Caution!
Starting a business is nothing like working for “the man.” When you work for someone else, you have security, independance, limited liability and a low chance of failure. As a small business owner, your finances are always in flux, your life revolves around your business, anything that goes wrong is your responsibility, and you have a very good chance of losing everything you work for.
I’ve been in IT for over 40 years now. The first 20 were spent working for someone else, either directly, or as a contract programmer through one agency or another.
As an employee (first few years), I had responsibility and freedom. My employer took care of finding work for me, made sure I got paid, provided benefits (vacation time, sick time, health insurance, company vehicles, equipment and office space).
As a contractor, I got paid (very well) regularly, but worked unholy hours. I had to provide most of my own equipment, had no paid holidays or sick time, and provided for other things people take for granted like health insurance and some taxes which are hidden when you are an employee. At the end of a contract, I usually had enough money to take a few months off, however.
Finally, I tired of the whole thing and decided to start a business. It was a major shock I was unprepared for. Pay is variable, free time difficult to find, and in addition to the “real business” of taking care of clients, you have to worry about stuff like payroll, taxes, saving money for the slow times and, sometimes, just getting up in the morning.
Additionally, our business is such that we really don’t need an office; home offices for everyone are quite adequate. However, a lot of people (myself included) thrive off the small interactions you regularly get working in an office space.
These are things you need to think about before starting a business.
- Can you handle financial forecasting; there will be slow times, and if you do not save for them, you can be in serious trouble.
- Are you self-motivating? Can you get up each morning and go to work, even though you don’t need to that day, and more importantly, you don’t want to.
- Do you have the support of those close to you. If you are in a relationship, will your partner feel slighted when you have to break a date to handle your business.
- Can you go through bad times repeatedly, and come out the other side ready to try One More Time.
Planning
I was very fortunate in that I had a close friend, Connie, who wanted to do the same thing. She was tired of her job being underpaid to work at a bank, and so we decided to start this business. I will definitely say that without her partnership, I’m not sure the business would still be in existence.
The first thing we did (and incorrectly) was decide what we wanted to do. What could we offer people that would be beneficial enough to them to get them to pay us for doing it. We decided we could do custom programming and Word Processing (this was in the mid 1990’s, and Word Processing was a black art to many people). I had 20 years of programming experience, and Connie knew Office applications from her time at the bank. Additionally, Connie was a bit of a nerd and very interested in learning programming and I had some experience with Office applications.
The next thing we had to do was figure out how to finance the thing. Income starts at nothing, then slowly increases over time. In some cases, you can start with one or two clients, but you can not rely on just one or two clients. You must build up to where my friend Bart told me to be: “Never let any single client be worth more than 20% of your business”. Fortunately, I had a good programming contract at the time, so Connie was able to quit her job and I supported both of us while she built the business in the first year.
If you don’t have a Connie (or a Rod), things are harder. You can save up, then live off your savings. Or borrow, but borrowing means you owe money, which means you start out in the hole, meaning there is so much more additional pressure.
Other things to plan are how the company will be organized, where are you going to work, how will you get the equipment you need, and who is going to actually “run” the business. That last is most important since you don’t just start invoicing and paying bills. You have to file all sorts of reports, pay taxes you never heard of, decide whether to hire employees, partners or contractors, and how each of them get paid. In the following pages, we’ll cover those, and you can feel free to steal and modify all of them for your special needs. But, it needs to be planned, and the earlier the better.
One thing I strongly recommend; find a good bank, and a good accountant. Our accountant (Lori) was also one of our first clients, back in the mid 90’s, and she has kept us out of so much hot water. She has more than made up for the pittance we pay her each year. Fortunately, I respect the hell out of her, so when she would say “You have to …” I would listen. If you do not have an accountant you can trust and listen to, find another accountant (or don’t go into business).
We moved to our current bank when they first opened, and have been with them almost 20 years now. The little things they do for us are what counts. There have been times when I’ve spent more than we’ve made, and the bank has consistently paid the overdrafts, knowing from the years of experience with us that we will get that account back above 0 as soon as possible. It is worth an overdraft fee to not bounce your employee’s check because you could not add 2+2.
But, the most important thing is to know yourself. I thought, because I had written some accounting packages, I could handle the books. I was wrong, and it has caused many problems over the years. I also thought, because I was a pretty good project lead, I could take the next step and be a manager with no problem. Again, I was wrong (I’m a crappy manager), and again it has caused some serious issues. Things would have been a lot smoother if Connie and I had brought in a third person who was interested only in running the business. We have clients who, like us, are very good at what they do, but in each successful business, they all have someone who may not be able to change a hard drive, but they can tell you from memory how much you made (or lost) from every segment of the business and each individual client.
The business person does not actually need to be a part of the business, though it is helpful. The only thing which saved us was that I do tend to listen to some people. My sister Niki, Bart, Loren, Sharon, Lori are all better at the business end than I am, and since I respect them, I listen when they tell me something. If any of them wanted to take an active role in Daily Data, it would be a much better company.
Implementation
Now you have a plan, some prospective clients, one or two people who will do the hand on work, and some kind of financial backing. Time to start to work, right?
Wrong. How do people even know you exist? Will you post notes on the local coffee shop wall? Are you going to take out a full page ad in the newspaper? Or just build a web site and assume someone, somewhere, will read it an be interested.
First, a satisfied client is the best advertising you can have, and that is the way Daily Data has grown. We started with a couple of clients who were very happy with us, and they told friends, who told friends, and we grew. Clients you get from these sources are the absolute best, but the growth is very slow. You’re lucky if you get one or two new clients a year doing this.
You need a marketing plan. I know, we’ve had several, but never stuck with many of them. Again, if you have a business brain in your new company, they will likely know better than you how to go about it. But, find a way to get a real person out there who doesn’t care about anything but selling your business. The best thing we did was hire Margi. She only stayed with us for a few years (because she could not afford to live off what we paid), but during those few (2-4?) years, we grew more than we had in the decade before or after.