Once upon a time the so-called “home office” market was a pot of gold hidden at the end of a rainbow. Maybe it will be someday. And, maybe more important than that, home office businesses are at the very least real, employing people, getting things done and growing.
I first noticed the so-called home office market back in the middle 1980s, when I did my business from a home office (so perhaps my attention wasn’t entirely by coincidence). I was consulting for a living in those days, doing planning and related research mostly for high-tech companies. I was also writing a monthly column in Business Software magazine. And one of the markets most of my clients wanted to reach was what they called the home office.
The problem, however, was that the people who ran their home office businesses didn’t really make a market. They were out there diffused in the world, without an identity, without much in common with each other and without product identity.
What did a home office need that was different from what small businesses needed? What did a home office buy, different from a general small business? It was hard to tell. In comparison, the mobile travelers needed some predictable items and read predictable magazines. So did the students, the engineers and so on. But not home office businesses. Or so it seemed back then.
Earlier this week Steve King of Emergent Research tipped me off to new research about home-based businesses that adds a new angle on the lure of the pot of gold. In his post “The Rise of the Homepreneur,” he offers real numbers from a new report based on data from the Network Solutions Small Business Success Index. The report is available here. And some of the key findings are:
Home businesses employ more than 13 million people.
Nearly 6.6 million home businesses generate at least 50 percent of the owner’s household income
35 percent of home businesses generate $125,000-plus in revenue and 8 percent more than $500,000.
So with new data from a new angle, it’s not that home office businesses are necessarily a market; it’s that they are a lot of people doing business, making money and doing (I hope) what suits them. And a reminder, as well, that “home office business” doesn’t mean inconsequential; the millions of businesses in this study are supporting people, employing people and generating real money.
And if you dig into the study, they are being taken seriously by customers and clients. And they offer lower-cost startup alternatives, too.
Sometimes I worry that in blogs and such there’s so much attention to new market, social media and new trends that we forget the basics. It’s a matter of learning to crawl first, then walk and only then run. Before you worry too much about your Twitter profile and website, cover the basics:
Signage, Appearance, Ambience. OK, I admit, if you’re solopreneur doing an expert business only on the web, then yes, worry about your website and your Twitter profile. But that’s all we ever hear on blogs and Twitter, when there are so many businesses worried about that while not doing the basics in the real world. My favorite coffee place in Bend, Ore., had been closed on Sunday. Last weekend it had a sign outside on the lawn, facing the traffic on the street: “Now Open Sundays.” Simple is good, right? I’d been going somewhere else on Sundays automatically; now I won’t. Think about how much you judge a business by its outside appearance. Does the signage fit the promise? Sometimes quirky and rustic is cool (some restaurants, an antique store, jams and jellies maybe) but how is it for German-Japanese auto repair? For years I’ve walked by an old office in a beaten-up office complex with dark windows and old curtains and a very old wooden sign, looking like it was done in a high-school shop class, saying “Business Planning Concepts.” No, I don’t think so. And if your face on the world, your appearance and your ambiance are your website, then, yes, work on your website.
Directories and such: being found where people look. What used to be the Yellow Pages is now Google Maps, Yahoo! directories, Bing, MSN, AOL, not to mention the local Chamber of Commerce, directories in local newspapers, specific trade and industry directories, related website directories. Think about where and how people look when they want to find a business like yours. Be there.
Be an expert. Don’t ever underestimate the power of being quoted by others in your area of expertise. Sure, there’s a lot to be said for working with related blogs, making comments and so on. But you can start with local events, trade shows, local media. Can you write for the local Chamber of Commerce magazine? Do you know the editor of the local newspaper? Can you be a speaker at the industry show?
Serendipity: you can’t do any of the above without figuring out whom you think your customers are, what they want, where they look for solutions, and so on. You’re already on your way to a marketing plan.
I want to recommend storing this somewhere for future reference when people fall into the trap of overemphasizing the idea in the success of the venture.
