starting a business in the current economic downturn

Foreword 2

First Things First: Establish a Point of Reference 4

Will People Rave About You? 6

Build a Fan Base 8

The Business Plan Myth! 10

The Internet a Start-upʼs Best Friend 12

Build a Business Model that Works in a Recession 13

Do Your Research The Practical Way 14

Trade Shows - Are They Worth It? 15

What to Copy From Established Businesses 16

The Phycology of Getting Investment 17

Picking an Investor - Do Due Diligence on Them 18

Your Start-up Team 19

Donʼt Fear The Financials 20

LostJobStartBusiness.com 21

Starting a Business: In The Current Global Downturn

Brought to you by LostJobStartBusiness.com 1

ForewordMany people around you are feeling depressed. They think that there is no hope. Maybe you or some of your friends and family have lost their job. The picture right now is a lot darker than it was a short two years ago. So, what are the options? What should you do to get your life back on track? You see, if you listen to the nay-sayers and doom merchants you can do nothing. You are just a passive spectator as greater powers try to rebuild the global economy. If you sit idly by, waiting for an economic upswing your situation is not likely to improve. In fact, your situation is likely to get a lot worse.

You must wake up and smell the coffee. Look, everything has changed. This is great news for innovators and creative people who will help bring about a new economic paradigm. Are you one of those people?

Businesses are failing right now because their business model is obsolete. They didnʼt change with the times. They couldnʼt or in a lot of cases, wouldnʼt adapt. You should at least investigate the possibility of setting up a business with a sustainable business model that can not only survive, but thrive in the current economic climate.

You owe it to yourself and your family. But just remember, you have to be smart about it. Setting up and running a business today has never been cheaper. In fact, you can set up a business for next to nothing. Thatʼs not the major issue (although you will find some great tips on how to do this in this e-book). The major issue is attitude and specifically your attitude. With the right attitude you can accomplish more than you can imagine in these testing economic circumstances.

So, the next time someone thinks that you are crazy for starting up in todayʼs recession, Ask yourself, what makes them so ignorant?



“Everything has changed. This is great news for innovators and creative people who will help bring about a new economic paradigm. Are you one of those people?”

I hope that the information in this e-book becomes an invaluable tool for you to build a successful business. Very few things make me happier than helping people to find ”the light” of entrepreneurship.

There is so much more to entrepreneurship than making money. You will feel happier, more fulfilled, your perspective on life in general will improve, you will value and respect other people on a different level and ultimately you can make other peoplesʼ lives better.

Remember, entrepreneurship is a lifestyle choice. Possibly one of the most rewarding ones. I hope you seize it with both hands.

Best of luck in your endeavors.

Feargal



“Remember, entrepreneurship is a lifestyle choice. Possibly one of the most rewarding ones. I hope you seize it with both hands.”

First Things First: Establish a Point of ReferenceRight, sometimes this idea gets me into trouble with academics who study entrepreneurship in a lab setting. However, I have been converted to this view by a hard dose of reality with one of my previous ventures. Let me explain, when I was fresh out of college I solidly believed that you must do lots and lots of market research before you build anything.

I believed that before you even prototype, you should put together a questionnaire and get 600 or so responses. Then you should statistically analyze your results. You should also run a focus group with your target market. On top of this, it was also a great idea to do interviews with some potential customers.

But thatʼs not all, you need to read report upon report on your market segment. You must also dissect each one of your competitorʼs businesses from all analytical standpoints.

After all of this is done, you should have a good idea if your business is feasible. The theory goes further, if you determine that your business has significant potential to become a success you then write a business plan which will help you get investment. It all sounds reasonable, doesnʼt it? However, itʼs not practical. It takes too long to complete (remember you canʼt go for an extended period of time without any money coming in). Itʼs too expensive to outsource for a start-up. If you do it yourself nobody will believe it, no matter how objective you are. The results are likely to be biased in some way. It doesnʼt help you get traction (traction is the most important thing).

The good news is that there is a better way to go about market research for your new business. I like to call it “Organic Market Research”. In summary, Organic Market Research involves putting together a



“This idea gets me into trouble with academics who study entrepreneurship in a lab setting.”

prototype or beta and getting it out there. Show people what you have. Allow them to use it. After they tell you why your product is awful, make the appropriate changes to improve it. You will know when your product is at a good standard when the early adopters start telling their friends.

Look, traditional market research is sub optimal for a new start-up. You must listen to real world feedback and make the appropriate adjustments in real time. By taking a step back and viewing the market research and initial prototyping stage as one process you are leveraging the most from your time and resources.

