What and how to start business


Introductory story

Today both Amazon and eBay are among the most successful dot-coms who have survived the great net bubble. Over the past decade venture capitalists suspended their rules and a great deal of their common sense and dumped over $100 billion into Net and high tech start-ups. A third of these have disappeared without a trace. Others are limping along, ever so slowly.

eBay started in 1995 when Pierre Omidyar created the AuctionWeb. He didn't have any fancy business plan. Instead, AuctionWeb was the result of two things.

Omidyar wanted to explore the Web to see how it might be used for business. Also, probably more important, his girlfriend, Pam, wanted to find a way to trade Pez dispensers beyond the local area. What later became a successful business started as a hobby. That's very different from the way Amazon got started.

Amazon's founder, Jeff Bezos was senior vice president at the D. E. Shaw Hedge Fund. In 1994 he read a study that predicted the Internet would become very popular. He figured that there was money to be made there. So he set about doing research.

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He started to search for the ideal product to sell online. Books seemed to be the best choice. Bezos figured that as books were essentially a commodity; they were the same no matter where you bought them. He also noticed that while books were already cataloged electronically, there was no bookstore on the planet big enough to hold even one copy of every book in print.

eBay was started by accident whereas Amazon was planned from the start. Bezos chose Seattle as headquarters location due to the huge pool of programming talent available and because it was close to Roseburg, Oregon, home to the largest book distribution warehouse in the country.

At eBay, Omidyar was inspired by the initial success he had. He set out to create eBay as a giant, efficient market for just about everything in the world. He wasn't sure how it would all happen. He took things one step at a time.

During the day Pierre would answer emails from the folks who used eBay. At night he'd spend his time programming, changing the way eBay worked according to the ideas and suggestions he picked up from users during the day. One of the best of those was the Feedback Forum, the way eBay users trade information about buyers and sellers.

Amazon and eBay's different beginnings illustrate different ways that a business can start and achieve success.

Amazon started out as a search for the best possible Net business. If Jeff Bezos' research had discovered that peanut butter sandwiches were the perfect online product, then that's what his business would have sold.

Both companies paid attention to costs. Omidyar did the programming for eBay while he developed the business. Bezos helped ship the books that his first customers ordered.

The two companies have pretty much grown and developed the way they began. At eBay they're obsessed with listening to their customers and responding. Just about every new category of merchandise got started because buyers and sellers were starting to do things that eBay hadn't thought of yet. That's how a thriving business in used cars got started.

Back in 1999 one of eBay's business development people was searching the site for toy models of Ferraris. He found those, but he also found two real Ferraris for sale. This led to a check of the whole site. Guess what? They found over two hundred vehicles for sale. Cars looked promising as a category.

So eBay created a category for them and acquired Kruse International, a company that ran car shows. Growth came from the practice of observing buyer and seller behavior and then acting on possible growth ideas.

At Amazon, the business is pretty much data-driven. Bezos loves analysis. He says “With most decisions, you can do the math and figure out the right answer, and math-based decisions always trump opinion and judgment.”

Many of the good ideas at Amazon result from Jeff Bezos's initiative. One-Click ordering is a good example.

The first time Bezos tried a one-click order he got one of those “Are you sure?” confirmation boxes on his screen. But he insisted until he got what he wanted.

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As the two companies continue to grow and develop, they each remain true to their roots. Each has developed a set of behaviors and practices that works for them.

Pierre Omidyar isn't involved in the day-to-day operations of eBay anymore. He and Pam are married now and they have made lots of money from eBay. They devote their time to philanthropy and their private foundation.

They can do that because in 1998 Omidyar brought in Meg Whitman to run eBay. She's done a great job, mostly by maintaining the basic values that Omidyar had back at the beginning for a solid business practice with an emphasis on execution.

In 1999, Whitman started the Voice of the Customer groups that bring in small groups of sellers and buyers into San Jose to tell the company about the issues that matter the most to them. She sees her key challenge as in maintaining the feel of eBay as it gets larger and larger and dealing with bigger companies.

Over at Amazon, Jeff Bezos is involved with just about everything and he shows no signs of leaving any time soon. In the long run, that's dangerous for Amazon because it's very hard to keep good people in the top positions when they know that the CEO is probably going to be there for many more years.

At eBay the future challenge will be to continue to grow while maintaining the company's core values. At Amazon it will probably be surviving the first time that Jeff Bezos has a lousy idea that he won't let go of.

So which of these companies is best? What is important is learning from both of these excellent companies.

From eBay, you can learn about how to listen to your customer community and let them lead you into profitable areas. From Bezos and Amazon, you can learn about how to plan and research and base decisions on data.

