The StartUp Blog at PartnerUp

When I was in college, the big question was, “what do I want to do?” It’s a question that all young adults have at least thought about. The answer for me was writing. The answer for others could be anything from teaching kindergarten to serving in the military to being a personal trainer.

For young entrepreneurs, maybe the answer doesn’t matter. Maybe “What do I want to do?” is the wrong question. I read an excellent post this morning on The Entrepreneurial Mind that talks about the question that entrepreneurship students SHOULD be asking themselves.

“What goods or services are needed that people are willing to pay for?”

Instead of focusing on themselves and what they want, entrepreneurs need to focus on what other people (potential customers) want. Pursuing your dreams and being willing to take risks is a good thing. But living in a rusted-out van down by the river because your vintage record shop didn’t pan out is not.

While I’m a huge proponent of people finding what makes them happy in life, I agree with the author’s points. We live in a shaky economy right now, so we have to be smart about the decisions we make and the paths we follow. That’s not to say that young entrepreneurs can’t still pursue the things that make them happy, because they can, they just need to approach them intelligently and with the needs and desires of potential customers in mind.

You may have an innovative, well-researched idea, great business sense, and a supportive group of family and friends behind you. You may even have some money saved up. If you’re like most people, however, you still can’t afford to just quit your job to pursue your dream of starting a business. That’s why many people choose to continue working while they start their businesses on the side.

While this can be an easier route from a financial perspective, many entrepreneurs struggle with the two distinct transition points—actually starting the business and then finally terminating employment. Here are some tips to help get you through.

Starting the Business:

• Realize that you won’t be able to grow your business as quickly as you would were you able to devote your full attention to it, and then make realistic plans and set realistic goals accordingly.
• Be very diligent with your calendar. Your regular work schedule is likely already fixed, giving you leeway in your free time. Nonetheless, try to set a fairly consistent schedule for your time spent working on your new business. This will ease the burden on your family and keep you on task.
• Maintain good work ethic by keeping your personal business completely separate from your work. While it’s tempting to work on the new venture throughout the day, it’s not fair to your employer.

Terminating Employment:

• Don’t get too excited by early success that you quit too soon and later find yourself in financial turmoil. Make sure your business can sustain itself as well as you and your family before you cut ties.
• Come up with a fairly reasonable number for how much revenue you’ll have to generate before you can quit your 9-to-5. Then be prepared to hold out until you get there.

If you’ve been laid off in the past several months, you’re certainly not alone. According to recent numbers, 11.1 million people are currently unemployed and 1.9 million of those people were laid off in the last quarter of 2008. With so many professionals out of work and looking, the job-seeking conditions are becoming increasingly bleak. On top of that, businesses across the country are scaling back, which altogether means fewer available jobs for a greater number of people.

Q: What is a laid off professional suppose to do?

A: Start a business!

Many in the unemployment sector are flocking to entrepreneurship as a viable alternative to regular employment. For many of these new-found entrepreneurs, starting a business was always a far-off dream, but with the perfect storm of a layoff and a weak job market, they’ve been given one hard push into achieving that dream. For others, starting a business was never even given a thought until other options began drying up. Whatever your situation, starting a business isn’t for everyone, but it might just be the perfect path for you. So if you’ve taken some time, carefully deliberated the prospect of entrepreneurship and are ready to take the plunge, here are your first few basic steps.

1. If you don’t yet have an idea, get one. Some of you may already have one or many ideas floating around in your heads, but others of you may not. If you are the latter, you’re going to need to start brainstorming. Consider the things that you’re passionate about and the things that you have experience in. This will help you to get the ball rolling and hopefully conjure an idea that you’re really excited about.
2. Research and refine your idea. In-depth market research is necessary to developing a viable business plan and is the only way you can thoroughly assess whether or not your business idea could be a success. Moving forward with your idea hinges on your research and assessment of the competitive marketplace. Through your research you should find out who your competitors are and how much money you can expect to bring in. You’ll also need to figure out what it’s going to cost to bring your idea to life and if that number is feasible. If you’ve completed a thorough assessment, chances are you’ll be compelled to make some changes and adjustments to your original business idea/plan.
3. Start your business (officially). Now it’s time to officially get the ball rolling by obtaining the proper business licenses and permits. Most of these are required by city, county and state governments, and the requirements vary by each. In some cases you may also have to obtain licenses and permits required by the federal government, but this depends on the type of business you operate. Check with your local and state governments to find out what documentation is necessary.

Many first-time entrepreneurs make the mistake of misjudging the amount of money they’ll need to get their ventures off the ground. This is often a reason many of them end up failing. A rough estimate isn’t enough. You need a detailed map with solid, well-researched numbers.

There are two kinds of startup costs—initial and ongoing, or rather, one-time expenses and those that you’ll be paying over and over again. Make a list of all your initial costs, no matter how significant or insignificant. For example, if you have to purchase a large piece of machinery or equipment, make sure you also take into account the costs involved with transporting it or setting it up. Now make another list with your ongoing costs. What will maintaining your business cost you on a month-by-month basis?

