4 Key Principles For Starting A Cottage Business

 

Doing it all your own.
Bootstrap your way to success!

 

When I was 31 years old, I started a “cottage business”.  I did it with very little money, and built it into a rousing success.  From my experience, I believe anyone with enough desire and stubbornness can do what I did.  I moved on from that first business many years ago now, but I discovered four valuable principles from it that I believe are worth sharing. If you’re thinking of starting your own business, or perhaps if you want to turn a struggling business around, these key principles can help.

 

Business size is important to lifestyle choices.1. Know the Size of Business You Want

 

After graduating from college, I went to work for a young, ambitious corporation. I liked the people there, but after a few years the unending demands on my time began to wear me down. To do a job well, you need to give it everything you’ve got. At that age I wasn’t sure I wanted to invest so much of myself into the job—especially for a company that embodied somebody else’s dream. Therefore I resigned, and began seeking a business opportunity of my own.

 

I didn’t know it yet, but what I really wanted was a one-person “cottage business”. That is, I wanted a company I could tinker with and operate from a home office, without any employees. I imagined setting my own hours, taking breaks to visit the zoo or the beach, and collecting envelopes full of money from the post office. Oddly enough, those things all happened. Progress was slow and inconsistent at first, but when my sales finally began to grow, they grew steadily and didn’t stop.

 

Too much paperwork.

I wasn’t prepared for all the paperwork.

Once my sales accelerated beyond a certain point, it was hard to keep up with all of the demand for my product—not a bad problem to have, but a problem nonetheless. Large corporations began calling.  I found myself working overtime with lawyers on contracts, while trying to keep up with production and sales.  I also had to track my cash flow, which meant keeping a handle on all my expenses. Eventually, all of this became a juggling act—it was far less fun than when I started, and more stressful than what I imagined. With so many people and tasks competing for my attention, the business no longer felt like it was mine anymore. I tried to stick with it and expand my operation in the way that a business is “supposed to” grow, but my heart wasn’t in it.  Eventually, it all became too much, so I sold the rights to my product and moved on to another career.

 

Perhaps at this point you are thinking, “You’re crazy! If it’s your dream to own a successful, growing company, why wouldn’t you welcome the need to hire people, rent office space, and expand?” To understand why, consider that all of us are different. My dream did not include managing an organization or becoming another Bill Gates. All I wanted from the beginning was a small, one-man home office and the means to earn a decent living. My success was more than I expected, and I was unprepared for it. Perhaps if I had decided to control the growth of my company sooner, and focused on doing one small thing well, I might still be running that business today.

 

Key Takeaways: Be sure you know what your dream is, and what it isn’t. Happiness doesn’t follow a single path.  If you want a large business that’s great, but don’t follow somebody else’s script for how your business should be run or how it should grow. Stick to your own dreams, and don’t be surprised when the things you envision start coming true sooner than you expect.

 

 

2. There is No Such Thing as “Too Little Business”

 

The company I started was a “bootstrap business”. That means getting it up and running was entirely up to me. It was financed without any outside money or loans at all. I started it using what little cash I had in the bank, and I began selling things as soon as I could. Then almost all of the profits were plowed back into the company. I took out almost no money for myself at first, so my standard of living took a hit.  I was okay with this: I knew I wanted a business more than I wanted “things” and I wasn’t in a relationship so I didn’t mind living a Spartan lifestyle.

 

Bootstrapping used to be how most businesses got started, but it is rarer today. Today there are business plans, investors, stock offerings, attorneys, and so on. Even so, many famous corporations began as bootstrap companies, and there are enormous advantages to it, especially when you don’t have a lot of money or can’t get access to people or other resources for help.

 

If you are trying to start a cottage business or a small business in addition to your regular job, bootstrapping is an excellent way to go, for several reasons:

 

a) Learn The Ropes With Less Risk

 

Time is money.

Is time on your side?

We’ve all heard the numbers, like “four out of five” new businesses fail or change hands within the first few years of opening their doors.  Whether the odds are really this long or not is hard to determine as many figures are tossed casually about and then taken as fact.  In any case, you want your business to be the one that survives, not the one that doesn’t. While statistics do confirm that nearly half of new companies will make it to five years, this is only true if they have employees. In reality, about 80% of new businesses are one-person companies, and I suspect those come and go much faster.

 

I believe so many new businesses fail because it takes time to learn the vital skills of managing cash and creating sales.  For most new business owners, time is the enemy. No matter how much money you have at first, you are likely to burn through it quickly if you are not well experienced in controlling costs. Without hard experience, you will tend to make every mistake in the book—and some you would have never imagined.

 

You have to sell to keep going.Here’s where the power of bootstrapping shows up: If you are forced to rely on money coming in from very meager profits, you won’t be able to afford to make costly mistakes such as over-investing in equipment.  Equally important, you will have the best possible incentive to expand those tiny profits—you will need every dollar you can get. As a result, you will learn to scrimp, scrounge, and get by on little or nothing. You will learn to manage cash flow, and take whatever sales you can get, no matter how tiny or “unimportant” they may seem. You will soon discover that small profits do to add up over time, and learn how important it is too keep your customers happy, since their word-of-mouth will be your best and least expensive marketing tool.

