stage is to get some sales and generate revenue early. You don’t need to generate huge sales right away. Don’t waste too much money on advertising.

If you do advertise think about what your sales audience is using to learn about new products or products they need. Content and Consistency means select meaningful features of your product, and don’t use abstract terms like state of the art, customer oriented, etc. Tell your customer what the product is, and what it can do for him. “The new Widget plugs into your cell phone and cuts network transmission time by 50%, etc.”.
After you tell the customer what the product is in a format as clear as you can make, repeat the message over and over. Consistency is the key to advertising, so make your first ad a good one, and don’t change it for at least a year.

Two People Can Sell More Than One Person


This concept is far more valuable to overall success than you might think. Two people can probably sell more than one, but what about a hundred people. Yes, they will probably sell more than one. How about a thousand? The key here is using mass selling tactics early in the company growth cycle by enticing Value Added Resellers to represent you to their customers. Today we hear too many buzz words related to selling, especially selling web based software products. The important topic so often called Channel Marketing is to use the resources of someone else to sell your product. Here’s the catch: If you are going to use channel marketing concepts and VARs, then you have to have the margins to support the deep discounts such sales channels will cost. My readers will no doubt recall during the first lesson on selecting a product that I recommended selling at 7 times cost. Let’s look at that a little closer. If you were to draw a pie chart of the money involved with selling a product using a VAR channel, then about half the pie would be dedicated to advertising and VAR discounts. Assume you followed my advice to price at seven times cost, then the cost to produce your new product would take another ten to fifteen percent. Profits are the reason you are in business and should be targeted for at least twenty percent, leaving about fifteen cents on the dollar to set aside for growth, management salaries, bonuses and other operating expenses. You can see there is a very fine line here, and the pay and bonuses of your team should be considered before you risk your life savings. The lesson is to try to leverage your sales channels through more advertising so large discounts can be avoided while still building up a good reseller network. Signing up resellers will cost money in travel and other expenses. You have to attract these resources, as they will not beat a path to your door. Often attendance at trade shows, and a lot of shoe leather is necessary to get the ball rolling. It’s a tricky equation, and you really need to be careful. If your product doesn’t pass the seven times rule I set out in the picking product section, or you run into major engineering or other product problems, you could loose it all.

Closing The Sale

Fortunately closing the sale is the easiest part of selling, and the most frightening for the new entrepreneur. Once you have prodded your customer to get as much information about what he or she wants, the next step is to try to circulate the concepts he/she has told you about among the prospect’s peers. This is an important step because it will cement your prospect to your product, and may expose other concerns in the organization. Professional sales people will recognize this stage as “detecting hot buttons”. You can do this in a variety of ways by setting up a group presentation of the product, or a group demo of the product. Keep in mind, your objective is not to ramble on about all the things your widget does, your objective is to listen to the new audience and find out what they want. If you find out your audience wants widgets with Orange and Green stripes, then in you final proposal be sure that your widgets come in Orange and Green stripes.

The last step is to prepare a written proposal. Outline the product and what it will do for the prospect; outline the costs, delivery, training involved, and outline how you expect to be paid.

Do not forget about license fees. Here are a few comments I borrowed from another seasoned entrepreneur, Tom Egelhoff - PO Box 271 Bozeman, MT 59771-0271. He has a web site: http://www.smalltownmarketing.com.

Tom recently reminded us of a story about the early days of Apple Computer. Here are some abbreviated remarks by Tom:

Steve Jobs founded Apple Computer. After early success Apple introduced the Macintosh Computer. The Mac got off to a great start. Apple started to grow, went public, and threw Jobs out.
John Sculley, formerly of Pepsi, took over. Against the advice of one of his major software suppliers, he decided that Apple would not license its operating system as IBM had done. The result? Sales of Macintosh started to decline over the next few years because IBM clones were everywhere and available for less money.
1998, Sculley is gone Steve Jobs is back, the operating system is being licensed and Apple showed a profit for four straight quarters. 60% of all web pages (html=Mac, htm=IBM) are created on the Mac as are virtually every newspaper and magazine.
Oh, the software supplier who suggested Sculley license the Mac operating system back in 1986...Bill Gates.
In my next blog I will tell you about how to establish your accounting systems, how to capitalize the stock in your company and how to dig through the hundreds of complex issues dealing with Human Resources. Stay tuned.