Avoiding the Black Hole of Business Start-ups: "even when the person has done all the homework, is an expert in the field, has researched the marketplace, and understands the strengths and weaknesses, the resources required--in time and money--almost always are much greater than first imagined.".

• Author: Sweet, Kenneth
• Position: Business & Finance

IT IS THE GREAT AMERICAN DREAM to start your own business and become your own boss. It is not that complicated, either. Simply invest everything you own and as much as you can borrow, paint a rosy picture of how successful your product or service will be, grossly underestimate the cost in time and money, then sit back and watch the business fold in less than a year. Oh, and do not forget to rain your credit rating, personal relationships, and health along the way.

You say no one deliberately sets out to fail in business. Perhaps not, but four out of every 10 start-ups will go under within the first year, six within the first five years. It seems that nothing succeeds like failure. Yet, many of the missteps and disasters that befall a new business are avoidable.

It is an idea that has been simmering in the mind of Carla, a pastry and dessert chef, who has been told her cupcakes are second to none. At the urging of friends and coworkers, and with some credibility and success under her belt working at reputable restaurants, she finally feels she has the resources to follow her dream. The idea is to open a small shop--a bakery boutique--that will feature her singular cupcakes. The real business, however, will be in supplying stores and retail outlets and establishing a name brand a la "Famous Amos" chocolate chip cookies.

A viable idea, sound financial management, and hard work all are important, but first and foremost is the need for a well thought out strategic plan, the big picture of the business. It starts with the vision, mission, values, and operating principles. In addition to these basics, the plan will include financial data, market research, positioning information, competition review, and market description. This plan addresses the nuts-and-bolts issues of how to grow the business--it is a map for traversing the business jungle.

As part of this process, it is important to decide exactly what it is the company will be selling, whether it is a product or a service and, more importantly, to whom it will be sold. In other words: identify the market. A company can offer the finest, most affordable and efficient air-conditioning system known to man, but if the target market is only north of Alaska, the company will not last the summer.

Define the market and the market will help to define the product or service. As such, it is critical to ask and answer these basic questions: Where are the prospective customers located? Who are they? What is their demographic? What are they looking for and what is missing in the marketplace? What is the company's unique selling proposition?

The factors that will set a new company, product, or service apart from the competition not only will help determine the future marketing approach, but will act as a barrier to entry for future competition...