Words by Lara Avery + Lee Hall // Illustration by Leigh Luna
When Teresa Fox and Arwyn Birch saw an empty dry cleaners they could fill with donuts, they got to work. They followed the guidelines put out by the Minnesota chapter of the federal Small Business Administration, they secured a spot in an up-and-coming neighborhood, and they drafted a solid business plan for Glam Doll Donuts.
But then the bank denied the pair a loan. Teresa and Arwyn were shocked. Rejected, heartbroken, and jobless, they looked for help.
Lee Hall, director of finance at Metropolitan Consortium of Community Developers, was one of the first people who really “got” Glam Doll. As the former owner of several coffee shops, he had faith in the pair’s interest in creating ambiance as much as product, in cultivating experience as much as taste. He reminded them they needed to translate their concept so loan officers could understand it, too. “You’ve got to use bank language,” he told them. Lee worked free of charge to help the women edit their plan, just as members of his community of nonprofits have done for countless others in Minnesota.
While Teresa and Arwyn may be two years into owning their own business, the duo still turns to Hall for advice on questions that crop up. Here, the director of finance shares his 10 top tips for people looking to open up their own small business.
10 Tips for Smart & Savvy Entrepreneurs
Know who your customer is
Every other decision you make for the business — from location, to layout, to product quality, to price point — should refer back to this first question. Be specific about who your customer is, what they like, what they do. If you think your customer is everyone, how can you possibly appeal to everyone?
Know your competition
Consider not only direct competitors — another business offering the same or similar products – but also indirect competition from businesses that offer an alternative. If you run a taxi business, the other taxi business in town is competing for your customers, but so is the bus service.
Know why customers will choose your business
What sets you apart? What specifically appeals to the customers you identified? You don’t have to attract every customer, every time, but why will some of them buy from you at least some of the time? If your answer is, “Because we make the best product.” Or, “We provide the best customer service,” ask yourself: How will you get customers in the door in the first place so you can show them that?
Know how much you really need to start
Undercapitalization is one of the most common reasons cited for business failure, and the only thing harder than borrowing money to start a business is borrowing more money six months in. Be sure you know what you need to get the doors open, but also what you’ll need to keep them open while you build towards profitability.
You don’t have to do it all yourself
You might be the one whose name is on the door, on the lease, and on the loan documents, but that doesn’t mean you have to do everything yourself. You might make the best product on the market, but if you can’t sell, no one will know it. Your business will only be as strong as the weakest element, so know what you are good at and what you like to do. Find a partner or professional support for everything else.
Figure out ownership and roles in the business up front
Partnerships are like dating. In the beginning everyone is on their best behavior; but what happens over time when things get challenging? Who is responsible for what tasks, and how is everyone compensated? Early on while everyone is still agreeable, draft a member/partnership agreement. You can’t address every possible scenario up front, but cover the things you can anticipate. Most importantly, decide up front how you will resolve the disagreements you can’t anticipate.
Know why you’re doing this
Entrepreneurship is a lifestyle choice; it often requires long hours, and in many cases very little pay. Be passionate about the business you choose. Make sure that you go in eyes open to the risks, and that your family/partner is supportive. If you need certainty and stability, regular hours, and regular pay, you are most likely better off getting a job.
Know your costs
There’s an old business joke: We lose money on every transaction, but we make it up on volume. You need to know what it really costs you to deliver your product or service to price appropriately. You also need to know how many sales it takes to break even. Knowing where breakeven is will help you evaluate if the business is viable before you start, and gauge if it’s working over time.
Know what success looks like
Businesses don’t start on the Fortune 500. It’s okay to start small. You may want a 200 seat fine dining establishment, but there’s nothing wrong starting with a food truck to learn the business and build equity. Just keep in mind where you are trying to go and plan accordingly. It may be counterproductive to minimize profits for tax purposes today if you are hoping to borrow money (or sell) down the road.
Know when to quit
This is the hardest thing for entrepreneurs. You pour all your time and money into a business, and your identity and pride gets wrapped up in its success. Not every business is profitable out of the gate, and many will face challenges along the way. You need to unemotionally evaluate if there is light at the end of the tunnel or if the venture just isn’t working. If so, get out on your terms. Too many entrepreneurs cling to failing models out of pride and fear, borrowing more money and getting further behind until they are finally forced out of business.