Ask Dr. Business – What is the first analysis an entrepreneur needs to perform?

In this week’s post, Dr. Business tells young entrepreneurs about the first thing they need to figure out when starting a business….and it isn’t what you think!

This week’s question:  What is the first analysis an entrepreneur needs to perform?

Dr. Business says:

You would think that anyone starting a new business would have a business plan – right? Wrong!

An even more basic is the need to develop a break-even analysis for their first year in business. When you consider that most entrepreneurs are using their own money and money that they have convinced relatives and friends to invest, shouldn’t they at least do some analysis as to how are they going to recover that investment, and at a minimum break-even for that initial year?

Every new business requires two levels of investment. The first just to get ready to do business, and the second the monies required to operate the business after you have opened the door. Even if you are only developing a new App, it costs money and time to develop and test the App. Then it requires more money and time to market the App. Hopefully, you will generate enough revenue from the App to cover these investments of time and money during the first year of operations. If not, then obviously you have lost money.

The question then is do you have enough money to continue the business? The statistics are that most new businesses fail within the first 12 to 18 months. Why is that? Primarily because there was no plan and as a result the founders ran out of money.

Let’s take something as simple as opening a bagel shop or pizzeria as an example. First, space has to be leased and constructed to accommodate the equipment required to make bagels or pizzas. Then, the equipment has to be purchased, installed and tested.  After which, the rest of the space has to be developed to accommodate customers, as well as adding a phone, fax, computer, and other equipment. This represents the initial investment just to be ready to make bagels or pizzas. Then ingredients have to be bought, employees hired, menu’s created, and some marketing and promotional materials developed to let prospective customers know you are in business. Once the doors are open, this second level of investments have been made, and will continue to accumulate as operating expenses.

Now the founders have to determine how many bagels or pizzas they have to sell every day, week, and month, to cover all the money that has been invested just to break-even, and is that possible? The question also remains “why should customers buy your bagels or pizzas, as compared to those of all of your competitors nearby”?

As this example illustrates, the planning that has to be done for any new business just to determine if it can break-even in the first year of operations is critical. It also demonstrates how easy it is for entrepreneurs to fail without doing this basic exercise before they begin.

Have you ever thought about how many bagels or pizzas your favorite bagel shop or pizzeria has to sell every day to make any money?

There is an old maxim: Nobody plans to fail…the just fail to plan.

Ask Dr. Business – Do I really need an MBA to start my business?

In this week’s post, Dr. Business answers the question about the need for an MBA to start a business.

Here’s what Dr. Business had to say on the topic.

The more education in business that anyone can get before starting a business is always a good thing. However, getting an MBA is not a prerequisite for young professional entrepreneurs who want to start a business. While all the courses they would take would help them with one aspect of their new business or another, MBA courses are really designed for those middle managers who want to continue to climb the corporate ladder, not start an entrepreneurial new business.

The exception to that is the MBA course on Entrepreneurship & Innovation that I teach. It is an elective and as such attracts MBA students who have an interest in starting a business, or at least getting to know more about all that is involved in the process. The primary deliverable in the course is the development of a business plan for an idea that they have had for a business for a long time. The value of the course for these MBA’s is that it gives them an opportunity to see if their idea for a business is commercially viable, or not. More importantly, they get to see how all the other MBA courses that they have taken contribute to managing a successful business in one way or another. Every year several of my MBA students in this course actually use the business plan they developed in the course to start a business.

There are a multitude of sources for young professional entrepreneurs to get advice and support. One of the best sources is the multitude of incubators and accelerators that are available now at many colleges, or affiliated with universities in one way or another. Colleges and universities also have successful alums volunteering to be mentors for would-be entrepreneurs. Lastly, there are a multitude of books that have been published and continue to be published on entrepreneurship and how to start and manage a profitable business. Success stories are also published almost every day in the business press.

The best advice I have for young professionals is to watch ABC’s TV show “SharkTank” to get a first hand view of how NOT to do it!