Now that you have a tally for both types of costs, add extra money to each and consider this miscellaneous. Extra unforeseen costs are always going to come up, so be prepared for them.

What you should have now is a total for your initial costs and a total for one month of ongoing costs. Take your one-month total and multiply it by six. It is generally recommended that you have enough cash on reserve to keep your business going for six months. Some might recommend a full year, but make sure you prepare for at least a six-month period.

Many of the expenses that you’ll incur can be difficult to gauge, so you need to do sufficient research. The best way to start is to talk to people who have already started similar businesses. Trade associations can also be a wealth of information. Many have startup packages that can help you in calculating your startup expenses. Suppliers, manufacturers, distributors—they’re all excellent resources for figuring out costs. Call them and tell them that you’re planning to start a business and are looking for costs. Ask about things like bulk-buying discounts, startup inventory packages, credit terms or anything that might lower your cost. You can also always check out websites or libraries for information. The thing that you need to remember is that good research is invaluable. It can tell you whether your business idea is financially feasible and give you a better picture of what your place is in the market.

Starting a business is a huge undertaking and deciding to do so shouldn’t be impulsive, which is why you need to take a long, hard look at your business idea. No one, not even you, knows for certain whether or not your idea is a good idea, but there are some ways to find out if it has potential. Look at the industry. Have you researched it inside and out? Is there a distinct need for your proposed business? You should also look at your idea from a financial perspective. Are you being realistic about potential profitability? Is it possible for you to financially execute your business idea to the extent it needs to be? Lastly, put yourself in the shoes of your prospective customers. Do they really need or want your product or service enough to pay for it?

Through its new BizSpark program, Microsoft is enticing startups to build their businesses with Microsoft’s full-featured development tools—for free. Basically the BizSpark program goes like this:

To be eligible a startup must meet three requirements. It must be a private company, make less than $1 million in annual revenue and be less than three years old.

If your startup meets these requirements, then you’re eligible to be a BizSpark member. As such you’ll get a free three-year package that includes a license to Microsoft software and servers and access to professional support from “Network Partners” from around the world. (Network Partners are units like investors or university incubators that are vested in software-fueled innovation and entrepreneurship. Startups must go through these Network Partners to get involved in the BizSpark program.)

Once the three years is up, BizSpark members can either begin paying for these Microsoft resources and continue business as usual, or pay an offering fee of $100 dollars and exit the program, no strings attached.

BizSpark really is a great way for startups to catapult themselves into successful businesses. It gives entrepreneurs more resources and opportunities than most could ever harvest on their own. If you want to read more commentary, I suggest you check out TechCrunch, GigaOM or VentureBeat. They each had great write-ups on the program.

As a note of disclosure, Microsoft is a sponsor of PartnerUp.

I’ve heard people talk many times about what they think is a good predictor for success, but it’s usually the same old thing. Ambition, intelligence, the list goes on. But this is one that I’ve never heard before. Investor Peter Thiel (PayPal, Facebook, Slide) looks at how much a startup CEO pays himself to help him decide, according to TechCrunch.

At first I thought that was kind of an odd variable to focus on, but after thinking about it for a while it started to make perfect sense. A startup CEO who’s rolling in riches will develop a false sense of security in his or her company. When the money is flowing in freely, it’s easy to feel like your business is already a success, but the reality of it is quite different. Low pay drives that hunger to do more to make your business a success.

I’m not advocating for the type of pay that results in a hungry, homeless entrepreneur; I mean, come on, these people may have families to take care of. But what I think is a bit ridiculous is a startup CEO making more that $100-150k a year running a company that has yet to show signs of success or longevity. Couldn’t some of that excess money be put toward growing the business?

What Thiel is saying is that “it goes to whether the mission of the company is to build something new or just collect paychecks.”

There are many variables that contribute to business successes and failures. So many in fact that choosing one as the sole reason you succeed or fail is impossible. There is, however, one variable that can have an immense impact on the future of your business—industry.

The industry that you choose to start your business in is critical to your chances of success, which is why it’s important to choose wisely. So how do you know which one is right for you?

I read recently that there are two main factors that need to be taken into consideration. First, how much experience do you have within a particular industry? Second, which industries are ripe for young, fledgling startups?

Research has shown that high performance among startups directly correlates with more years of experience, so it pays to start your business in an industry that you’re familiar with. In addition, there’s evidence that startups can sink or swim depending on the industry. In young industries your competitors, even if they’re ahead of you, aren’t so far ahead that you can’t quickly catch up. Technology intensive industries are constantly changing, making it easier to build upon an existing idea and undermine any advantages that your competitors may have. It’s also helpful to look for businesses that don’t require you to raise a ton of capital, something difficult for a startup to do.

If you have a good amount of experience in a ripe industry, then the odds are in your favor. If you have little to no experience in an already established industry, then your chances of success will drop and you may want to reconsider your options. Don’t let this scare you or give you a false sense of security. Just know that, good or bad, these are the odds you have to work with.