Joshua Saunders

I was just sent an article on making the jump from a full-time job to starting your own business.  It is written by a founder of a new startup called Nutshell Mail.  Very good article, suggested reading for all of you contemplating the same things.  I have pasted it below in its entirety.

A Check List: Considering Leaving Your Day Job?

If you are considering leaving your day job to start your own business, there are some serious questions you must ask yourself. I did not erratically jump ship when I got bit by the entrepreneur bug. Before leaving my 9-5 (or rather my 8am-1am finance gig), I made sure that I assessed the risks and weighed the benefits.

If you think coming up with the idea is the hard part, you are mistaken. Certainly good ideas don’t come along everyday, but I can promise you that conceiving the idea is actually the easiest part. The process for determining if you should go off on your own is long, hard, and involves some serious introspective examination.

In general, investors look at three types of risks: 1) Market Risk, 2) Technology Risk, and 3) Execution Risk. When determining if you should go into business for yourself, you should weigh the same questions.

The first two are obvious. To quantify market risk, you need to ask “Is my concept/idea/product marketable?” “Does it solve a real problem?” “Will people pay for it or can I find a way to monetize it?” Most importantly, “Is this something that I need?” , “Will I use it?” To address the technology risk considerations you need to ask “Can this be done?” “Can I build it or find people to build it?” Both require extensive due diligence, and I personally spent a long time researching and writing everything down into a draft business plan before even considering leaving my job. Writing a business plan is a painful but critical step. (More on that to come later)

However, the third type of risk: Execution Risk can not be quantified by typical research. It involves serious self examination, understanding your personal limitations, financial situation and relationships with family and friends. To help you determine if you are ready to go off on your own, I have created a check list of questions I asked myself before submitting my letter of resignation:

1) Do I have an entrepreneur’s personality?

An entrepreneur is a person who thrives under pressure, enjoys challenges and is self-motivated. You must be a high-energy person who is not afraid of hard work and long hours. Passion is a must. If you are not passionate about your business, you will find it hard to wake up every morning.

2) Am I willing to make sacrifices?

Becoming an entrepreneur can flip your life upside down and usually involves sacrificing customary ways of life and creature comforts. It is about more than cutting back on luxuries and discretionary expenses. For some, it even means moving in with Mom and Dad. The strain can affect relationships; girlfriends, boyfriends, wives, husbands, and best friends can be lost. When you become committed to realizing your dream, you may find yourself alienated from those who are central to your life. Balancing work and life becomes much more difficult and you have to be prepared to accept that.

3) Do I have the proper support system?

Not every entrepreneur is fortunate enough to have a strong family, supportive spouse, or rich aunt. But every entrepreneur must be aware of the role the people in their lives will play and how their startup will affect those individuals. You must consider your family and loved ones when starting your own business as it will most certainly affect their lives as well.

4) Do I have the financial resources to quit my job?

Many experts say you must have a least one year of salary saved up before even considering going off on your own. If you have significant financial obligations, dependents, or responsibilities you can not give up, you better make sure you can meet those commitments in the absence of steady income.

5) Do I interact well with others?

An entrepreneur is someone who can find answers to difficult answers. To find those answers you must be able to interact well with others, convince them to help you, and if you are good, make them want to help you. This is also crucial for building your team, attracting investors, and most importantly acquiring and retaining customers.

6) Can I trust others?

An entrepreneur must wear many hats, but you can not do everything. Those who try, typically fail. Those who are able to find the right people and delegate task have a much better chance to succeed. To be successful you must not only delegate but also inspire. This often means letting go of the reins, trusting in others, and making sure everyone’s mission and interests are aligned.

7) Am I confident in my abilities?

There is a fine line between confidence and cockiness; and, optimism and stupidity. You will experience ups and downs, successes and failures. To succeed, however, you must be resilient and, in general, positive. You can learn many things on the fly, a key trait of most successful business people. But you must also have a core skill set that you can use as a base. Experience in the industry you enter, is not a must, but it is a huge positive. The most important aspect, however, is trusting in your abilities, knowing when to ask for help, and believing that you can actually do it.

There are tons of online resources that can help you make this very important decision. However, two of my favorite reads include Founders At Work: Stories of Startup’s Early Days - a compilation of interviews from successful entrepreneurs in the tech and Web2.0 world (a must-read for any internetrepreneur) and Change the Way You See Everything: Through Asset-Based Thinking - one of my favorite inspirational books.

Every business needs good public relations in order to obtain new customers.  Whether you’re a startup or growing small business, getting attention from the media can boost you to the next level.  Having a PR strategy is essneitla to making it to that next level.

