Today’s post is a little different from the kind of information we usually share about online marketing. Recently Massimo and I have been teaching a lot. Some of our students have been new entrepreneurs or professionals contemplating leaving corporate jobs to start their own consultancies. The following are pieces of advice and related resources.
1. Local & Other Resources for Small Businesses
SCORE (Service Corps of Retired Executives) and The San Jose Entrepreneur Center have helpful resources for new businesses in Silicon Valley. There are several workshops and counselors available to help you think through your value proposition and how to set up the infrastructure to a viable business.
I highly recommend reading The E Myth Revisited by Michael Gerber. There are several eye-opening factors to consider. Sadly, a large percentage of new business ventures fail within the first five years. When you understand the typical weaknesses you can address them.
2. Questions to Ask When Forming an Alliance or Partnership
When forming our business, both Massimo and I created a list of ten values that we wanted to uphold in our business. Individually we did a priority sort and compared our results. It prompted a very interesting discussion. By the way, integrity was at the top of each of our lists and was non-negotiable for both of us. Definitely a good sign. And it’s served us well over the years.
During the formation process, we also discussed how we would handle managing our business relationship. Like a marriage, it takes work, communication and commitment. For a more formal type of agreement, I would search on partnership agreement templates and/or speak to a business attorney.
Don’t forget to talk about your exit strategy. I know this sounds counter-intuitive, but it’s important for the partners to agree on who gets what. It’s like a divorce. In this case, who gets the business name, website, clients, email database, etc. Talk about it upfront so there are no surprises if the relationship gets rocky. Put it in writing.
3. How Do You Set Prices?
Pricing is one of the most difficult elements of a business consultancy. Doing a competitive pricing comparison is one piece. Another element is estimating what you need from the business. Running a business also requires administration and sales. You won’t be working on client work 100% of the time; it’s more like 40%. Estimate 40% (or more) in sales at the beginning and at least 20% on administration or operations (e.g., bill paying, blogging, website content).
However you calculate your pricing, you need to test it against the marketplace and consider your costs. The SBA has an interesting article on what to consider when establishing prices. I think they’ve forgotten to include the 40-40-20 rule of thumb. Even so, it has some interesting points.
When you first start out, many new consultants under charge for their time. Be aware of this tendency, especially as you build up a portfolio of samples/case studies that demonstrate value to prospective clients. Eventually there will come a time when you need to raise prices. It will be difficult. You will be unsure of yourself. Communicating pricing changes to existing clients will be uncomfortable. This is normal. By the way, reviewing and adjusting your pricing structure is an ongoing activity.
4. When Is the Right Time for a Formal Business Entity?
Creating a business entity like a LLC takes a monetary investment. A joint DBA may be sufficient starting out. When you start making enough money to prove your business concept and viability, then it’s time to consult an attorney to formalize your business and partnerships. Of course, if you’re concerned about Intellectual Property and other individual rights, you’ll need to discuss this upfront. I also suggest having a conversation regarding capital. Will you take on debt? How much will each of you invest (money, time, etc.)
5. How Do You Manage Everything?
This is probably the most difficult question to answer. From a self-management perspective, the best advice I can give you is this: know yourself. Be clear on your talents and what you do best. At the beginning, especially if you’re bootstrapping your business, it may be financially impractical to outsource all the things you don’t do well or don’t know how to do. Prioritize the things that will make the biggest impact to your business.
6. Sales & The Web
According to research done by Google and CEB, 57% of the B2B sales process occurs before a web form is completed or a phone call is made. For argument’s sake, let’s say that number is inflated and it’s more like 30%. That puts more pressure on having a website that clearly communicates what you do, your difference and how to provide value. Best-selling author, Robert G. Allen, coined the phrase “There is no such thing as failure, only feedback.” The cool thing about the web is that you can change it… quickly. Remember that a well-thought out LinkedIn profile, Facebook page or Pinterest board can be a cost-free start.
Thinking about starting your own business? What other questions do you have?
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