Up and Running:

The roads to starting your own business are not mapped and paved. You have your own path. If it takes you in that direction, good luck to you.

I don’t think many people go through any well-defined series of steps. We start businesses because we want to prove something, build something, do something, not do something else, create something–or for some other reason.

I see a lot of startups, but I almost never see startups that began with people vaguely wanting to own their own business or be their own boss and then sifting through menus of business opportunities, choosing one and building a business. I’m sure it happens. But I’m also sure that much more often, the entrepreneur sees the need or the possibility first, then builds the business while pursuing his or her own path.

You grow up, get an education, get a job in something that interests you that might or might not be related to your education. You see something that could be done better. You see something you want to do. You get an opportunity to join somebody else, helping with his or her vision. You find a way to get somebody to pay you to do what you like, instead of something else that you don’t like.

Follow your own path. It’s not a good business or bad business according to the times or the type of business. It’s a matter of whether or not you believe in it and you want to do it.

(Image: Jaqui Martin/Shutterstock)

The good news here is that this post–the actual title is 7 Steps to Creating a Winning Coaching, Consulting or Service Business–is done by a true master in the field, John Jantsch, author of Duct Tape Marketing. And he’s not recommending anything that he hasn’t actually done himself.

However, that’s also the bad news. John makes it seem easy with his step-by-step guide, but then he’s not just a master of this, he also started early in the blog world, he’s really smart and he really works hard, too. For every successful expert blogger, author and coach like John, there are about 10,000 other people trying to do it, but not getting there yet.

John’s seven suggested steps (very abbreviated here, by the way . . . John offers much more detail on his post):

1. Turn your service into a product. Selling services is a little like selling air.

2. Develop a suite of tools and systems. Making it up over and over again with each engagement, writing proposals and reacting to client demands is a very tiring business. When you can guide a client logically through the path to success with a professional process, your business will become more profitable with each new engagement.

3. Build a brand that’s easy to talk about. It’s crucial that you can tell a story worth repeating and make that a foundational marketing element.

4. Push out lots of expert content.

5. Lead generate from multiple outposts. To build a winning practice, you need to generate awareness and trust by appearing everywhere. This means speaking, writing, advertising, PR and referral generation.

6. Perfect your lead conversion close. I’ve found that writing proposals and reacting to what a client thinks they need can drive you nuts. When you take the tangible product approach married with the expert content approach, lead generation is more about getting in front of the right prospects and explaining “this is how we do it” in a way that addresses what you know they need.

7. Construct a killer network. A strong network is also a powerful business tool for the solo entrepreneur to use as a sounding board, sanity check and social outlet to replace the interaction that often comes with working with an internal team.

Going back to the bad news, as I read this, I’m very much afraid that John has skipped the first step: Know what you’re talking about. Get your credentials. Be a real expert. Without that, John’s recipe won’t work.

And perhaps I’ll finish by rocking back over to the good news side: If you do have that kind of expertise, John has packaged his steps exactly as he recommends you do, and you can buy that from him at Duct Tape Marketing to make it much easier to implement. And John isn’t the only one; several others are doing the same thing. For example, Pamela Slim, with her Escape From Cubicle Nation book and workshops, is also sharing huge volumes of good advice on how to do it.

That is, if you have expertise to share.

Steve King of Small Business Labs has a nice post Wednesday on necessity entrepreneurs. Citing UC Santa Cruz professor Robert Fairlie, Steve says:

Fairlie is the lead author behind the  Kauffman Index of Entrepreneurial Activity and a leading entrepreneurship researcher. His work shows that self-employment increases during times of economic stress and flattens out during good economic times. This is due to necessity entrepreneurs returning to traditional employment.

So no big surprise here. People are starting businesses because they have no other choice. Several million people have lost jobs in the current recession, and unemployment is higher than it’s been in decades (where I live, in Eugene, Ore., our local paper said yesterday we’re over 14 percent.) So not only are people getting laid off, but there are a lot of people already out looking.

Sure, all of that sounds pretty bad, but Steve offers some good news, too, in his post:

The good news for necessity entrepreneurs is that the cost of starting a small business, and especially a small business based at home, is lower than ever before. Technology has become inexpensive and, in many cases, even free.

And while most necessity entrepreneurs will return to traditional jobs, our research indicates that a growing number of displaced workers find they prefer self-employment. The reasons given by these people for preferring self-employment are the same as other small business owners. They prefer working for themselves, job and work flexibility, passion for their business and work/life balance reasons.

I also think it’s good to acknowledge that a lot of startups are spurred by more than ideas, passion and entrepreneurial spirit. At some point you also ask do you have a choice? And, if you don’t, you deal with it.

Or, maybe, even enjoy it.

Over the weekend I discovered Software by Rob, where Rob Walling blogs about software from the point of view of the one-person business, which he calls “micro entrepreneur.”

A series of posts there reminds me of one of the fundamental facts about starting a business that relatively few people understand: There’s a huge difference between starting a product business and starting a service business.

