How to start a business … and be successful

Starting a business in the state of Ohio is a relatively simple process:

• Have a unique and/or patented idea for a marketable product or service
• Decide the structure of the business (LLC, S-Corp, Partnership, Sole Proprietorship) with the help of a professional, such as those available at a reduced-charge through the UA New Business Legal Clinic
• Pick a name and make sure it is not in use by searching the Ohio Secretary of State’s site, U.S. trademark database and Internet domain name listing
• File the appropriate paperwork and pay the assigned state filing fee (generally $125)
• Get ready to fail

The last point is less a joke than reality check for would-be entrepreneurs. Many don’t realize the sacrifices they will need to make to start a company. Nor do they realize that the risk of failure (as high as 80 percent by some estimates) means that they, personally, are unlikely to achieve success with even the best business idea. As a resource for entrepreneurs, I spend a substantial amount of my time trying to talk people out of starting their own businesses.

To start a successful business, one must have two important skills: the ability to innovate and the ability to raise money. By my definition, innovation is the ability to turn an idea into money. Many economic development professionals refer to this process as crossing the “Valley of Death.” In fact, it often takes a shocking amount of money to commercialize an idea, frequently $1 million to prototype and develop a commercial product. This means that entrepreneurs often must raise money without having a product to sell.

This brings me to the second skill. Entrepreneurship is raising money. It is getting people to invest in you, without any real assurance that your innovation will work or that your company model will succeed.

Investment generally comes from the 3 F’s:

• Family
• Friends
• Fools

Most entrepreneurs wind up selling their cars, mortgaging their houses, taking out substantial loans, maxing out credit cards and begging friends for money before they are even close to being ready to approach the investment community (the fools at the bottom of my list). I call those that complete strangers would be willing to invest in “fundable entrepreneurs.” To be fundable, you must have skills in innovation and business leadership, but you also must be willing to work with investors, to compromise, to accept advice and to even give up part of your business.

So, how can you acquire those critical skills for success? If you must start a business, how can you increase your chances of landing in the 20 percent that don’t fail? As with most skills, experience helps. Think about engaging in entrepreneurial activities, starting clubs at work or on-campus, commercializing an original idea through your current place of employment or enrolling in public speaking and small business ownership classes. Unfortunately, most universities don’t teach practical entrepreneurship particularly well, so you might need to talk to your university or community college about putting classes in place that will teach the practical skills necessary for business creation.