Edward Hess teaches business administration at the University of Virginia's Darden School of Business. Before joining the UVA faculty, he spent more than 30 years in the business world, beginning his career at Atlantic Richfield Corporation. He was also a senior executive at Warburg Paribas Becker, Boettcher & Company, the Robert M. Bass Group and Arthur Andersen. He is the author of nine books, over 40 practitioner articles, and over 48 Darden cases dealing with growth systems, managing growth and growth strategies. His most recent book "Smart Growth" was named a Top 25 business book for business owners in 2010 by Inc. Magazine and was awarded the Wachovia Award for Research Excellence.
Edward Hess: The hurdles are higher to starting a business today than they were in 2006. 2006, financing was easier, consumers were spending, jobs were plentiful, if you started a business and failed you could easily go get a job. Today financing is not plentiful. Consumers are not spending and if you fail, getting a job is probably very hard, so I would be very risk adverse today and again I would start a business part time nights and weekends and keep my day job until I was sure it worked unless you had substantial wherewithal, money, family and friends that could support you or the other big if, if you’ve got a big customer who says go start this and I will buy from you and I will help finance you or you’ve got multiple customers.
Let’s say for example you want to open up a deli that you don’t have a great New York deli in the town you live in no matter where that is and you want to have a great deli, thick sandwiches, high quality homemade bread.
Step One: Research the Competition
First you need to do your research. There are very few ideas that I'm going to come up with or you’re going to come up with that are truly unique. Somebody has done it before.
Step Two: Identify Your Compelling Customer Value Proposition
Then I would sit back and say how am I going to be different, what am I going to offer to the customer that is compelling and different that is going to get the customer to change.
Step Three: Start Small
Then I would figure out how to try and start small. For example, I wouldn’t go out and borrow a lot of money in the beginning. I wouldn’t go out and rent space before I even tried. I’d look at either farmers markets or some type of kiosk type situation. How can I make some sandwiches and go out and try and sell them and see what customers think?
Step Four: Get Granular
Then you do the numbers if you will and you go down and say what is it going to cost me a month an my operating expenses. If my operating expenses are $5,000 a month how many sandwiches do I have to sell every day?
I would be cautious, conservative. Experiment, try, build up a customer base, but I wouldn’t take a lot of financial risk in today’s marketplace unless you have a big nest egg.
Directed / Produced by
Jonathan Fowler & Elizabeth Rodd