Volume Number: 19 (2003)
Issue Number: 12
Column Tag: Starting a Business

Starting a Business

Pursuing the Dream

by Chris Kilbourn

Chances are, if you are reading this magazine, you are likely a coder, a hardware engineer, a systems administrator, a network manager or some mixture of all four.

But deep inside of you have a dream, a dream of being an entrepreneur.

You have code, a hardware product, or a web service you're working on that will rock the world and make you a mint -- if you only knew where to start. You learned how to sling code, balance capacitors and plumb networks, not read balance sheets or write business plans, after all!

Maybe your desire to strike out on your own and be your own boss is a burning flame, or maybe an ember just sparked. Maybe you've been nurturing your idea for years and have been slowly working towards realizing the dream, or maybe it just occurred to you in a flash of insight this morning while in the shower. But you know that at some point in your life you will strike out on your own.

I've been there.

In the Spring of 1994, I found myself working at a job where my fortunes shifted from a position that I thought embraced technological innovation, professional advancement, and learning into a bleak future of technological stagnation and mind-numbing sameness enmeshed within a static bureaucracy.

Hired to perform systems analysis for a multi-unit division at a large educational institution, I poured three months of my life into assembling a plan to integrate seven different departmental information systems that included scraps of paper, HyperCard stacks, FileMaker databases, Excel spreadsheets and VAX terminal systems.

The final plan incorporated client-server technology, the use of Newton PDA's for data-collection, and would have cut the time my division's departmental managers spent poring over budget reconciliation printouts to near zero. This was cutting-edge stuff in the early 90's.

After presenting plans to my two managers, I was duly informed that there was no budget to actually implement the plan. It seems that there were two vital bits of information they neglected to tell me during my interviews: first, there never really was any budget to implement a plan, but only budget for my position; and second, they thought it would take anyone they hired at least a year or two to pull together a plan. In the meantime, they could secure budget for implementation.

Needless to say, I was not amused.

Angry, confused, upset, and feeling misled, I retreated to my office for the next few weeks and stewed about the situation. Meanwhile, this thing called the World Wide Web was starting to pick up steam and I threw a copy of MacHTTPD on a Mac II in the back room, taught myself HTML in a day and set up a personal web site.

Working on the web server and posting copiously to USENET occupied most of my working days as I had pretty much completed the job task I was hired to do given the budget situation. It wasn't until I stumbled across a web-enabled database that the light bulb went on in my head on how to do the job I was hired to do using even more cutting-edge technology; for free, even!

I spent the next few weeks coding a demonstration for my managers, loading in departmental sample data, and re-writing the plan with these new web tools in mind. My presentation scheduled, the appointed day and hour arrived and I began my demo.

Explaining that this was brand-new, evolving technology with some current feature limitations that would shortly be addressed, I walked them through how our various departments could use the web for data collection and dissemination. As I wrapped up the presentation I laid before them the denouement: it was all free and would not require any budget. Silence settled into the room save for the gentle whirring of the HVAC and computer fans.

I will never forget the last five minutes of that meeting for as long as I live.

The managers looked at each other, looked at me, then shifted in their chairs and looked at the computer screen where I had done my demo, whereupon the division manager turned to me and asked:

"Where did you get the equipment to do this demonstration with?"

Not, "How does this work?" or "Is it really free?" or "I don't understand it, but it looks intriguing."

I was puzzled and did not know how to answer the question. I was expecting all manner of questions or comments from deployment times to resource issues, but this one came out of left field.

Confused, I explained the computer was one of our spare desktops that we kept on hand in case someone's computer went on the fritz and needed an immediate replacement.

I was then subjected to a harangue about the misuse and misguided deployment of division assets and how my time could be better spent on other tasks.

During this managerial tirade, I had a moment of personal clarity.

Namely, that it was time for me to move on and pursue a childhood dream of owning my own business.

I had greater aspirations than battling budgets and shortsighted managers for the rest of my career. The pension in the far future was enough of a reward for my co-workers daily toils, but for me, it was not.

As a network and systems administrator, I knew my way around file systems and routers well enough, but I felt lost in the wilderness when it came to figuring out how to take my idea and turn it into a business that people would actually pay me money to do. Never mind not knowing where I was going to get the money to start the business, nor understand how to market my service!

