General Business and Finance Blog

The idea of starting a business is alluring to so many people.  There is the vision of wealth, providing opportunities and security.  Also there is pride and purpose- knowing what you’re doing is for you and your family.  And of course, one of the most appealing reasons is the freedom of being able to work from home and choose your own hours.  

These visions are wonderful and, in many cases, attainable.  In fact, according to the U.S. Department of Commerce, there are over 17.6 million businesses with one or more owners but no paid employees.      

So why are so many aspiring entrepreneurs left on the sidelines? 

It turns out, there are three reasons.  One, as you can imagine, is good old fashioned fear.  Fear of the unknown.  Fear of failure.  Believe it or not, fear of success.  The second reason is a lack of knowledge.  “Where do I start?” “I don’t have enough resources.”  “I don’t know anything about marketing.” And the third reason, which I will be discussing in this article, is about the business idea, itself. 

Business Idea Paralysis

What is business idea paralysis?  Quite simply, it’s a condition that prevents people from starting a business because they get held back in the idea generation stage.  Basically, they are stuck in neutral.  Below are the two most common reasons why:

 The Pet Rock Syndrome

In 1975 a gentleman named Gary Dahl created a product called the pet rock.  Many of you have probably heard of it.  In case you haven’t, it was nothing more than a rock set in a box on some straw.  Within 6 months, Dahl had sold over 5 million of these pet rocks for $3.95 each.  It cost him less than 30 cents to produce the rock.  So, when you do some basic number crunching, he made over 15 million dollars in just 6 months – selling rocks.   

What does this have to do with anything?  Well, quite a bit actually.  Imagine how much your life would change if you could sell something as simple as a rock and become a multi-millionaire in just 6 months.  Pretty tantalizing isn’t it?  Unfortunately, it has tantalized people so much that they never end up starting a business.  They only end up chasing their own “pet rock” gimmicks that never catch on.

The reason is simple.  Some people just haven’t been blessed by the idea gods.  The gods have failed to spring upon them the multi-million dollar idea that they believe they need.    No matter how hard they try to come up with the next pet rock, they can’t.  If you don’t believe me, take a look at how many get-rich-quick schemes are being sold today.  If people can’t think of the next great idea, then they will buy the idea from someone else.  Well, guess what?  It doesn’t work.  Mr. Dahl was an aberration.  He hit the winning lottery ticket.  Chances are you won’t.

After you have wiped the pet rock syndrome from your head, beware of the next, equally as paralyzing syndrome that can keep you from getting to business with real, tangible ideas. 

Peace, Love and Happiness Syndrome

On the other end of the spectrum we have the peace, love and happiness camp.  This group is a little more realistic in their pursuit of a business idea.  Their problem, however, is that they love too many business ideas.  In fact, they love them so much that they can’t decide on the best one.  They become paralyzed by trying to figure out which idea is best, and ultimately, never try any of them.

These types of people, I have found, are extremely visionary.  They love to explore all of the different business angles and long term visions.  The problem is they don’t take action because their heads are filled with amazing ideas and forecasts for success.

If you fall into this camp, I have bit of advice.  Stop it!  You need to choose an idea and then let your mind run wild within the boundaries of that idea.

How Do You Find the Right Business Idea?

There are two schools of thought on how to come up with the right business idea.  I’ll discuss them below:

The Traditional Approach

The traditional theory for finding the right business idea states that you should find a need and fill it.  In other words, you need to pay attention to your surroundings and look to see where there might be an opportunity to offer a new product or service that people may need.  Once you do, that’s what you will build your business around. 

There is no question that this method of generating business ideas work.  It has led to many great inventions and innovations over the years.   It is for this reason that pharmaceutical companies make billions of dollars.  They develop new drugs to satisfy a need, such as a heart condition.  You can also see the traditional approach at play with today’s green technologies.  New, “green” businesses are trying to fill the need for clean, renewable energy.

There is one problem with this method, however.  It can be quite expensive and time consuming.  First, you have to develop the product or service.  This includes spending a lot of time and money on market research and sampling.  Second, you have to spend a lot of money on marketing to not only introduce the product or service, but to also convince people that they really do need it. 

If you’re a typical entrepreneur with limited funds and expertise, this may not be the best method of generating business ideas. 

The Give Them What They Want Approach

There is a second school of thought about coming up with a business idea that in many ways is far less risky and is much less expensive.  This theory is based on the idea that you should come up with an idea that already exists.  Or, simply put, offer people a product or service that they are already buying. 

Wait a minute, you may say, but doesn’t that mean there is more competition?  Isn’t the market already saturated?   Um, I would reply, tell that to Netflix. 

