Entrepreneur must be willing to take risks

Question: I am hoping to start a business this summer. I am trying to determine how much money/capital I need to start. Some people tell me I need three months of expenses over and above my start-up cost. What do you think?

Answer: In starting a new business, you need just enough, but not too much, money. Every business is different, so the amount of money you need to start a business will vary. There are some very basic strategic tricks, however, that will help you make a fair estimate.

Ask yourself what is the minimum amount of work and expense necessary to complete your first sale. Next, figure how to do everything on a larger scale where profits are certain. From this point you should be able to determine how much money you will need.

A classical approach to starting a business is to hire a bunch of guys, rent a building, make a bunch of units, borrow or raise money and start selling. More likely than not, you will waste a lot of money with this approach. You will be inefficient until you make a lot of refinements in your business plan. Even if you can borrow or raise the money, you still have to pay it back to your banker or your investors. This represents a high overhead burden on your business that should be avoided. Never borrow money or accept an equity investment unless it is absolutely needed.

What it takes

Q: I feel I do not have what it takes to run a business. I hate confrontation. If there is a problem, I would rather run than fix the issue. What does it take to be an entrepreneur?

A: Your question should be stated correctly: “What does it take to be a successful entrepreneur?” Too many books and economic programs encourage anyone to start their own business. Anyone can do it, and many have. A large percentage – more than 80 percent, however, fail, often losing their life savings, their family and their self respect. So, not everyone should give it a try.

Successful entrepreneurs have to be generalists. They must be able to build products or provide services, conduct a sales campaign, keep a set of books and carry out the trash – all at the same time. They must be visionaries. They must be able to see the inter-relationship between a product, a consumer and a marketplace when it does not yet exist.

Successful entrepreneurs must be risk takers. They must accept the challenge to change the world. Establishing a new business is a change, even if it’s small. Remember that the world has a lot of momentum. They must be empathic. They must truly understand the needs of their customers as well as the needs of everyone whose resources must be relied upon (bankers, suppliers, employees, etc.) in operating the business. Successful entrepreneurs must be self-disciplined. They must commit the extra hours while balancing work with family.

Who to trust

Q: To my understanding, you work with a lot of high-rollers and sharks. How can you tell which people you can trust? I do not want to do business with the “Devil.”

A: This is a question that is asked in the framework of adding a business partner, hiring an employee, or making a business deal. You can’t do it alone. Even a sole proprietor needs a customer.

One approach to answering the question is to do a personal evaluation of the individual. Do they respect themselves? If they like who and what they are, it is less likely that they will misrepresent themselves and their relationship with you.

Look at their track record (not their resume). As people get older, they almost always do the same thing over and over again. If that is ripping people off or bolting when the going gets tough, you should be able learn that by talking to people in their past business relationships. That is what referrals are all about. If you don’t check them, you have only yourself to blame.

Determine what you have in common. Do you both enjoy creating things, building products, or talking to people? Do you both have kids in school, belong to similar organizations, have the same hobbies? By exploring what you have in common, you can better project how the person will react to a given situation and assess if that is the reaction that you desire.

Keep in mind that trust should not be confused with someone being a good person. Even a good person can hurt you. They may make a mistake because they did not understand, or demands were made beyond their capabilities. They may have, and should have, priorities such as their family. They may not be able to communicate their concerns. So, keep in mind that you cannot totally depend upon a person even if you trust them.

Greeley resident Russell Disberger is a founding member of Tekquity Ventures LLC, a Louisville-based specialty venture capital firm investing in technology development and licensing. He can be reached at (970) 7009, (303) 926-3990 or via e-mail at disberger@home.com.

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