By Jonathan T. Scott

(All rights reserved. The following material is copyrighted.)

Not long ago, a medical researcher in London spent a free afternoon visiting an art gallery. One of the more intriguing displays he saw used magnets to move colored metal particles in glass tubes. Another used the repelling force of a giant magnet to levitate a series of smaller ones. Sometime later, while sitting in his laboratory, he inexplicably thought of these exhibits, which led him to the astonishing realization that magnets can also be used to push and pull ionized cancer medications directly into tumors. Apparently art and science - or indeed, magnets and medicine - are a good mix.
Business also has the ability to merge two seemingly unrelated fields, which is why this document is split into two parts. Part one deals with starting a new business; the second explores why new products either fail or succeed. Viewing each section separately is meant to show how the two compliment one another. First, however, note that the researcher in the example above would not have developed his groundbreaking treatment if he had not started out with a genuine passion (in his case, saving lives). Just as important, he prepared himself by undertaking rigorous training to get where he wanted to go. It’s no different for those wishing to start a new business or launch a new product. Prospective entrepreneurs should have a passion for what they hope to do and know the purpose and goals behind making a major change in their life or business (which is what entrepreneurship entails). Equally, they must prepare for the road ahead. This type of honesty, insight, and dedication will prove valuable in ensuring that the rationale behind a business endeavor is valid.

Popular opinion suggests that owning a business means working flexible hours, not being beholden to anyone, having the ability to make one’s own decisions, and, in effect, being completely independent. Unfortunately, the realities of commercial enterprise suggest otherwise (see Chapter 10). Equally as misguided is the notion that because life has not quite turned out the way one had hoped, entrepreneurship is as good an instigator of change as any to chart a new course to success. But this line of thinking also shows a lack of basic business understanding. What is needed to be successful in business, say many experienced entrepreneurs, apart from a sound idea and a combination of good reasons, is a desire to set out into the unknown with the heart of an impassioned explorer and the mind of a business contractor. In addition, entrepreneurs must understand that a journey laced with risk and laden with hard work, sacrifice, and setbacks, is an accurate depiction of what lies ahead. As proof of this, consider the fact that in some cases up to ninety percent of new enterprises go out of business within the first three years of operation. For many people, the assumption is that these firms went bust due to poor business practices or unforeseen environmental influences, but a number of researchers suspect that most of these ‘failed’ businesses probably ceased to function because at some point the owners decided that the rewards were simply not worth the effort – so the plug was deliberately pulled.

Good Reasons for Thinking About Starting a Business
A number of professionals suggest that people who are interested in starting their own business should begin the entrepreneurship process fueled by several of the following good reasons rather than one or two:

1. A desire to be one’s own boss and handle more responsibility
2. A love of difficult challenges.
3. The seeking of career independence as well as more control over life and its direction.
4. The invention, development, or innovation of a new product or service.
5. A major change has occurred in the candidate’s life (i.e.: divorce, disability, job loss, pregnancy, retirement…).
6. A current job is going nowhere.
7. Money has suddenly become available (i.e.: an inheritance, the lottery, the selling off of assets…).
8. An opportunity has made itself known (i.e.: a local business is up for sale; a group of people whose needs are not being met has been spotted; or a product or service people would pay for has been discovered).

Poor Reasons for Starting a Business
Following is a list of poor incentives held by many prospective entrepreneurs as a reason to begin a business. The reason many experienced professionals consider these to be misleading motivators is because they are usually not enough to sustain the needs of a commercial enterprise.

1. Desperation. While desperation can be a powerful stimulus, it also often leads to poor judgement, rash decisions, and dangerous leaps into untested waters.
2. There is nothing else to do. Feeling that no other options are available shows a lack of commitment and passion – the two most essential elements of every new business challenge.
3. There is lots of money to be made. This is usually a pipe dream. Entrepreneurs must be realistic with their expectations and know the difference between making a one-time-only profit, making a living, and day dreaming.
4. Owning a business will make life easier. Unfortunately, having a business usually increases one’s responsibilities, which does not make life easier.
5. The entrepreneur can’t work with others. If a prospective entrepreneur can’t work with other people then he or she will have countless problems dealing with customers, bankers, landlords, suppliers, local and/or federal agencies, a parent company (if franchising) and many other individuals who are both directly and indirectly involved in almost every private enterprise.
6. Owning a business will provide more free time. Running a business is time consuming and life consuming. Every person interviewed for this book said that he or she worked longer and harder as a business owner than they ever did working for someone else.

When is the Best Time to Start a New Business Venture?
Questions about timing are difficult to answer when it comes to entrepreneurship. Some enthusiasts claim that there is no better time than now to own and run a business (or launch a new product), but excitement and hope should not be confused with commitment. Simply put, if prospective entrepreneurs are not prepared to write down, research, and address exactly what it is they wish to do, what it involves, and how the process will be tackled – a procedure that could take six months or longer - they are probably not ready for business ownership. Just as important, critical outside obligations (i.e.: the onset of medical treatment, college tuition payments, financial problems, unresolved crisis, personal dilemmas, and so on...) must be taken care of first to avoid distractions. The understanding and support of spouses and children should also enter into the equation because, as many experienced business owners say, most entrepreneurs don’t see much of their loved ones during the first few years of a new business venture.

