http://pandecta.com/index.html –This web site contains ideas for starting on-line businesses.

The Next Step

Once you know what you want to sell, the next step is finding out as much as you can about your chosen business. Skipping this step is like building a brick house without mortar. The research you complete here will help you determine sales and income projections, the size of your market, and facts about your competition. In the United States, all types of businesses are classified with a number. This classification system is called the North American Industry Classification System, or NAICS. Formerly it was known as the Standard Industrial Classification (SIC) system. The NAICS classifies 1,170 industries, of which 565 are service-based. It is very specific in its classification. For example, a search using the word “food” produced forty-three matches, ranging from “Food Service Contractors” (number 722310) to “Food Machinery Repair and Maintenance Services” (number 811310). Each match is broken down even further. Select “Food Service Contractors” and the classification is broken down into seven more specific categories ranging from “Airline Food Service Contractors” to “Industrial Caterers.” For more information about NAICS codes, visit the Small Business Administration site’s relevant pages: http://www.sba.gov/size/indexsize.html#Introduction.

To find out the classification number for your business, go to the U.S. Census Bureau’s web site (http://www.census.gov/epcd/naics/framesrc.htm). You will be prompted to enter a word related to your business. For example, if you want to manufacture garden furniture, you could enter “garden.” From the list of businesses with “garden” in the description, there are three related to “garden furniture.” Once you know the NAICS number assigned to your business, you will be able to find out a lot of information about your specific industry.

To find out more about your industry once you know your NAICS number, go to the part of the Census site that contains data from the economic census (http://www.census.gov/epcd/ec97/us/US000.HTM). On this page, you can find information such as the number of retail trade establishments in your area. At the top right-hand side of the page, there will be a drop-down box from which you can select a location in which you are interested. Then once the data appears, click on the arrow located on the far left in the row next to the category in which you are interested. Clicking this arrow will make your search more specific. Continue clicking the arrow until the industry you are interested in appears.

Who Will My Customers Be? (return to top)

Once you know what product or service you want to sell, you will want to find out who will buy it. Years of experience may have given you an excellent idea of who your customers will be. For example, if you are opening a shop that sells designer wallpaper, you may know that your customers have higher incomes and own their own homes. If you don’t really know who might be interested in what you are selling, do some homework. In both cases, once you have a general idea about your customers, you will want to find out their specific characteristics and where they can be found.

Decide what you know.

The first step of all research is to write down what you already know. So write down what you now know about your customer. The next step is to write down what you don’t know. You know that the customers for your designer wallpaper shop have higher incomes and own their own homes. You don’t know their age, their race, the neighborhoods they live in, their religion, their education level, etc. What might motivate them to buy your product? So make a list, and then find the answers to these questions.

How?

Determine what information is already available. Much of the information you seek is probably on-line, on this CD, in a book, in a magazine or in some other resource available through your local library. This information is called “secondary data.” For demographic information in Virginia provided by the Weldon Cooper Center at the University of Virginia, please click here. For quick facts about Virginia provided by the U.S. Census, click here. This site also allows you to select a particular city or county within Virginia and obtain quick facts about that specific area as well.For web sites that may lead you to the data you seek, check out “Helpful Links” at the bottom of this page.

If the information you need is not currently available, you can gather it yourself. If you're opening a designer wallpaper shop, stop by the designer wallpaper shop in the neighboring town and see what its customers look like. Develop a brief survey and take it to an area of town where people who would purchase your product shop, live or congregate. Ask the questions on the survey to some of these people to gauge their interest in your shop. Offer coupons for a discount in your store (once it opens) if they answer the questions. You may also direct your survey questions to people on a random basis.

For an example of a survey designed to gain information about your customers, click here. Surveys can be used to find out more than information about your customers. You can use them to help you price and market your product or service and to find out more about the competition, as well. For an example of a brief market survey, click here.

Another way to increase your understanding of your potential customers is to form a “focus group.” Gather together a small number of people whom you think may be interested in your business. Ask several open-ended questions and encourage a discussion. Take notes.

