Charles F. Goetz is a serial entrepreneur who has built nine businesses and employed more than 1,000 people. He has successfully sold several of the ventures and has had some failures. Goetz brings this body of knowledge to Emory University's Goizueta Business School as a distinguished lecturer of entrepreneurship, guiding students along the intricate road to entrepreneurship.
In his new book,So You Want to Start a Business? 8 Steps to Take Before Making the Leap, Goetz and coauthor Edward Hess deconstruct the elements of starting a business and highlight the importance of research and thoughtful analysis-penciling the business-that can save time, effort, and money. In a recent interview with Knowledge@Emory, Goetz discusses the eight steps anyone considering starting a business should take.
Knowledge@Emory: In the new book, you have broken down the issues in starting a business to the bare bones. What was the impetus for the book and the way it is written?
Goetz: Ed and I wrote this book because we realized there exists a large number of want-to-be entrepreneurs who have little-to-no business education and minimal business experience. Since a sizable percent of new entrepreneurs each year are not truly prepared to start a business, we wanted to provide them, as well as those who have a business background, with the information and understanding they need. In addition, we were unable to find any books on this subject that offer this information in such a clear and concise manner.
Knowledge@Emory: The book takes pains to distinguish between a good idea and a good business opportunity. Why is this so important, and can you describe a good opportunity?
Goetz: While there are many good ideas out there, only a few of them are good business opportunities. The difference between a good idea and a good business opportunity is critical. A good idea is defined as solving a customer's needs in some way. Just because a good idea solves a need, it doesn't mean it's worth building a business around. On the other hand, a good business opportunity means that the market is sufficiently large, the value of the product is substantially greater than the cost being charged, the product is more attractive than competitors' products, the implementation strategy is sound, there is sufficient cash in the business to see the company through difficult times, and the management understands how to effectively manage a business. These are just a few of the elements that distinguish a good business opportunity from a good idea.
Knowledge@Emory: With the scarcity of certain types of jobs in the U.S., many people are turning to entrepreneurship as a viable way to make money. What is the most common mistake people make? What is the most common factor others overlook when they miss a 'good business opportunity'?
Goetz: Believe it or not, a difficult economy is actually the perfect time to start a business. The reasons for this are many, but some of the key ones include the following: By the time your business is up and running, the economy will have begun to turn around, and a significant percent of your competitors will be out of business. This means that as demand grows again, your business will benefit from the scarcity of suppliers. Also, companies that start in lean times tend to manage their businesses better and watch their cash more closely. Finally, new ventures are not overloaded with expenses like their competitors, so they're better positioned for success.
While it is true that many people try to start a new venture during lean times because they can't find a job, this is often a mistake. Entrepreneurship is difficult enough for those who really want to build a business; it's extraordinarily more difficult for those who are only looking to buy time and to create a job for themselves. If all you want is a job, don't build a business around it; I suggest you look into consulting. There is little overhead, and you can move in and out of it as job opportunities open up.
Knowledge@Emory: You spend a lot of time discussing pricing. Why are people so afraid of charging what they need, and how can they overcome it?
Goetz: Surprisingly, most companies underprice their products and services. This is especially true for new entrepreneurs. The reason they underprice their products and services is because they themselves are not totally convinced of the value of their products and services, and because they erroneously believe that a lower price results in more sales. Unfortunately, this assumption is wrong. Low prices tend to signify cheap. Customers often assume that a lower price relates to poor quality. Low prices rarely make a company more competitive; instead, it makes it more difficult for a company to break even. The best advice I can offer entrepreneurs is that if you're not selling a commodity product, few prospects truly understand price. More than likely, a decision to buy or not buy is not a function of price, but of whether a person really wants/needs this product or service. Price the product or service at what it is really worth, and you will be surprised to learn that you will probably get even more business. And each dollar of revenue you make will be more profitable.
Knowledge@Emory: In the introduction, you mention that you have had business ventures that failed. What lessons did you learn from losing a business and what would you do differently the next time?
Goetz: Every successful serial entrepreneur has had some failures. It's just part of the game. In my case (and in most others), my business failures had most to do with overestimating the amount of sales and the speed of purchase. When customers are not buying as quickly as you projected, you need to go back to the drawing board and reevaluate your product and your sales strategy. If you can make changes, make them. If you can't, get out of the business as quickly as you can. Don't waste time trying to fight an unwinnable war. Use your time and resources more effectively by starting over with a new business.
Knowledge@Emory: Early on you note that starting a business doesn't require an A average, lots of money, or big risks. And yet you use terms like net profit margin, customer conversion rates, and high margin business. Is this a contradiction?
Goetz: I don't believe so. While I tend to use a lot of business terms, the terminology doesn't make it successful. If you don't know business, then get a partner who does. If you don't have a partner, then get an accountant or consultant to help you. Don't refuse to try just because you're unfamiliar with the terminology. Make sure there is a substantial market of people who are going to want your product and are willing to pay for it. Then get a business expert to help you.
Knowledge@Emory: The book lists 55 rules of business. Number 24 is to avoid the Winner's Curse. Would you describe the curse and how to avoid this trap?
Goetz: Oh, the Winner's Curse. I've seen it and experienced it myself when I was starting out. To sum it up, the Winner's Curse is when business is going well and you sit back and assume that you've figured it all out and that everything is just going to continue getting better and better. Boy, is this a mistake. Success in business is like running a marathon. You might be ahead in the beginning, but it's the end that matters. Often when a company is doing well, the owner(s) stop innovating, and the competition leapfrogs them. Before they know it, they're behind and it's difficult to catch up. The key to long-term success is to always be innovating. To use an old adage, if you don't eat your young, someone else will.
Knowledge@Emory: What advice do you have for those entrepreneurs who have started a business but now find their access to capital blocked? What strategies might they consider?
Goetz: It's hard enough for most to raise capital in good times, but when difficult times come along, cash flow is no longer just king, it's god. The companies that are most negatively impacted by times like these are those that have recently borrowed to grow their company. Their cost of capital has increased dramatically, just as their revenues have dropped. That said, the vast majority of new companies are started on less than $10,000, or on credit cards. The key to success in this market is not to leverage up, but to grow slowly, managing every penny along the way.
Knowledge@Emory: This week, media reports indicate that lending giant CIT Group may go bankrupt. If so, what company can fill the void? What does this mean for small business loans?
Goetz: CIT is the largest small business lender and unlikely to go under. The American government needs small businesses now more than ever. Small businesses are the creators of new jobs. In fact, I've seen estimates that show small businesses were responsible for generating more than 80% of all new jobs before the recession hit. If government is serious about reducing unemployment, they're going to have to increase the funds for SBA (Small Business Association) loans. Even if CIT does fail, it does not mean SBA loans will evaporate. In fact, the Federal Reserve has set aside money for small business loans, and banks are more likely to feel comfortable making SBA loans than regular loans, because almost 80% of a business loan is guaranteed by the government. Bottom line, it will hurt small business lending if CIT fails. Bu while small business lending may not be sustained at the levels seen during good times, it will come back.
Knowledge@Emory: Is there anything else you'd like potential readers and entrepreneurs to know?
Goetz: It's always difficult for people to take that leap and start their first business, but it is the best thing you can ever do. Sure you're scared. Everyone who starts a business should be. But being scared is a good thing. It makes you think more clearly and try harder. Win or lose, it's an experience like no other. Nothing can totally prepare you for it, but if you believe in yourself, and you've done your homework, do it. You will look back later and wonder what took you so long.