For most of my life I have been told, just like many of you, that to have a successful business startup you must have a detailed market research plan, a lengthy business plan, and that your idea must be presentable to the venture capitalist market. These ideas have been instilled in MBAs and other graduates to the point that every wannabe entrepreneur wastes a lot of time trying for the perfect startup as proclaimed by these business teachers.
In the last few years, however, some changes have started to appear to these ideas. The first thing that appeared to me was recognition that the Chinese have an advantage over Western companies because they don’t have a many-layered bureaucracy to go through for a decision. Many times they make a choice on the spot without any further due diligence; this allows them to close many deals before their Western competition and gives the illusion that they are smarter than everyone else. They aren’t necessarily smarter, they just don’t get bogged down in layers of authority.
Then business consultants began telling their clients not to get so involved in checking out their business idea that they let the opportunity go by without action. This is a problem for all home based entrepreneurs; there is so much at stake with a new business idea, including money, the desire to create a successful business, and the possibility of failure, that many people spend too much time trying to get everything in perfect order. This is why opportunities often get lost in the shuffle.
Another thing consultants started saying was to be careful about getting venture capital, at least in the beginning of a startup. The reasoning is that venture capitalists will be constantly in your face always pushing for a quick profit so they can force you to cash out by selling your business. Venture capitalists are great for the later stages of your business when you are making a lot of money and looking for a buyer so you can move on to other ventures.
The final thing that convinced me that most home based entrepreneurs should take their new idea and run with it was finding The One Page Business Plan, by Jim Horan. When I realized Tom Peters, well-known business thinker, actually used this method in several of his businesses, I decided it must be an idea for the future. So much for the elaborate business plans advocated by Harvard.
SMALLER COMPANIES ARE WORTH STARTING
The author of this article uses the example of the MBA course his wife is taking to state the case for smaller startups. Because all the blogs and venture capitalists have flooded cyberspace with ideas like "only focus on $1 billion+ markets" and "ideas aren't worth pursuing if they aren't highly unique and revolutionary," most students don’t have these big ideas ready to go, so most of them probably will go to work for others rather than themselves.
This mindset of discouraging possible entrepreneurs causing them to go after only the most gigantic projects creates problems in the economy. These ideas cause capable people, with excellent problem solving abilities, to be sidetracked away from the entrepreneurial world where they could solve problems and employ many new people; they are job creators who have been silenced by all this big market stuff. The reality is that a business that will only grow to a few million dollars in sales each year is still a big deal and creates wealth for many people.
Those budding entrepreneurs who realize how significant a million dollar per year business is, still may have the problem of not having a significant idea. Often, an entrepreneur can improve on the business model of an existing company; there may be opportunities to enhance existing products or services. You could find that potential customers prefer your better products over those of an existing company so that you will be able to cut a little market share for your new company.
To start a million dollar a year company, all you need to do is find some problem you can solve that people are willing to pay for. Any idea that improves on existing ideas is a possibility for a business. Keep a list of 15 or so problems you would like to solve that could possibly turn into businesses. On the list should be problems that have frustrated you and your friends. Any of these could turn into million dollar a year businesses creating jobs and improved conditions for everyone. This is the same idea conveyed by Zig Ziglar when he said, “You can have everything in life you want, if you will just help other people get what they want.”
In addition to destroying the dreams of budding MBAs, the author says emphasis on very large amounts of money tends to direct students toward the idea they need venture capital to start their business. This is not true for many small startups because venture capitalists stay in your face urging companies to make ever-increasing amounts of money so the bottom line constantly improves. In the act of doing this, the venture capitalists take away the ideas and goals of those founding the small startup.
For this reason, many consultants think startups should bootstrap themselves until they are obviously certain they have a going concern. To get involved with big finance too early subjects the small entrepreneur to the possibility of losing control of the new business, and further, being involved with venture capitalists too soon distracts an entrepreneur from his primary duties of improving his product and carving out a market share.
WHO MIGHT START A MILLION DOLLAR-A-YEAR COMPANY
This article emphasizes the fact that you don’t have to live in Silicon Valley or other locations on the computer fertile West Coast to have a great business idea and bring it into being. Budding entrepreneurs should take heart from the examples of Bill Gates and Mark Zuckerberg; Gates started Microsoft in his home, and Zuckerberg pushed Facebook from his dorm room. Both started as true home based businesses, so you can see home based entrepreneurs have a real shot at being very successful.
We will discuss a number of unusual startups that turned into million dollar earners, and, at the end, we will show you a plan to build your own million dollar success story.
Firehous Subs
Firehouse Subs was started in Florida, in 1994, by two brothers whose family history in firefighting went back some 200 years. Today they have over 500 franchise locations and 2011 revenue was $285 million. They got their startup capital using credit cards from several in-laws. The company specializes in hot sub sandwiches with firehouse names.
The company believes their success comes from the community. As a result of this thinking, in 2005 they founded the Firehouse Subs Public Safety Foundation. The Foundation provides funding, life-saving equipment, disaster assistance, and educational opportunities for first responders and public safety organizations.
Two Men And A Truck
This company is a large local moving company. It originated in the early 1980s when two high school students, brothers, began using their pickup truck to do odd jobs like hauling trash and moving furniture for customers. When they left for college, the phone continued to ring, so mother hired two men and bought a $350 truck. Though she treated the business as a hobby, and she continued working for a while with the State of Michigan. Incidentally, that $350 for the truck was the only investment the family ever made.
Once Mom made the decision to franchise, the company really took off. Now there are 224 locations with revenue of $220 million. It is the largest local moving business in the US. The company will move one appliance or an entire office building.
