- Are You Stunting the Growth of Your Home-Based Business?
© 2002 Elena Fawkner
If you've left the corporate world to strike out on your own in
your own home-based business, you'll be acutely aware that your
financial success is up to you and you alone, perhaps for the first
time in your life. For obvious reasons, therefore, your home-based
business is probably run on a shoestring.
This means, of course, that you do everything. Although you are
now CEO, you are also secretary, marketing director, receptionist
and gopher. But hey, that's the way you like it, right? Just as
well too since when you're just starting out you don't have much
of a choice anyway.
But sooner or later, if you keep doing everything yourself you'll
necessarily curtail the growth of your business. It will grow to
a certain point but no further because you're only one person and
there are, after all, only 24 hours in a day.
Now, if you're satisfied with making a little money on the side,
that's fine. But if your business is your only source of income,
you must move beyond start-up if you are to become financially successful
and avoid stunting the growth of your business. This article looks
at the growth stages of a typical one-person home-based business
and how to gradually grow your business without being run over in
=> One-(Wo)Man Band
As already stated, when you first start out, you do everything yourself.
You're both chief cook and bottle-washer. And you can continue like
this for quite some time because, initially, you are unlikely to
be fully stretched. This is exactly what you should be doing.
This is NOT the time to go out and spend money with advertising
agencies and hiring employees. For so long as you CAN do everything
yourself and everything that needs to be done is getting done, this
is the most efficient use of your current resources.
=> Don't Overcommit Yourself
During this stage, however, it is important to be careful not to
overcommit yourself. You are a fledgling. You must learn to fly
like a sparrow before you can soar like an eagle. So, when you first
start out, underpromise and overdeliver. Also, don't embark on an
aggressive marketing campaign until you have the business resources
to satisfy the demand you will create. Let your advertising grow
in line with the growth of your business, the addition of employees
and increased financial capacity.
=> Pay Yourself
Be extremely careful with your pricing during this stage also. Make
sure you include a wage for yourself in your overhead costs and
add a realistic profit margin (say 15-20%). Remember, price equals
costs plus profit margin. Costs include direct, indirect and overhead
costs. For a more detailed treatment on pricing, read "Pricing
Yourself to Get, and Stay In, Business" at http://www.ahbbo.com/pricing.html
=> Profits Belong to Your Business
Plough your profit back into your business. This is most important.
This is where your funds for expansion during the next growth phase
of your business come from. NEVER use your business's profits to
pay personal expenses. This is what you pay yourself a wage for.
Your business's profit does not belong to you. It belongs to your
business. There IS a difference!
=> Avoid Premature Expenditure
During your shoestring days, look for lower-cost substitutes before
incurring substantial expenditure. For example, don't go out and
buy a new fax machine, a new answering machine, a new photocopier.
Get one of those three in one jobs that sits on your desktop and
only costs a few hundred dollars.
Use a good accounting software program rather than hiring an accountant
and hire from your family first if you need temporary help. Another
good idea is to negotiate with family members to take over some
household chores you would normally do yourself to free your time
to work on your business. This works especially well with pocket-money
age children and teenagers.
During times of temporary overload, hire temporary staff from a
staffing agency if no family members or members of your social circle
can do the job.
=> The Glass Ceiling
After a while, somewhere between the two year and five year mark,
you will notice that your business is beginning to stagnate. At
this point, you've stretched yourself and your resources as far
as they can go. You've hit the glass ceiling, in other words.
At this point, if you want your business to grow further, you'll
have to grow it. It won't happen as part of an evolutionary process
beyond this point.
BEYOND THE GLASS CEILING
=> Hire Permanent Employees
The time to hire permanent employees is when you reach the point
that you can't complete all tasks alone (or with the help of family
members) and/or your time is worth more than it would cost to hire
someone to complete your less complicated tasks.
Before adding employees, carry out an inventory of the necessary
tasks required to operate your business. Once you've identified
all necessary tasks, assign primary responsibility for each task
to one person. Although one person will be assigned more than one
task, make sure no two people are assigned the same tasks.
Also, make sure at least one other person knows how to do each task
to cover yourself during times of staff shortages, whether due to
temporary absence due to illness, or when an employee resigns and
it takes you a while to find a replacement. Finally, and most importantly,
when assigning tasks, assign yourself the tasks you do best (NOT
just what you like to do).
To grow beyond the start-up and initial growth phases, you will
need capital to inject into your business. Now this, unfortunately,
is easier said than done. Banks can be leery of entrepreneurial
ventures and venture capital is not easy to obtain. But, although
obtaining borrowed capital is difficult, it is by no means impossible.
Here are the main sources of funds:
Cultivate a good relationship with your banker. The more he or she
understands your business and knows you, the more likely it is that
your application will be approved. And this means more than just
fronting up when you need money. Keep your banker informed of all
significant developments in your business and routinely provide
copies of your annual business plans. Be prepared to demonstrate
that your business is capable of generating cashflow and think about
what collateral you have available to put up if necessary.
* Venture Capital
In addition to a solid business plan and track record, venture capital
providers want to see that you understand your customers and how
your business is a good fit with their needs. So arm yourself with
competitive intelligence and satisified customers as references.
Also, be prepared to show you have access to experienced management
staff. These individuals need not be on your payroll but you should
expect to show that you have a depth of experience and talent available
to you at least in an advisory capacity.
* Revenue Stream
Instead of selling equity to raise capital, consider selling part
of the revenue of the business. In other words, investors advance
loan capital and get repaid by way of a percentage of the sales
of the business. This preserves your equity in the business and
is attractive to investors because they receive an immediate cash
This method has the considerable advantage of avoiding securities
laws (it's a loan rather than a sale of securities) but it's only
viable for businesses with high margins and strong sales.
* Angel Capital Electronic Network
ACE-Net brings companies looking for capital together with angel
investors. You can find links to ACE-Net at http://www.sba.gov/ADVO
* Direct Public Offering
If your business has a strong relationship with its constituents
(employees, customers, vendors and community), consider selling
stock via a direct public offering. The securities laws involved
in such an offering are complex though so be prepared for some pretty
hefty legal fees if going down this road.
Other miscellaneous sources of funding include 401(k) plans and
provision of loan guarantees by the Small Business Administration
(http://www.sba.gov), family members or friends.
=> Work On the Business, Not In
The third and final point to note about breaking through the glass
ceiling is that you must make the mental transition from working
IN the business, to working ON the business.
Until your business hit the glass ceiling, you were effectively
working in the business, much as an employee would. In this sense,
the business was your job, a place to go to work. But beyond the
glass ceiling, your business becomes an entity unto itself. It is
no longer your "job" to work at the tasks that make up
the business's operation. Instead, your role is to work "on"
the business as a separate entity, leaving the tasks to your paid
Hopefully you can see that shifting your perspective in this way
is the key to the long-term growth of your business and the difference
between true autonomy and indentured servitude.
Elena Fawkner is editor of A Home-Based Business Online ... practical
business ideas, opportunities and solutions for the work-from-home
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