Once you’ve dug up enough pennies from between your couch cushions to start a new business, you’re going to need a plan. In the new book “How to Launch Your Side Hustle: Start and Scale a Business with Minimal Capital“, serial entrepreneur Troy R. Underwood shows you how to start, scale, and sell a business — step by step.
Using his previous company as a model of what to do — and sometimes what not do to — Underwood candidly takes you through the steps of building your business using low-cost techniques.
We recently sat down with Underwood to discuss why entrepreneurship is different than business ownership, how to gauge if your business idea is sound, and how to get started when you don’t have deep pockets.
Here is some of our conversation.
The dream of owning a business hits at the heart of America’s can-do culture. But you explain that entrepreneurship and business ownership are distinctly different professions. How so?
There are some semantics in this answer. I don’t think someone who opens a franchise can be viewed in the same way as an entrepreneur who creates an industry from scratch. While both people certainly take a risk, the entrepreneur who innovates within an industry has significantly added to the value chain, whereas the franchise owner is simply following a preset plan. Both paths are great for the right person, but they are different professions.
How can you gauge if your business idea is a hero — or a zero?
Sit down for an honest self-evaluation and ask yourself, “If I were an investor, would I invest in me and my business?” A business idea that might sound simple in conversation can transform into a multitentacled hydra when you actually map out the variables and pieces involved.
For example, have you clearly defined your customers, competition, and the short- and long-term market potential? Have you tallied up your start-up costs? Have you asked the hard question: “Am I the best person to execute this idea?” When you’re short on capital, being able to build your product or service yourself is a huge advantage. It’s not mandatory, but it’s a factor you need to address.
Once you’ve worked through these questions, ask a business mentor or even pay a consultant to evaluate your business model. Don’t just ask friends and family because they may not tell you the truth.
If you have a great idea—but don’t have deep pockets—you say it’s time to “think like Chipotle.” What has this brand done differently?
Chipotle’s founder, chef Steve Ells, originally wanted to launch a high-class, fine-dining restaurant. When he did the math and looked at the competition in his home city of San Francisco, he realized he didn’t have the funds to execute his idea. As he pondered what to do next, he saw that burrito joints were killing it, both in foot traffic and in what Ells estimated were their profit margins.
So, Ells launched a burrito restaurant — but not in San Francisco, where competition was high and real estate was expensive. He moved to Denver, Colorado, where burrito restaurants were not well-known (at the time) and started building his new restaurant, mostly with his bare hands and using a deliberately inexpensive aesthetic. The table bases were pipes. The service counter was faced with barn metal—materials that were low-cost and easy to install.
What Ells ended up building out of financial and market necessity became Chipotle, one of the most celebrated restaurant success stories in recent decades. I tell this story so that you can see that although it can be frustrating to be what I call a Necessity Entrepreneur — not having the deep pockets to immediately build your dream business — that same frustration can stimulate a level of creativity that enables you to build the next Chipotle.
What are some other ways to stretch your marketing and sales dollars?
Write articles for magazines and newspapers. Use social media to turn your customers into brand advocates. Use e-mail to reach, and retain, your customers and prospects. Speak at industry trade shows. Identify places where your prospects gather, go there, meet people, and talk to them about your product. This might be a Chamber of Commerce event or a professional happy hour, for example.
Every entrepreneur dreams of mega-success. But you warn that growing too fast, too soon, often leads to failure. What might this look like?
Growth, for as exciting and empowering as it feels to have customers paying for your products, is rife with pitfalls. Though it seems counterintuitive, many businesses spiral into failure because of their success. Adding new customers—or scaling your business, as the start-up world might say—can create immense strain and pressure on you, your product, and your people.
For instance, you may run into supply issues. The perfect system for 100 customers can fail under the weight of 1,000 customers. As you grow, customer service could eat all of your time; a simple increase in e-mail queries from prospects and customers can turn into a major problem, fast.
Growth and notoriety can also mean meeting a new standard of performance. Where customers were once okay with the solo entrepreneur coming to their office to address a bug in a new system, future customers are unlikely to be as patient.
In addition, there are times when you may want to hold your cards close to your vest. If you have a deep-pocket competitor who thinks you’re barely making ends meet, growing slowly may keep them from seeing there’s a huge opportunity they haven’t tapped.
What’s the one piece of advice you hope readers take from your book?
I hope readers take away a realistic expectation of what starting a company is really like. Behind the glitz and glamour, it’s a challenge that takes perseverance.
To learn more about Troy R. Underwood and his new book, visit his website.