“Many secrets of art and nature are thought by the unlearned to be magical.” – Francis Bacon
About 50 percent of new businesses fail in the first five years, according to the Small Business Administration. But don’t let a scary statistic like that one knock you out of the running. Keep in mind that the percentage of new businesses that succeed is just as substantial.
Of course, when you’re beginning a new venture, you want to stack the odds in your favor. And there’s a proven way to do it – one that’s helped thousands of new businesses get off the ground and churn out cash for years.
The secret? Get inside your competitors’ heads.
I mean your direct competitors – the people who are already making money in the business you want to start. What they’ve learned through hands-on experience is very different from what you’re likely to learn from most academics and other business “experts.”
For instance, conventional wisdom suggests that it’s necessary to do a ton of technical research before you even think of launching a new business. And in the business classes I took in college, my professors taught us quite a few ways to do that. For one thing, they stressed the importance of studying market conditions to determine whether or not a particular type of business makes sense. (Because of the current writers’ strike, for example, the production of many TV shows has been shut down. So now would not be a great time to try to start a business that caters to that industry.)
I don’t mean to knock their advice. This is certainly the kind of information that every start-up entrepreneur should be aware of and consider. Problem is, it’s easy to get bogged down in a lot of theory. And before you know it, you’ve lost the enthusiasm and momentum behind Michael Masterson’s Ready, Fire, Aim approach to starting a business.
That’s not going to happen with the “market research tool” I’m talking about.
So, how do you get people in the know to reveal the strategies they’ve used to succeed – and warn you about the mistakes they’ve made along the way? How do you get them to open up and reveal practical, nuts-and-bolts advice about running the kind of business you’re interested in? You can’t just call them up and ask. They’d probably just laugh in your face.
Here’s the trick: You talk to people who are either scaling back or retiring and are, therefore, selling their businesses.
Naturally, you’ve got to take what they say with a grain of salt. After all, they have a vested interest in presenting their business in a favorable light – especially if they think you might be a potential buyer. Still, you’re likely to walk away with some golden nuggets.
Before we go any further, let me make one thing clear. I’m not suggesting that you should mislead the seller. Fact is, you are a potential buyer. Although your primary purpose is to pick his brains, you may find that he’s offering a great opportunity. Just tell him that you’re thinking about (or are in the process of) starting a similar business, but thought you’d investigate the possibility of buying one that’s already up and running. And that may happen. You never know.
Keep in mind that he knows he may need to “kiss a few frogs” before he gets a serious buyer. So if you turn out to be just another “shopper,” no harm done – and no need to feel guilty.
I know this technique works, because I’ve used it myself. It helped me turn a cash-sucking business into a profitable venture in the blink of an eye.
I had started a business to produce local cable television shows. My plan was to lease time from local cable operators, and then sell enough advertising to pay for the air time and production costs while making me a profit.
But the cable company was charging about $750 for 30 minutes of air time. And it was killing my profits. One day, while scanning the classified ads in my local paper, I saw that someone was selling a business that produced local cable television shows.
I called and scheduled an appointment. When we met, the producer shared some of the basics about his business. One of these basics – a little-known rule mandated by the FCC – turned out to be critically important to me. He told me that when cable companies charge other producers for air time, it must be done according to a specific formula. And that formula made buying air time much more affordable for me.
By following this formula, the $750 I was paying per half-hour would drop to $90. I notified the cable company – and, suddenly, a business that was losing money became profitable.
Had I not taken a few minutes to talk with the producer, I would have continued losing money until I was forced to give up.
Now, you may not get such powerful insider information every time you interview a seller. But you will certainly get a perspective that you won’t get from doing academic, impersonal research.
Here are three steps to take to put this technique to work:
1. Locate businesses that are being sold.
Classified ads are usually a fertile source of direct leads. Contact business brokers, too, which you can also find in classified ads, as well as in the Yellow Pages and on the Internet (CraigsList, for example).
2. Prepare your questions.
When you meet with a seller, come prepared. If you’ve got a good idea of the problems you’ll be facing, you’ll ask more intelligent questions.
Where will you find suppliers? How much will they charge? What competition will you face? What regulations will you encounter? Where will your best customers come from? What’s the best way to reach those customers? And on and on. The more knowledge you demonstrate about the business, the more interested you’ll appear to be to the seller.
3. Keep an open mind.
Your main purpose is to get insider information from the seller – but your conversation with him could lead to a different kind of opportunity. Maybe some sort of partnership arrangement. Or perhaps he could act as a consultant to you in exchange for a small percentage of the profits.
When it comes to getting the real facts about how to make a buck in a new business, you can’t go to a better source than a current business owner. The information you uncover could mean the difference between success and failure.[Ed. Note: Larry Fredericks is an entrepreneur with a history of successful business dealings in retail, direct mail, the Internet, and real estate. He is also the creator of the Street Smart Business Program, which contains dozens of business-savvy techniques and strategies that you won’t find in any business college textbook. For more information, click here.]