Missouri Business Alert reached out to three different experts across the state to understand more about entrepreneurialism in Missouri and what up-and-coming entrepreneurs can do to help their start-up companies become successful. Alana Muller, president of the Kaufman Foundation’s FastTrac program, Justin Pobst, business development associate at the Center for Innovation and Entrepreneurship at Southeast Missouri State University and Jerome Katz, Coleman Foundation Professor of Entrepreneurship at St. Louis University all responded via email with their insights.
Missouri Business Alert: What is something all aspiring entrepreneurs should have figured out before they start their company?
Alana Muller: Prior to starting up, it is useful for aspiring entrepreneurs to understand their ecosystem. Specifically, I recommend that people know who comprises their support network – that may include friends, family, advisors, mentors, team members, investors, etc. – anyone who is there to provide encouragement, expertise, information, connections and be an overall cheerleader for the business.
Justin Pobst: The most important thing entrepreneurs need to find out is if there is a true business opportunity for their business idea. There is a big difference between an idea and an opportunity. A good business idea without a good business opportunity is just that, a good idea, but probably should just stay an idea for the time being. Many new entrepreneurs create a new idea for a business or see an idea for a business in another geographical location and as long as they have a few people tell them it’s a good idea, they are quick to make the conclusion that it’s time to start the business. The best thing for aspiring entrepreneurs to do once they have a business idea is to do the proper market research to make sure they are able to match the idea with a good, solid opportunity. Places like your local Small Business Technology and Development Center (SBTDC) can help identify business opportunities.
Jerome Katz: The key is knowing what their customers want. The largest number of successful companies start from the needs or wants of a group of potential customers, rather than creating some product and service and then looking for potential customers.
MBA: What education is needed to be an entrepreneur? Do you just need to acquire a skill set for your company’s products or services, or should you have a business background?
AM: With or without a business background, entrepreneurs must have a business idea to run with as well as the passion and determination to bring it to fruition. Additionally, it is helpful for entrepreneurs to have a framework for developing their business ideas, conducting the necessary due diligence related to the market, target audience, competition, etc., building out their products and services and planning for the financing and long-term profitability of their companies. Courses like those provided by Kauffman FastTrac provide this framework as well as information, tools, resources and networks to help entrepreneurs start and grow successful companies.
JP: No one needs a business degree to be an entrepreneur. That has been proven time and time again. A good entrepreneur needs to be a driven, self-motivator and someone who has the confidence to take calculated risk. But I would also recommend that anyone looking to start a business that doesn’t have much business background to look into some training for business owners. Again, trainings like these can be found regularly at your local SBTDC.
JK: The type of education needed varies tremendously. Consider artists – most are self-employed, and would benefit from some knowledge about running their business, but central to their craft is knowing art. Often the business knowledge you need to start a business is something you add on top of the knowledge about your profession or craft or trade. Often getting the business knowledge within your profession, craft or trade can eb especially useful because it is tuned to the specific needs, standards, and practices of the line of business you’re planning to be in. When possible joining your professional or trade association in order to get access to that kind of training is invaluable. If your school provides that sort of training, it is a great alternative too. And thee is always free help from organizations like the SBA, the Missouri Small Business and Technology Development Centers and SCORE. That business education should look at legal and human resource issues, managing risk (a fancy way to talk about insurance), how to make sales and market yourself and your business, and most of all how to understand the numbers behind your business – how much it costs to make your product or deliver your service, and how and when your money is spent.
MBA: Where should they start when seeking funding? Do you find that the Midwest is a less friendly place for investors compared to somewhere like Silicon Valley?
AM: Funding options always depend on the type of business an entrepreneur is considering. Typically, an entrepreneur should start by bootstrapping his or her business – this enables the entrepreneur to retain the most ownership and control over the business. For high growth businesses, entrepreneurs may consider other funding sources. Whatever the case, there are pros and cons to each funding option.
JP: The first place to start when an entrepreneur realizes they will need to seek funding is to write a business plan. Many entrepreneurs think that writing a business plan isn’t glamorous or too hard to complete. The truth of the matter is a business plan is vital for any business owner regardless if they are seeking funding or not. All business owners, large and small, need to plan regularly. Lenders and investors want to see a business plan because it shows that you have thought out thoroughly how to get from “A” to “B”. Also by writing a business plan, the entrepreneur is forced to answer all the tough questions regarding the business. Furthermore, I believe it is very helpful for a business owner to take all the plans and ideas in their head and put them on paper. They usually find out that there are other things they haven’t thought about yet.
I wouldn’t say that the Midwest is a less friendly place for investors. I have worked with people who have found serious investors in their businesses or even business ideas here locally. There are many angel investor groups in our state who are ready to invest in ideas that have a high growth potential. There are also outlets for small loans from micro lenders to help small businesses get off the ground. Most of the startup small business owners I meet with don’t need large sums of money. A micro lender might be a good option if your bank isn’t very interested in lending to startup businesses.
