Prosper Newsletter: May 2008 >Entrepreneurship

You understand that the following information is educational in nature and is not intended to be legal, accounting, or tax advice. You are responsible for your own financial decisions and should consult your own legal, accounting, and tax advisors before making your financial decisions.

Starting Your Own Company

Basics of Self-Employment

If working for the man has become difficult to bear, you should consider working for yourself. Of course, starting your own business is a daunting process: over half of new start-up businesses fail within the first two years. But if you plan carefully, you could become successfully self-employed.

Starting your own business can be a rewarding process. Your work makes money for yourself-not for others. You may begin a legacy for your family or friends to follow. Finally, you can follow your own dream and not the dreams of others. But enough with the reasons behind starting a business; it is time to overview the basics of starting one.

Many people go into business with unrealistic expectations of what can occur. They believe that their idea is marketable, but they have to realize that a good idea requires two of the following three components:

• It is something new
• It can improve upon something which already exists
• It fills a need and is in demand

Once you have decided whether your idea is valid, you should create a business plan. A business plan should consist of an overall description of the business, the type of organization the business will be (LLC, partnership, etc.), the product or service the business will provide, the overall costs, and a one-year, five-year, and ten-year estimation of profit. The business plan is a most important step. Without a good and thorough business plan that focuses the business and takes it in a definite direction, even the best idea can fail (or at least not be as successful). Careful planning is necessary for any business to succeed.

The next step is to procure funding. If you are like many who are just starting out, you likely don't have the cash to fund a business. Finding either a bank or a venture capitalist that fits your business and is willing to invest in you and your ideas requires much research. If that is your case, then you should consider a business loan.

You should consider a few things when looking for an appropriate business loan. First, look for lending institutions that offer the best interest rates for small business loans. Second, look for a loan that will cover the initial start-up costs of the business, that will provide an income for yourself for one to two years, and will cover the costs of running the business for one to two years. By covering these basic costs, you will give your business enough time to grow and progress. Such a loan also provides you, the owner, with the security of a paycheck while you are starting your business.

After you have received a loan and jumped into the business, there is only victory or failure. If you are victorious and the business is making money, then congratulate yourself and begin asking yourself about expansion and overall goals. You may opt to keep your business local, while others may want to expand and grow as much as possible.

If the business does fail, do not lose heart. Try to understand two things. First, this was a valuable learning experience. People grow more from defeat than from victory. Take a step back and try to figure out what you could do differently to provide a more efficient business. Second, it is always easier the second time. Put your heart into it and figure out a new plan.

Direct Mail

There's often no better way to generate leads, test the marketplace for your target market(s), and promote your product than by using direct mail. While the term direct mail may have some bad connotations-like the term junk mail-in reality it can do well for your business.

While the direct mail letter is still a very valid form-probably the most used still today-several advancements in technology and a stiffer competition have made the world of direct mail very diverse. As an entrepreneur, there are many options at your fingertips. From advertising circulars, invitations, postcards, or even free trial CDs, your challenge may not be coming up with options, but rather honing in on what will work best.

While first-class mailings generally respond better than other postage styles, you may need to take advantage of the special rate classes that have been established for direct mail campaigns. The bulk rates set aside for marketers are substantially lower than regular first-class rates. To qualify for these rates, you'll have to conform to some very specific format guidelines and processing rules.

You may have luck with general mailings, but that's not generally the case. The direct mail campaigns that respond best come from lists or databases that have been "scrubbed"-that is, they've been analyzed, purged of duplicates or invalid addresses, and sorted according to likelihood of purchase. Unless this is your line of expertise, you'll need to consult with a list broker and/or direct mail marketing agency to get the best list, best targeted mailing, best creative, best response rates, and best profit per piece.

Since your rates for mailing are fixed, and the price you pay for creative and production will probably remain relatively static, the most important issue in your mind as a direct mailing marketer will be to raise your response rates. This is how many people respond to your mailing. If you send out 100 letters and get two phone calls, then your response rate is 2%. This is a common rate, so don't be discouraged.

Once you have honed in on a stable response rate, you'll move toward improving the conversion rate. Conversion is how many people actually buy your product or service. This is different from how many people respond. It's much like the difference between people who visit a website and people who actually spend money buying things from that same website. All of these are factors in the success or your direct mail campaign.

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*See the Elective Class Catalog in your Success Center for the latest dates, times, and class details.

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