Oh, and the successes? Have you heard of them? How about AOL, Twitter, Intel, Microsoft . . . and those are just the first four. Microsoft (the example shown here to the right, an early picture of Microsoft, with Bill Gates at lower left) started doing a BASIC compiler for the Altair 8800, a computer that ceased to exist before the company made any money.
The point is that most businesses evolve. Business plans evolve. You don’t blindly follow the plan; you keep reviewing and revising the plan until you figure out something that works.
Eliminate Paper and Filing with Screen Shots “I’m finding I can eliminate a lot of paper and filing expenses–not to mention filing and recovery of documents–by taking quick screen shots of web orders and travel documents and such. I save them on my CPU unless they’re travel documents, in which case I save them as JPGs and put them onto my iPhone.”
Use the Amazon Cloud “We’re saving several thousand dollars a month now by having moved our servers from a server farm somewhere else to the Amazon cloud. We get much better up-time and response time, but for significantly less money. We’re also using the Amazon cloud for storing files and backup.”
Insist on Price Reviews from Existing Vendors “When the recession was at its worst we pushed our vendors that provided phones and the office internet bandwidth to redo their pricing. We found that vendors we’d been with a long time were giving new customers much better deals than existing customers, and we insisted on a review.”
Hold Meetings Online Instead of Traveling “We’re using the web conference for webinars and to host meetings, often one-on-one meetings, to reduce our travel costs. We’ve had success with both WebEx and GoToMeeting. We’re finding the simple meeting online as quick and easy, and a lot more effective, than getting on the plane.”
I’ve included these here because they were mine, which makes them automatically my favorites. But they aren’t the best of the bunch. The entire post is good reading.
I had a slightly disturbing talk with an entrepreneur at a smartups.org meeting last Thursday night. Smart-ups is a local group getting entrepreneurs together in the Eugene-Corvallis area in Oregon.
This man will probably make it. There was nothing dumb or naive about him, and he was old enough to know better. But the underlying assumption he seemed to be making is worth posting about.
He asked me how he would get money to start a new venture related to worms and compost. He seemed surprised, and maybe even discouraged, by my realistic answer.
I said relatively few startups get investment; that most startups make it on their own, from grit, work and getting something they can sell to customers early on.
I told him investment is really only for companies that can grow quickly and sell out soon enough (three to five years) to make it worth the investors’ money. For the investors.
And I told him that investment is particularly hard to find these days. And that he should look at how to get his company up and running on a smaller scale, and start selling.
I was surprised and disappointed that he seemed surprised and disappointed.
Do what you love and the money will follow? That’s been true for me in my life. And within reason, at least, it might be for you, too. Watch the video. Let Guy Kawasaki explain. (And if you don’t see that here, then click here to go to the source.)
This three-minute reminder from Kawasaki is what we baby boomers would call “an oldie but goodie.” I found it over the weekend on Stanford’s eCorner entrepreneurship video site–which is an excellent resource. It’s a collection of talks, broken conveniently into segments like this one. It’s from 1993 and, despite recession and a lot of changes, it’s holding up just fine to the ravages of time. It’s as valid today as it was then.
I do have that one reservation, however. I hope it’s obvious. If you take this idea too literally, and do what you love without any regard for what other people will pay for, then it doesn’t work. You need empathy and common sense. Love skiing? Teach it, make gear, do a store, build a website, do something related that people will pay for. Does that make sense?
A Twitter friend (Matt Riopelle) asked me to help his friend (call him Ralph) find investors for his business.
Offhand, even without knowing either of them, I’m sympathetic. After all, if you keep up with this blog, you’ll know it’s a topic I care about. And I’ve posted here about my recent experience as an angel investor (and if you’re wondering, no, I’m all tapped out at the moment), so I’m not surprised by the question.
I looked at Ralph’s website. It’s an interesting business, local to me, with new technology for an otherwise traditional and low technology business. New materials, a new take on old products. And they’re making a product I use.
So I’m interested in the problem.