As you know, this is extremely important in a start-up setting. Remember, youʼre not Procter and Gamble so get your hands dirty from the word go. However, you must realize that your product will be criticized. The key is to listen to the criticism and then do something about it.

Another key point to remember is that you are probably not going to be “right first time”. People who think this, are either delusional or complete geniuses. And there are not a lot of geniuses walking around these days. No matter what you do, building your business is a process. There is no magic formula that always works. You must constantly evolve. You will make mistakes, but if you accept these mistakes as part of the learning curve you have a great chance of building a successful business.

Another major reason for throwing a marker dart earlier is that you can reach traction quicker. This is the most important factor in getting external investment (if you need it). What you do in the real world is worth 100X what you do in a “scientific” market research scenario. Therefore, by focusing on improving your business from your initial starting point you are spending your time generating traction. My friend, thatʼs what this start-up game is all about.



“Traditional market research is sub optimal for a new start-up. You must listen to real world feedback and make the appropriate adjustments in real time.”

Will People Rave About You?In his excellent book “Purple Cow” Seth Godin talks about being remarkable. As a start-up, you must be remarkable. Itʼs important for you to understand that word of mouth is your only shot. How are you going to get people to tell their friends about you, if your product is “run of the mill”? Iʼm sure you agree, you canʼt.

Traditionally marketers called this the Unique Selling Point (USP). However, as Seth points out, itʼs a lot more complicated than just being unique. People must care about how you are different or unique. It must be something that motivates people to comment. They must feel the need to tell their friends, to post on message boards, to bookmark your site, and so on.

I have talked to many fellow entrepreneurs who rattle on about how many sales people they are going to put on the road. They seek hundreds of thousands of dollars in equity investment just to put a sales force on the road. To me, if you need a sales force you havenʼt generated enough word of mouth.

Think of it like this. Why donʼt you make your customers the sales force? You donʼt pay them, they do the job for free. All you have to do is be, as Seth Godin would say, “remarkable.”

The important thing is to be remarkable with meaning. This is the most critical component in your marketing mix. By achieving this you will get maximum leverage with any other marketing tactic you use on top of this base.

Being remarkable and comment worthy is only the first step. However, itʼs probably the most crucial.



“People must care about how you are different or unique. It must be something that motivates people to comment.”

When you get early adopters to use your product (beta, prototype etc.) listen to what they have to say. If they make suggestions not only are they helping you improve your product but they are also telling you how to press their “word of mouth” button. The chances are that if you implement their suggestions successfully they will tell all of their friends, blog about you, social bookmark you, review you and so on.



“If they make suggestions not only are they helping you improve your product but they are also telling you how to press their “word of mouth” button.”

Build a Fan BaseOnce you have generated word of mouth you need to build a loyal fan base. Even though there is a Global recession going on right now, Apple have achieved some great results. The main reason for this is their fan base. People who buy Apple computers are not simply customers they are fans. Apple means more to them than a simple computer. To them Apple is a way of life.

This is infectious. Have you ever taken your MacBook on a train and gotten a thumbs up from a complete stranger. The generic laptop user beside you always looks on with envy.

I was at a Bruce Springsteen and the E-Street Band gig in Dublin. I was in the line to get into the pit. I was surrounded by the most hardcore Boss fans that I have ever seen. Most of them were not from Ireland. They were from France, Spain, Italy, USA, Canada, England and Scotland. They were following Springsteen and the E-Street Band on their European tour. It was a great atmosphere. I overheard conversations about past set lists and predictions of what the band would play later that evening.

So, why do thousands of people follow a band across a continent? Why would someone want to see a band play more than once? Well, itʼs like a drug. The great thing about the band is that the set list changes just enough to make you want to find out what will be played the next night. You definitely “got value” , 3 hrs and 15 mins! (that in itself is remarkable for an international touring band) and got to hear “Sherry Darling” but they didnʼt play “The River”, but they might play it next time. Wow, better buy the plane tickets and fly to the next show.

Once you have made something comment worthy and created word of mouth you must keep people interested. How you do this depends on



“Once you have generated word of mouth you need to build a loyal fan base.”

who your customers are. Apple has the keynote at MacWord for their fans. This is more fuel for the word of mouth fire. How many times has a friend e-mailed you a video link for Steve Jobs at MacWorld announcing the new iPhone when it first came out?

Always remember that you are an engineer building a word of mouth engine.



“Always remember that you are an engineer building a word of mouth engine.”