 

b) You Set Your Own Terms For Being In Business

 

A bootstrap business cannot fail unless you lose interest in it. Even if you sell only one $5 item per day, one per week, or even one per year, you are still in business as long as you say you are. Nobody can tell you differently—not the state, your parents, your friends, or anyone else. When you choose to succeed or fail on your own, you are never beholden to investors or lenders–you are a self-defined business.  This means the problem is not one of surviving this month.  Instead, it’s only about getting to the next level—for example, figuring out how to increase sales from $5 to $10 a day.  No matter where you are, focus on specific tasks or goals to improve your current situation.

 

Consider a worst-case scenario:  You lose your job and your home office. You are staying on a friend’s couch. Your business is reduced to a post office box, your old laptop computer, and some boxes of inventory stuffed in a closet. No matter! You are still in business! If you need to start working at Burger King in order to eat, then do it.  Meanwhile, keep making a few sales here and there in your spare time. Sooner or later, something will click and you’ll discover a way to sell a few more of your product. Since your cost of doing business is now almost zero, each new sale is mostly profit. If you plow those profits bank into your business, things will look up again before you know it. If you stay the course, you’ll have a growing bank account, and your business will ultimately flourish.

 

c) Cut The Stress Of Unnecessary Obligation

 

Bootstrapping helps to limit the initial stress associated with opening a new business.  There’s no question all businesses involve risk, but the more money invested in a venture the more there is to think about.  If your business has investors to keep happy or loans to make payments on, you can spend too much time worrying about those things instead of taking all the smaller steps needed to make your business a success. It’s true that a lack of money places certain limitations on a new business, yet there is also a great deal of freedom to be found in avoiding the obligation of debt up front.

 

Bootstrapping is not for everyone, by any means. It is frowned upon by some experienced business people, because you may suffer through periods of low or even negative cash flow and won’t have any way out of it except to hang on and “enjoy” the ride. However, insufficient capital can also have its bright side, because it automatically limits your exposure to certain risks.  It’s one thing to risk everything you own, but it can feel much worse if you lose a friend or investors money because you lacked the proper experience that should have prevented losing it in the first place.  Bootstrapping forces us to learn the ins and outs of a business first.  In this sense, it becomes a terrific tool to self-educate, and ultimately provides a rock-solid foundation on which to base future success.

 

3. Keep Absolute Clarity and Simplicity of Focus

 

When I first tried to start a business, I floundered about. I didn’t have a clue what to do, or where to start. I read some books, but they were filled with advice about registering a business with the state, finding a lawyer and accountant, and all of those things that I now believe have little importance at first. I spent months trying to think of what to sell. I bought office equipment and supplies, but they just collected dust.

 

Since then, I’ve come to believe that success only comes by strictly adhering to the following rules: (a) sell something today, (b) sharpen your concept, and (c) manage your cash.

 

Sell something everyday.a) Sell Something Today

 

The success of any business is directly tied to its ongoing sales.  You need cash now, and the only way to get that is sell something.  Here’s a fact that’s far too easy to overlook even if it seems obvious:  You won’t sell your product or service doing research, thinking about what you would like to sell, or looking for the best suppliers. All of those things are needed, but they are secondary priorities. From the moment you start a business, you need to sell and market your product or service much more than you need to think about anything else. If not, your business is on shaky ground. If you can’t sell what you originally thought you would, sell something else.  And do it now!

 

b) Sharpen Your Concept

 

How do you figure out what to sell? Start by defining one single, sharp focus for your business. I had a background in computers so my original focus was to “sell software I design and write myself”. This wasn’t sharp enough.  What kind of software would I write? After dithering for several months, my focus became, “selling software that helps people think and organize their ideas”. I began working on a computer program for doing this, but it soon got out of hand. I kept thinking of  all these great extra features to add.  My project quickly became so complex it would have taken a team of ten programmers at least two years to write. Since my focus still wasn’t sharp enough, I asked myself, “What little program could I start today and finish within two weeks that would do something interesting?” I came up with an idea for a little utility program to speed up both typing and the use of a mouse—a new concept at that time.

 

With my new focus in mind, I cleared everything out of my office except my computer, the pencils in the drawer, and the books on the shelf. I diagrammed out the program on twenty of sheets of paper spread out all over the floor. I started writing the software, and within two weeks I had something that worked. It wasn’t fancy, but it did something nifty. I believed in it, and liked it. Now, the focus of my little business became “to sell small software utilities for working faster and easier on a computer”. I had a clear vision. I also had something new and newsworthy, so I sent press releases (i.e. letters) to several computer magazines, along with copies of my program. Most picked up the story, and gave me a generous shot of free publicity that fed on itself for many months to come. My product was launched.

 

What can you do that's different?

What makes your idea truly unique?

Maybe you’re interested in selling clothes that you make.  If that’s as far as you have progressed, it isn’t a clear enough focus. Even if you focus in tighter and decide to make and sell “nice women’s work clothing”, it is still not a sharp enough focus for a small, fledgling business. However, if you then rein it in even tighter and decide to sell a certain unique type of blouse, you may be on the right track. Making a blouse that is attractive and getting it produced is still a complicated job, but at least you will know what you are supposed to be working on. You will have a strong, tight focus for your business. A business with a strong focus and a unique product makes a good story, so it becomes easier to get noticed.

