- Why It's Difficult for People to Quit Their Jobs and Start Their Own Businesses
- Make an Objective Decision About Starting a Business by Setting Aside Anxieties About Risk
- Determining What You Want Out of Life
- Having a Good Sense of What's the "Worst Thing That Can Happen" if Your Business Fails
- Researching the Business Opportunity
Researching the Business Opportunity
The third activity or task that helps people set loss aversion and the endowment effect aside and objectively assess whether starting a business is right for them is researching the specific business opportunities they are considering. Taking time to learn the ins and outs of an opportunity is largely what makes business owners moderate rather than high-risk takers. The most common way to reduce anxiety in any facet of life is to collect information and become well-informed. It is also one of the most common forms of advice given to prospective business owners. "If you're ready to take the risk of starting a new enterprise, research your business carefully before taking the plunge," says Tony Lee, an editor for StartupJournal, the Wall Street Journal's Web site for small business. "Even though business failure rates aren't as high as we think, aspiring entrepreneurs need to do their homework."13 Similar words of advice are provided by Stephen Light, the founder of Flow Corp, a company that makes high pressure water cutting machines. "Before you launch a new service, you do everything you can to understand it and try to mitigate the risk surrounding it."14
In our experience, there are three primary ways that prospective business owners successfully approach the task of researching a particular business opportunity:
- Get advice from experts and informed people.
- Gather general information about an opportunity.
- Write a business plan.
Candidly, our experience has taught us that people who frequently kick around the idea of starting their own businesses but never actually do are often guilty of engaging in none of these activities. Again, one of the primary reasons that business owners don't tend to perceive starting a business as being as risky as the general public might see it is that they have studied the process and have an informed awareness of the potential risks and rewards involved.
The first approach that prospective business owners often take to research an opportunity is to talk to informed people about the opportunity/industry they are thinking about entering. People often surprise themselves by the quality of feedback and advice they are able to obtain from industry leaders and other informed individuals simply by asking for help. This point is affirmed by Larry Smith, the founder of SMITH magazine, which features amazing stories about ordinary people. When asked what advice he would give to aspiring business owners, Smith replied:
- "Don't be afraid to ask for help. I learned that 9 times out of 10 people are usually nice. I just went to people and said, 'Hey, I'm working on this new magazine, and could I speak with you about it.' People are amazing! I went to the editors of ReadyMade (a magazine for people who like to make things), and they could've easily looked at me as a competitor. Instead, they just laid it out for me. I wasn't afraid to cold call anybody, and it just amazed me how fantastic and helpful people can be. What's the worst they can do? Say no!"15
Another approach prospective business owners use to collect information and reduce their anxieties about a particular opportunity is to ask people who are in the business or industry about their experiences. This approach was pursued by Carleen Peaper, the owner of a Cruise Planners franchise. Prior to buying the franchise, Peaper contacted a number of current Cruise Planner franchisees to see what their experiences had been:
- "I was really apprehensive about making an investment of my time and money into a franchise, so I e-mailed 50 Cruise Planner agents with a set of questions, asking for honest feedback. Everyone responded. That was a big thing that helped me determine that I wanted to join them. I also liked the way the company runs. They give us support, training, and tools but let us run with it. You can work with big groups, luxury travel, or whatever fits you."16
This type of feedback is invaluable. It not only provided Peaper a sense of the level of satisfaction that Cruise Planner franchisees have, but provided her additional information about the way the company operates.
The second way that prospective business owners conduct research is to study industry (or business-specific) books, magazines, Web sites, and databases. If you don't know where to start this type of pursuit, a good place to begin is by visiting a college, university, or large public library. Simply approach a reference librarian and say, "I am thinking about starting a business in the cruise industry (or whatever industry you are interested in), can you direct me to information that might be helpful to me?" Often, a wealth of insightful information will flow from this type of inquiry.
Other strategies for conducting business research include reading industry trade journals (which can be easily identified through an Internet search) and industry-specific magazines and by studying the Web sites of potential competitors. Attending industry trade shows is also a good strategy. Also reading business magazines geared toward small businesses, like Fortune Small Business, Inc., and Entrepreneur, can provide invaluable insight and information. Reading these types of publications is also a confidence builder. As shared in Chapter 1, the more people in traditional jobs read and learn about business owners, the more they come to realize that owning and running a business is well within the reach of most individuals.
The third way that prospective business owners conduct research in an effort to learn more about a business opportunity and overcome risk anxieties is to write a business plan. A business plan is a written document that carefully explains every aspect of a new business venture. In many instances, having a business plan is a sheer necessity. Most bankers and investors, for example, won't consider financing a business that doesn't have a formal business plan.
Publications on how to write a business plan are available at bookstores like Borders and Barnes & Noble and local Small Business Development Centers, and SCORE chapters often sponsor workshops on how to write a business plan. Most business plan are between 20 and 30 pages long and follow a conventional format outlined in the books and taught through the workshops. Although writing a business plan may appear at first glance to be a tedious process, a properly prepared business plan can save a business owner a tremendous amount of time, money, and heartache by working out the kinks in a business idea and by providing a firm understanding of the risk involved before rather than after the business is started.
Writing a business plan is not a trivial event. A well-conceived plan normally takes several days or weeks to prepare. The upside is that for someone who is serious about a particular business opportunity, writing a business plan will reveal more about the potential risks and rewards involved than any other single activity. If the plan reveals to a prospective business owner that there is too much risk surrounding a particular business opportunity, reaching that conclusion should be considered to be a successful outcome of the business planning process. It is better to fail on paper than for real. Conversely, the plan might reassure a prospective business owner that the business idea is viable and has a high probability of succeeding. This type of conclusion would help a prospective owner set aside loss aversion and the endowment effect and move forward in pursuing the business opportunity.