Business RX: Advice on improving or starting a business

Nov 20, 2012

Elana Fine, managing director of the Dingman Center for Entrepreneurship at the University of Maryland's Robert H. Smith School of Business, will take your questions.

How do you think small businesses should use advertising to help sales? What are new and efficient opportunities?

Depending on your business, online advertising can be an inexpensive and somewhat effective tool to build brand awareness to a target group of customers.  Advertising platforms are sophisticated in their ability to use customer behavior for ad placement.  However, you get what you pay for - you are still focused on customers that might not be looking for the product you are selling.  Small businesses might be better served by lead generation platforms that might better connect you with potential customers, even though you may have to give them a higher percentage of your revenue.  If you are bricks and mortar -- focus on promotions that will drive foot traffic.  

I am looking to open up a small restaurant and am looking to consider my revenue before I can decide what costs I can incur. How should I calculate anticipated future revenue for my restaurant?

This is a tough one to answer in just a few sentences as it really depends on a number of factors.  Start building your model based on expected traffic, expected revenue per customer based on price points (is this fast food or sit-down, low-end or hig- end?), throughput of customers per meal (are you open for breakfast, lunch or dinner? etc.) You also need to forecast how long it will take for traffic to ramp up and how much will it cost to drive traffic.  Also, think through the mix of new customers and repeat.  Is this something people will eat once a week or once a month?  You also need to think through the ongoing expenses - once you build out the space, you'll still have food expense, which can be expensive.  Since you can't store most food inventory for very long, you have to figure out a sophisticated approach to forecasting demand. have a lot of questions to ask yourself. 

I want to start a business but not sure in what industry--my passion is sweets (candy/cupcakes/ chocolate), but not sure if this can be profitable enough to sustain. Any suggestions?

There are certainly a lot of options out there for sweet tooths -- so clearly there is a business model to be found.  The issue will be finding a niche for yourself among the many cupcake companies.  The takeaway from the proliferation of cupcake and hamburger chains has been that people are willing to pay for high end treats.  If we are going to eat "unhealthy," we want to do it right.  This is also part of an experience - so creating a unique experience for buying candy, cupcakes, chocolate or all three is part of the model just as much as the products themselves.  Look at what has been successful among brands like Georgetown Cupcake, Pinkberry and Elevation Burger and think about what they have done well and where there might be additional opportunities that their current product lines don't address.  

Do you think the re-election of Obama will help small business? If so, how?

President Obama has already shown his commitment to supporting small business and entrepreneurship through the  Startup America Initiative and the JOBS Act.  I expect that continue. However, I think there is a lot more to it than just tax rates and reporting requirements -- entrepreneurship is a state of mind that we need to continue to see as solution to solving the many problems we face.  Turning problems into opportunities for innovation and job creation -- that is where entrepreneurship and startups can really make an impact.  We need to focus on the success stories and celebrate more role models that have started businesses.  

How much of my savings should I put up for starting a solo PR agency serving medical, dental and other health-care professionals? I can't borrow due to an ongoing foreclosure. I have savings, but I'm not sure how much to tap.

Before investing your entire nest egg, think about how you can test the market for your services.  Talk to health-care professionals first and understand their current demand, how much they will be willing to pay for a retainer and what kind of pilot arrangement they'd be willing to commit to.  Understand your competition - are they using other providers (which would require switching costs) or are they not engaging any providers (which might mean a longer sales cycle because they don't have a budget)? Try to forecast  when you might line up some initial paying clients and when you will have enough for the business to be sustainable.  If you don't have enough runway in your savings, you may need to think about initialy  consulting as part of a group or on the side before you fully commit. 

With Thanksgiving break coming up I'd like to take the opportunity to get some reading done. What are some essential books that you would recommend for an aspiring entrepreneur?

I'd put potential books into a few categories.  First look for biographies of entrepreneurs that might inspire you, such as Steve Jobs or Richard Branson. Then look for some books that might help you think through your business concept and how to execute - like Eric Ries' "The Lean Startup" or" The Business Model Generation."  I'd also look for books that are relevant to your area of expertise, whether it be technology, consulting, social entrepreneurship.  That should give you a good start after you wake up from your turkey...

I'm a student working on a tight budget (meaning no budget) and limited creative ability. what can I do to bootstrap the development of things like logos and Web sites? And how important is a catchy logo for my business idea?