The Business Plan Myth!Lets get this straight from the word go. Nobody invests in an idea and a business plan is just one big idea. As a result, it is not that important for you to get funding. Instead your plan should be created to get you traction. Donʼt worry about fancy formatting. Donʼt worry about detailed descriptions for other people. Just worry about getting traction.

See, traction is the key to getting investment not the actual plan. If your plan gets you traction then itʼs a good plan.

Let me redefine the “Business Plan” right here. To me a “Business Plan” is a story about how you got traction, and also, a description of how you are going to get more.

Nobody has time to read it. So do them a favor. Keep your plan for investors simple and to the point. People should be able to understand your plan in 5 minutes. Remember, your objective is to convey a message and not to put people to sleep.

In summary, the business plan that you write for yourself should look like a scorecard and the business plan that you write for investors should be a 10-15 slide deck.

The next time you hear someone insist that you need to write a 60+ page business plan, think about the research from the Robert H. Smith School of Business, University of Maryland which shows that entrepreneurs need not worry about writing an in-depth business plan to get funding from VCs. The research shows that business plans play an insignificant role in the decision making process of Venture Capitalists.

The paper titled “Form or Substance? The Role of Business Plans in Venture Capital Decision Making.” which was co authored by David



“Nobody invests in an idea and a business plan is just one big idea.”

Kirsch, Brent Goldfarb and Azi Gera, contains research on 718 funding requests from the period April 1999 - February 2002.

There are some great resources on business planning such as sample templates and videos on LostJobStartBusiness.com. Be sure to check them out.

The key is not to focus on the plan as a stand alone issue. Focus on actually building your business and use the plan as a reflection of what you are doing as well as what you intend to do in the medium term.



“The key is not to focus on the plan as a stand alone issue. Focus on actually building your business...”

http://www.lostjobstartbusiness.com/bplan.html

http://www.lostjobstartbusiness.com/bplan.html

The Internet a Start-upʼs Best FriendYouʼre probably saying “Oh, Iʼve heard that a thousand times before.” But hear me out. Itʼs not the technology that makes the Internet important to start-up entrepreneurs, itʼs the interactions.

The Internet is a vehicle for communication. Ideas spread quickly and widely through this medium. A simple link sent over MSN or Facebook by one person to their friend has profound influence. See, the Internet makes it easy for people to tell their friends about stuff. Thatʼs what makes it a powerful tool.

Traditional advertising and marketing techniques are in decline. As a start up entrepreneur you should leave them to Nike and Pepsi. Use the Internet to leverage people telling their friends about you. Thatʼs your primary objective. Getting people to talk, link, review, blog, vlog, comment, recommend, rate and endorse you, is what the game is about.

The Internet is the only way you can get in the mix. Forget about PR firms and Ad agencies, they are not for you. Focus your resources on the Internet. This gives you the biggest leverage for your time spent on “marketing” which today means generating word of mouth.

However, I canʼt overstate the need for you to have your fundamental word of mouth generator in place. This is the part of your product that is comment worthy. Internet marketing does not work without it. It doesnʼt matter how many Twitter posts you make. If what you do is not comment worthy, it will not spread.

In other words. If you are bland you will lose. Simple huh?



“The Internet is a vehicle for communication. Ideas spread quickly and widely through this medium.”

Build a Business Model that Works in a RecessionWhatʼs wrong with the US car companies? Simply put, their business model was outdated and obsolete. What was wrong with all the banks? Their business model could only survive in an economically opulent time. The same can be said with most businesses that are struggling right now.

So, what are the options open to established businesses that are struggling? Well, they can either change or fail. However, change is extremely difficult. Core beliefs and practices that have been ingrained in the organization must change. To anyone familiar with organization behavior. This is a nightmare.

You, on the other hand, donʼt have to worry about change. You can start with a business model that not only will work in a recession but will position you excellently for any economic upswing.

I know that some of your friends are neigh-sayers. They like to criticize your plans. I guess that some people will always take the negative stance no matter what. However, the next time you hear “Hey, you are crazy for starting that business in this recession” put it down to their lack of business knowledge. See, this recession is caused by business models and a good business model can do well despite the recession.

“The Recession” is the biggest excuse out there right now. The key for you is not to use it as an excuse. Thereʼs plenty of opportunity out there for you.

Keep your business as lean as possible. Really squeeze the costs down to a minimum. Bootstrap like your life depended on it (it does).



“The Recession is the biggest excuse out there right now. The key for you is not to use it as an excuse.”

