From the LA Times...

Start-up lessons learned the hard way

Business owners offer prospective entrepreneurs advice on how to avoid the painful mistakes they made.

By Sharon Bernstein, Los Angeles Times

3:13 PM PDT, August 21, 2010

With corporate jobs in short supply, out-of-work Americans are going into business for themselves like never before.

But starting a business can be a perilous journey that most of us — even those who seem to be born entrepreneurs — can have difficulty navigating.

No matter how much planning people do, pitfalls lurk.

It's here that the real entrepreneurs show their spirit, experts say — by learning from their mistakes and moving forward. Some retool their companies, others shut down a failed business, only to open another.

New entrepreneurs make many of the same mistakes, said Ethan Mollick, a professor who specializes in entrepreneurship at the University of Pennsylvania's Wharton School. They fail to fully develop a business plan. They neglect important market research. They get into trouble by making poor hiring choices.

It's hard to anticipate everything that could go wrong, Mollick said. "Your big problem is probably going to be something that you don't expect."

Those who succeed keep trying — studying their mistakes and moving on.

"When you solve one problem you go on to the next," said Penny Pickett, the Small Business Administration's top entrepreneurship expert.

Here are some tales from now-wiser businessmen and -women who say they have learned from their mistakes and are happy to recall "where I went wrong."

Baby Planners

Ellie Miller and Melissa Gould started their Los Angeles company — Ellie & Melissa, The Baby Planners — at the height of the economic boom.

They had a great slogan and a notion that they would help expectant moms plan for parenthood, giving advice on what to buy, whether to engage a midwife, even how to choose a hospital.

Miller, a former television journalist, and Gould, a screenwriter, were confident they could handle the marketing side of the business. But they spent less time on the details of their service.

Their press release, proclaiming "We take the labor out of your delivery," caught the attention of television host Rachael Ray. The pair appeared on Ray's show, and calls started pouring in.

But they had reached the wrong people.

Instead of hearing from expectant moms, they were flooded with inquiries from folks who wanted training to start similar businesses. Hardly anybody called from Southern California because the "Rachael Ray" episode had been preempted locally for coverage of a wildfire.

"We heard from thousands of people who wanted to be baby planners," Miller said. "We had no plan to react to that." Then, the economy tanked and their service became too expensive for many families.

Three years later the partners say they have retooled. They're still offering consulting services to expectant parents. But they're also advising makers of baby products on what moms want, and producing videos on baby gear for a Walt Disney Co. website.

"It's been a roller coaster," Gould said.

Get it in writing

Gary Nicholson had little need for formality when he started his Internet marketing company, Relevant Trafik, in his bedroom in Culver City.

But last year he decided to expand. He had to hire people, get a business license and register as an employer with the Internal Revenue Service. He had to move out of the bedroom.

All the while he was creating websites for clients and crafting Internet marketing campaigns. There was so much to do that he gave little thought to the smaller details of the contracts he was signing with his customers. He knew enough to get a contract. But he didn't think to spell out every detail.

That's where things went wrong. A customer ordered a website, thinking that certain expensive graphics were included. They weren't, and a dispute arose over whether the client should have to pay extra for them. Nicholson wound up forgoing half of his company's fee.

"Now I go over it with them and make sure they understand it," he said.

Fishing expedition

Alex Andon was dying to get out of his job. All day long, the newly graduated biology major processed medical samples in a Bay Area laboratory. The work was boring and there was little social interaction.

After noticing the popularity of jellyfish displays in public aquariums, he had an idea. He would design desktop aquariums for jellyfish and sell them online.

The tanks had to be a certain shape so the jellies wouldn't get stuck in the corners, and the filter had to be specially designed so the delicate creatures wouldn't be sucked into the tubing.

All that done, Andon started selling. But he hadn't realized that customers would also need jellyfish — and he had no supplier.

"I didn't know where to get them," said Andon, whose company is called Jellyfish Art. "I would go out in a rubber boat and collect these things off the beaches here in San Francisco." Not only was it a pain to collect them, but the cold-water creatures also require refrigeration, complicating his task.

The lesson: Plan for all aspects of your business, including what your product will be, what the market is for it, what it will cost and how much to pay employees, vendors and yourself.

