Starting a New Business

Ian Agranat, BS, is president and CEO of Wildlife Acoustics, Inc. Michael Gordon, PhD, is president and CEO of Quantum Ventures and AngelDeals.com. They are co-instructors of MGMT E-140 Starting and Growing a Business. Both have started new ventures.

Ian Agranat

Michael Gordon

Let’s begin at the very beginning. Let’s say a person with an idea for starting a new business comes to you and asks, “What’s the very first thing I should do?” How would you assess the situation and answer that question?

Starting a new business can be exciting and rewarding, but it also comes with many challenges and risks. Before jumping in with both feet, you should really do your homework to fully appreciate the potential risks and rewards.

First, identify and talk to your potential customers. This is the only way to credibly test your business idea. Who specifically is the customer? What problem are you solving? What alternatives do they have? What will they pay for your product or service? When and why would they purchase it? What is the best way to acquire these customers? Answers to these questions are essential to understanding how you can generate revenue.

Next, you need to determine what it will cost to get you there. What is your business model? What are your customer acquisition costs? What are your fixed and variable costs of doing business? Will you need funding? How much? What sources?

Finally, think about what could go wrong. How confident are you in the data you collected? What kinds of surprises might happen in sales? What kinds of hidden costs might surface on the expense side?

When you understand the financials that drive your business and the assumptions behind them, you will be better prepared to understand the potential risks and rewards. Now, if the idea is still compelling, you are ready to wade into the entrepreneurial waters!

In your opinion, as entrepreneurs who have started successful businesses, are there certain personal and professional qualities a person should possess if he/she wants to start a business?

Patience and perseverance are perhaps the most important qualities of an entrepreneur. No matter how tremendous an opportunity you face, no matter how much planning you do, and no matter how prepared you are, the reality of life will always throw obstacles into your entrepreneurial path. The successful entrepreneur needs to be prepared to embrace these obstacles and adapt to them. Things are rarely easy, and it takes patience and perseverance to navigate through difficult waters in order to emerge successful.

In the catalogue description of your course, MGMT E-140 Starting and Growing a Business, you call starting a new business a process that includes such activities as defining markets, understanding customer needs, developing profitable products and services, obtaining funding, and identifying exit strategies. Are all of these of equal value or are some more critical than others?

These activities and others are the threads that weave the fabric of business. As such, they are all important to the successful venture. For example, if you don’t understand customer needs, how can you have profitable products and services to sell them? If you don’t understand your market, how do you even know who your customer is? If you can’t raise necessary capital, how can you even get off the ground?

We would like to emphasize the importance of the financial plan. Like the words of a business plan, the numbers tell the same story. Each activity planned in the business, such as advertising in magazines or hiring engineers, corresponds to expenses in the plan. The sales and marketing strategy applied to a specific target market will correspond to revenue projections in the plan. You can think of the financial plan as a complex mathematical formula for the business, consisting of thousands of independent variables. Changing any one variable will result in a cascade of changes throughout the entire business.

Therefore, all the various aspects of the business are interdependent and carefully balanced. The successful entrepreneur must understand how all of the variables of their business relate to each other. They are all important.

How important is the business plan?

It is a well-known fact that business plans are generally obsolete the moment the ink dries. Reality always deviates from plan, usually not in a positive way, as life throws obstacles into the entrepreneur’s path. It is also true that many businesses will not be funded by outside investors, so no plan is required to raise money.

That being said, we would argue that developing a formal written business plan is essential. The discipline and detail required to do so will help the entrepreneur understand the business and be better prepared to recognize and adapt to reality’s obstacles. The entrepreneur is making a large investment in time, if not money, in a potentially high-risk venture. He or she should consider the business with an investor’s perspective before jumping in with both feet. Developing and refining a business plan will help the entrepreneur minimize risks and maximize opportunity by forcing a close and careful examination of the market opportunity, business model, and strategy.

If you were asked to list the most common mistakes people make when starting a new business, what would you say?

Most people have strengths and weaknesses, proven experiences, and gaps in knowledge. For first-time entrepreneurs, it is common to fall in love with your own idea and be completely blind to recognizing areas of weakness. First-time entrepreneurs tend to rush into the venture without having the tools required for success, and they often take their eye off the bottom line or positive cash flow. For example, many engineering-oriented entrepreneurs believe they have a compelling technology-driven idea that will bring them great success. But they have no experience or skill in measuring the opportunity or selling a product or service, areas that will translate a good idea into a profitable business.

We encourage entrepreneurs to understand their weaknesses and compensate by surrounding themselves with diverse advisors and partners who excel in all areas. Good advice is often free and can come from a variety of sources, such as small business associations, bankers, and knowledgeable friends and mentors. Listen and learn!

To end on a positive note, can you give us the names of a couple of start-ups that you think have been especially successful and the reasons you think they have been?

Most businesses started life as a start-up. So, we can simply look around at today’s successful companies to find success stories. The roots of Boston Duck Tours formed when the founder was traveling around the country and had seen the concept successfully operating in the Midwest. Nantucket Nectars was started by two aggressive, passionate, hard-working young men with an unoriginal concept of producing and marketing fresh juices. Their personal strengths carried them to great success. Kettle Creek Canvas was started in Canada by a woman who had no job and two skills: sewing and selling. From this humble beginning grew a $10 million clothing company with 50 franchises. Apple Computer and Hewlett Packard both started life as a couple of guys in a couple of garages. Today, Apple Computer makes headlines with its hot selling iPods while Hewlett Packard dominates the computer printing industry. Over their lifetimes, both companies experienced many ups and downs, even reinventing themselves from time to time. But today, both companies are thriving and growing having come a very long way from the garages in which they started.

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