Do Your Research The Practical WayEarlier on we touched on Organic Market Research. Here are some practical tips that can help you. When doing market research you can do it either the scientific or practical way.

Since you are building a business in the real word that you hope will make real money I would suggest doing your market research the same way. Are you doing a Phd.? Do you even own a lab coat?Then why would you do scientific market research?

I know what youʼre thinking. What does this guy mean by “practical market research”. Well, here goes (I will try to make my explanation as practical as possible).

Find similar listed companies in your sector and read their annual reports. Find out what is and isnʼt working for them. Also, find out what their future strategy is and why they will be following it. Go onto LinkedIn and ask advice. Post questions. Use forums and Google Groups to do the same. Build a beta or prototype and start showing it to early adopters/geeks.

Listen to them tell you how awful your beta/prototype is and make the appropriate changes. Get more feedback from the early adopters. Repeat this process until they start telling their friends about you.

Sounds simple, doesnʼt it? Well it is. Itʼs much less time consuming than writing out questionnaires and running focus groups. You are achieving the same results but in a real world practical setting. And here is the important part, by doing practical market research you are also getting traction. Thatʼs my third favorite word after profit and sale.



“Since you are building a business in the real word that you hope will make real money I would suggest doing your market research the the same way.”

Trade Shows - Are They Worth It?Lotʼs of start-up entrepreneurs go to trade shows thinking that they will set the world on fire with their super cool stand. They think “Yeah we got an LED wall, how cool is that? Iʼm sure everyone will want to buy our stuff.” In reality, this hardly ever happens.

Yes, I know that trade shows are of some benefit. However, since your time and energy is scarce I donʼt believe that they are worth it. Thatʼs right, in my mind trade shows are sub optimal for you. Remember, you are a start-up and everything is limited. You must use what you have on the things that give the highest returns.

Firstly, forget about getting a stand at a show. It simply costs way too much and Iʼm talking about time and money. Secondly, only attend if youʼre are really sure that there is nothing more you can do with your product, website, blog etc.

I have attended many trade shows in the past and for me they were a waste of time. I will not be attending anymore because there are other things that I can do with my time that give me greater benefits. By being just another stand or being just another guy who took a card from a desk doesnʼt really give you any benefits.

Believe me, the environment at trade shows is not conducive for a start-up. Leave it to the experienced trade showers. Save your money and time for other things.



“...since your time and energy is scarce I donʼt believe that they are worth it.”

What to Copy From Established BusinessesSome of your competitors have been around the block a few times. As a result, they have learned a thing or two. Why not piggy back on their experience and copy them on a few things?

You must be selective on what you copy. Remember you must have something that people want to talk about. You must be different in some way. But if people donʼt care about that particular aspect of a business model then I think itʼs a good idea to copy it from a competitor. No point in reinventing the wheel, huh?

Typically, look to areas like distribution, technical support, warrantees, licensing etc. for opportunities to follow in the footsteps of you competitors. Just make sure that your product does not become generic as a result. Keep the remarkable elements.

As you can see, this is a tougher decision than you may have thought at first. Itʼs a balancing act and does require tweaking over time. Iʼm sure you agree that by copying your competitors in some “behind the scenes” operations you are benefiting form their experience without having to make the mistakes.

If you are seeking external investment you can use your competitors as back-up for any operational question that you may be asked.

A great way to find out what your competitors are doing is reading annual reports and also doing a news search on google for businesses in your sector.



“Why not piggy back on their experience and copy them on a few things?”

The Phycology of Getting InvestmentThis is probably the most overlooked area of entrepreneurship. Yet itʼs crucially important. Dealing with Business Angels and Venture Capitalists (especially Venture Capitalists) is a game. In most cases, investors in new businesses get thousands of propositions every year. Therefore, they donʼt put any value on entrepreneurs who send them business plans and harass them at events.

You must give them the impression that you donʼt need them. That they are surplus to your future plans. You must also subtly, give them the impression that other investors are interested in you. Essentially, what you are doing is creating higher value for yourself in their minds.

Whatʼs the best way to do this? Itʼs quite simple. Just build a business that is self sufficient but if it got additional investment could really scale. When you have this, your subconscious will automatically convey what investors are looking for.

Also, if you are getting industry reviews, being recommended on industry websites, being twittered about, being blogged about, professional investors will pick up on it. If they donʼt, then you donʼt want them investing in your business. They are not tuned into your market sector.

Another thing that you should do, is set criteria for investors to meet. For example, if a potential investor needs to be explained a typical industry practice then you should tell them that you are looking for an investor that is well versed in your sector. Thank them for their time and interest but donʼt accept their offer.

