Step 4 for Starting a Small Business

Step 4 for Starting a Small Business: Collect the Required Resources

A fourth and final step needs to be taken when you're starting a small business: You need to make sure that you've collected the required resources--the stuff you need to start the venture--to get to the point where the venture reliably delivers profits.

As mentioned elsewhere at this web site, people sometimes mistakenly assume that the only real resource you need to line up is cash. But that's wrong. You actually need three, critical resources to successfully start a small business: tricks of the trade (or what some people call "tacit knowledge"), financing, and time. So let me explain.

Perhaps the first resource you need to acquire is street smarts about the category in which you're going to start a business.

Lots of people ignore this required resource. And I will guess that most of these people fail. Here's why: Profitably operating any business requires skill. The owner needs to make smart decisions. The owner needs to minimize risks. The owner needs to spot both opportunities and threats--and then grasp at opportunities while sidestepping threats.

I think people often way, way overstate or exaggerate the risks of business failure. In truth, in some business categories, businesses rarely fail. But when people do fail, often, they deserve to fail because they've been trying to operate in an environment where they really didn't have any business taking responsibility.

Fortunately, there are two or three great ways to get the street smarts you need: you can work in a business like the one you want to run (ideally with mentoring from the owner), you can buy a franchise (and then carefully learn their approach), and you can buy an existing business (and hope the seller teaches you the tricks of the trade.)

If you have the opportunity, I think working in an existing business for an owner who's willing to mentor and coach you is the best deal. Obviously, you need to be careful that you don't take advantage of the mentor. You also need to somehow make the relationship worth their while. But buying a franchise or an existing business are often so expensive that business ownership moves out of reach. (I will also caution that buying an existing business often ends up a disaster for the buyer. Sorry.)

Note: One of the biggest benefits of the Starting a Business ebooks sold here is that they do provide some of the tricks of the trade for the business you want to start.

Time represents another resource you need to start a business. You probably know that business owners often work long hours. Especially in the early stages of their businesses. And you do need to be ready to do that, in certain circumstances. But that's not really all I'm talking about here.

In addition to the actual hours you need for working in the business, before the business even starts you need to have the necessary time to do all your research (Steps 1, 2 and 3) and to learn the key tricks of the trade. This work would almost always take weeks and weeks even if you're a truly fast learner.

Furthermore, there's another "time resource" you need to collect: You need enough time to have your sales ramp up. So let me explain. Remember the discussion of the coffee cart business I talk about in Step 3 for Starting a Small Business: Verify Your Profits? In that discussion, I created an imaginary business which needs to sell 4000 $2 cups of coffee each month in order to work for the business owner.

Here's where the time thing comes in again... Almost certainly, the business won't sell 4000 cups of coffee the first month. Instead, maybe people will buy 1000 cups of coffee. And so what the business owner needs is time to grow the monthly sales.

If growing the sales comes naturally just because potential customers see the coffee cart as they walk or drive to work--and this natural growth adds 500 cups a month to the cart's sales--then the business owner needs to have enough "time" to get through the six month ramp, as the little table below shows.

Month 1: 1000 cups
Month 2: 1500 cups
Month 3: 2000 cups
Month 4: 2500 cups
Month 5: 3000 cups
Month 6: 3500 cups
Month 7: 4000 cups

The money resource is usually required, too. You know that. If you need equipment or inventory or working capital to operate, yes, of course, you must somehow get that before you start.

I describe this topic a bit in the article, How Can I Get Money To Start My Own Business? And I go into quite a bit of specific-to-a-particular-business discussion in the Starting a Business ebooks. Therefore, I won't go into a bunch of detail here. However, I do want to point out one thing: The requirement for financing, or money, often gets tangled up with the requirement that you learn the tricks of the trade.

Specifically, people commonly use money (or someone else's money) to compensate for not yet knowing the tricks of the trade. Sometimes this compensation is very explicit, such as when a business owner purposely buys a franchise for the franchisor's "secret sauce" formula.

Other times, the "money" versus "tricks of trade" trade-off appears when someone just makes dumb, expensive mistakes--and learns the tricks of the trade the hard way. In either case, however, notice that you do need more money if you don't know the tricks of the trade. Also, you will need less money if you do know the tricks of the trade.