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Beyond Startup - Are You Stunting the Growth of Your
Home-Based Business?
by Elena Fawkner
If you’ve left the corporate world to strike out on your own in
your own home-based business, you'll be acutely aware that your financial
success is up to you and you alone, perhaps for the first time in your life. For
obvious reasons, therefore, your home-based business is probably run on a
shoestring.
* * *
This means, of course, that you do everything. Although you
are now CEO, you are also secretary, marketing director, receptionist and
gopher. But hey, that’s the way you like it, right? Just as well too since
when you’re just starting out you don’t have much of a choice anyway.
But sooner or later, if you keep doing everything yourself you’ll necessarily
curtail the growth of your business. It will grow to a certain point but no
further because you’re only one person and there are, after all, only 24 hours
in a day.
Now, if you’re satisfied with making a little money on the side, that’s
fine. But if your business is your only source of income, you must move beyond
start-up if you are to become financially successful and avoid stunting the
growth of your business.
This article looks at the growth stages of a typical one-person home-based
business and how to gradually grow your business without being run over in the
process.
INITIAL GROWTH
=> One-(Wo)Man Band
As already stated, when you first start out, you do everything yourself.
You’re both chief cook and bottle-washer. And you can continue like this for
quite some time because, initially, you are unlikely to be fully stretched. This
is exactly what you should be doing.
This is NOT the time to go out and spend money with advertising agencies and
hiring employees. For so long as you CAN do everything yourself and everything
that needs to be done is getting done, this is the most efficient use of your
current resources.
=> Don’t Overcommit Yourself
During this stage, however, it is important to be careful not to overcommit
yourself. You are a fledgling. You must learn to fly like a sparrow before you
can soar like an eagle. So, when you first start out, underpromise and
overdeliver.
Also, don’t embark on an aggressive marketing campaign until you have the
business resources to satisfy the demand you will create. Let your advertising
grow in line with the growth of your business, the addition of employees and
increased financial capacity.
=> Pay Yourself
Be extremely careful with your pricing during this stage also. Make sure you
include a wage for yourself in your overhead costs and add a realistic profit
margin (say 15-20%).
Remember, price equals costs plus profit margin. Costs include direct, indirect
and overhead costs.
=> Profits Belong to Your Business
Plough your profit back into your business. This is most important. This is
where your funds for expansion during the next growth phase of your business
come from. NEVER use your business’s profits to pay personal expenses. This is
what you pay yourself a wage for. Your business’s profit does not belong to
you. It belongs to your business. There IS a difference!
=> Avoid Premature Expenditure
During your shoestring days, look for lower-cost substitutes before incurring
substantial expenditure. For example, don’t go out and buy a new fax machine,
a new answering machine, a new photocopier. Get one of those three in one jobs
that sits on your desktop and only costs a few hundred dollars.
Use a good accounting software program rather than hiring an accountant and hire
from your family first if you need temporary help. Another good idea is to
negotiate with family members to take over some household chores you would
normally do yourself to free your time to work on your business. This works
especially well with pocket-money age children and teenagers.
During times of temporary overload, hire temporary staff from a staffing agency
if no family members or members of your social circle can do the job.
=> The Glass Ceiling
After a while, somewhere between the two year and five year mark, you will
notice that your business is beginning to stagnate. At this point, you've
stretched yourself and your resources as far as they can go. You've hit the
glass ceiling, in other words.
At this point, if you want your business to grow further, you'll have to grow
it. It won't happen as part of an evolutionary process beyond this point.
BEYOND THE GLASS CEILING
=> Hire Permanent Employees
The time to hire permanent employees is when you reach the point that you
can’t complete all tasks alone (or with the help of family members) and/or
your time is worth more than it would cost to hire someone to complete your less
complicated tasks.
Before adding employees, carry out an inventory of the necessary tasks required
to operate your business. Once you’ve identified all necessary tasks, assign
primary responsibility for each task to one person. Although one person will be
assigned more than one task, make sure no two people are assigned the same
tasks.
Also, make sure at least one other person knows how to do each task to cover
yourself during times of staff shortages, whether due to temporary absence due
to illness, or when an employee resigns and it takes you a while to find a
replacement.
Finally, and most importantly, when assigning tasks, assign yourself the tasks
you do best (NOT just what you like to do).
=> Capital
To grow beyond the start-up and initial growth phases, you will need capital to
inject into your business. Now this, unfortunately, is easier said than done.
Banks can be leery of entrepreneurial ventures and venture capital is not easy
to obtain. But, although obtaining borrowed capital is difficult, it is by no
means impossible. Here are the main sources of funds:
* Banks
Cultivate a good relationship with your banker. The more he or she understands
your business and knows you, the more likely it is that your application will be
approved. And this means more than just fronting up when you need money. Keep
your banker informed of all significant developments in your business and
routinely provide copies of your annual business plans.
Be prepared to demonstrate that your business is capable of generating cashflow
and think about what collateral you have available to put up if necessary.
* Venture Capital
In addition to a solid business plan and track record, venture capital providers
want to see that you understand your customers and how your business is a good
fit with their needs. So arm yourself with competitive intelligence and
satisified customers as references. Also, be prepared to show you have access to
experienced management staff. These individuals need not be on your payroll but
you should expect to show that you have a depth of experience and talent
available to you at least in an advisory capacity.
* Revenue Stream
Instead of selling equity to raise capital, consider selling part of the revenue
of the business. In other words, investors advance loan capital and get repaid
by way of a percentage of the sales of the business. This preserves your equity
in the business and is attractive to investors because they receive an immediate
cash return.
This method has the considerable advantage of avoiding securities laws (it's a
loan rather than a sale of securities) but it's only viable for businesses with
high margins and strong sales.
* Angel Capital Electronic Network
ACE-Net brings companies looking for capital together with angel investors. You
can find links to ACE-Net at http://www.sba.gov/ADVO.
* Direct Public Offering
If your business has a strong relationship with its constituents
(employees, customers, vendors and community), consider
selling stock via a direct public offering. The securities laws
involved in such an offering are complex though so be prepared
for some pretty hefty legal fees if going down this road.
* Miscellaneous
Other miscellaneous sources of funding include 401(k) plans and provision of
loan guarantees by the Small Business Administration http://www.sba.gov
family members or friends.
=> Work On the Business, Not In the Business
The third and final point to note about breaking through the glass ceiling is
that you must make the mental transition from working IN the business, to
working ON the business.
Until your business hit the glass ceiling, you were effectively working in the
business, much as an employee would. In this sense, the business was your job, a
place to go to work. But beyond the glass ceiling, your business becomes an
entity unto itself. It is no longer your “job” to work at the tasks that
make up the business’s operation. Instead, your role is to work “on” the
business as a separate entity, leaving the tasks to your paid employees.
Hopefully you can see that shifting your perspective in this way is the key to
the long-term growth of your business and the difference between true autonomy
and indentured servitude.
* * *
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Copyright 2002 by Elena Fawkner
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