The type of information you gather from this kind of research is known as “primary data.” For more ideas on gathering primary data about your customers, visit: http://ollie.dcccd.edu/mrkt2370/Chapters/ch3/3prim.html

Who Are My Competitors? (return to top)

Before deciding where to locate your business, you will want to find out about your competitors. Who are they? How many are they? Where are they located? Although there are exceptions, you probably will not want to locate your small business close to someone who would be in direct competition with you.

Finding out as much as possible about your competitors will help you in many ways. You may be able to avoid mistakes they made. You will gain information that will help you with decisions about where to locate your business, what to charge for your products or services, and ways to advertise your business.

How do I find out about my competitors?

If you have completed research about your industry and about your customers, you have already done some of the necessary homework for finding out about your competitors. Industry research will let you know, for instance, how many other businesses like yours are operating within your city or county. Customer research will guide you to where your potential customers are shopping and why. As part of your competitor research, you may want to ask potential customers survey questions geared to discover information about the competition. If they currently use products or services like yours, where are they buying them? What are they paying for them? What do they like and dislike about your competition?

Once your industry and customer research guides you to who your competitors are, visit their web sites (if they have one). You can learn a lot from a visit to your competitors’ web sites. For instance, they may have information about prices, services, locations and contact information. The look and features of the web site itself will give you an idea of your competitor’s professionalism and possibly his or her resources as well.

After visiting web sites, you may want to call your competitors directly to find out more about them. Ask the kinds of questions a customer would: questions about the prices they charge, the types of products and services they sell, turnaround time for service, etc. If your competitor has a shop, visit it for ideas about products and advertising.

Another way to find out about your competitors is to talk to other business owners who have had dealings with them. What kind-of service did they provide? What were the pros and cons of working with them?

Here are links to web sites that provide information about researching your competitors:

http://www.robertwinton.com/competitor.htm

http://www.sba.gov/starting_business/marketing/analysis.html

Where Should I Locate My Business? (return to top)

Congratulations. If you have conducted research on your industry, your potential customers and your competitors, you have completed much of the homework you should do before deciding where to locate your business. For instance, if you find out from your research that your customers are only willing to travel fifteen miles out of their way to visit your shop, you will want to open it close to a neighborhood where many prospective customers live. If you are opening a donut shop, you will probably want to make sure you do not open on the same street as a nationally known donut shop.

Additional things to consider when deciding on a location include taxes, laws and permits, roads and facilities, incentives that might be offered to new businesses, access to interstates, availability of warehousing, and complimentary businesses located nearby. For instance, a shop selling wedding dresses might do well located close to a bakery selling wedding cakes. Another consideration is the cost of operating in a certain area related to the benefit. For example, perhaps your business does not need to be located in a high-rent mall. Keep in mind alternative locations for businesses.

One such alternative is a “business incubator.” The business incubator provides office space and office amenities, such as a receptionist, for small businesses. To find a business incubator near you, go to http://www.vdba.virginia.gov/smdev/sbincubator.asp#VAMap.

And, of course, many choose to run their small businesses from home. If you decide to operate from home, make sure you will be able to meet any county and state regulations related to running your particular home-based business.

Here are links to web sites that provide information about choosing a location for your business:

http://www.uschamber.org/sb/sbresources.asp?p=p04/P04_1200.asp

http://www.uschamber.org/sb/sbresources.asp?p=p04/P04_0750.asp

How Do I Finance My Business? (return to top)

You have a great idea for your business and you have found the best place to locate it. You know who will buy your product or service and you know who your competitors are. But starting and running your business is going to take cash, possibly a lot of cash.

Working capital, otherwise known as cash, is the oxygen that keeps your business breathing. Without enough working capital, your business’s vital functions will fail. It won’t be able to meet its daily requirements for living, such as purchasing supplies, paying rent, and paying salaries. In a word, before creating your business, make sure you will have enough money to keep it alive. The NX Level Guide for Business Start-ups (February 2002) states that inadequate capital is the most common reason given for the high failure rate of small businesses.

Where are you going to find the funds to start and run your business successfully?

There are several steps to take to ensure that your business will have enough capital to start and continue running.

1) Complete your Business Plan

The Business Plan includes a section about Financial Matters. Within this section, you will tabulate financial data and projections related to your business.