Join us next week when Dr. Business breaks down another burning question in the mind of the startup entrepreneur.

Soft Skills – A Career Killer

Soft skills are associated with one’s emotional intelligence quotient and are a main factor in the success of one’s individual contributions to an organizations success, either their own or someone else’s.  Soft skills are related to a cluster of personal qualities, habits, attitudes and social abilities.  They are a complement to hard skills; that is, a person’s knowledge and occupational skills.  Soft skills are important because they deal with personal interactions, which are a major factor in today’s global market.  These skills do contribute to organizational success, but more importantly, they will impact individual career success.  In research from the research firm, Leadership IQ, it was found in a study of 20,000 new hires, 46% of them failed within 18 months. But even more surprising than the failure rate, was that when new hires failed, 89% of the time it was for attitudinal reasons and only 11% of the time for a lack of skill.

Soft skills are a challenge for everyone.  These skills aren’t taught in college or the workplace.  For the most part, society rewards those with talents in specific soft skills, such as negotiation, influence, communication, creativity, networking or cross-cultural competence.  Today’s leader struggle with soft skills because of the global nature of business and the increasing demand for diversity.  Every culture places a different value on each soft skill and, in most cases, defines them differently.  For example, Americans love to negotiate, but the Australians don’t value it as much and are less confrontational than Americans.  Therefore, a balance must be utilized in such negotiations.  Too often leaders fail to regulate (or develop) their soft skills when interacting with other cultures and ideas.

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In a survey by Korn Ferry last year, CFOs mentioned that the most important skills they need now are not the technical skills.  It’s the soft skills, such as communication and interpersonal skills, that separate the great financial professional from the average one.  Why? Financial professionals are frequently becoming key decision-makers and business leaders in organizations.  They provide vital information needed for critical strategic decisions. Therefore, they must be capable of interacting with a diverse set of stakeholders – from peers to boards, investors to government officials – and they have to communicate such information effectively and efficiently.

The important part of soft skills is to understand what they are and how others define them.  This can be done by a simple process, reading.  In a book released in 2013, BT Consulting identified the nine key soft skills that are most important for leaders in the global economy today.  These include power, negotiation, influence, cross-cultural competence, communication, self-discipline, creativity, interpersonal relations and networking.  Once you understand these, you can utilize a simple 12 step plan to begin to improve your abilities with respect to each soft skill.

Here are the steps:

  1. Assess your weaknesses before someone else does. There are numerous tools on the web to help you identify the social skills you need to improve.
  2. Practice. Once you know what you need to improve practice, practice, practice. Mastery of almost any skill requires repetitive exercise.
  3. Ask for feedback. Get your friends, family and coworkers to assess your strengths and weaknesses. This gives you continuous feedback on your progress.
  4. Study the experts. We all know people who are really good at a particular social skill. Study what they do and ask them to support you in developing that skill.
  5. Take risks. Experiment outside your safe zone. This allows you to truly assess your authenticity, as opposed to learning specific behaviors in a common setting.
  6. Set specific goals. Don’t attempt to improve everything at the same time. Identify each skill you want to improve and plan it thoroughly. Then, implement the plan.
  7. Be active in groups and associations. There’s no better place to develop social skills than in a social setting. Be active. Participate.
  8. Get training where you need it. No college degree provides everything you need. You must seek continual improvement of your skill set.
  9. Fight your bad habits. You know you tendencies better than anyone. Learn to recognize them when they occur and change them instantly.
  10. Avoid today’s standard methods of communication. Don’t text, tweet or email. Engage in direct communication as much as possible.
  11. Focus outward, not inward. When practicing your skills, don’t focus on getting people to like you but focus on learning more about other people.
  12. Control your emotions. Focus on the skills you are trying to develop and avoid accepting the emotions pushed on you by other people. Building skills is tough. Maintain the proper attitude and people will respond positively.

If you’re going to work on your skills, the soft ones do more for career mobility than the hard ones.  Sure, you’re likely to work for some really challenging people in your career but you must remember to focus on improving yourself.  You can’t change them.