The Importance of Being Earnest

All you need to start a business is a business card and a mahogany desk, a recent bank commercial cheerily proclaimed.

But what you really need is a feasible concept.

That means “a business you know there’s a market for,” Esparza said.

“You know that people want to buy what you’re going to sell, and you can get access to the resources that will allow you to do it.”

One entrepreneur came to Esparza with a 60-page idea for an organic pesticide, a sure winner with consumers, he believed. But he needed $10 million in manufacturing equipment, had never worked as a manufacturer and had no access to the spray formula, which originated outside the United States.

About 10% of the entrepreneurs Esparza has counseled over the years have had similar stories.

“They have not developed or thought out all the pieces of the business,” Esparza said.

Those essential pieces make up the business concept, which includes the product or service, customers, marketing and distribution, and finances.

“If you don’t have all these four elements and yourself to manage them, you leave yourself open for somebody else to figure that out and do the business better than you,” Esparza said.

* Product or service

Most small-business owners begin here, Esparza said. They know their product or service intimately, because they have produced it or worked in that service industry.

“Having direct experience that can be related to your business significantly increases your chances of success,” she said.

Starting without that background requires more time and money and can slow down success, she added. For example, a writer who dreams of running a muffin shop must spend precious start-up time learning the baking business or spend scarce start-up dollars paying an experienced baker to operate the business.

Yet a great business idea is only a start, Esparza said.

“It’s not really a business until someone buys something,” Esparza said. “That’s where the customer comes in.”

* Customers

Understanding the customer means knowing who will buy the service or product, when, in what form and how. That knowledge can often be the foundation for a business idea itself, even if the would-be entrepreneur lacks experience in production or service, Esparza said.

Knowing the customer is crucial to business success because a good product that doesn’t reach its intended customer will flounder or fail as surely as a business with a bad product, Esparza said.

One business owner who came to Esparza for help had a great product--baseball cards with photos and statistics of children who played on Little League and community teams--but he did not understand who his customers were or how to reach them.

He spent hours taking pictures of children at the games and making sample cards, which the kids loved. Unfortunately, children didn’t have the $20 to buy the cards.

The real customers--parents--were often not at the games and had to be reached via notes sent home with the children. The business struggled because the owner couldn’t reach his customers directly, Esparza said.

* Marketing and distribution

Equally important is delivery/distribution and marketing of the product or service, the third essential element in the business concept.

Well-loved family recipes for salsa, salad dressings or barbecue sauces may seem like good business ideas, but distribution of these products often can’t get beyond local markets or restaurants. Entrepreneurs with new food products need thousands of dollars to pay supermarkets to display their wares on the shelves and compete against giant food-manufacturing corporations.

The Internet and Web sites provide new opportunities for marketing and distribution and a way around this barrier, but business owners must remember that the Internet has worldwide reach. Products might have to be delivered across the country and around the world.

For retailers, distribution includes choosing a location that will attract the customers you seek. A drugstore owner counseled by Esparza did an excellent job, picking a spot across the street from medical offices and next door to a grocery store that lacked a pharmacy. He went one step better by improving his distribution, making deliveries directly to the doctors’ offices. Thus, mothers with sick children and other patients could get their medical treatment and their medicine at one place in one visit, Esparza said.

* Finances

Being savvy about business finances includes knowing not only how to get start-up money from savings, assets, loans, credit cards or friends, but also understanding the bottom line and what it takes to show a profit.

With the costs of providing a service or manufacturing a product, plus marketing and distribution, can you attract customers and still make money with the price you will have to charge?

“A lot of times, entrepreneurs have a sales mentality and forget they have to pay attention to the profit margins,” Esparza said.

For example, a produce-delivery firm supplied residential customers with attractive boxes filled with organic fruits and vegetables. The idea had garnered significant start-up financing from individuals who loved the business concept, and the entrepreneurs bustled to supply numerous customers. They thought they were in a thriving business, Esparza said.

But in reality, they were eating up the financing and not showing a profit. When the seed money ran out, they would be out of business, she said.

All four elements of the business concept must work together for a business to exist, Esparza said.

“You can have three elements well thought out, but leaving the fourth open leaves the business open to failure,” Esparza said.

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The complete Entrepreneurship 101 tutorial can also be found on The Times’ Small Business Web site at https://www.latimes.com/smallbiz.

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A Place to Start

To help you sort through your notebook and organize your business ideas, The Times has devised an outline.

Fill in the specifics about each of the business ideas you are pursuing. Use a separate outline for each business idea and label them Idea 1, Idea 2 and so on. Use blank pages from your notebook if you need more space.

YOUR BUSINESS IDEAS

1. Skills

* Do I have the skills and knowledge necessary to run the business?

* Can I acquire the skills in time? How long? Cost?

* Can I hire someone with the skills?

2. Who Are My Customers?

* From my neighborhood, city, state, U.S., the world?

* What are their ages, income, gender, ethnic background?

* How will I inform them about my business?

* How much will it cost to reach them?

3. Distribution

* How will my product reach customers?

* What will it cost?

4. Daily schedule

* What are the business hours?

* What kind of hours do I want to keep?

5. What’s Needed to Start?

* Type and cost of equipment?

* Cost of licenses and permits?

* How many employees are needed. What will they be paid?

* Where will the business be located and how much will it cost to rent or purchase space?

The Bottom Line

“Entrepreneurship 101” is a tutorial on how to choose, start, finance, plan and grow a business. The program, written by Times small-business columnist Vicki Torres, was developed by Debra Esparza, a faculty member at the Entrepreneur Program of USC’s Marshall School of Business. Esparza is a former head of USC’s Business Expansion Network and currently is a program advisor at the Women’s Enterprise Development Corp. in Long Beach. With Esparza’s help, WED Corp. is launching a series of courses targeting small businesses that want to grow. Entrepreneurship 101, the tutorial, also can be found on The Times’ Small-Business Web site at

https://www.latimes.com/smallbiz.