There are only two reasons why a commercial enterprise should undertake the time, effort, and expense of introducing a new product or service: (1) customers have shown that they want it and, (2) demand is deemed sufficient enough for the proposed product to make a profit. In other words, successful enterprises sell what customers want to buy rather than what the entrepreneur wants to sell.
The best way to justify these two reasons for introducing a product is through research. The more research a business conducts the less risk it undertakes. Equally, the costs behind manufacturing a product or service should often directly relate to the amount of research that must be performed. For example, it may not be necessary for a restaurant to conduct an expensive, full-scale research study to determine its next menu item, however, a new line of merchandise that involves equipment and raw material purchases, employee training costs, distribution plans, and other investments in time and money, requires significant scrutiny. Why? Consider this statistic: on average, out of every one hundred proposed new product ideas that are conceived by manufacturers, thirty-nine begin the development process, seventeen survive it, eight reach the marketplace, and only one achieves the objectives behind introducing the product in the first place (Steven & Burley, 1997).

The Main Reasons Why New Products Fail
Following are the most common reasons why most products fail to achieve their objectives:

1. The potential market was poorly studied and/or overestimated.
2. A ‘me too’ type of product was offered, which was no different from the competition’s.
3. The costs of developing the product were higher than budget restrictions allowed.
4. The product was improperly positioned in the market.
5. The paying public saw the product as too expensive.
6. The product was poorly designed.
7. Competitors fought back harder than anticipated.

The Main Reasons Why New Products Succeed
Products are more apt to produce a profit when the following is done:

1. A well-defined concept was initiated beforehand in which the market was thoroughly analyzed, customer requirements were met, and the benefits of the product were made abundantly clear.
2. The product is seen to be unique and superior to its competition.
3. A successful merger between technology and customer needs was made.
4. All stages of a successful product launch were addressed (customer needs were determined, the product was well designed and thought through, extensive tests were conducted to ensure the product would be purchased by its intended customers, development needs were met, a cost analysis proved profitability, production methods were found to be sustainable, delivery times and targets were feasible, and the product was well marketed). (Please turn to Chapter 40 for a further look at product introduction.)

Preparing for the Rough and Tumble of Business
By now, the similarities between starting a business and introducing a new product or service should be readily apparent because both processes are virtually the same. Both demand passion and determination, both involve risk, and both can gobble up the unprepared. As famed Hollywood film producer Mike Todd once said, the meek may inherit the earth, but not in our lifetimes. Stated differently, those who set out on their own by starting a new business venture will be challenged every step of the way. Hope, excitement, anger, frustration, or desperation with a current job or product line may not be enough to propel most people through the entrepreneurial process. Instead, one should have valid reasons for taking a commercial risk by, in part, being able to prove that an opportunity is valid. Other considerations include the work and economic environment where your new business or product is envisioned. According to a report titled Doing Business in 2004 by the World Bank’s International Finance Corporation (IFC), the countries or regions where the following five categories are made relatively easy usually provide a good place and future in which to start a commercial enterprise and/or conduct business. Here’s what you should look for:

1. A low amount of rules, regulations, and licenses required to make a business and its activities legitimate (as well as a relatively short amount of time to process all necessary paperwork).
2. An ability to hire and fire employees with relative ease.
3. The capacity to draw up and enforce a legal contract.
4. The ability to obtain credit or borrow money, and,
5. A low number of steps and procedures that must be followed for a failing business to either close down or declare itself bankrupt.

If an entrepreneur finds himself or herself in a location where any of these factors prove to be difficult, he or she must acknowledge and prepare for the challenge that creates. The bottom line, says restaurant owner Bernard Marche (founder of the Chick-a-Chick franchise in Warsaw, Poland) is that whether you are looking to start a new business or introduce a new product, the best time to begin is after you have searched and fully explored your inner self as well as all the environmental, economic, and financial situations that surround you.

Advice from Successful Entrepreneurs on this Subject

1. Avoid the temptation to begin a new business venture by rushing into uncharted territory or leaping before looking. Know the unexpected places where an entrepreneurial lifestyle may lead. For example, if you are a woodworker who loves his or her craft, but you’re sick and tired of laboring for someone else and want to spend more time working with wood, bear in mind that running your own wood-working business may involve more administrative than creative work.
2. Yes, it is possible to bake cookies, or build a piece of furniture, or design a website for a friend and be paid for it. But if you want to turn these pastimes into a business you must first find out if producing them on a regular basis can secure a living. Is there a market for these products/services in your area? Will the money you generate be enough to pay a mortgage and bills and support your family?
3. Before taking the entrepreneurial plunge, prepare for the obstacles that stand in your way. Novel situations in business are rare so it is possible to determine much of what lies ahead by doing some research.
4. Don’t leave a paying job to start your own enterprise until you have first sorted out exactly what you want to do, the direction you want to go, and the best time to start. Indeed, it may be prudent to keep your first job while you thoroughly examine all your self-employment options. That way you won’t be deprived of much-needed income before you begin.
5. If you have a good idea and have already done your research, move quickly and prudently. Procrastination is a killer in the business world.
6. Whether starting a business or launching a new product, remember that the idea is to score goals, not just kick the ball. 100% commitment is mandatory.

Sources
Becket, Michael, The Daily Telegraph Small Business Guide to Starting Your Own Business, MacMillan, London, 2003.

Burley, James & Steven, Greg, ‘Three Thousand Raw Ideas Equals One Commercial Success’, Research Technology Management, May-June 1997, pg. 16-27.

Pascal, Richard, Managing on the Edge, Penguin Books, New York, 1991.

Reese, Jennifer, ‘Getting Hot Ideas From Customers’, Fortune, 18 May 1992, pp. 86-87.

World Bank Group (International Finance Corporation), Doing Business in 2004: Understanding Regulation.

(Note: The material in this document was collected from an original research project. The results of this study are due out, in book form, in 2008.)