Also, you can learn timeless lessons about successful businesses: successful businesses have clear visions, core values, cost control and plenty of attention to the details of execution. From both Amazon and eBay you can learn that successful businesses are realistic and results-oriented.

Golden Words:


D Direct your energy to finding the right business opportunity
I Ideate out of the box if necessary
S Study all possible avenues before venturing (Solicit assistance from all possible sources)
C Commit your entire energy and resources on chosen business activity.
O Organize support structures in place for the business to succeed
V Validate your business assumptions
E Evaluate and fine tune market strategies
R Respond to changes in the market

Chapter Highlights

Q: If you are already working in a job, what would be the best time to quit and start being your own boss?

A: There might be an abundance of ideas, however every idea might not prove to be an opportunity. And even if you could transform the idea into an opportunity, it might take 2-3 years to work out the feasibility of the business and to plan. Also, you might need to check if this is the business you are truly passionate about or it might become difficult to get motivated when the business gets difficult. So quitting your 9-5 job as soon as you have a business idea might not be a bright idea.

Q: What are the important things to consider before starting a business?

A: It is important to plan a business and then to be realistic while setting goals. Motivation is very important, so always start a business that you are passionate about. Explore various options before you choose one. Try to work in a business with the same business model and products that you have chosen, to gain experience before actually starting your own business so that the learning curve is up and ready.

Q: How will personal values of the founder affect the community?

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A: A founder might have a specific idea of the company and its culture that he would like to create. For example, Ben and Jerry Ice cream Company contribute to the overall wellbeing of employees, customers and the community with their social, environmental and economic policies. It is so important that “personal values” of a founder and “mission” binds the employees to a cohesive company culture.

Q: What is the importance of the mission statement?

A: The mission statement is a concise, well-defined explanation of the purpose of business and management's philosophy. It also includes a description of the products or services offered.

It answers these questions:

  • Purpose of business
  • Products and services offered
  • Management philosophy

Q: What are the advantages and disadvantages of franchising?

A: Advantages: The franchisee can avail of services like site selection advice, facilities layout analysis, and finance too. Since brand reputation has been built, and people trust the product, there are higher possibilities of making a success of the business. A ready market for the franchise products makes it easier to project profit.

Also, advertising happens on a larger scale. The uniformity of all the franchisees ensures that the routine operations are standardized and that the best practices are followed.

Disadvantages: A franchise might be a risky option if the franchisor is fraudulent or inept. Also, when the entrepreneur starts a business, creativity rules and the entrepreneur tries to do things his/her way. However with a franchisee, there are numerous restrictions. For example, in a Mc Donald's franchisee, the operations manual gives importance to details such as when to oil the bearings on the potato slicer. For some entrepreneurs, this kind of restriction on creativity might be constricting as it means too much of dependence and skimming off someone's products.

Q: What do you need to consider before outsourcing?

A: The most important thing to consider before you outsource,

  • Is there really a need to outsource? If the work is really critical to the business, maybe you need to do it yourself.
  • If yes then, what work should be outsourced? You could outsource traditional areas such as Finance and Accounting, Mortgage and Technical Support, as well as newer areas such as Legal Outsourcing, Consumer Analytics, Risk Management Services and Knowledge Services.
  • Do you want to outsource entire operations or only a part of the business?

It would be prudent for any entrepreneur to perform the key/critical area of business on his own steam particularly if there is secrecy or a unique competence. Outsourcing must be considered only in marginal or routine functions for cost advantages.

Q: Are you considering exporting?

A: Companies like Coca Cola export to other countries because there is a market for this product. So the first question you need to ask yourself whether there is a ready and large market in another country for your products. Also, you might have to customize the product according to the needs of the new market; you need to factor in additional costs to determine pricing. It might take a long time to receive payment. So managing the cash flow to avoid deficit is important. Also, insurance becomes necessity.

Also, if a company is new to exporting, then it is advisable to use the services of an export management company (EMC). The EMC would provide market research, develop distribution networks and establish valuable contacts as well as adhere to the myriad labyrinth laws and procedures involved in dealing involved in exports.

Q: What are the advantages and disadvantages of a home based business?

A: The desire for a greater balance between work and family life is a major reason to establish a home business for many. Long working hours at a company, peak hour traffic snarls, time spent in travel all combine to make a home based business or activity a very attractive proposition.

Children need extra care while they are especially young and one can work on flexible hours.

However, disadvantages include isolation, long hours with no separation between work and home, loss of routine and structure and family interruptions. The entrepreneur needs to be self motivated and should be able to work alone. In addition only certain jobs are amenable to working from home, those especially requiring solo efforts like graphic designing, editing, programming, writing, etc.

Q: What are the advantages and disadvantages of a family business?

