Entrepreneurial success starts with planning, Purdue expert says

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March 2, 2009

By Purdue News Service The Washington Times-Herald Mon Mar 02, 2009, 01:02 PM EST

WEST LAFAYETTE, Ind. — In an economy shedding jobs, some unemployed people might think it’s time to become their own boss. Before they go to work for themselves, they’ve got another job to do: develop their business idea, said Maria Marshall, a Purdue University agricultural economist and rural business development specialist.

Starting a business isn’t as simple as it might seem, Marshall said. Prospective entrepreneurs should consider the type of product or service they plan to offer, the market for that product or service, and how much revenue they will need to keep their business afloat, she said. A Purdue University online resource can help.

“We all know of people who started a business on a wing and a prayer, where they have an idea and then in two months they’re up and running,” Marshall said. “Normally, it takes more planning than that.

“You don’t necessarily need to have a 30-page business plan, but you do have to go through some kind of process to determine how you’re going to start a business and think through such questions as ‘Who am I going to sell this product or service to?’ ‘How much are they willing to pay?’ and ‘What’s the price I’m going to have to charge?’ Those types of issues need planning and some type of research.”

When economic conditions are poor, would-be entrepreneurs are often less likely to invest large sums of money in a business startup, Marshall said.

“In tough economic times, you don’t often have a lot of business startups that need a lot of capital,” she said.

“You’re more likely to see a big increase in service-type businesses. For example, you might see people painting houses or doing lawn work or providing other household services.”

Entrepreneurs should ask themselves whether the market is already saturated with their product or service and, if so, how they can capture market share.

“With a new product or service you’ll have to educate consumers on what you’re offering and why they need it,” Marshall said.

“If you’re offering a product or service that’s already available, then the issue becomes whether you can provide better value than your competitors. You may need to change packaging, the ingredients or how you service customers.”

And then there’s pricing.

“When setting a price, it’s important to think about the value your product or service is providing to the customer,” Marshall said. “The value is more important than the price because when consumers buy something, they’re looking at the value the product or service is providing versus the price they’re paying. When you lose that perspective you tend to underprice your products and services and end up leaving a lot of money on the table.”

The Purdue INVenture Business Planner can assist individuals navigating the entrepreneurial maze. The planner is free and available online at https://www.agecon.purdue.edu/planner/

“We have it set up in six stages, the first stage of which is what I call the back-of-the-napkin approach. If you go no further than the first stage, the first four questions will ask you, ‘Why do you want to start the business?’ ‘Who is your customer?’ ‘What’s your product?’ and ‘What’s the break even?’ So if you’re starting a bakery, how many cakes do you have to bake to break even and keep the doors open?”

Subsequent stages help the user analyze the market, establish how the product or service will be produced, determine what it will take to market the product or service, and calculate expenses and returns.

“When you complete the questions you can generate a report and it will put your answers into a business plan format,” Marshall said.

INVenture is offered through the Agricultural Innovation and Commercialization Center, housed in Purdue’s Department of Agricultural Economics.

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