 

Eventually you might sell a wide variety of things, but that’s not the place to start.  You might focus on selling several related items that are unique, and not widely available. You can become successful by making it convenient for people to find these items in one place.  However, the more limited your resources, the more important it is to start small in the beginning—it doesn’t pay to start competing with Sears or WalMart out of the gate, since you won’t have their many advantages of size.

 

Watch every penny.c) Manage Your Cash

 

Planning your cash flow is CRITICAL! I can’t stress this enough.  It is one of the few other things you need to focus on every day in a business, yet it is something that too many people are clueless about. For each month, you need to set up a spreadsheet that lists (1) all of your starting cash, (2) all of your projected cash income, (3) all of your planned cash expenses, and (4) your ending cash for the month, which equals starting cash plus income minus expenses. You need to update this often as the month goes on, to know where you stand. Any business that takes its eyes off cash flow will soon fail. If left untended, expenses always tend to rise, and sales tend to decline. They will do so without your knowledge if you aren’t keeping a close eye on the cash that is coming in and going out.  If your business is just getting off the ground and still simple, a “Running Cash Flow” can give you an instant picture of where you stand at any moment.

 

Until you are willing to focus on these basic points of business, you may not be ready to rush off to the state or local office to register your company. That’s a step you’ll need to take, but the first step is to get absolutely clear about what you want to sell.

 

4. Find Out What People Want, and What You Can Deliver

 

You might have a great idea for a product, but if nobody wants it you won’t have a business. You might find an excellent, inexpensive source of a popular item, but if people prefer to buy it in a department store instead of from you, you won’t have a business either. Your business will not succeed unless you have something people want, and you can provide it in a way that is comfortable, convenient, and fun for them.

 

Have an idea for a new brand of cookie? That can work, but is bound to be a recipe for disaster if you only try to copy the “big guys” (e.g. Nabisco or Keebler). Large companies have enormous advantages—they can buy ingredients cheaper, they have well-established lines of distribution, and people recognize their products. For them, making a bag of cookies costs a fraction of the amount you would have to pay.

 

On the other hand, people love cookies. You could build a successful small business by making a super deluxe, irresistible looking cookie and selling it in an unusual way. You might offer to deliver fresh, hot batches early every morning to each convenience store in your area.  Perhaps you could come up with a small, attractive display case that rests on their counter. Or you might open an attractive cookie stand outside a large store. If your product looks and smells good enough, you will have customers. In either case, you are not competing with Nabisco, you are giving people what they want in a way that is practical for you.

 

What do people want in a product or service? How about tasty food, impressive style, nifty tech, pleasant diversions, or easy solutions to annoying problems? There are endless possibilities. How can you avoid competing with the “big guys”? Find a small, niche market so you can become a big fish in a small pond. An example of a market too broad would be “sporting goods products”. A niche market would be a small part of sporting goods, perhaps something unusual such as rugby equipment. In the U.S., rugby is not widely known, so the big manufacturers don’t give it a lot of attention. However, it has many devoted fans, so if you imported or made unique, high quality rugby products, you would have a strong focus for a small business, and a greater likelihood of success.  Of course, you may not be the only small entrepreneur with the same idea, so it’s worth your time to check around.

 

It makes sense to follow hot trends and leaders, as long as you figure out a way that doesn’t compete directly with the big guys. For example, if I were programming today, I might be writing “apps” for the iPhone, and thereby piggyback on Apple’s massive success.

 

Have you considered importing?  If you like to travel, look for unique products when you visit a foreign country. Perhaps they have an item that is not found at home, but is attractive to people or serves some unique purpose. Find a source for the item, and talk to the people who make it.  You might even convince the maker to give you an “exclusive contract”, so that no one else can sell it in your country. Many fortunes have been made through importing.

 

If you prefer to stick closer to home, ask yourself what factors people like and dislike when you visit a store or service in your town. What makes people comfortable and happy? What design features of a store impress you? What policies keep you coming back to a store, and what makes people angry, or unwilling to return? What location is the most convenient? What part of town has the most visibility or foot traffic passing by? If you focus on what people want, you can’t go wrong when choosing a product to sell or a place to sell it.

 

Today, the internet is a key part of most businesses. In the old days, people picked up a phone book.  Now, they hop on their computer and do a quick search.  With so many people walking around with smart phones, it pays to think about the kind of web presence you’ll need to attract customers.  When you start small, it may not make sense to put up more than basic information about your company—for example, your business name, contact information and the product or service you sell.  You can do that on a single web page, and a number of internet companies like Godaddy offer easy packages to get you up and running.  You might also start a page on Facebook or Linkedin where customers can find you.  Eventually, as your business justifies it, you can consider a web strategy that’s far more involved.  Perhaps you’ll even want to start selling on the internet through an e-store.  In order for your customers to find you, it pays to study up on “search engine optimization” to ensure that your website comes up on the list when people seek you out.

 

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