He's now buying his jellies from a professional distributor, using warm-water varieties to ease storage costs and keep his customers from having to refrigerate their new pets.

Et tu, customer?

Just because you're passionate about a product doesn't mean other people will be.

Kay Neal, for example, loves Latin. She believes that if parents realized that the ancient language would help their kids in school, they'd gladly buy books on how to learn it.

She started a publishing company, Prelum Press, and has put out one title. It's on learning the endings and middles of Latin words, and is meant for nonacademics who are struggling to learn Latin.

Sales have been frustratingly slow. She has connected with a few teachers at conventions. But her intended market — those parents — still haven't seen the light.

"My seed capital was about $15,000 and I've run through that," the 54-year-old said. "My nerves are a wreck from what I've done to my family."

Neal, who lives in Champaign, Ill., is suffering the results of a common small-business mistake — failing to fully identify your market before you start, said Patricia Gracia, president of the Santa Clarita marketing company Power Media Group.

"You need to make a market study," said Gracia. "You need to investigate."

Thanks, Mom

Richard Giorla is known among his employees at the Studio City fitness company Cardio Barre for being involved in every detail of the business. But it wasn't always that way.

Giorla's first venture into owning a business — a North Hollywood coffee shop — was marred because he didn't realize how vital it is to be intimately acquainted with all aspects of your company.

"I just worked my shift and got out of there," he said. The place seemed busy enough, but the finances didn't add up.

Giorla eventually found out why. A former employee confessed to regularly handing out free coffee, cigarettes, sodas and other items when the boss was out. Other workers, apparently, had done the same.

"He came to me and said, 'I worked for you. I robbed you blind,'" Giorla recalled.

Failing to keep track of everything going on in a business can have devastating results, said Michael Banner, president of the Los Angeles Local Development Co., a nonprofit organization that makes loans and provides advice to small businesses.

"To be fully engaged 24/7, that's what it takes," Banner said. "Because nobody is going to look after your money the way that you will."

But Giorla, 47, may have found the next-best thing.

"Now, I have my mother handle the finances," he said. "And I wouldn't have it any other way. There is not a penny that doesn't get looked at in my business now."

Time for love

While most advisors tell new business owners to plan for super-long hours, some people go too far.

Christian Galvin was in a steady, two-year relationship before he started his discount ticket company, TixList, in Boston this year. "I neglected what goes into a relationship," he said. "Things like going out to dinner often and putting the computer down and turning off the BlackBerry."

The relationship deteriorated and the couple broke up, he said. "When we sat down to watch a television show, I had a laptop in front of me," the 36-year-old said. "Needless to say, that didn't sit very well."

Next time, he'll pay more attention to his personal life. "It's healthy from a relationship standpoint and it lets the mind recharge a little bit, too," he said. "Most entrepreneurs I speak to can get so lost in the business — and burned out by it really quickly."

The money pit

Ryan Dudley offers his customers filet mignon and fancy wine, but he hasn't paid himself a salary in months. He took out a home equity credit line to buy the Cellar restaurant in Fullerton in 2004, and between changing tastes in food and the economic slump, money has been tight.

He's had to kill the company's 401(k) retirement plan, lay off staff and cut back on employee Christmas gifts.

It's the classic small-business bind — too little cash — made worse by the bad economy. His situation offers two lessons, experts said: Set aside enough money to handle the needs of your business before you start. And be prepared to make changes fast if you need to.

"Businesses have cycles, and you have to be able to manage them," Banner said.

Keep trying

Whether you're working with jellyfish, Latin lessons or new moms, experts urge new business owners to think big, yet pay special attention to every detail.

Mollick of the Wharton School said it's almost impossible to know ahead of time what will go wrong in a particular business. It's important to learn from previous mistakes and to seek advice from experienced hands who will be honest with you, he said.

Plan carefully, down to the tiniest details, he said. If your market research includes talking to friends, don't tell them you're thinking of starting a business. Instead, tell them a stranger has asked you to invest in one, and they'll be more skeptical in their appraisal. Go into a business you know something about.

And still, said Pickett of the Small Business Administration, problems will arise.

"Successful entrepreneurs make it look effortless, but it involves hard work," Pickett said. "Make sure you have enough confidence to keep going."