Beyond Startup - Are You Stunting the Growth of Your Home-Based Business?

Beyond Startup - Are You Stunting
the Growth of Your Home-Based Business?

© 2002 Elena Fawkner

If you’ve left the corporate world to strike out on your own in
your own home-based business, you'll be acutely aware that
your financial success is up to you and you alone, perhaps
for the first time in your life. For obvious reasons, therefore,
your home-based business is probably run on a shoestring.

This means, of course, that you do everything. Although you
are now CEO, you are also secretary, marketing director,
receptionist and gopher. But hey, that’s the way you like it,
right? Just as well too since when you’re just starting out you
don’t have much of a choice anyway.

But sooner or later, if you keep doing everything yourself you’ll
necessarily curtail the growth of your business. It will grow to
a certain point but no further because you’re only one person
and there are, after all, only 24 hours in a day.

Now, if you’re satisfied with making a little money on the side,
that’s fine. But if your business is your only source of income,
you must move beyond start-up if you are to become financially
successful and avoid stunting the growth of your business.

This article looks at the growth stages of a typical one-person
home-based business and how to gradually grow your business
without being run over in the process.

INITIAL GROWTH

=> One-(Wo)Man Band

As already stated, when you first start out, you do everything
yourself. You’re both chief cook and bottle-washer. And you
can continue like this for quite some time because, initially,
you are unlikely to be fully stretched. This is exactly what
you should be doing.

This is NOT the time to go out and spend money with
advertising agencies and hiring employees. For so long as
you CAN do everything yourself and everything that needs to
be done is getting done, this is the most efficient use of your
current resources.

=> Don’t Overcommit Yourself

During this stage, however, it is important to be careful not
to overcommit yourself. You are a fledgling. You must learn
to fly like a sparrow before you can soar like an eagle. So,
when you first start out, underpromise and overdeliver.

Also, don’t embark on an aggressive marketing campaign
until you have the business resources to satisfy the demand
you will create. Let your advertising grow in line with the
growth of your business, the addition of employees and
increased financial capacity.

=> Pay Yourself

Be extremely careful with your pricing during this stage also.
Make sure you include a wage for yourself in your overhead
costs and add a realistic profit margin (say 15-20%).

Remember, price equals costs plus profit margin. Costs
include direct, indirect and overhead costs. For a more
detailed treatment on pricing, read “Pricing Yourself to Get,
and Stay In, Business” at http://www.ahbbo.com/pricing.html .

=> Profits Belong to Your Business

Plough your profit back into your business. This is most
important. This is where your funds for expansion during
the next growth phase of your business come from. NEVER
use your business’s profits to pay personal expenses. This
is what you pay yourself a wage for. Your business’s profit
does not belong to you. It belongs to your business. There
IS a difference!

=> Avoid Premature Expenditure

During your shoestring days, look for lower-cost substitutes
before incurring substantial expenditure. For example, don’t
go out and buy a new fax machine, a new answering machine,
a new photocopier. Get one of those three in one jobs that
sits on your desktop and only costs a few hundred dollars.

Use a good accounting software program rather than hiring
an accountant and hire from your family first if you need
temporary help. Another good idea is to negotiate with family
members to take over some household chores you would
normally do yourself to free your time to work on your business.
This works especially well with pocket-money age children
and teenagers.

During times of temporary overload, hire temporary staff from
a staffing agency if no family members or members of your
social circle can do the job.

=> The Glass Ceiling

After a while, somewhere between the two year and five
year mark, you will notice that your business is beginning to
stagnate. At this point, you've stretched yourself and your
resources as far as they can go. You've hit the glass
ceiling, in other words.

At this point, if you want your business to grow further, you'll
have to grow it. It won't happen as part of an evolutionary
process beyond this point.

BEYOND THE GLASS CEILING

=> Hire Permanent Employees

The time to hire permanent employees is when you reach the
point that you can’t complete all tasks alone (or with the help
of family members) and/or your time is worth more than it would
cost to hire someone to complete your less complicated tasks.

Before adding employees, carry out an inventory of the
necessary tasks required to operate your business. Once
you’ve identified all necessary tasks, assign primary
responsibility for each task to one person. Although one
person will be assigned more than one task, make sure no two
people are assigned the same tasks.

Also, make sure at least one other person knows how to do
each task to cover yourself during times of staff shortages,
whether due to temporary absence due to illness, or when an
employee resigns and it takes you a while to find a replacement.

Finally, and most importantly, when assigning tasks, assign
yourself the tasks you do best (NOT just what you like to do).

=> Capital

To grow beyond the start-up and initial growth phases, you will
need capital to inject into your business. Now this,
unfortunately, is easier said than done. Banks can be leery of
entrepreneurial ventures and venture capital is not easy to
obtain. But, although obtaining borrowed capital is difficult, it
is by no means impossible. Here are the main sources of funds:

* Banks

Cultivate a good relationship with your banker. The more he or
she understands your business and knows you, the more
likely it is that your application will be approved. And this means
more than just fronting up when you need money. Keep your
banker informed of all significant developments in your business
and routinely provide copies of your annual business plans.

Be prepared to demonstrate that your business is capable of
generating cashflow and think about what collateral you have
available to put up if necessary.

* Venture Capital

In addition to a solid business plan and track record, venture
capital providers want to see that you understand your
customers and how your business is a good fit with their
needs. So arm yourself with competitive intelligence and
satisified customers as references. Also, be prepared to
show you have access to experienced management staff.
These individuals need not be on your payroll but you should
expect to show that you have a depth of experience and
talent available to you at least in an advisory capacity.

* Revenue Stream

Instead of selling equity to raise capital, consider selling part
of the revenue of the business. In other words, investors
advance loan capital and get repaid by way of a percentage
of the sales of the business. This preserves your equity in
the business and is attractive to investors because they
receive an immediate cash return.

This method has the considerable advantage of avoiding
securities laws (it's a loan rather than a sale of securities)
but it's only viable for businesses with high margins and
strong sales.

* Angel Capital Electronic Network

ACE-Net brings companies looking for capital together
with angel investors. You can find links to ACE-Net at
http://www.sba.gov/ADVO .

* Direct Public Offering

If your business has a strong relationship with its constituents
(employees, customers, vendors and community), consider
selling stock via a direct public offering. The securities laws
involved in such an offering are complex though so be prepared
for some pretty hefty legal fees if going down this road.

* Miscellaneous

Other miscellaneous sources of funding include 401(k) plans
and provision of loan guarantees by the Small Business
Administration (http://www.sba.gov), family members or friends.

=> Work On the Business, Not In the Business

The third and final point to note about breaking through the
glass ceiling is that you must make the mental transition from
working IN the business, to working ON the business.

Until your business hit the glass ceiling, you were effectively
working in the business, much as an employee would. In this
sense, the business was your job, a place to go to work. But
beyond the glass ceiling, your business becomes an entity
unto itself. It is no longer your “job” to work at the tasks that
make up the business’s operation. Instead, your role is to
work “on” the business as a separate entity, leaving the tasks
to your paid employees.

Hopefully you can see that shifting your perspective in this
way is the key to the long-term growth of your business and
the difference between true autonomy and indentured servitude.

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Elena Fawkner is editor of A Home-Based Business Online ...
practical business ideas, opportunities and solutions for the
work-from-home entrepreneur.
http://www.ahbbo.com