It’s relatively easy for an expert to start a service business. Think of the graphic artist, the landscape designer, the market researcher or the social media coach. What you need is mostly what you know. Plus a computer, an office–maybe–and, most important, clients. Even one good client will do.

With a product business, however, there’s almost always so much more involved. Design, packaging, prototypes, channels of distribution . . . it goes on and on.

Rob Walling is talking about software people and not the world in general, with his post “The Software Product Myth”, from last November.

I tried to get at this in Understand the Risks, from my Hurdle: the Book on Business Planning. As you look at the chart here …

… what I was trying to show (I know, not the world’s most beautiful chart) is that the successful business offering a service, in blue, typically takes less money to start and has a smaller upside. The chart shows cumulative money–a hypothetical, conceptual chart–over time. The successful startup business offering a product, in green, takes a lot more money to start, but has more upside . . . that red line is the downside–a failed product startup business, a reminder that spending the money doesn’t mean you’ll ever get to the upside. That’s what we call risk.

A good reminder: TechCrunch says Twitter’s getting more investment money, and at a $250 Million Valuation to boot. And Twitter doesn’t make money. It just keeps getting more use, and from more users.

What’s this mean?

1. Big winners can still get more money.
2. Some of those big winners are still on the investment musical chairs track. Get investment money, spend it, then get more money at a higher valuation. Without ever getting money from customers (users, advertisers, sponsors or whatever) as normal revenue. Twitter’s a great example.
3. But caution: This is more money, which is not the same as the first money. Twitter’s already there, and some people with money think it’s worth a lot of money. One way to get more investment is to already have investment. That gives investors a vested interest in keeping you going.

The lack of a revenue model tempts me to post about bubbles and such. I’ve been fooled before by the idea that traffic is worth money. Even so, I still think that at some of these very big winners, such as Twitter and Facebook, traffic is worth money.

I’m keeping my fingers crossed. I’d like to see Twitter make it. I like to use it.

Startups can be so incredibly different, one from the other, but unfortunately we talk about them as if they’re all just startups.

It’s night and day, or apples and oranges. One person sets up a blog or a web page offering services, such as graphics, consulting or planning, and the business is born, voila! Another person gets a team together around a new business idea, and it takes establishing, developing a plan, pitch, prototype, seed funding and so on.

I’ve done a lot of work on how different a small service startup is from a product-related startup: There’s less risk but also less to gain, and usually nothing much in a service even to offer to investors. Products give you leverage, but they take a lot more risk and more money. And in this context, a website is a product, even if it offers a service.

I really liked Seth Godin’s post today, Making vs. Taking, because he gives a completely new angle on splitting things up. In this case, he’s talking about new ideas and new business vs. displacing or shaving off a piece of existing ideas. Making vs. taking is a good way to look at it.

Riddle: What do you call a board of directors that has no power?

Riddle: What sounds official and legal but probably isn’t; sounds expensive and probably isn’t; sounds like a good idea and might be, or not; depending on who you are and how you implement it?

You guessed right: The board of advisors.

Here’s a real case for you: Here at Palo Alto Software we had a board of advisors for a couple of years in the late 1990s, during a period in which we roughly doubled our sales over three years.

We had three advisors. We paid each of them $1,000 for the day, plus travel expenses, for two or three half-day meetings per year. One was former CEO of a large and successful software company. One was a very smart middle-aged entrepreneur with a heavy finance background, and successes and failures in his past. Another was the former dean of the business school.

The meetings were mostly fun, interesting, and useful. We’d talk about strategy sometimes, finance sometimes … one meeting was dedicated to whether or not we needed to find a vice president in charge of marketing, a position we hadn’t had during our ramp-up period.

We eventually let the board of advisors lapse. As we grew as a company, we acquired more functional expertise inside the company (for example, the people who now run it as CEO, COO, VPs of Product Development and Customer Experience, and Managing Director of the UK Subsidiary) and the function was essentially taken in house.

And here’s another case: Not long ago I was asked to be a member of the board of advisors for a website I like, developed by a person I like. Duties were never established. But in this case the website had a financial institution as a parent (investor), and the financial institution wanted me to sign a formal document giving them rights to use my name forever, and pointing out in excruciating detail, that in exchange for that I’d get nothing whatsoever, ever. So no, thanks. I didn’t sign, I’m not on the website. But I still stay in email contact with that developer, because I like him, and I like the site.

And a third case: I’ve also been asked to be an advisor by yet another person I like, whose website I like, and in this case there is no formality to it. He asks me questions occasionally by email, sometimes even by phone, and I give him straight answers. That’s cool. One of these days I’m going to hit him up for some low-level options or something like that.  But he doesn’t ask much, it’s a moot point. And my name isn’t on his site.