Life Is Good
This company had a rough time getting going. The owners made their first shirts in 1989 and tried to sell them up and down the East Coast for five years with very little success.
All this changed in 1994 when they began to use the figure of Jake, a cartoon character, along with their motto, “Life is good.” Somehow this connected with people and sales accelerated. Jake and the motto are now on many products including towels, totes, coffee mugs, and dog leashes. Sales have grown to over $100 million in 2011.
The company recently formed a relationship with Hallmark Cards, Inc. This will eventually broaden their market into Canada and the Caribbean countries.
Spanx
One night, to solve a clothing problem, the entrepreneur behind Spanx (http://www.spanx.com/home/index.jsp) cut off the bottoms of her pantyhose, and the idea for footless pantyhose was born. With $5,000 from her savings, she researched and wrote a patent for the new pantyhose. It was difficult to find a producer, but she finally found a North Carolina mill owner who would help her, and Spanx was off and running. In 2000 she sold 50,000 pairs from her apartment; now, sales are estimated at about $250 million.
The company now sells a line of products that includes slimming apparel, swimsuits, bras, activewear, and men’s undershirts. Spanx products can now be found in over 40 countries worldwide.
Meet Me
Three siblings created myYearbook, which is now Meet Me (http://www.meetme.com/). They had recently moved to a new high school, and myYearbook was their idea of how to meet new friends. Their older brother helped them start the company in 2005; after only nine months there were 1 million users of myYearbook. Soon, the company graduated from high school and started to be used by the general public. In 2011 Quepasa bought myYearbook for $100 million and changed the name to MeetMe; when the merger with Quepasa is complete, there may be as many as 80 million users.
MeetMe strives to be the leader for social discovery.
They do this by providing fun things like games and apps on the Web or on mobile devices. Using these methods, on MeetMe you can do these things:
- Browse Locals to meet great people near you.
- Find out what everyone's up to in the Feed.
- Video chat and play games with new friends in Live Time.
- Earn Lunch Money playing dozens of Games.
- Play many more social games!
In this report Tim Ferriss, author of The 4-Hour Workweek, and a friend present a detailed plan of how to create a million dollar business in one weekend.
The plan is described in four steps. We will briefly tell you about them and you can go to the report for all the details. The mission is to show how you can get a $1,000,000 business idea going in one weekend. One of the authors has done this several times exactly as he describes. His view is that most business ideas do not require you to spend a lot of time building the foundation. One of his ideas developed over a weekend grew to more than a million dollars in a year.
The purpose of the quick beginning is to keep you from wasting a lot of time perfecting a product and then find that nobody wants it. Using the plan, you develop only a simple essence of your item.
First Step
This is where you determine what your profitable idea really is. What you are looking for is something a lot of people are willing to spend money to get. Write a list of ideas you think could be profitable; if you have trouble with ideas, try these ways to find them:
- Find top sellers on Amazon and develop a complementary
product. An example is making a fancy case for a mobile electronic
device.
- Think of things you use frequently but always complain about, then develop a better product.
- Look at sold listings on eBay. In addition to product ideas, you get an idea of prices.
- See what people are looking for on Craigslist.
- Check the Question and Answer section on LinkedIn for user problems that can be solved by a new product.
Here is where you try to find a million dollars worth of customers. Some ways to do this:
- Search Google Trends using terms for your product.
- Google Insights separates your search by location, date, and what people are looking for.
- Look at the number of people searching Facebook ads for your product.
- Look at the main report to see how you can use some other large Web company to develop complimentary products for their items.
- The main article also shows how to develop a Google Spreadsheet to examine prime business aspects of your competitors.
This is where you to try to determine your customer’s value to your new product. One of the authors used the example of a Chihuahua dog to see what a customer might be worth. Here’s how he did this:
How much does a Chihuahua cost to buy?
What is the cost to maintain a Chihuahua, meaning food, veterinary cost, and other recurring expenses?
Find the life expectancy of a Chihuahua to determine how many times these costs will recur.
Add these costs to estimate what a Chihuahua owner is worth to your new Chihuahua product.
With this information you can determine the Total Available Market formula (TAM). To estimate your new product’s potential use this formula:
(Number of available customers) x (Value of each customer) = TAM
When your TAM is more than $1,000,000, you have a potential winner–you are ready to start getting your business off the ground.
Fourth Step
Now that you know you have a potential $1,000,000 idea, it’s time to see if customers will actually pay for your new product. This is called validation. Here are some ways to validate your product:
- Drive traffic to a sales page where you can see how much
interest there is in your new idea and possibly collect a few e-mail
addresses. You can see a sales page the author used in the main article,
and you can host it on Wordpress for free. Using this method you are
just determining interest and gathering data about your potential
customers. You are not trying to make sales at this point.
- One of the authors e-mails 10 people he knows and asks them
to buy his non-existent new product via PayPal. Those who send money
help determine how much interest there is in the new idea. He refunds
the money to his friends because the effort here is not to make sales
but to determine interest in the new venture.
- There are other ways to validate demand for your product like leaving samples in shops to see how many people will buy.
We have discussed a number of actual examples of million dollar businesses that started very small, often from a home or college dormitory, and quickly grew to multi-million dollar enterprises. These companies made it big largely without venture capital money. We have also talked about how business schools overplay the importance of thinking big, in terms of billions of dollars, rather than acknowledging the significance of $1,000,000 startups.
Also discussed was an actual plan used to start several million dollar ideas from scratch.
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