A: Advantages: A family business suggests that your kith and kin or close relatives would be involved. Many husband and wife teams run the business in an excellent manner. It enables the entrepreneurial couple to spend more time together. Even some relatives with whom you get along pretty well can be involved in core functions of the family business.

Disadvantages: Sometimes, when entrepreneurial couples spend too much time together without other interests, it results in boredom. The more common affliction is not able separate home from work issues. In case of personal disagreement, running the business might become difficult and might even lead to a closure.

Q: What are the advantages and disadvantages of buying an existing business?

A: There is less risk, it is easier and can be bought at a bargain price. However, it is important to buy at a time when the business is being priced lower to gain advantage. It is the buyer's responsibility to find out about the business as much as possible from the owner, suppliers, employees, customers and even competitors. It is important to understand why the previous business is being sold.

Some owners might overprice the business because of all the personal sacrifices and hard work the business entailed. Or the owner might be selling the business because of inadequate sales volume. This might be due to tough competition or a diminishing market. The business can respond to tough competition but if there are not enough customers in a town of 3,000, then the market is too small and no amount of hard work or smart promotions can change that. The price of the business should be negotiated and set after discounting future earnings. Also, it is better to have a business plan detailing how you intend to run the business when it comes to your hands.

Q: Name some successful women who have been the trendsetters in business:

A: ‘Stagecoach Theatre Arts School UK', started in England in 1988 by Stephanie Manuel, who was refused by her ‘bank' the loan of £4,000 to start, went on to have 420 schools throughout the UK.

Liz Jackson who set up her telesales marketing company, Great Guns Marketing, in 1998 with assistance from the Prince's Trust. Being in business is tough; being a female entrepreneur is tougher still. But this young woman has proved to successful businesswoman despite being blind.

Goals & Objectives

Goal 1:

Identify what business to start


  • Identify business domain
    (Extremely important to identify your strengths and expertise and match it to a business activity, otherwise there are chances of being a square peg in a round hole)
  • Identify product
    (Once the business domain, study the competition and identify a product or service in which you will have a differential advantage)
  • Compare local and global businesses before zeroing in
    (Study all aspects of the product line: sales trend, local markets and abroad, key players, market dynamics, industry practices etc)

Goal 2:

Assess goals and objectives of business


  • Build a mission statement
    (A mission statement must inspire and define the focus area of operation. Since it reflects the personal values of the founder, it will set in place the business practices and culture)
  • List organizational values and goals
    (The objective of any business is to “make money”. Define fixed milestones and how you about achieving them)

Goal 3:

Evaluate how to start a business that would be consistent with mission and goals declared earlier


  • Compare home based business and a family business
    (Consider the various “types” of business and see which one makes most appeal)
  • Compare various alternatives such as franchising, outsourcing and exporting
    (Explore the pros and cons of different business types and zero in as per your situation and motivation)
  • Compare alternatives of starting your own business or buying an existing business
    (Again if there is already an existing business on the block that meets your demands, consider its pros and cons)

Goal 4:

Evaluate if the chosen business is practical


  • Document strengths, weakness, opportunities and threats using SWOT analysis
    (Analyze the business from all angles so that no factor is ignored or overlooked)
  • Calculate cost of product to achieve profit using break even analysis
    (Breakeven point is vitally important for a manufacturing concern to base its selling point)
  • Compare with other businesses in the market to make growth projections
    (Determine the growth of the industry and its key players for that it determine your growth potential for your business)

Case Study 1:

Entrepreneurs are flexible, opportunistic and recognize the power of ‘emergence'

IBM and its founder Thomas Watson, Sr had seen through tough times. The year was 1934 or '35 when IBM had built the first accounting machines for banks and it sadly coincided with the Depression years with no bank buying anything.

IBM was so hard hit that it was on the brink of bankruptcy. The whole country was reeling from the effect of Depression and consumer confidence was at an all time low.

Watson was depressed that closure was near at end and it chanced one evening, his wife forced him to accompany her to a social event. He seated next to a middle-aged lady and as courtesy demanded, Watson kept her engaged. While talking with her, Watson described the functions of the machine IBM had built. It turned out that the lady turned out to be in-charge of the library system in New York City. She told Watson that they were in complete disarray and unable to manage their books, and told him that she would need half a dozen of these! Next day, he sold her five of the machines.

Until that moment, Watson had never thought of his computing devices as machines for tracking books. But crisis had the effect of unearthing new opportunities.

That one sale pulled IBM from the brink of bankruptcy.

Had it not been for Watson's capability to go with the emergent flow of events - moving from accounting machines to the recognition that he should make general purpose computers - IBM would not be what it is today?

The essence of entrepreneurial ability is building a future and living it. Sometimes, it is about ‘willing' a course for the enterprise and thereby changing the market characteristics or dynamics. Yet, things do not always go the way as planned.

