No matter what economic theory you subscribe to, one thing is certain—no one starts a business with the intention to fail. Rags-to-riches startup tales are inspiring and give us clues on how to write our own success stories, and most share a common theme involving “the big idea.”
Extensive research with top consulting firms and 15 years in the trenches with small-business owners has proven to me that the ones who make it have a foundation in place that makes “the big idea” possible. It’s a common misconception that any one of the following breakthroughs will guarantee long-term success:
1. Breakthrough products: The entrepreneur who makes an overnight fortune with a mass appeal invention. Unless you’ve got top secret plans for the next Apple computer or have a huge R&D budget, creating this kind of “wow” product on your own can be tough.
2. Breakthrough marketing: A revolutionary branding strategy that suddenly adds a “wow” factor to an old or mundane product.
3. Breakthrough distribution: A lone challenger who goes against the establishment and changes the rules. The product and marketing are essentially unchanged, but the delivery system is more competitive than the status quo.
Every successful company faces setbacks. Products get knocked off by competitors or become obsolete. Slick marketing campaigns fail. Clever distribution folds overnight due to economic, technology or regulatory changes. Breakthroughs are important, but data shows that they’re not enough to carry you through hard times. You need a foundation that will hold up against the unexpected. Ultimately, you can’t control the events that affect your business, but you can plan for them.
Here are three preventive measures that any business can put in place to cut risk and uncertainty down to size. These examples are based on lessons learned by assisting over 6,000 clients with incorporation and credit strategies:
1. The right corporate entity: How and where you incorporate makes a big difference in the taxes you pay and the level of asset protection you get. For example, an LLC can be taxed four different ways and has several advantages over an S Corporation. Make sure that the entity you choose fits your circumstances, rather than taking the cheapest option. Whoever forms your entity for you should walk you through a comprehensive business checklist.
2. The right cash flow leverage: Most companies go under because of cash flow problems. Take steps from day one to separate your business and personal credit. Pay close attention to the vendors you choose and ask questions. Many do not report to the major business credit bureaus, leaving you without the credit history you’ll need to qualify for better lines of credit later.
3. The right business relationships: Study your market and know where your ideal customers go before they do business with you. By pairing up with the right joint venture partners and offering them a value-added marketing proposal, you can bring in a large volume of low-cost leads and quickly ramp up revenues without big advertising and marketing expenses.
Never give up on your big ideas—they give you a reason to persist when times get tough, so make sure you’re giving them the best chance for success. Great products, marketing and distribution are more likely to happen when you give them the right foundation. Having solid partnerships in place, access to growth funds and the right corporate structure can give you peace of mind through uncertain times.
Read more articles on how to grow a successful business.
As The Business Startup Expert, Scott Letourneau’s passion is to help entrepreneurs beat the odds and build a trustworthy foundation for success. Since 1997, he has helped more than 6,000 clients incorporate with confidence and get on the fast track to profits. He’s in demand worldwide as an author, speaker and business coach.