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7 things every Michigan business startup must know

So you’ve got this great business idea, one that will liberate you from your current job or offer a lifeline after losing one.

With Michigan hurt by a marked decline in the number of new businesses created in the last decade, you think your idea is a sure-fire winner. Your husband thinks it’s a great idea, too, as does your Aunt Irene. Can’t fail, right?
Hold on a minute.

Business leaders contacted by Bridge Magazine for our recent article on the dearth of entrepreneurs in Michigan say they see new business owners make the same, critical mistakes that, with some work, can be avoided.

Read “Michigan and the death of Entrepreneurship”

Here are their tips on what steps to take ‒ and avoid ‒ to help your business succeed.

Stage 1: Planning your business

1. MAKE A BUSINESS PLAN

Before you quit your job and buy that commercial sewing machine, experts are unified on the need for a sound, well-thought-out business plan.

Banks require them, as does any lender. A business plan outlines how your product or service will sell, the costs involved, the marketing required. It is a blueprint for success, and a great way to identify gaps or weaknesses in your idea before you start.

You need to know what your costs are, how soon you can be projected to make money and whether you need to adjust your plans. Many people, said Shawn Preissle of the Small Business Development Center of Michigan, believe they don’t need a plan because they know what they’re doing. (The SBDC offers free business planning advice to prospective entrepreneurs.)

“You need a business plan, you need a map,” Preissle said. She said people who do not make a plan, don’t have map they will need to determine if they’re on pace for a profit.

“You have no way to determine that you are meeting your goals.”

2. IDENTIFY LIKELY CUSTOMERS

Tina Frazer helps businesses in St. Clair County, where she’s marketing manager for the Economic Development Alliance. Her No. 1 advice: Don’t assume someone will buy your cupcakes or your photo-book services just because you believe in your skills.

“Often aspiring entrepreneurs fall in love with their own idea and assume others want the product or service they plan to offer and are highly disappointed when they find that this isn't the case,” Frazer explained via email.

“Go beyond asking family and friends,” she said. This is one case where the Internet can be your friend. “Survey people in your community, neighboring regions and even globally.”

3. MANAGE STARTUP COSTS

Preissle learned this one the hard way. She started a business in Ann Arbor where people came in to cook meals they would then take home and eat over the next couple days. As part of the plan, she and a business partner spent over $350,000 on a commercial-grade kitchen, including $50,000 in cabinets.

“Our build-out was much more elaborate than it needed to be,” she said. “We didn’t need everything in the beginning.” In fact, she said the cabinets, suggested by a contractor, were never fully used.

The lesson: Don’t buy what you don’t need immediately. “If we had made better decisions on spending in the beginning we would have made more money in the end,” Preissle said. She ultimately sold the business.

So if, say, you’re starting a lawn care business, maybe the 36-inch mower will suffice rather than the 52-incher. Or buy used equipment to start and see how business goes before upgrading.

4. DREAM BIG, BUT PLAN REALISTICALLY

Preissle had a client who wanted to hem skirts. She figured she’d do it for $5 a skirt. When asked how long it took to do one, the woman said an hour. Preissle told her she’d then be working for $5 an hour; the women never came back to the SBDC.

Others estimated they could sell far more than was physically possible, Preissle said. Her point: Be realistic in estimating sales.

Neil Kane, director of Michigan State University’s new undergraduate entrepreneurship program at the Eli Broad College of Business, suggests another metric. “Everything costs twice as much and takes three times as you long as you expect,” he said. Plan accordingly.

Know too that starting your own business takes more than an idea – it takes money. And banks are leery of providing 100 percent of startup costs.

“If you don’t have a lot of cash to start, you can’t start,” Preissle said. It may come in the form of collateral (like equity from your home) it may come from your personal savings. But it’s going to have to come from somewhere.

The rule of thumb is having six months to a year of cash to cover expenses, though Preissle said four months is more typical.

Stage 2: Running your business

OK. So you’ve done your business planning, properly estimated costs and have enough working capital – cash – to sustain your startup. Here are some tips to remember now:

5. REMAIN WILLING TO LEARN

You may have a great idea, or a great skill honed by decades working for someone else. But that doesn’t make you a businessperson – yet. You may know how to make something, but maybe not how to sell it.

MSU’s Kane started a few businesses before coming to MSU and knows what awaits the entrepreneur.

“You will constantly be bombarded with things that will test your mettle, and may even seem counter-intuitive,” he said.

The solution: Find a mentor and be coachable.

“The best way to get through (tough times) is to lean on someone whom you know is on your side and who has the right experience and expertise,” Kane said.

Preissle agrees, and says organizations like hers offer free advice.

It was Preissle who helped Aimee Bozinoff recently. Bozinoff bought her parents frame shop, I’ve Been Framed, in Jackson recently after working with the SBDC. Preissle taught Bozinoff some basics: for instance, that it isn’t just about making frames and matting pictures – it was about inventory and sales and planning.

Bozinoff listened and now has the business. “I have a creative mind,” she said. “But I needed someone to help so the business didn’t fail.”

6. THE ART OF THE SELL

Many people planning a new business focus too narrowly on the product itself: you know it’s good and figure, heck, everyone else will love it, too.

But it takes more than a “build it and they will come” mentality. You have to sell, sell, sell.

“In the end, the success of your business is always about sales,” Frazer said. “If you're not gaining new customers, new sales and experiencing growth daily, weekly and monthly, this is a red flag. Sales are key. Focus your efforts on actions that results in sales.”

It’s not just the idea, Frazer said, but the small but important steps to capitalize on it.

Preissle said she’s seen the same thing: people who fail to properly market their business and find those sales. She said this is the “step” that is most likely skipped. They’ll call Preissle and wonder why things are slow. Then they admit they haven’t taken the marketing steps she suggested.

“Of course (sales are bad). They’re waiting for the phone to ring,” she said.

7. SEEK HELP

You may be self-employed but you don’t have to do it alone. Help is a call or email away. Organizations like the SBDC and local business groups are willing to share their expertise. Local chambers of commerce want to help. You city or village can probably lend a hand, and don’t forget that other people in your field can also be collaborative.

Preissle, who now dispenses advice, wishes she knew about the SBDC years ago. It would have helped her avoid some mistakes. The best part? It’s free.

You may still need an accountant and you’ll most likely be digging into your savings or seeking a loan. But resources exist. Still, owning a business can be frightening. There’s a lot of risk and hard work ahead. “It’s always got to be a little bit scary,” said Kane.

Still, the rewards can be great, he said. “It is excruciatingly difficult to build a successful business from scratch. But it’s also an amazing experience that is (fiscally) very rewarding, and could also secure your financial future.”

“Make sure you’re prepared for the journey.”

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