I think that there are a lot of you out there today who are where I was almost a decade ago: sitting on a business idea, but needing some encouragement and direction in order to leap into the world of the self-employed.

Now, almost ten years after I took the risk to go into business, the company I founded, digital.forest, is still going strong. Living proof that even if you are more comfortable, as I was, in front of a LCD screen, test bench, or patch panel than in front of a group of bankers, you can still succeed in business.

MacTech also thinks that there are a lot of you out there ready to chase the American dream, and over the next year we will be publishing a series of articles written by yours truly about how to start and run a business.

I'll share practical advice about how to start and run a small technology business. There are hundreds of books out there about how to write a business plan, psyche yourself up for the entrepreneurial challenge, where to find customers, and how to raise money to get started. I read quite a few of these books as initial research before I launched digital.forest.

It wasn't until years later that I learned that those books gave short shrift to the reality that few people will really read your business plan, that starting a business is a lot harder than it appears in the movies, that there are customers you do not want, and that raising money to get the business off of the ground and keep it going can consume huge portions of your time.

I'm hoping that by sharing some of my successes and failures, along with insight and advice about the nuts and bolts of running a business, that you can only receive from someone who's been there before, you will be able to get a leg up in getting your venture off the ground, while avoiding some of the pitfalls that I fell into.

Space will preclude me from covering every potential topic or issue that you might want to know about, so I would like to solicit your feedback and questions in shaping future columns. Maybe you have a question about patents and trademarks, or how to value a company for sale. Or maybe you want to know how to find a good office broker, or how to evaluate an advertising agency.

Send me your questions, and I'll do my best Dear Abby impression and devote some space in each column to answering them. If there is a question that is outside of my scope of experience, I'll use my network of colleagues, accountants, bankers, lawyers, etc. to find an answer for you. If I receive enough questions about a certain topic, I'll devote a full column to it.

Over the next several months we will examine:

• Why you would want to start a business. The long hours, the financial risk, the glamor of cleaning out the company refrigerator; who wouldn't want to start their own business?

  From frustration with a current job to realizing a childhood dream, everyone has a reason why they want to start a business. We'll take a closer look at how your motivation for starting a business can shape how you do business and define success along with exploring some of the hazards of choosing this life altering course.

• Business planning. Post-.com, it is now crystal clear to everyone that businesses without clear plans are doomed to failure (at least, I hope it is). Even though, in retrospect, my first business plan, (and even some subsequent ones) were laughable, they did provide a direction to move in when things were unclear.

  And no, your business plan is not the cocktail napkin you sketched out your idea on!

• Banking, legal and accounting issues. I know that most of you would much rather be cleaning out the bit bucket, or taking a spin at front-line technical support than spend your time dealing with bankers, lawyers, and accountants. But, like regular visits to your dentist and doctor, these folks are vital to the health of your business, and you need to know how they can help you.

  Believe it or not, I've met professionals in these areas that knew more than I did in some technical areas, so set some of your preconceptions aside. I'll help you ferret out the smart ones who won't gouge you, and cover the basic things you will need from them.

• Bookkeeping and financial management. It's all about money. You have to pay attention to it, or you won't have any of it.

  Just like debugging code, an oscilloscope or a packet analyzer, having a firm grasp on business financial metrics will provide you with a powerful tool for decision-making, and assist you in evaluating business performance. We'll tour the balance sheet, income statement, and chart of accounts with an eye towards the vital bits. My mantra has always been cash flow, cash flow, cash flow, and I'll explain why.

• Business structures. LLC, C-corp, sole proprietor, partnership, LLP, S-corp. Learn how your business structure affects your future growth, and how to select the correct one for your type of business.

  Organizing with the correct business structure has huge implications for future growth and taxes. Select the wrong one, and you could be making an expensive mistake.

• Sales. Arguably the most difficult thing for a technical person to learn how to do effectively. However, without selling, you'll be out of business faster than curry through a baby. Learn how to take your expert knowledge and turn it into a sales tool.

• Marketing and advertising. Besides taking out a two-page, 4-color spread in MacTech, there are other ways to promote your business.

  From guerilla marketing to free and low-cost advertising, there are a myriad of ways to let the world know that you are in business, and worthy of having your customers send you their cash.

• Staffing and recruiting. With the current economic climate, looking for staff is an invitation to be bombarded by electronic and paper resumes and phone calls from potential employees and staffing firms.

