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Apr 25, 201308:05 AMOpen for Business

with Jody Glynn Patrick

How NOT to start a business

(page 2 of 2)

It didn’t take long to explain the fatal flaws of her business. Price point (caused by packaging rather than goods), target market (should have, given her price point, been a specific wealthy demographic), distribution system … well, I could go on and on, and in fact, I did. During commercial breaks, I kept apologizing profusely to her, but the truth was, she lacked a business plan, business advisers, and business sense. Instead, she’d created an interesting money-pit hobby.

So here’s the moral of the story: If your little sister or your uncle wants to start a business and comes to you for encouragement, instead offer something of value like the advice to write a business plan. It’s a great exercise whether they intend to fund it using savings, a credit card, third-party funding, or the financial help of family, friends, and fools.

Plans should include a clear and simple description of products and services. Advise them to identify competitors and to zero in on their customer base, sales, and distribution strategy for reaching those customers – and then to double back to their pricing. Does it still make sense, given the cost of bringing their goods or services to market? And also, it’s imperative to create a detailed description of their capital and cash-flow needs (and then double the amount they think they’ll need). Finally, suggest they take that plan and run it up the flagpole with a trusted business adviser.

That is boring, I know, but your sister would do better to be a bored and successful start-up entrepreneur than to have an exciting example of a failed business.

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Apr 29, 2013 09:44 pm
 Posted by  cgervasi

I agree completely with the point that she should have created a business plan. But I don't see why it's so disgraceful you had a hard time interviewing her. Even with a great business plan, many ideas fail. You have to go into business deals with a plan for what will happen if the idea fails. Sometimes ideas that sound crazy turn out to work.

The personal delivery service could work as a concierge minimum viable product. It only makes sense, though, if there is a way to scale up once you gain valuable information about what customers are willing to pay for. You said most of her costs were packaging; those might go down with scale.

If she tries this and loses an amount of money equal to the cost of one or two MBA classes, that's pretty good because she probably got that much value out of learning about business and the market she wants to enter.

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