JK: Today there are more ways to start a business on a shoestring than ever before. Setting up your craft business on Etsy.com or selling through eBay costs next to nothing. Selling services via eLance is also free to start-up. With modern 3-D prototyping machines, making a model of your proposed product has never been easier or cheaper. Nationally, most businesses start with money from the entrepreneur, supplemented with money from family and friends. With times being tough, that money is harder to come by for all of us, but is still the way to go. You can take that effort wider using crowdfunding sites like Kickstarter and IndieGoGo, but those are only workable if you drum up traffic to your online pitch. The Midwest has a lot of money and a long history of investing, that’s how farms and cities and companies grew. We’re just more quiet, more humble, about it, sometimes to our own detriment in the larger national scene. Silicon Valley is great if you need money or help to start-up a computer or Internet business, but its pretty much useless for traditional small businesses, for shops, for non-computer consumer products or even artistic endeavors. In the end, fund as much of the business as you can on your own – it makes for a more compelling story when you do ask others for money, and means you’ll own more of the business when others invest.
MBA: Are there any new struggles the business world has seen entrepreneurs face since the recession hit in 2008? If so, how can entrepreneurs overcome them?
AM: Often out of necessity, a recessive market breeds entrepreneurship. Challenges in such a market may include perceived scarcity of funds, lack of customers or the like. However, according to Kauffman Foundation research, more than half of the companies on the 2009 Fortune 500 list were launched during a recession or bear market, along with nearly half of the firms on the 2008 Inc. list of America’s fastest-growing companies. In 2010, an average of 0.34 percent of adults created a new business each month, equaling about 565,000 new businesses per month. So even in a down market, entrepreneurial opportunity abounds.
JP: I wouldn’t call them struggles, but there are plenty of new opportunities that have presented themselves since 2008. Just because a certain industry is seen as “struggling” doesn’t mean there are no opportunities for business owners. Take the real estate market for example. It is widely known that the real estate industry has been “down” since 2008, but there are plenty of opportunities for small business owners to capitalize on because of the current situation. I believe good entrepreneurs never look at situations as bad but instead are always looking for business opportunities even when the media and economists paint a gloomy picture.
JK: The problem the recession caused was that everyone’s customers were hurting too. You can’t make money if your customers don’t have money to spend. Surviving businesses readily accepted stretching out payments from their customers, and many got inventive around using barter and triangle trades (you do something for company A, they do something in turn for company B, and B does something for you). They also found ways to scale back, not just cutting costs, but offering new smaller sized products and services for cost-conscious customers – think about Steak & Shakes’ under $4 menu as an example.
MBA: For this particular section of the state, how is the environment for start-up companies and entrepreneurs unique, and what are some struggles that come with location?
AM: Every geography is unique and may pose certain challenges or open up opportunities that may be different than, say, being located on one of the coasts. For entrepreneurs located in the Midwest, that means understanding what resources are available to them, considering logistical challenges that being land-locked may create and focusing efforts on products and services that they can reasonably get to their clients within an appropriate cost structure. Additionally, entrepreneurs must also realize that they may need to look outside their immediate geography to find specific skillsets and resources – all of which technology makes easy to acquire.
JP: We definitely have certain industries present here in Southeast Missouri than other parts of the state and country do not have. Aspiring entrepreneurs need to understand and learn what are the best industries for their geographical area. Some areas of the country are simply better suited for certain types of businesses than others. But one of the beauties of living in the united states is we can work together to provide great products and services. And then when you add in the internet and all of its advantages, our boundaries become less and less of an issue.
I just hope that aspiring entrepreneurs continue to dream big. There are tons of business opportunities out there. With the proper planning and a never quit attitude, success is just around the corner. So if I could give one piece of advice to anyone thinking about starting a business it would be to not be afraid to ask for help. Go talk to other entrepreneurs, do plenty of market research and go talk with your local SBTDC office. There are a ton of resources out there to help aspiring entrepreneurs, but you have to take that first step and seek the help.
JK: The St. Louis Metro area is going through a remarkable entrepreneurial renaissance. With new accelerators like the Arch Grants and Capital Innovators, highly active mentoring programs such as Startup Weekend, InnovateVMS and ITEN, active investment groups like Cultivation Capital, the Arch Angels and my own Billiken Angel Network, and a full range of incubators for firms from high-tech to main street, it has never been a better time to start a business in St. Louis. Our biggest challenge will come in a few years as todays start-ups in Internet services and consumer products need larger infusions of funding than our angel groups can give. I think for many of us in the St. Louis region, the next challenge is getting new venture capital groups going to leverage and extend the renewing entrepreneurial community.