The Financial Plan portion of the Business Plan includes: a) Start-up Expenses; b) An Estimate of Future Sales; c) Estimated Cost of Units Sold; d) Fixed and Variable Expenses; e) Cash Flow Projections (very important); and f) A Break-Even Analysis.

2) Determine how much capital you will need to start your business and to keep it running. Based on the estimated projections contained within your Business Plan, you will be able to determine how much money you will need, both to start your business, and to keep it humming.

3) Determine how much cash you have available through personal sources that you are willing and able to use to fuel your business. (Personal sources include: savings accounts, insurance policies, stock and other investments, second mortgages, and donations from friends and relatives.)

4) Figure out how much money you will need for the business after you have contributed all of the personal funds that you are able and willing to contribute.

5) Find a source for the remaining needed funds. Other sources include:

a. Debt. Debt is a loan made to you or your business. Sources of debt lending include banks, credit unions, federal lending programs and state financing programs.

b. Equity. Equity is ownership rights and privileges in your business that you give away in return for capital. Businesses seeking this type of financing must become a Partnership, Corporation or Limited Liability Company.

c. Alternative Funding. Alternative means of funding include: suppliers who provide concessions, such as extended payment periods and discounts; and grants.

6) Prepare a written Financing Proposal.
The Financing Proposal is used to secure loans and equity financing. Before preparing the Financing Proposal, complete the Financial Plan portion of the Business Plan. This section of the Business Plan will contain much of the information and data you will need for the Financing Proposal. The Financing Proposal contains the following:
a) Cover Letter;
b) Summary (contains the purpose of the financing, amount and terms requested, how the funds will be repaid, and collateral);
c) Details on how the capital invested or loaned will be used;
d) Details on Collateral (if seeking a secured debt);
e) Information on the financial return for investors (if seeking equity financing); and
f) Your prepared Business Plan (Financial data and projections are particularly important).

If you follow the steps above, you will equip your business with the cash it needs to breathe, both at its creation, and into what will hopefully be a long life.

For additional information on financing:

http://www.sba.gov/financing/basics/basics.html (Small Business Administration)

http://www.mymamasaid.com/save/article/106/ (Tips on Financing)

http://www.vdba.virginia.gov/financing/ (Virginia Small Business Financing Authority)

The International Center for Assistance, Inc. (ICFA) (specializes in loans for small and mid-size businesses)

http://www.redcfinance.org/ (The Richmond Economic Development Corporation)

Programs and Incentives for Minority and
Women-Owned Small Businesses (return to top)

Minority and women-owned small businesses face unique challenges. Fortunately, there are many programs geared to help them meet these challenges and succeed.

What is a Minority Business Enterprise?

The United States Small Business Administration (SBA) defines the demographic group that includes minorities as "socially disadvantaged" and defines that description within its website as:

"Socially disadvantaged individuals are those who have been subjected to racial or ethnic prejudice or cultural bias because of their identity as members of a group. Social disadvantage must stem from circumstances beyond their control. In the absence of evidence to the contrary, individuals who are members of the following designated groups are presumed to be socially disadvantaged:

• Black Americans;
• Hispanic Americans;
• Native Americans (American Indians, Eskimos, Aleuts, and Native Hawaiians);
• Asian Pacific Americans (persons with origins from Japan, China, the Philippines, Vietnam, Korea, Samoa, Guam, U.S. Trust Territory of the Pacific Islands (Republic of Palau), Commonwealth of the Northern Mariana Islands, Laos, Cambodia (Kampuchea), Taiwan; Burma, Thailand, Malaysia, Indonesia, Singapore, Brunei, Republic of the Marshall Islands, Federated States of Micronesia, Macao, Hong Kong, Fiji, Tonga, Kiribati, Tuvalu, or Nauru; Subcontinent Asian Americans (persons with origins from India, Pakistan, Bangladesh, Sri Lanka, Bhutan, the Maldives Islands or Nepal); and
• Members of other groups designated by the SBA."

For more information about programs and resources for minority and women-owned businesses, please click here.

