It’s been two years since the start of COVID-19, and though new variants are causing some concern, many Americans are now gaining the confidence to launch their small businesses once again. There are many uncertainties that come with starting a new business in any given year. However, due to the pandemic, 2022 brings along a unique set of challenges and opportunities for nascent entrepreneurs.
TREND met with three small business experts inside the INCubator at the Hamilton County Business Development Center to ask their advice on how entrepreneurs can succeed in this new business environment.
Lynn Chesnutt, Managing Director at Tennessee Small Business Development Centers (TSBDC)
Lynn Chesnutt has helped people and companies reach financial success for over 30 years. He’s a University of Tennessee at Chattanooga alum with expertise in retail and small business lending. In his role, Chesnutt leverages his years of financial experience to provide small business services including financial planning, business plan development and marketing guidance. Chesnutt also educates the community on financial planning and co-hosts TSBDC’s How To Business podcast — available at tsbdc.org/chscc.
Greg Compton, Director of Consulting Services at Chatt365
Greg Compton has held COO and CFO positions at top companies over the past 15 years. He holds a master’s degree from the University of Tennessee, Knoxville where he graduated in 2009. Compton honed his career working in early, venture-backed startups. An entrepreneur himself, he then opened his own bookkeeping company to support his passion for lifestyle businesses. In his role, Compton provides flat-rate bookkeeping and accounting as well as consulting services for small businesses and entrepreneurs — available at Chatt365.com.
Aaron Welch, Chief Executive Officer at Woorly
Aaron Welch brings over a decade of experience in tech startups and software development. He’s a former Game Czar at FreightWaves and founder of Quickcue, a guest management platform which sold to OpenTable for $11.5 million in 2013. His current project aims to help startups thrive through the process of gamification. He also hosts the upcoming Don’t Follow Me podcast, educating entrepreneurs on how to avoid common pitfalls through real-world examples.
The Good, Bad and Ugly of Starting a Business in 2022
There are some challenges that are unique to starting a business in 2022. Supply chain issues have made it more difficult for small businesses to deliver on products and services, and workforce dynamics have changed the way we recruit and compensate talent. Entrepreneurs may also encounter challenges when searching for investors.
“People think there’s this plethora of money right now, but that’s not the case. Anytime there’s a downturn, capital constricts. Capital is based on looking at risk, and risk is higher right now,” says Chesnutt.
Despite these challenges, the pandemic has also created unique opportunities for businesses entering the market. Entrepreneurs now have easy access to engage audiences through social media and support for local businesses has perhaps never been higher. Due to the pandemic, the digital market space is also more accessible than ever before. These accessibility factors make 2022 an opportunistic year for small businesses. However, entrepreneurs are encouraged to follow these fundamental guidelines before launching their startups:
From left to right: Josh Brown, Madison McCann, Lynn Chesnutt, Sarah Mattson
Research, Research, Research
Across the board, our small business experts encourage due diligence and research before launching a new venture. Entrepreneurs should understand their product, market and competition prior to launch. Many go into the market with false perceptions of how their product will be received or fall into the misconception that there are no other competitors in their product space.
“Everybody has a competitor. Maybe not for that product, but for those dollars,” says Chesnutt. “Do the research and put things in the right order. Don’t go off getting a business license, getting a bank account or establishing an LLC until you’ve really researched [if this] will work right now.”
Proper research will help guide decisions prior to your company’s launch and determine whether it’s the right time to start your new business. As a first step, Compton asks his clients at Chatt365 to answer four questions about their business: What is your product or service? Who is your customer? What value proposition does your product deliver? What’s your business model? Iterate these questions until an easily explainable answer is formed, then validate your answer in the market.
Own Your Personal Finances Before Owning a Business
Simply put, there is no way to have your new business under control without having your personal finances in order. Compton recommends launching a business with zero personal debt, except for a mortgage. If you do have debt, Compton suggests bringing the debt down to below 25% of your take-home pay.
The next step is having a 12-month security or personal expense fund and $50,000 available to comfortably fund your project. Having the support of your significant other is as important as having financial support. Analyzing the personal barriers that threaten your business will mitigate the stress placed on your startup and keep you focused.
Chatt365 and TSBDC encourage entrepreneurs who do not have these financial safety nets in place to reach out for financial planning assistance.