I recently read a really good article from Brian Solis, a principal at FutureWorks.  He gives 12 tips to boosting your PR in the new age of public relations.  Read his secrets here.

Everyone has worked for a bad boss, some worse than others.  Effective communication is one of the most critical success factors and goes hand in hand with networking your way to the top.

According to a study by 1400 senior executives by the Ken Blanchard Companies, 43% identified communication skills as the most critical skill set to possess going forward in their corner office roles.   About half of those surveyed said that innappropriate use of communication or listening is the number one mistake today’s leaders make.

Communicate, listen, and learn how to satisfy other people’s needs before your own.

Customer focus is what drives sucessful business.  Time and time again you’ll here people say you need to deliver value to the customer; that’s what sustains business.

There are three types of customer focus:

1. Customer-driven
2. Consumer-driven
3. Formal SIVA

Customer-driven relies on product innovation and closely watching your market segment as well as identifying new customer segments.  Consumer-driven relies on the needs of consumers to drive the marketing strategy.  Every marketing decision relies on consumer wants.  The problem with this approach is that R&D is usually not a focus because new innovation doesn’t ‘always’ lead to successful products.

Lastly, something called the SIVA model formalizes the customer-driven approach using variations on marketing mix.

• Product => Solution
• Promotion => Information
• Price => Value
• Place => Access

When workng around the SIVA model, keep these things in mind:

• Does your product or service solve the customers problem.  Is it a valid solution?
• Does your target market know about the solution?  Disseminating information is critical.  If they do know, do they have the necessary information to make a buying decision?
• Is the customer aware of the value given by the product or service?  Do they know the costs and benefits and what is the overall customer perception of the value, which may differ greatly from the actual value?
• Where can the product or service be found?  How can you make it easy for the customer to find you?

The biggest advice that stands out in my mind is to consider the following:
Is your business market-driven or market-driving?
In the former you are following market trends and sustaining a business.  In the latter you are paving the way and likely to be ahead of competition.  As my old basketball coach used to say: “Anticipation, Anticipation, Anticipation!”  He was talking about where the basketball was going.  I’m talking about where the market is going.

You should never hire someone to write the complete business plan for you. You need to be involved 100% in the plan. After all, its your business and your the one who needs to be passionate about it.

There are dozens of free templates and information you could find online and in books. Use a template and write it out yourself. If you need help writing it, hire a consultant or find someone with experience to help you. You could go to Score for free to get help or pay a consultant who will be able to help you out specifically a lot more.

If you are looking to raise capital for your business and you have never written a business plan before, definately seek outside help from a professional (not Score). A consultant will know exactly what investors are looking for in a plan and can help you shape the plan according to who you are approaching. In addition, a consultant will be able to teach you all about the process of acquiring funding and could assist with the plan/pitch phase. Not to mention they could make good recommendations for advisory board members, attorneys, and possibly utilize their connections with investors.

I recently saw advice from two people online advising people to write the executive summary first.

Any respectable professional who helps entrepreneurs with business plans will always tell you to do the executive summary last, and that’s the way it should be. It is exactly that, a summary. How could you summarize what you don’t know yet? How can you write how much money you need to raise if you haven’t done 3 or 5 year cashflow statements? How can you sell your competitive advantages if you haven’t yet done comprehensive market research? The Executive Summary ALWAYS should be done last.

Innovative opportunities come from many sources.  When thinking of expansion or new products and services to offer, keep in mind the following innovative sources:

• New knowledge discovered by research
• Changes in public opinion or perception
• Demographic shifts
• Industry or market structure changes
• Innovation from a process need
• Incongruity between the actual and possible
• Unexpected events

The best way to think of an idea is to consider things that upset you or cause problems in your daily life. Don’t think of products, think of problems.

Come up with answers to the following:
- What frustrates you?
- What things slow you down or cause bottlenecks?
- In your everyday life, what bothers you?

Answers may be things like:
- I hate standing in a line of 10 grocery carts at the grocery store.
- I hate that stuff doesn’t flush down the toilet
- I hate that I have to take garbage bags out so much to the dumpster
- I hate that when I use an umbrella in the rain, it stays wet when I bring it inside.

Then think of a solution to the problems:
- A product or system which automates or speeds up grocery lines
- A consumer version of a portable trash compactor
- A plastic sleeve that rolls down the umbrella and wipes the excess water off

Start with problems and work your way towards solutions.  You’ll find it is much easier to find a market need by first identifying what the problem is.

It is essential for any business to know their customers.  But do you know who your non-byuers are?  Those people that don’t buy your product or service.  Maybe you aren’t reaching them properly or not at all?  Consider alternative distribution channels.

