A Change in Mindset: Approaching Small Business Startup Risks


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Although many small business risks can be mitigated through insurance, a fair number of risks are best handled through a change in strategy or mindset. For new entrepreneurs, the passion and excitement going into a new venture can at times get in the way of making the best decisions for the business. Michele Markey, Vice President of Kauffman FastTrac, shared with us her deep insight on some of the biggest risks new entrepreneurs face, and some sound methods they can use to help mitigate those risks.

Markey is no stranger to what it’s like to be a new entrepreneur who thinks they have it all together. As a sole proprietor for her own business, Markey explains that  her efforts certainly looked like success from the outside. “But the fact of the matter is,” she explained, “I was not working smart. I was working really hard, earning a decent income. By all kind of outward signs, I was very successful but I equate it to digging a swimming pool with a shovel.”

Markey explained to us that her first real change in perspective came when she took a class with Kauffman FastTrac.

“I ended up taking that class never thinking I might one day end up running that program for the foundation,” Markey said. “It fundamentally changed the way I thought about my business, the way I approached my business. In hindsight, I had a lot of risk inherent to what I was doing. Yes, some of it would have been covered by insurance but had something happened, such as an accident, it was me, myself, and I.”

Markey highlighted this to make a point about insurance: Yes, it’s important to purchase the standard insurance policies, such as general liability or commercial property. However, not all risks are covered by standard insurance policies, and when you’re running a business as a sole proprietor, some risk can be difficult to handle even with an insurance policy in place.

As for smarter and more extensive ways for mitigating business risks, Markey encourages entrepreneurs to think about things with a bit of a broader perspective. “In my role today, not only do we help people think about what it would be like to become an entrepreneur, the path to figure out your target audience, your customer, and your legal structure,” she said, “we really encourage people to think broader in terms of areas that can help mitigate risk. The mitigation can be really taking time to vet the market.”

Markey provided an example of what this might look like:

“A lot of people come to entrepreneurship just really certain they’ve hit upon something fabulous. We say, ‘Who’s your market? Who’s going to buy this product?’ and they say ‘Everybody’s going to want it!’ The fact is, that’s rarely true. And even if it were true, you only have so much money and so much time to get a message to a market, so you really want to target those people that are most likely going to want to buy whatever it is you’re selling.”

Markey explained that doing the legwork to really understand your market is one of the best ways to mitigate some of the risk you will have early on. But that legwork requires more than just a few hours on Google or in a business library. Markey explains that real research involves “spending time upfront out in the marketplace talking to people that are their potential customers.” That means avoiding making family and friends your primary source, as well. “They care for you, so they aren’t always going to be as objective,” Markey said. “What we really tell these would-be entrepreneurs is to get out and find out if people are interested in what it is you think you want to sell. Take all the feedback — all the good, all the bad — and evaluate where you are, what you’re doing, and are there things that maybe you weren’t aware of or that you may need to adjust.”

Dealing With Funding Challenges

Perhaps one of the biggest challenges for new entrepreneurs comes with funding. With funding also comes notable risks, which can include not getting any funding at all. Markey believes that entrepreneurs need to rethink how they go about funding as well, with more emphasis on having a solid plan that can help potential investors have more faith that the venture will be successful. However, “the vast majority of entrepreneurs are going to be bootstrapping at the beginning,” Markey said.

Markey also highlighted a particular nuance to funding that many new entrepreneurs may fail to recognize: a strong and talented team that can make the venture more viable. “People come with, ‘Hey, this is my cousin and he can do this,’ or ‘This is my fraternity brother’ or other friends and family,” Markey said. “If they have the skillset, I’m fine with it. But I know that you, as the entrepreneur, are not going to be able to do one hundred percent of everything.”

Instead of trying to go it alone, Markey says entrepreneurs need to be prepared to talk about the strong team of individuals they’ve gathered to make things happen. “I may think your idea is really great, but if I’m saying to you, ‘Tell me about your founding team’ or ‘Tell me about your co-founder’ and I don’t think you have the right talent sitting around the table to pull this off, there’s no way I’m going to give you money.” For Markey, that can include having a strong advisory board or a board of directors to help prove that you’re getting talent and advice from other skilled professionals.

Making the Customer the Primary Focus

For Markey, a solid business plan and a talented team are important, but a good entrepreneur will let the market and the customers do the talking. “The most important thing that they should be focusing on always comes down to the customer. Keeping a bead on what the customer is telling you, and being willing to iterate when need be and stay in tune with what the market is telling you,” she said.

That market, more than anything else, will dictate your success. Markey expounded on a true story of what that might look like:

“We have one lady who happened to be in a big city in the US. She had designed several products for the pet industry: leashes, harnesses, collars. She literally drained she and her husband’s life savings. They emptied out their 401K, their bank account, she messed up their credit cards, she’d taken life credit on their house. The market was telling her very clearly that her products were not what they wanted. The products were not well made, they were not big enough to not fit the animals very comfortably. Yet she was just sure she was one customer away from making it big. The fact is, she was probably one customer away from her husband filing for divorce. That is a true story. Extreme, but true.”

The last piece of advice Markey has for new entrepreneurs? Be realistic about your business. “There’s so much passion around people launching business,” she said. “They’re so willing to think outside the box and be innovative and creative and collaborative. They’re the coolest people to hang around because it’s a high-energy type of thing. But they have to have some realistic viewpoints about their organization too.” For Markey, that means educating yourself with the many resources available, including free asynchronous online courses that will be available from Kauffman FastTrac later this year. But, Markey explained, real education starts in your own community.

“There’s ample opportunity in the United States to get out and jump into the entrepreneurial ecosystem. You should go out; you should investigate resources in your community where other entrepreneurs are hanging out. Whatever it is, become part of the fabric of that community.”

 

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