Getting past the six major roadblocks to small business startup - Part 1

Business startups typically take twice as long and a lot more money to get rolling than entrepreneurs originally think. They're also subject to a half-dozen roadblocks that you have to learn to get around if you're going to be successful. In the interest of not overloading you with information, we'll cover the first three in this issue, and save the second three roadblocks for next week's issue.
The first roadblock in your way is the credibility crunch. Without an established track record or market presence, how do you convince potential clients or customers to buy what you're selling, whether it's a tangible product or consulting service? How do you attract employees, or qualify for financing? In business, credibility is everything, and trying to establish it can be nerve-wracking or downright discouraging. If no one's heard about you, chances are they won't deal with you. If the product or service you're selling isn't familiar to them, they'll ask, "Who else is using it?" or "Who's dealing with you now?" And if you don't answer with the name of someone they know, well, you know.
What too many entrepreneurs do is give up, when they repeatedly hit the roadblock of credibility, and that's a mistake. Keep calling and calling people until someone is ready to buy. And if you have to drop your price to get them to buy, once you have your foot in the door you can ask fair market value for what you're selling.
Another way to boost credibility, if your industry or profession has such a thing, is to pursue a quality certification or professional designation. Such accreditation is well worth the effort because it raises the bar, so to speak, for your competition.
Credibility can also be hampered by your location, if you deal with a potential client base that's national in scope. Ask anyone in Nanaimo, Saskatoon, or Moncton who tries to do business with firms in Toronto or government in Ottawa or any of the provincial capitals. According to Trevor Sawler, president and CEO of CrescentStudio.com, his Fredericton location made it difficult to be taken seriously. "It's never stated, but it's pretty clear the attitude is 'Well, if you're any good, why aren't you based in Toronto?'" To beat that bias, Mr. Sawler looked south, ignoring Canada, and after some below-cost service offerings which were used to prove his company's software, he ended up with Hewlett-Packard and Key Bank as clients. And with those clients in the U.S., it didn't take long for the Canadian companies he was calling on to not only look at CrescentStudio's software, but also to buy it.
The second roadblock facing startups is capital. Startups usually have few tangible assets, and since bankers prefer to lend money to those who need it least, finding a solution to the capital crunch takes persistence and resourcefulness. Canada's chartered banks are not only reluctant to give you a commercial credit card, they will deny more than 90% of applications for a line of credit. You'll hear excuses like "new company, no credit history, unproven business model, no physical assets, no capital on balance sheet, no personal guarantees"...the list goes on. Nor with those banks usually accept accounts receivable as assets.
Venture capitalists are one option, but their money usually comes with significant conditions, often in the form of direct
involvement in the management of your enterprise. If you're not willing to let someone else tell you what to do with your company, you may want to avoid the VC route.
So, the "Bank of Family and Friends" is a place to which many entrepreneurs turn, in addition to their credit cards (which are an extremely expensive form of financing and should be avoided, if at all possible). Family and friends, and the people they know, are often your best bet for startup funding. Sometimes, they'll provide loan guarantees, sometimes they'll provide the money. If you're lucky, they'll take shares in your venture in return for some or all of the cash they provide. But the share route also comes with a price - with shareholders, you have a responsibility beyond that which you have to yourself and your business. Friends and family are also great sources of sales leads. Take the time to talk with them, and ask for their suggestions and references.
It's hard enough to sell a product or service that people need when you have to contend with credibility and financing concerns, but what do you do when you hit the third roadblock to success - the introduction of a brand-new product or a whole new industry? If you have a new product or service, you can't just say, "Trust me, it'll work."
In cases where entrepreneurs are introducing a new innovation, many of them use the loss-leader approach, and provide half the product or service for free, on a first-time basis only, and tell the potential customer that if he or she is happy with the results, they can pay for the other half of the product or service. Seeing is believing, they say, and when it comes to getting someone to buy something that's new or unproved, the proof is in the pudding.
See Part 2 for growth challenges, employees, and the entrepreneur's nemesis.
Lorne Peasland is a former advertising agency owner and national media consultant, the founder and past-president
of the Canadian Home & Micro Business Federation, and author of "Influencing Public Opinion - A Communications
Primer For Political Candidates, Community Activists, and Special Interest Group Spokespeople" (ISBN 0-9697364-0-1).
He is a home-based marketing consultant, writer and speaker, and publisher of HomeBizNews, a syndicated Web-based weekly for entrepreneurs. He can be contacted through either of his web pages at
http://www.accept.ca/homebiznews/lorne.html or http://www.accept.ca/homebiznews/pms2.html, via e-mail at
lorne@pacificcoast.net., or by phone at 250-708-0250.

Written by: Lorne Peasland