“Small business runs our economy. I want everyone to own a business, but only when it’s right. It may not be right for three more years. But, if you do it right, you’ll be in business 20 years from now,” says Chesnutt.
Carve Your Niche and Learn to Market
With many new marketing opportunities that came from the pandemic, 2022 is a great year for conducting fast and affordable market research. Social media has made it easier to instantly connect with hundreds of people. But many new entrepreneurs fail to engage effectively.
“One of the biggest issues we see with early-stage businesses is they never budget enough for marketing. Word of mouth is not a market strategy,” says Chesnutt.
Having a marketing plan established in your budget ensures that your message gets across to the right people. Partnering with a marketing analyst will allow you to understand the data received and help avoid false positives or confirmation biases.
Build A Dream Team
For many entrepreneurs, starting a business is a one-person show. However, there comes a point when doing it all becomes impossible.
“The most difficult thing for entrepreneurs wearing multiple hats is knowing where to point their attention — you cannot boil the ocean. Professional service people will help narrow your focus so that you can make the most of your energy and time,” says Welch.
While some aspects of the business can be handled internally, other aspects require a dedicated professional service team to see through. Compton recommends starting with a reputable legal, insurance and accounting team. Then, look for services specific to your business. This can vary depending on your product and service — a good service provider will show you when it’s appropriate to use their services and when to go alone.
“It so hard for small companies to relinquish control of these critical things, but it is absolutely critical to your future success. If you are not good at something, admit it and move on,” says Welch.
Start Small, Grow Big
Some entrepreneurs go into a new venture with an all-or-nothing mentality. Our experts suggest starting small and giving the business time to grow organically. If at all possible, avoid leaving a stable job to launch your business or taking out a loan. Instead, mitigate risk by trying your business as a weekend or part-time job and let the market validate your idea first.
“We’ve seen companies grow themselves out of business. Growth is great, but growth is expensive,” says Chesnutt.
Hope for the Best, Plan for the Worst
Having a business plan is one of the best tools to introduce your product safely and effectively into the market. A business plan should set realistic standards for when to advance with an idea and when to leave. The pandemic revealed how unforgiving the market can be and brought many aspiring businesses to a halt. Having a structured plan for winding down a business will help mitigate loss when it is no longer profitable.
“Some people have said that the business plan is archaic. I would argue that business plans are like navigation systems on your car. If you’re going somewhere you’ve never been before, you need a road map to get there. A business plan is your road map,” says Chesnutt.
Be Intentional with Your Culture
Today more than ever, culture drives business. We are seeing a shift in workforce demographics, from baby boomers to Gen Z, where candidates value quality of life above all else. This does not mean that startups can get away with paying their candidates less money. But it does imply that startup entrepreneurs who offer their employees a livable wage can have an advantage over big businesses by offering their employees a better quality of life.
Top-quality candidates choose where they want to work and often choose their employer based on the company’s people and culture. Compton iterates that a company’s culture should be calculated and not expected to grow organically. The goals of each culture strategy are based on the company’s needs and what type of talent they’re trying to attract.
“If you are a sales-driven organization going towards getting sales at all cost, you’re going to get narcissistic and ego-driven individuals. If that’s the goal of your company, then great! However, if you’re a customer service-driven corporation you’re probably looking for an empathetic work culture where listening is valued over results,” says Compton.
Small businesses can also compete for talent by offering personal incentives including flexible hours, employee benefits or small opportunities for employee ownership. These incentives drive a culture where employees are invested in their businesses and are more willing to offer a positive experience for customers.
“Publix is a great model for a company. The people who work at Publix own the company. They have shares in their company. When you walk in there, for the most part, you have a good shopping experience,” says Chesnutt.
Chase Dreams, Not Trends
Avoid rushing into a business for fear of missing out on an opportunity. Many entrepreneurs have a false misconception that a competitor will steal their idea if they don’t rush the market. This fear can often lead to a poor rollout of your product or service. Instead, focus on executing the business and allow your product to compete in the market knowing that the better product will always come out on top.
“Don’t worry about launching right now just because you have the idea. A good business idea is good today, tomorrow and a year from now,” says Compton.
Our Chattanooga Chamber will continue supporting entrepreneurs and small businesses through membership opportunities. We encourage companies with at least one year of growth, and a three-year business plan to contact the INCubator at the Hamilton Country Business Development Center to see how we can help.