The trick here is that what we did doesn’t mean anything, necessarily, for you. Or for anybody else. The board of advisors is what you decide to make of it. You don’t need it. If you want it, you may or may not have to pay for it. Here’s some more on this:

• It’s not a board of directors. The board of directors is a formal legal board established in the charter of a corporation. The owners name the board members. The board hires the management team, approves loans, compensation, and so on. There may be exceptions, but you can assume every corporation has a board of directors. And you can also assume that members of the board of directors have some ownership as well. And liability insurance. Directors can be liable for the sins of the companies they supposedly direct.
• There are no generally accepted guidelines for how or how much, if anything, a company pays the members of a board of advisors. Ours were paid, and many are, but many more are not. In high-end startups looking for investment, advisors are often compensated with stock options. In that case, if the company hits it big, the options are worth something; and if not, oh well, not much loss either. Sometimes advisors have actual shares of ownership.
• There are no generally accepted guidelines for what advisors do. In our case, they traveled to Eugene (OR) to meet with us, they listened, discussed, and suggested. Sometimes entrepreneurs get active advisor contributions like regular advice, meetings, phone calls, or emails. Sometimes advisors do nothing more than dress up the website and the collaterals.
• I see advisors used most often in high-end business plans linked to seeking high-end venture capital investment. Advisors with experience add to the sense of an experienced management team. They are common in business plans submitted to venture competitions. As I read those plans, I look for formal ties that build relationships, like ownership, or at least options, and regular meetings. If there isn’t something to solidify the relationship, then I don’t really believe it.

So I hope you can see that the questions in my title for this post are trick questions. A board of advisors is whatever you make of it. And there’s no reason to have one unless there is a reason to have one. That’s up to you.

Talking about starting a business? Before you start the talking, identify yourself and your business on this scale. It makes a huge difference. Try to choose one of three possible choices, the one that most applies to you and your business.

1. Just get going: you don’t need anybody’s approval except possibly your first customer or client. You’re a consultant, artist, artesan, professional service, or something else that doesn’t require building a product, or packaging, or design. Nobody has to approve your plan except you. You have what you need to get going, or the money you need to acquire what you need to get going.
2. Building something: You’re looking to start a business that requires more start-up money than you have, maybe more knowledge than you have. This is like a restaurant, an auto body shop, a retail store, a serious website, anything that requires building serious products, or packaging, or significant market launch. For the restaurant, as an example, by the time you buy the expresso machine, the chairs and tables and stoves and ovens, hire the people, develop the identity, prepare the location, you’ve spent serious money. You need investors, or partners, or (gulp) a lot of debt.
3. Planning to fly: You have worked with a successful startup or two or three behind you, you’ve got a team ready, and you have an idea that seems to offer very high growth of sales (or maybe web traffic instead of sales, if you’re in that world) and reasonable prospects of defensibility.

All three of these are startups, but they have very different needs and wants and prospects. One of the things I want to do with this new blog is distinguish between these different kinds of startups. Much of the writing and thinking about startups applies to some but not all startups. Here are some examples:

1. What do you need to start a business? I’m a business planner, I have been for years, so you think I’m going to start talking about the business plan.
   • However, while I do think everybody benefits from planning, if you’re in that first group — the get going group — when what you really need, can’t start without, is at least one customer. I supported my family with planning and research consulting for more than a decade before Palo Alto Software took off, and that business started with a customer (Apple Computer) before there was a plan.
   • If you’re in the second group, the builder group, then yes, you need to develop a business plan. You can’t get customers until you have a location rented and fixed up, you have assets in place, you’ve launched the marketing, etc. You don’t have the resources on your own, so you’ve got to involve others, and that takes a lot of explaining, and making commitments, and, frankly, it’s just dumb to try to go that way without having a prepared plan.
   • If you’re in the third group, intending to fly, some of the more fashionable high-tech and highly-visible ventures of recent years were able to land at least verbal agreement on venture financing without actually completing a full traditional business plan document. They used pitch presentations and personal track records and personal commitments. Those, however, are the exceptions; most of the high flyers need a plan whether their investors read it in detail or not, because they can’t build a pitch without a plan and they can’t manage without a plan. Of course some of them avoid the plan because they confuse it with a brick wall, but that’s a different post.
2. The legal steps change. The “just get going” crowd doesn’t really need to sweat the difference between corporations and partnerships and LLCs and ficticious business names. I ran my consulting business for years using my real name and my social security number. I didn’t worry about corporate umbrellas or the extra expense of legal formation because — who was I kidding? — it was just me and my client. I was a lot more worried about how long they took to pay invoices than about them suing me. Those of you in the “planning to fly” group, in contrast, are going to have legal work coming out of your ears, lots of jockeying for position between your lawyers and their lawyers, with their lawyers having the final say because they’re writing the checks. You builders will need good attorneys to set you up right, with the details depending on what you’re doing, resource levels, which state, and other factors.

So those are just a couple of examples, but I assume you get my point. In this blog, talking about startups, let’s establish a better mode for talking about apples as apples and oranges as oranges; or something like that.

– Tim