The great thing about being a student is that you are likely surrounded by a lot of creative people and resources.  Go to the art department at your college and see if there is anyone who needs a project for your class.  There are also a lot of Web sites for crowdsourced/curated logos.  Same goes for Web sites - go find the computer science students who might be interested in getting involved with your company.  As for the logo - it isn't necessary priority #1 or #2, but it does help you express your brand and vision.  It also makes things feel more legit and serious if you can see your company name.  Make sure you do a lot of market testing on company names and logos before you go  live -- it can be very expensive to rebrand so you want to do it right the first time.  

If s/he cannot get a loan due to an ongoing foreclosure, is starting a new business really the way to go? (If s/he cannot pay her/his bills, how can s/he start a new business?)

I'm giving you the benefit of the doubt that you are making your way out of other financial difficulty..but perhaps this business will eventually give you the stability you need if this is an area where you can really flourish. 

It would seem to me that the answer is almost right in front of this writer: if you want to have a sweets shop you really need to get into some bakery that specializes in this to get the inside experience of how this business runs. Needless to say the owner is not going to show you the books, but seeing from the inside what is required would be helpful! (i.e., store size, ingredients order, recipe development, etc).

Yes, get smart and educate yourself.  Learning from others successes and mistakes is better, faster and cheaper than learning from your own. 

Given the current uncertain state of the economy and all the political battles going on, do you think that there will be a lot of growth into more "non-traditional" sources of funding for startups? For example: the rapidly expanded interest in CSAs, organic foods, "farm-to-table", etc. The long-term (10+ years) idea I would like to pursue is tapping into these more community-derived business for sources of funding, alongside the more usual routes of grants, loans, etc. I guess the question is, how do you write up a business financial plan that wants to include this, but recognizes that it's entirely unpredictable how much you may get from, say, a restaurant chain that will commit to buying a certain amount of supplies from you? I think it's an interesting conundrum!

Coincidentally I have a cousin exploring this business model -- a socially-conscious/community approach to launching a restaurant.  A rising tide lifts all boats - if the community supports a restaurant either through philanthropic monetary donations or through supplies - does it bring more business to the community or create stronger ties?  These social ventures are difficult because it is hard to measure success and continue investment.  How long do you measure if this investment is improving the community? How long do you give to show success? Like any business, it always takes twice as long and twice as much money to reach profitability.  You'd really have to find the right investors or suppliers that truly understand your mission and are willing to support for the long haul.  Your business plan would need to show some certainty on those commitments or outline other back up options. 

Hello, I'm very interested in starting a business in the next year or so and I'm just starting to think through the steps I would need to take to get it off the ground. Are there some good resources that you recommend, either through SBA or others, that I could tap? Any information that I can gather regarding start-up costs, business planning, etc. would be great. I am female. Thank you!

This area has an abundance of resources for entrepreneurs -- whether through MD's TEDCO, Small Business Development Centers, Choose Maryland, Northern Virginia Tech Council, SBA universities like UMD, Georgetown, GW, and George Mason, Maryland Biotechnology Center, the list goes on and on.  

For tech startups, what are your thoughts on raising seed funding via crowdfunding (i.e. Kickstarter)? Will this scare away formal forms of financing down the road (e.g. venture capital)? If so, how should entrepreneurs address that?

VC firms will need to be open minded about crowdsourced funding due to its increasing popularity on sites like Angel List.  These sites also give VCs insight into deal flow and help build future pipeline of early stage deals.  Entrepreneurs do need to be aware of their capitalization and careful about having too many small investors that might cause problems in later rounds.  I think crowdfunding can be a helpful substitute to a friends and family round - to help fund development so you can test the market.  Beyond that, I think it is important to really know your investors and what they can bring to the table in exchange for equity.  Angel investing is very risky even for the most sophisticated investors, so the diligence really needs to go both ways.  Crowdfunding helps bridge that gap from idea to prototype or early product-- but doesn't necessarily provide the type of capital needed to move from product to execution. 

In This Chat
Elana Fine
Elana Fine was appointed Managing Director of the Dingman Center in July 2012, after joining the team in 2010 as Director of Venture Investments. As Managing Director, Elana's primary focus is leading the Dingman Center in support of its mission and strategic plan. Key responsibilities include oversight of our student venture incubator, Dingman Center Angels investor network, business competitions, and technology commercialization efforts. Elana earned an MBA in Finance and Accounting from the University of Chicago's Booth School of Business in 2002, and earned a BS in Finance, from the University of Maryland, College Park, in 1997.
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