(And if you wonder why I’m not being more specific, I don’t have anybody’s permission to mention the business, and seeking investment can be sensitive. Besides which, it’s also possibly illegal (depending on interpretations) to mention a business that’s looking for investment on a blog like this; could be taken as soliciting investment improperly. That’s why I’m not giving details.)
But first, some questions:
1. Are you really sure you want to go that way?
Sometimes I think we all (we entrepreneurs, that is) move too quickly to the investment alternative. Having investors is like having a spouse. No, it’s like having a spouse who is also a boss. Your business is not going to be yours ever again.
Oh? What? You want minority investors who give you a lot of money without attaching any strings? Fat chance. You mean you want somebody who has a lot of money (they have to have a lot of money, to make the transaction legal) and is also relatively naive? And really generous? Good luck with that.
Take a good look at your prospects. Do a business plan, not for outsiders, not formal and hard to do, just a business plan with realistic forecasts for sales and expenses. Then ask yourself whether you can get by without the investment. Can you borrow enough to make it work? Can you live with the burden of debt? Have you considered SBA-backed loans (they are moving again), which lessen the debt burden?
Don’t go down the investment path just because everybody says you should. Think about the rewards of making it work without the outside investors, so you own it all yourself. Food for thought: this post on Planning Startups Stories.
2. Do you have a business plan?
The good news is that you don’t have to have a plan you can show to investors tomorrow. You do, however, need to have a plan for yourself, covering strategy, markets, sales, profits, cash flow, all the key points. These factors are all related to each other and you can’t just wing it. You need to have real numbers.
And it’s not about showing the investors your plan. That may or may not come later. It’s about knowing what you need, and why, and what that’s going to produce.
3. Do you need enough money to interest investors?
Angel investors don’t usually want to deal with less than $100,000, and venture capitalists don’t want to deal with less than a couple of million dollars. Sure, there are exceptions, but those are general rules.
And you can’t just say you want it; you have to be able to show you can use that money to grow the business. You have to have a real plan, what you’re going to spend the money on, how it will increase your business.
If all you need is tens of thousands of dollars, then bootstrap. Maybe you have to get friends and family involved, but really, for less than six figures, it’s not worth it to professional investors.
4. Can you grow your business a lot, in a few years?
Investors who put money into small businesses are taking big risks and they deserve big returns. They don’t have to invest in entrepreneurs, they can lose their money just as easily in the stock market, and they can get safe interest with no risk. So you have to give them the hope of a big payoff.
That means big growth. Can you convince them your business can sell five times what it’s now selling in two years? Or ten or 20 times in five years? That’s what they need to make money worth the risk.
5. Do you have a convincing team?
Investors are going to want track records, people on your team who can run the production, marketing, sales, and administration of your business. They want people who have done that kind of thing before, sucessfully. If you don’t have them on your team, then the investors won’t be interested.
If you can answer yes to all of those questions, then you’ll likely be able to get investment (although not from me, but I can point you in the right direction).
It’s about The Funded Founder Institute, a four-month, $450 program to run selected entrepreneurs (including, by the way, wanna-be entrepreneurs) through weekly sessions with mentors and experts, ending with a certification that should smooth the path to investment.
This is just starting, but it looks like a great opportunity. Adeo Ressi, the founder, has a great track record in startups–with VC funding and successful exits–and what he’s after is getting a few people a better chance at a more level playing field. Learn the ropes before you get in too deep.
If you can’t hack the $450, he’s got a number of Microsoft BizSpark scholarships to offer, too.
So if this sounds at all interesting to you, apply now. Applications close May 9. The application costs $50. The window is closing for this first run.
I think this is likely to be a really interesting opportunity.
Adeo promises that selection will be reasonable. He wants a broad group of potential founders. And they won’t necessarily all be headed for venture capital, not even necessarily for angel investment or even any investment. There’s even some language on the main site inviting bootstrapping startups as well.