In 1997 the originator of Netflix reportedly hit upon the idea for movie rental-by-mail when he was forced to pay $40 in fines after returning an overdue videotape of the film Apollo 13.  Renting movies was not a new business “need” that needed to be satisfied.  In fact, Blockbuster had been renting movies for over 10 years, and in 1998 had served nearly 60 million people who rented more than 970 million movies and video games.  Netflix took a proven market (movie rentals) and simply enhanced the service by offering movie rentals by mail, with no late fees.  The result:  today, Netflix has over 10 million monthly subscribers while generating  an annual revenue of over 1 billion dollars.  Blockbuster, on the other hand, is struggling to stay afloat. 

The point is that if you know what people are buying, a good business idea is nothing more than simply enhancing the product or service and/or marketing message.  It’s a lot less risky and more often than not, a lot less expensive. 

My neighbor asked me, “Why would anyone sell a successful company?”. He could not understand why anyone would leave a business that was doing well. Of course successful companies get sold all the time.

So why do these business owners sell? The short answer is that most closely held businesses sell for human reasons, such as burn out, retirement, illness, partnership disputes, family issues or other personal reasons. Usually the business is fine but the human being running the business needs a change. To understand this better it is key to understand the other options for exiting a business.

Close the Business/Liquidation

Closing a business that is profitable never makes sense. Even if the assets are liquidated the price is likely to be pennies on the dollar versus selling the business as a going concern with employees, customers and a reputation that is intact. Not only does the business owner get the lowest value but the employees, vendors and customers are hurt by this type of exit.

Accident, Illness or Death

No one wants to exit their business this way, but many do. The loss of an owner not only creates tremendous issues for the family but also creates a leadership void in the business. Even the most competent management can struggle when a key business leader is lost to a serious accident, illness or death. No one plans for this type of exit but many end up exiting the business this way because they failed to create an alternate plan.

Succession

Succession by a family member or key employee has its benefits. They know the business, its product or service, employees, customers and vendors. Succession can be operationally successful for the exiting owner if they make sure the successor is carefully selected, qualified and groomed for the position. The owner must be careful not to make an emotional choice of a relative or favorite employee but instead choose the successor with the right skills to lead the company into the future. You are not seeking an “Employee” mentality but an “Owner” mentality. If that rare person can be found in the business who can make the transition to Owner, they often do not have the cash needed to purchase the business. They are also likely to want to pay less for the business as familiarity will blind them to many of the value drivers of the company. So although succession can be operationally successful it is rarely a financial success for the outgoing owner.

Sell

Closing or liquidating the business minimizes the value to the owner. Accident, illness or death forces the issue on the owner. Succession provided a very limited pool of options with limited financial reward.

Selling on the other hand allows the business owner to decide their ideal timing, maximize the value of the business they worked so hard to build, coordinate the use of the sale proceeds for financial planning and align their personal goals with the sale of a business. Selling the business allows the business owner to create a wealth event and often significant on-going passive income without having to run their business.

Whatever they are, human reasons are always pushing and pulling on a business owner. Burn out, stress, divorce, illness, partner disputes and limited growth capital are some of the human reasons that push owners out of the business. Retirement, enjoying life, relocating, a new business opportunity and passive income are some of the reasons that pull a business owner out. Whatever the motivation, the fundamental reason a business owner chooses a sale as their ideal exit plan is control. The business owner chooses to understand the value of their business and to proactively pursue the right buyer and the right price. By selling a business you choose to exit your business by choice, not by force.

The professional team at Sunbelt Midwest can help you confidentially sell or buy a business in Minneapolis, Milwaukee, Chicago, and surrounding areas. For more information check out our site at http://www.sunbeltmidwest.com.

Contractor accountant specialists Danbro got off to a racing start with a “getting to know you” event for recruitment agencies.

Many of Danbro’s contractor – or freelance – clients work through recruitment agencies and the Blackpool-based company already has close links with a number of these companies.

On 2 September, Danbro took an innovative step to help it explore ways of working more closely with recruitment agencies, to further improve services to their mutual clients, by inviting agency representatives to the Donnington Park race track in Derbyshire.

The Donnington Park MSVR Blast in the Park Championships featured a packed programme of motor racing entertainment, including two rounds of the British T Car Championship for 14 to 17-year-olds.

Danbro was supporting 16-year-old Joe Hopkins, who stands equal second in the championship points table after the Donnington Park event.

Damian Broughton, from Danbro, said: “We were delighted to welcome around 35 representatives from 11 different recruitment agencies – both new and existing contacts – to Donnington Park.

“We had a very successful day, which has proved extremely useful in building bridges with recruitment agencies towards our shared aim of giving our contractor clients the best possible service. We are delighted to have achieved such a positive and productive result.”

For more information, please contact Danbro on 01253 600140 or visit our website Danbro – Accountants for Contractors