Businesses can’t function without making money. So when you plan yours, you’ll have to think through the different ways that it will make money. And of course, you don’t want to just make money, you’d like to be profitable as well. That means you want to bring in more revenue from products or services than you spend on your costs.
When you’re thinking this through initially, it’s important to think about your initial costs, as well as your ongoing costs. Will you have to buy equipment, furniture, display cases, or supplies in order to start your operation? Those go into your initial outlay, even before you can make any money.
Then there’s the product or service you’ll be selling. Will you have to buy that? If your products are made-to-order, one way to help you fund the initial orders is to have customers pay in advance. This is what made Michael Dell’s company unique. Most computer companies at the time would let you order what they already had created. Dell created the computer once you ordered, which gave them the cash to buy parts and assemble it before you got it.
Thinking about what your price will be is another important part of the business model. About.com has an interesting analysis of the break-even point of a business - that point where you’ve made back what you initially put into the business before making any profits – definitely worth a read.
An interesting take on business models comes from Silicon Valley venture capitalist Steve Blank, who favors business models over business plans for early stage companies. In “No Plan Survives First Contact with Customers” he notes that he believes in writing a plan (which we definitely recommend here at Wicked Start) since it forces you to think through all aspects of your business. But, he says, “a business model is designed to be rapidly changed to reflect what you find outside the building in talking to customers. It’s dynamic.” One company that spoke to him, instead of spending time on a business plan “Took their business model and got out of the building to gather feedback on their critical hypotheses (revenue model, pricing, sales, marketing, customer acquisition cost, etc.).” This team was able to obtain seed funding offerings.
So, think carefully about how you’ll approach your business model ideas – if you get a good model before you start, it can make all the difference.
Are you more likely to start a small business if you know other entrepreneurs? According to a recent Ewing Marion Kauffman Foundation survey, the answer is yes—and that’s good news for our nation’s economy. The study, Getting the Bug: Is (Growth) Entrepreneurship Contagious?, polled 2,000 Americans nationwide to ask whether they knew any business owners (and, more specifically, “growth” entrepreneurs) and whether they were also business owners.
The study found that more than one-third (36.7 percent) of respondents knew an entrepreneur, but just 15.4 percent knew a growth entrepreneur. Men were more likely than women to know growth entrepreneurs (24.8 percent vs. 12.1 percent). People with lower incomes (below $24,999 annually) were more likely to know entrepreneurs in general (48.1 percent) but less likely to know growth entrepreneurs (13.8 percent). In contrast, 26.7 percent of higher-income respondents knew a growth entrepreneur.
Overall, the study found, those who know entrepreneurs are more likely to own businesses themselves. Nearly 40 percent of respondents who knew a growth entrepreneur were entrepreneurs themselves, as were 35.5 percent of those who knew entrepreneurs overall.
The study’s goal was to see whether entrepreneurship is an “imitative behavior,” and its findings seem to suggest that it is. That means exposing more people to entrepreneurship could have significant effects on increasing the number of business startups and of growth businesses in particular.
This study’s findings don’t surprise me one bit. Coming from a family of business owners had a huge effect on me—even though I didn’t start my business until later in life, I have been writing about and working with entrepreneurs for most of my adult career. It only makes sense that those who are aware of entrepreneurship as a career path would be more likely to follow it.
These findings have big implications for how small business owners can help others start and grow their businesses. Simply by talking about your business and what you do, you could inspire someone to start a business of their own. The effect can be even bigger when you’re dealing with young people or people who aren’t exposed to growth entrepreneurs in the course of their daily lives. What else can you do to help? Here are some ideas:
As small business owners we know it takes the effort of many people to help our businesses grow. By helping encourage others to follow the path of entrepreneurship, we can give back a little of what was given to us.
Speaking of encouragement, SCORE mentors are among the best examples I know of those who help small business grow. Don’t have a mentor? Visit www.score.org to learn more and get matched with one.