Also, he says he doesn’t want just sophisticated, experienced startup people. He’s also looking for people without experience who want to learn.
Do you have a start-ups group where you live? I think it’s a pretty good idea. I’ve watched how three interested people got one going where I live, I’m seeing it working now, and it’s definitely a good thing.
Specific example: Yesterday around 5 p.m. I went over to a local hotel where we had our Eugene (Ore.) Smart-ups group meeting. There was some milling around, then some welcoming, a talk about an upcoming local angel investor contest with $150K to the winner, then a panel discussion on bootstrapping–with two people who are up and running as bootstrapped ventures–a presentation on basic financials and then, at the end, two five-minute elevator speeches chosen from business cards drawn out of a hat.
While this may be of specific interest to you if you’re in the lower Willamette Valley area of Eugene and Corvallis in Oregon, I post it here because you might want to look at your own local groups.
If you don’t have one, start one. What’s interesting to me is that Smart-ups is the kind of thing you could do in a lot of different places. Here’s how they did it here in Eugene:
Smart-ups was started a couple of years ago by a small group of people who missed having a start-ups organization where they could get together every two or three months and hear experts, watch presentations, share experiences and keep up with what’s going on in the local area.
They connected with the local chamber of commerce, which has been a strong supporter, by talking to the chamber leaders. The chamber has helped them organize meetings, offered online registration, speakers and organizational help.
They set up a group name and a website. They started talking about what kind of events they could do.
They connected with the local Small Business Development Center by talking to the SBDC leaders. The SBDC has become a supporter in a number of ways.
They started with events, which they called “pub talks,” including some start-up presentations, workshops, etc.
Then they connected it to a statewide entrepreneurs network and a statewide software association, by talking to the leaders of those groups.
By now they have connections to both the University of Oregon and Oregon State faculties (one in Eugene, the other in Corvallis).
Last night they had a full room at the local hotel, maybe 150 or more people, and a good program. So Smart-ups is up and running, the local area is better off, the organizers are proud, and people are looking forward to the next event.
I get asked frequently what’s the deal with friends and family, as in funding your startup with people who aren’t sophisticated investors as defined by securities and exchange laws. What that means, in a nutshell, is that it can be illegal to take money in exchange for stock from someone who doesn’t have the income or net worth as defined by the government as the minimum that makes that person a “sophisticated investor.”
And I probably don’t have to remind anybody about the obvious fact that we’re going to be seeing a lot more bootstrapping in the near future.
For years now, I’ve complained every so often about how we (in blogs, business plan contests, academia and entrepreneurship in general) tend to idealize the venture capital-financed startup, the SBA loan and the more formalized and carefully planned financial strategy. This is especially true in venture competitions.
And, frankly, I’ve earned the right to post about bootstrapping because Palo Alto Software, my company, didn’t get outside financing or even a straight business loan until it was already 13 years old and didn’t need it. We grew it from zero to 30-some employees the old-fashioned way, meaning we had to sell something and get the money from it before we could spend something.
It wasn’t easy. At one point we had three mortgages and $65,000 in credit card debt. That’s a nightmare.
On the other hand, having built a business through bootstrapping means that when you do it, you don’t have co-owners, investors or partners as quasi-bosses; and you don’t have to repay the bank, either. It’s yours.
There’s a lot to be said for not having debt when you get to the hard times.
And also the simple fact that the best financing is sales. Money from customers. You get to spend it, and it validates your business at the same time.
As I write this Thursday afternoon, I’m about to take off from my office in my home town of Eugene, Oregon to Myrtle Creek, a small town about 90 minutes south of here, where I’m going to be conducting a workshop on business planning.
I think this is a very interesting example of what local governments can do these days to actually help local businesses. The city government of Myrtle Creek has purchased 50 copies of Business Plan Pro for local businesses, and invited me to go down the interstate a bit and help people get going with their planning.
As I leave–which is when I’m posting, although I’m scheduling it to appear Friday morning–I think it’s a great idea, and I’m happy to be participating.
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