Eric Egeland, CPCU, AU, President, Capacity Consulting, Inc.
Have you ever wondered how many times you have tried to do something half-way, only to discover that it would have been easier if done the right way from the very beginning?
My daughter hates to read instructions. She will build a model or assemble a new toy by “intuition.”Sometimes she goes forward one step and back two throughout the entire building process. Sometimes she spends hours with no glitch until she gets to the end and has to take the entire project apart because she made one mistake early one. I can’t tell you how many times she has done this. Her particular affliction might be laziness, pride, or maybe she just likes the challenge and discovery of it all.
On the other hand, I am guilty of doing similar things due to being cheap. When I was 23 and bought my first house, I decided I would shovel the driveway instead of paying to have it plowed. A slipped disc and many blisters later, I learned that was not the most efficient choice. Later, I would build things instead of buying them. Each one ended up costing twice the money and 10 times as much time, along with the added insult (and monetary pain) of having to eventually buy the thing in the end anyway.
The Small Business Administration (SBA) has done multiple studies that say approximately half of new businesses fail. I have also read dozens of top 10 lists outlining the reasons that new businesses fail. Every single item on those lists traces back to poor planning and preparation. Like me and my daughter, entrepreneurs jump into their startup idea and just start DOING. Some do it because they are too lazy to plan and it’s just more fun to start shooting. Others know they have to plan but don’t know how to use it and are too cheap or broke to pay someone to help them. In a recent poll I distributed, 50 percent of the respondents said shooting from the hip cost them between $10,000 and $20,000, and some even more.
Most entrepreneurs go forward before thoroughly assessing their startup idea. How much has shooting from the hip cost them? Most likely it’s tens of thousands of dollars.
Okay, so what do you do if you’re planning to launch a business?
Everyone always talks about “the business plan,” which is fine, as long as there actually is one. There are people you can hire to do a generic plan, software, templates, and millions of articles and advice. But the real value of a business plan is not the pretty spiral bound report at the end. Sure, that is what you need to get a loan. But for purposes of really understanding your business and possibly gaining a venture capital investment, the finished product is of little value.
It’s the process of doing the plan that provides the value. The only way to truly prepare to start a business correctly is to have a professional walk you through a Feasibility Study (psychographics, SWOT, competition, Performa’s, etc.) and force you to answer all the tough questions about your business. The questions you can’t answer are the most valuable. They will force you to do research and engage in the dreaded “gut check” where you are faced with a negative you didn’t want to know existed.
These are the questions that make you work harder and which raise the self-doubt needed to really give you an intimate understanding of your business and all the outside influences. You will know the six different things that can happen, the odds of each happening, and what to do for every one of them. You will be prepared for the things that pop up instead of being surprised. You will be calm and in control instead of twisting your guts every night worrying. You will have the next closest thing to a crystal ball for your startup. Your funding package will be as bullet proof as possible. You will be empowered in knowing exactly what to do and why you should do it. That is the power.
Efficiency and Value
What the SBA studies don’t tell you about the failed businesses is that those entrepreneurs are typically destroyed both emotionally and financially with no insurance and a huge pile of debt. Our studies show that most waste between $20,000 and $40,000, plus months to years of wasted time “shooting from the hip” before they ultimately fail.
I had an interesting “debate” with a forty time serial entrepreneur on LinkedIn last week. He responded in disagreement with my initial posting about how bad it is to shoot from the hip. To summarize our lengthy chat, he was basically saying that taking the whim and chance out of startups is both unrealistic and stifling to creativity and enthusiasm. He saw the process I described above as a bureaucratic waste of time.
I always say most fights and divorces are caused by misunderstandings. I clarified that my intent was not to stifle anything. A good feasibility study and business plan simply helps entrepreneurs who don’t have the experience of someone who has done it 40 times, as my new friend had. Most importantly, if the “doing” process is done in an educational way, the entrepreneur emerges prepared for battle. They are trained to swat down objections with well thought out and articulate answers. Even if they get an objection they haven’t specifically trained for, their basic training kicks in and they are able to defend their business. If these studies can prevent entrepreneurs from making one mistake without losing the lesson that mistake has taught them, then they have improved their chances, been better educated, and saved money. And ultimately, that’s the goal.
Eric Egeland, CPCU, AU is the president of Capacity Consulting Inc. who provides strategic consulting for multiple industries including insurance, real estate, education, energy, and internet. He has personally created ten successful start-ups, including seven insurance groups, and has consulted on hundreds of projects, closures, startups, plans, assessments, turnarounds, and reorganizations. He can be reached at[email protected] and by phone at 845-430-1347.
