So you want to start a home-based business. You’re not alone. The Small Business Administration estimates that more than half of all U.S. businesses are based out of an owner’s home. The SBA notes that Apple Computer, Hershey’s, Mary Kay Cosmetics and Ford Motor Company all started as home-based businesses.
Those shiny examples aside, there are potential pitfalls to such undertakings if you don’t do your homework. The SBA suggests that before you dive into a home-based business, ask yourself if you can live and work in your home. What changes will you have to make to the living arrangements of your and your family? How much will working at home add to your expenses? What will your neighbors think?
Advantages of operating a business based in your home include no commuting time or expense, less or no childcare costs, flexible working hours, lower costs to operate your business, tax write-offs, employment opportunities for relatives working for you and satisfaction of being your own boss.
The downside of working at home includes maintaining a work schedule, isolation without co-workers and separating work from real life in the same space. There may also be legal requirements regulating home-based businesses in your community such as zoning ordinances and restrictions on the production of certain items.
The good news is, there is an abundance of help and advice to get you on your way from SBA and other organizations and agencies.
“We work with a ton of startups and we see a lot the same mistakes,” said Tony Jeff, president and CEO of Innovate Mississippi, a nonprofit organization that fosters technology-based economic development for the state.
One misstep is not getting feedback early on from customers. “Don’t wait to talk to or even sell to your customers, even before you start your business if you can, ” Jeff said.
Jeff said many inexperienced entrepreneurs have an irrational fear of immediately being overwhelmed with customers and work. “I’ve never seen that happen,” he said. “It’s a fallacy I hear all the time.”
Another pitfall to avoid is overspending on rent and equipment at the get go. “With today’s technology and virtual incubators, there is absolutely no reason to spend a lot of money on an office or equipment until you have orders and customers,” Jeff said.
Most startups don’t have a lot of meetings so there’s no need to pay for a conference room. Jeff suggests asking your bank to borrow meeting space if it’s needed.
Eager entrepreneurs often are tempted to spend money they don’t have while their venture is getting off the ground. Renting, leasing or using someone else’s space or equipment get the job done while saving money, Jeff said. “Spending less money is critically important in the early days,” he said. “Saying ‘If I could spend $100,000 I could get my first customers is like jumping out of a plane and then packing a parachute.”
Jeff advises entrepreneurs to know who to market their products or services to, specifically the people who want the advantage of buying what you’re selling versus your competitors. “Name the first 10 people you are going to call. If you can’t answer that, you haven’t done real market segmentation,” he said.
Jeff said he is frustrated about one thing that most Mississippi entrepreneurs fail to do. “We just don’t think big enough,” he said. “We say we want to be the biggest in the Pine Belt, for example, when to me the really interesting companies are the ones that want to be the biggest in the world. People need to be thinking bigger.”
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