The Business Plan

You will be able to use much of the research you have completed when compiling and writing your business plan. The business plan is the blueprint or map for your business. Compare starting your business to going on a vacation. Your vacation will go much more smoothly with a plan. What week is best for the whole family to be away from home? Where do you want to go? How will you get there? Do you need a reservation? Will you have enough money for the trip? Without putting forethought into the trip, you might never leave your driveway. It’s the same with starting a business. In order to have the best chance of a smooth and successful venture, do some homework, consisting of research, analysis and planning. A business plan greatly increases your odds of success. This CD is designed to make the creation of your business plan easier. If you would like to get started right now on your business plan, click here. Or continue reading if you would like to analyze the research you have just completed.

Your Final Decision: Analyzing the Facts (return to top)

If the word “Analysis” makes you shudder and recall hated classes in science or math: relax. Analysis is just a way to make sense out of research. Analysis helps you figure out the answers to the questions you had when you started your research.

Your Business Decision

Look at the list of things you wrote down before you started your research. If you were uncertain about the type of business you wanted to operate, start with your list of questions. Now look at what you wrote down about your skills, interests and past experience. Compare your personal expertise and passion to information you gathered about different industries and opportunities. By comparing your questions (what you didn’t know) to the answers (information you gathered during the research process), you should be able to come up with a viable business that you would be both interested in starting and qualified to start.

Your Customers

By looking at the secondary data and primary data (if needed) that you collected about your potential customers, you will be able to get a clear idea of who will be interested in buying your product or service. Knowing your customers will help you decide if your business idea will work because you will know if you have enough buyers to be profitable. Knowing your customers will also help you later when you put together a marketing plan for your business. A brief form is attached here; once you fill it out, you should know exactly who your customers will be.

Your Competitors

The information you gathered on your competitors is invaluable. From it, you can find ideas about what you should charge for your product or service, how you should market your business, where you should locate your business, any area not addressed by the competition in which you could specialize, and if the competition is too fierce in your industry. If you decide that your industry is already choked with competitors, try to come up with a niche or specialty, or start the research process again, choosing a different business.A brief form is attached here; it should help you put your research and thoughts together about your competition.

Your Business Location

Again, your research should direct this decision. After completing your research, you will know where your competitors are located; the cost versus the benefit of operating in different locations; and any rules, regulations and incentives for locating in a certain area. Armed with this knowledge, you can evaluate the pros and cons of different areas, and decide where to locate your business.

What Is My Business Objective?

Once you have found answers to your questions and studied your answers, you are ready to set your business objective. Your objective is what you want to achieve. It is a mission statement. For example, if you want to start a house cleaning business, your objective might be to “offer affordable, reliable, high-quality cleaning service to families in (your county, city or town).” From a main objective, you can then decide on short and long term goals for your business, and the strategies you will use to reach them. Setting and reaching these goals will be covered in the Marketing section of the Business Plan you will write.

A Word About Marketing

After researching your industry, setting a business objective, choosing a location, and finding out who your customers and competitors are, you are ready to do some preliminary marketing analysis. A first step in determining how to market your business is to prepare a SWOT Analysis. SWOT stands for “Strengths, Weaknesses, Opportunities, and Threats.” Based on your research, you should be able to list the strengths, weaknesses, opportunities and threats that apply to your business. Armed with this list, you will be better equipped to position your product or service in the marketplace. “Positioning” your product or service means finding the right way to promote it, package it, price it, and place (where to sell and distribute) it. A SWOT analysis is similar to making a list of pros and cons before making a big decision.

To complete your own SWOT analysis, click here.

Conclusion

Analyzing the research data you collected will help you make decisions. If you wanted to build a house, you would first think about the type of house in which you would like to live; you would research neighborhoods and land prices; you would talk to architects and contractors. You would do your homework. If you didn’t, you would end up like the pig who built the house out of straw. You would soon be homeless. Do your homework when building a business: finish your research and analyze your findings. Your business will then have a sound foundation. On this foundation, you can build the sturdy walls of a sound financial plan to hold it together and the reliable roof of good marketing to protect it from the elements. Then the wind and rain of competition, changing consumer demands, and improper planning will not blow it to pieces.

Return to Top

Go to: Step Two: Operating a Business

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