  Many businesses founder due to poor staffing choices and the founder's inability to let other people do work. Unless you're working as a lone ranger, you will need to learn how to hire, manage, and most importantly, delegate.

• Fundraising. A black box to most, finding the money to start and grow the business can be the hardest nut to crack. Many businesses fail because they don't have enough money at the outset to grow to profitability. Business books euphemistically call this "under-capitalization."

  Only call a potential investor on the second day of a stock market upswing. Bankers will tell you what they need from you in order to loan you money, you just have to ask them. Selling your product or service is the most reliable way to raise money. Friends and family want more than their money back. I'll cover these, and other secrets of raising money to get off the ground and fund growth.

• Growth and management issues. Growth can kill and has killed companies in the past. (Apple Computer is the exception, not the rule.) Learn how to manage your company's growth before it strangles your business.

• Success and failure. So, you made millions, or left nothing but a smoking hole in the ground. Now what do you do with the rest of your life?

  The Fear of Starting A Business

  I know that some of you are sitting out there right now, thinking about taking the plunge of becoming self-employed but you are been held back by the fear of taking the risk. I know that I was partially terrified before I made my decision to quit my job and start digital.forest. Even though my job was terrible, it did have great benefits, and the paycheck did clear when I deposited it. Letting go of that safety net is an act of faith in yourself, but it does not require you to let go of your fear.

  I was afraid that I did not have what it would take to make the business a success. I was afraid of all of the debt I would incur. I was afraid that it would take time away from other things in my life that were important to me. I was afraid that there were people out there who were smarter than me, who were better-funded, who had run a business before, and who would crush my business.

  What I found was that no matter my competitor's experience, stockbrokers have it right: past success does not guarantee future performance. The flip side is also true: past failures (or lack of experience) do not guarantee future failures.

  I found that the debt, while painful, did not kill me. I found that it did take me away from some important things in my life, but opened up new interests and introduced me to new friends. I found that even though there were people who were smarter, better-funded and had run a business before, they were so busy running their own business, they didn't have time to pay attention to me (Some of them even helped me out from time to time).

  Unless you have the emotions of a rock, you will find that fear can be the greatest enemy of your success. I've met people who seemed to be the most self-assured and successful people in the world and they have confided in me their fear of being overextended, of their competition, and of their ability to successfully navigate their business through treacherous waters. It just comes with the territory.

  You need to be aware that fear creates one of two responses in animals, human beings included: fight or flight. Fear can crush you, or it can spur you on to greatness. You need to believe in yourself and your dream and if you do not, you are not ready to pursue the dream.

  Each time I found myself in a hard spot, I thought back to that moment when I realized it was time for me to start a business. The fear of returning to that type of work environment was always greater than what I faced.

  Find the touchstone of your dream and use that as the bedrock upon which to stand and face your fears.

  Disclosure

  In the interest of full disclosure, I am neither a lawyer, an accountant, nor a banker; I don't even play one on television. I'm just a networking/systems administrator who learned business management skills the hard way, by doing.

  That being said, before you go off and make any sort of decision that has legal, tax, or financial implications, consult with a professional in the field.

  The Reality

  I'm hoping that these columns will help you out on the road to starting your own business or help you with your existing business. Everyone should be aware of the fact that starting a business is hard work and that most businesses will fail within their first few years. The statistics do not lie. According to the Small Business Administration, 50% of small businesses fail in their first year and 95% fail within five years.

  Your goal is to be in the 5% of businesses that succeed.

  Starting a business is not for the faint of heart. It will be hard work, it will take you away from other things in your life like family, friends, and hobbies, and it will require sacrifice.

  If I had known how hard it would be to start digital.forest, I never would have done it. It negatively impacted my health, my relationships and my financial situation for several years. Yet now I cannot imagine not being involved in some sort of business endeavor as an owner or principal. For the rest of my life, I will always be involved in starting businesses.

  In the end, no matter your motivation for starting the business, you do it for yourself. Just be aware that the deck is stacked against you and that you need to hold your dream close to your heart in order to be successful.

  Good luck!

  Next month: How the decision to start a business will change your life.

  ---

  Chris Kilbourn is an independent small business, network and web infrastructure consultant. Chris is also the founder of digital.forest, Inc., http://www.forest.net, which offers database, application and web hosting services in addition to server colocation. When he's not out running marathons, you may contact him at chrisk@forest.net.