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From Paycheck to Pay Dirt: Blazing Your Own Trail As a Business Owner. First-time business owners starting a venture in unfamiliar waters face a special set of challenges. Here are three who tackled them with success.
July 1, 2011
After plans to open his off-Broadway, one-man play fell through, Greg Henderson did what many actors in need of a paycheck do: He started temping. He landed at financial research and credit rating giant Moody’s Investor Service in New York City, and within a few years was a manager in the firm’s corporate communications department.
The money was good and allowed him and his partner, Joseph Massa, to buy an apartment in Manhattan and a small cabin in the Catskills. But after years of long hours and distance from Massa, who had begun staying full-time at the cabin to work as a real estate agent upstate, Henderson wasn’t happy.
One weekend, the two discovered a run-down Catskills motel that had been on the market for six years. The structure included 11 units attached to a house built a century earlier on two acres of land near prime ski country. They were convinced this could be the perfect place for city folk to escape for skiing and relaxing in the mountains.
It took a year of chewing on the idea, saving and planning before the duo decided to sell the Manhattan apartment and purchase the Roxbury, N.Y., motel--aptly named the Roxbury--in 2003. There, they put their theater set-building skills to work, handling much of the renovation themselves and furnishing some of the rooms and the lobby with d馗or from their former New York City digs.
Since its grand opening in 2004, the Roxbury has become a well-known upstate getaway, attracting national media attention from the likes of New York magazine, National Geographic Traveler and the Today show. It has undergone two expansions, added a spa and now has 27 units, including some two-bedroom, lofted suites to accommodate families.
In his book, 6 Secrets to Startup Success, John Bradberry points out that one common mistake enthusiastic entrepreneurs make is to dismiss or underestimate competition. Doing so could lead to spending time, money and resources developing a solution to a need that is already being served. Instead, he says, look at the true need or desire of the customer and ask some hard questions:
標hat problem or need are you addressing?
標ho is your core customer?
標hat is the overall market opportunity (number of customers and sales potential)?
標ho is your competition?
標hat advantage do you offer over that competition?
"I call [these questions] the 僧arket scrub,’" Bradberry says. "If you can answer them honestly and thoroughly, you’ll have a good idea of whether your business idea is worth pursuing."
When Lee Zalben quit his job as an advertising executive to open New York City-based Peanut Butter & Co., the peanut butter sandwich shop he had dreamed up while still in college, he had no experience with the food business, but plenty of experience with profit and loss statements. That familiarity with finances helped him determine his startup costs, break-even point and how much he would have to sell to make a living.
Incorrect estimates of startup and operation costs trip up many new businesses, Babson professor Ceru says. He advises organizing a detailed plan of costs and revenue from the business launch until the point where it is expected to earn a profit. He calls the difference between the startup investment and the profit-making stage the "hole," which needs to be filled with one of several types of capital or investment, such as personal resources, loans or investment from family and friends, commercial loans or outside investment from angels or venture capitalists.
Beverding knew his racetrack wouldn’t be fast-growth enough to interest venture capitalists or most angel investors. Instead, he turned to friends and family. In exchange, five family members own partnership stakes, and his father-in-law purchased the property on which the track is located.
Henderson and Massa used the proceeds from the sale of their Manhattan apartment, as well as personal savings and sweat equity to purchase and renovate the Roxbury. Once the business began to make money, bank loans financed the two additions.
Zalben came up with his $100,000 in startup costs mostly through savings and credit cards. Yet even with his financial expertise, he admits his projections weren’t perfect.
"I took my best estimate and added 25 percent more to it. In retrospect, I should have doubled it," he says. "Everyone learns the hard way that it costs more than you think it will."
Of course, sometimes the best-laid plans go awry. Beverding’s track opened at the beginning of one of the worst financial crises in history. In response, he and Rivers shifted their business model to include corporate and driver education events and specialized team programs, which broadened their revenue base. Business slipped a bit, but still met fourth-quarter 2010 and first-quarter 2011 projections.
Similarly, Zalben shifted his vision from being the peanut butter sandwich shop king to becoming a peanut butter wholesaler. "Producing a product seemed to be a much more effective way to grow with less risk, less capital and potentially a lot more upside," he says.
The Peanut Butter & Co. wholesale line launched in 2003 and is now sold in 15,000 stores throughout the U.S. and Canada, including Wal-Mart, Kroger, Target and Whole Foods Market. With exports to the U.K., Japan, Australia and Hong Kong as well, the company rakes in more than $10 million in annual revenue.
There are no guarantees for success, author Bradberry says, but by taking advantage of the seasoning and experience you have, being aggressive in finding out what you don’t know about your business and being careful with money, you can significantly increase your chances. Lastly, be smart about ensuring there is truly a market for your products and services.
As Bradberry puts it, "An idea isn’t great until the market says it is."
Click here to view the full story on the Entrepreneur Magazine Website.