Maybe the product is not positioned correctly to attract these non-buyers.  Is it worth it to reposition the product?  Would it isolate your current buyers and reduce your revenue?

Is your product or service a luxury good?  Are you pricing possible buyers out of the market?  Or is your product priced to low, and these people perceive your product as cheap?

 All complex problems, but it helps to reverse the roles sometimes and really probe why people are NOT buying from you.

Often the words advertising and marketing are used almost interchangeabley.  While the two functions are related, they are almost complete opposites.

The job of advertising is to sell a solution to a problem.  Advertising primarily creates product awareness, sometimes product knowledge, less often product preference, and more rarely, product purchase.  Advertising can’t close a sale alone.  Moreover, consumers ignore more ads.  Ads (except for about half of the ones during the superbowl) are not creative.  How many car commercials have you seen?  Thousands?  Every car commercial includes a car driving super fast through winding mountains with no other cars on the road.  Well, I live in Chicago, there are no mountains and I am constantly stuck in traffic.  Show me a car commercial with a car not moving stuck in bumper-to-bumper traffic.

Philip Kotler, the marketing genius, suggests asking the following question before using advertising:
Would advertising create more satisfied clients than if our company spent the same money on making a better product, improving customer service, or creating stronger brand experiences?

Always remember, the better the product, the less that has to be spent on advertising, because the best advertising will be done by your customers.

In contrast, marketing is essential to any company.  You begin advertising after you have a product.    Marketing is the prep work to determine what problems exist and where, how you are going to find a solution and what segments of people need this solution.  Marketing is much more than finding creative ways to sell your products.  Marketing is the ability to generate customer value.  The purpose of marketing is to understand your market segment so well that selling isn’t necessary.  Kotler’s definition goes something like this, “Marketing management is the art and science of choosing target markets and getting, keeping, and growing customers through creating, communicating, and delivering superior customer service.”

Marketing is quick to learn and takes a lifetime to master.  But to think that marketing is not essential and ignore it’s importance is like parking your business on train tracks (it’s only a metter of time).  Long-term marketing strategy is the foundation of any successful business.

I recently attended a panel discussion called Meet the Angels.  The panel included four angel investors from different angel networks who spoke about why they invest, what they look for and provided advice on how to pitch your business.  We also saw recent videotaped presentations from entrepreneurs to angel networks, and the presentations were critiqued.  I thought I would provide some advice for those of you who are currently or may in the future look to raise money from angel investors.

Key Factors to Establish Credibility with Angel Investors

1. When presenting, state the problem as early in the presentation as possible, and make sure your presentation includes the solution and execution.  Address how money will be made and a specific sales strategy.  I can’t stress enough that the sales strategy should be specific.
2. You must have the right team in place.  If you don’t have the right team, you should be in the process of getting the right people on board.  Surrounding yourself with other successful businesspeople boosts your credibility enormously.
3. Show a readiness to introduce the product or service to the market.  You can’t be years away from launching.
4. Sell both the idea and the team.  Be excited!  From watching several presentations, I can tell you first hand it makes a huge difference if the entrepreneurs are excited about the business!
5. Have skin in the game.  A definite must.  The entrepreneur has to be assuming risk with the venture.
6. Present a realistic view of the market.  You should know your market intimately.  Narrowly define your target market.  A target market is NOT 20+ year old males, it should include precise demographic and psychographic information.  Be specific.  Understand there are always competitors.  If there aren’t competitors, maybe there is no market.  If there is a problem and truely no competitors, then the status quo is your competitor and use that as a comparable.
7. Numbers always change, but having a well-thought out financial plan is essential.  And if you are already bringing in revenue, show the hard numbers.  Don’t count customers you don’t already have.
8. Evaluate potential exit strategies beyond the most common approaches.  Not every company gets bought out by a Google or Yahoo.  There are hundreds of thousands of businesses that look to grow through acquisitions.  Investors need to know they are getting a good ROI.  Most angels will look for 5X to 10X.  Some won’t even consider your business if you don’t immediately show a 10X return on exit.
9. Raising capital from angels is a learning process.  If an angel or network doesn’t like your business at first, don’t give up.  Keep working at it and show progression.  If you could come back six months later and show you made X development and gained Y additional customers, then it will show your determination.  If the angels still say no, keep working at it, show more progress and come back.  Showing progress in meeting milestones is a big factor that investors look for.
10. Know your needs, your audience and their requirements.  If you need a small amount of capital, consider individual angels, they will move faster than networks.  If you are approaching networks, make sure they have knowledge or interest in your field.  If you have a tech business, don’t approach a life sciences network.  Get an introduction to an angel before asking for money.  If you can get an individual angel to champion your business to the network, it will flow more smoothly.