Things to reflect

  • Watson ability to preserve
  • Ability to “think on his feet”
  • Nose to smell an opportunity
  • Confidence to adapt the product to suit the customer

Case Study 2:

Commitment to quality - for 27 years(an instance of starting a new business)

Ben & Jerry's is founded on and dedicated to a sustainable corporate concept of linked prosperity. Their mission for being in business was well defined: Product Mission, Economic Mission and Social Mission.

Their core philosophy was a deep and abiding respect for individuals in and outside the company and supports the communities of which they are a part.

Product mission

To make, distribute andsell the finest quality all natural ice creamand euphoric concoctions with a continued commitment to incorporating wholesome, natural ingredients and promoting business practices that respect the environment.

Economic mission

To operate the Company on a sustainable financial basis of profitable growth, increasing value for our stakeholdersand expanding opportunities for development and career growth for our employees.

Social mission

To operate the company in a way that actively recognizes the central role that business plays in society by initiating innovative ways to improve the quality of life locally, nationallyand internationally.

It all began in junior high gym class in Merrick, Long Island. Two boys, running around the athletic field, found a common bond. Ben Cohen and Jerry Greenfield hated running, but loved food.

In 1978 they decided to go into business together. With diplomas from a $5 correspondence course and their life savings ($8,000), they converted an old abandoned gas station in Burlington, Vermont, into a manufacturing base for making Vermont's Finest ice cream.

They used only fresh Vermont cream and milk, only the best and biggest chunks of nuts, fruits, candies & cookies. It wasn't long before the lines for ice cream stretched out the door and that was only the beginning.

Ben & Jerry wanted to run a business that would share its rewards with its employees and the community. Ben & Jerry's products are now available across the country, in stores and in franchised scoop shops. Internationally their ice creams are much in demand in Europe, Asia, Canada, Mexico and in the Caribbean.

Ben & Jerry's contribute a minimum of $1.1 million annually through corporate philanthropy that is primarily employee led. Additionally, the company makes significant product donations to community groups both in Vermont and across the nation.

The purpose of Ben & Jerry's philanthropy is to support the founding values of the company: economic and social justice, environmental restoration and peace through understanding, and to support local communities.

Sometimes good values also make great commercial success.

Things to reflect

  • Sharp clarity on “Mission”
  • Commitment to producing high quality product
  • Involving the local community
  • Developing the local community

Case Study 3-Franchising

One man's trash, and then another, and then another, and then another...

Brian Scudamore started a company 1-800-GOT-JUNK? in 1989. He was straight out of high school with $700 and a beat-up old pick-up truck. Today they have 95 franchise partners across North America and a national presence.

Scudamore was a risk-taker though firm in his vision. “Being the ‘FedEx' of junk removal,” says Scudamore, “I dropped out of University with just one year left to become a fulltime JUNKMAN! Yes, my father, a liver transplant surgeon, was not impressed to say the least.” He chuckles, “He is on my side now.”

Many entrepreneurs minimized risk by outsourcing to contractors. Scudamore chose a different route.

“I hired my first employee a week after I started.
I knew I needed the help. His name was David Sniderman - a good friend of mine. I really didn't know yet how to hire so I just asked a buddy.” It may have started as a matter of simply not knowing what else to do but it became a philosophical one later. “On a bigger level, I always believed in hiring people vs. contract or consultants. I felt that if I wasn't willing to make the investment then I was questioning my own faith in the business.”

He's a great believer in letting other people share some of the risk. His choice of franchising business model allowed him rapid growth and without recourse to outside investors or other funding sources.

“It's the ultimate leverage model. People pay you a fee up-front to help them grow. Rather than lose control my vision by going public - I chose franchising. It's the ultimate growth model.”

Their recipe for success has been quite simple. They took a fragmented business, added clean shiny trucks that act as mobile billboards, uniformed drivers, on-time service and up-front rates, a culture that is young, fun and completely focused on solid, healthy growth. He still retains 100% ownership and bootstrapped the business solely out of cash flow - something that is scarce these days.

This simple business could not have grown so quickly without the aid of technology. All calls come into a central 1-800-GOT-JUNK? call center where the booking and dispatch for their franchise partners are recorded. Franchise partners then assess real time reports, schedules, customer info, etc., off of JUNKNET, their corporate intranet.

This allows franchise partners to get into business quickly, and to focus solely on growth.

1-800-GOT-JUNK? will do about $32 Million in 2004 - not a bad return on a $700 investment! Brian's goal is $100 million and 250 franchise partners by Dec 31st, 2006. He says confidently, “We will get there.”

Things to reflect

  • A strong belief in employing people
  • A sound business plan as in taking the franchising route
  • A set of strong operating procedures
  • Investment in technology