Oh and finally my golden rule of thumb. Never contact Business Angels or Venture Capitalists directly.



“You must give them the impression that you donʼt need them. That they are surplus to your future plans.”

Picking an Investor - Do Due Diligence on ThemThis is just as important as putting together your founding team. Investors differ widely so you need to pick one that has the right skills for your business. Donʼt take the first offer that comes your way. Also, consider the skill set of a potential investor as part of the package. The money isnʼt everything.

Ask yourself these key questions -

Who has the Business Angel or VC previously invested in?Have they had many successful exists?Whatʼs their background? What are their key skills?Will they be hands on or hands off?Can you get along with this person?What non-financial things can they bring to the table?

Google their name both in news and in regular search. Call up portfolio companies and get their take on the potential investor.

I know itʼs obvious, but many entrepreneurs donʼt do enough research on a potential investor before a meeting. You are doing yourself and the potential investor a big favor by doing your research.



“Also, consider the skill set of a potential investor as part of the package. The money isnʼt everything.”

Your Start-up TeamOk, Iʼm going to say this once but you really need to listen. Sign a Shareholdersʼ/Stockholdersʼ agreement. Okay, now thatʼs out of the way letʼs look a your start-up team.

This is the most important issue concerning your business. Firstly, you should all get along. Also, you all and I mean all, need to be obsessed with the business.

Currently, I work alone but I have been part of a start-up team before. I think a three person team is good at the start. Two on development and one on marketing. As I said before, all members of the start-up team must be obsessed. Even if one member is only 3/4 obsessed your team will not work.

You have to realize that trial and error is part of being an entrepreneur so this will happen a lot at the start. Here are some start-up team pointers.

1) Be in constant communication. Tell the team exactly what you have done and what you plan to do. Always ask for clarity if you donʼt fully understand what another team member is saying.

2) Donʼt set unrealistic deadlines. Let each member set their own deadlines because they know their area of expertise best.

3) As soon as you start having difficulty with something tell the team. 4) Be honest with everything. If you think someone should be doing a

better job then tell them straight away. 5) Hold you hands up when you make a mistake. 6) Donʼt expect miracles. Everything takes time and effort. 7) If someone wants out, refer to the shareholders agreement.

There will be problems. The key is how you deal with the problems that will determine how successful your founding team is.



“Sign a Shareholdersʼ/Stockholdersʼ agreement.”

Donʼt Fear The FinancialsThe single most important skill that you can have when putting together financial projections for your business is common sense. If you can apply common sense, doing the financial projections for your start-up is easy.

Donʼt outsource your projections. You will need to change these constantly and revise them as you analyze real world data when it comes in. By constructing the financial projections for your business yourself, you are gaining an invaluable insight on how your business will work.

The hard part is getting your assumptions right. Obviously, your are not going to be 100 per cent accurate, but you should try to be as accurate as possible.

Read annual reports of similar companies. Try to find out typical conversion rates for your sector. Also, identify the key financial indications for your industry. However, remember if your business model is different to the industry standard your key financial indicators will also be different.

I believe that the best way to do your projections is to think through how each item in your financial projections relates to others. This is a great process that helps you understand your business model. You can find out your expenses by getting actual quotes for each item. Donʼt guess what your expenses could be when you can get accurate quotes.

Once you have your assumptions established all you need to know in order to complete your financial projections is how to add, subtract, multiply and divide. You donʼt have to be a financial analyst. As long as you apply logic to your projections they should come out okay.



“By constructing the financial projections for your business yourself, you are gaining an invaluable insight on how your business will work.”

You can find out more on financial projections and download a free template and accompanying “how to” guide from LostJobStartBusiness.com.

Just give it a go yourself. Iʼm sure that you will be surprised at how easy it really is.

LostJobStartBusiness.comIf you take the plunge and start your business, a resource that may be of help to you is LostJobStartBusiness.com. It contains information on marketing, business planning and financial management for people who have recently lost their job and are starting a business.

About the Author: Feargal Byrne is an Entrepreneur with experience in the Software and Entertainment sectors. He holds a B.A. in Accounting and Finance and an M.B.S. in Entrepreneurship and Marketing.

Recently, he has set up LostJobStartBusiness.com a website that helps people who have lost their job to start a business.



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starting a business in the current economic downturn

Business

successful business

sustainable business

creative people

great idea

point of reference4will

right attitude

global economy

light of entrepreneurship