The entrepreneurial desire is alive and well in the U.S., and universities have developed various programs targeted at helping those embarking on this adventure. From their work with hundreds of start-up businesses, Extension economists at two such centers have defined a set of  launch rules  to help new businesses avoid common pitfalls. These  rules  are highly recommended actions to be taken by entrepreneurs as they stake their time and resources to a new venture. They will also provide direction for Extension faculty engaged in helping these entrepreneurs

Holcomb, Rodney B

Johnson, Aaron

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The Journal of Extension Volume 44 Number 2 Article 23 4-1-2006 Launch Rules for Small Businesses Rodney B. Holcomb Oklahoma State University, rodney.holcomb@okstate.edu Aaron Johnson Oregon State University, aaron.johnson@oregonstate.edu This work is licensed under a Creative Commons Attribution-Noncommercial-Share Alike 4.0 License. Recommended Citation Holcomb, R. B., & Johnson, A. (2006). Launch Rules for Small Businesses. The Journal of Extension, 44(2), Article 23. https://tigerprints.clemson.edu/joe/vol44/iss2/23 This Ideas at Work is brought to you for free and open access by the Conferences at TigerPrints. It has been accepted for inclusion in The Journal of Extension by an authorized editor of TigerPrints. For more information, please contact kokeefe@clemson.edu. 	 JOEHOME JOURNAL GUIDELINES ABOUT	JOE CONTACT NATIONAL	JOB	BANKCurrent	Issues Back	IssuesApril	2006	//	Volume	44	//	Number	2	//	Ideas	at	Work	//	2IAW3Launch	Rules	for	Small	BusinessesAbstractThe	entrepreneurial	desire	is	alive	and	well	in	the	U.S.,	and	universities	have	developed	variousprograms	targeted	at	helping	those	embarking	on	this	adventure.	From	their	work	withhundreds	of	start-up	businesses,	Extension	economists	at	two	such	centers	have	defined	a	set	of"launch	rules"	to	help	new	businesses	avoid	common	pitfalls.	These	"rules"	are	highlyrecommended	actions	to	be	taken	by	entrepreneurs	as	they	stake	their	time	and	resources	to	anew	venture.	They	will	also	provide	direction	for	Extension	faculty	engaged	in	helping	theseentrepreneurs.	IntroductionThe	entrepreneurial	desire	in	the	U.S.	is	alive	and	well.	Over	99%	of	employers	in	the	U.S.	aresmall	businesses,	and	there	are	more	than	15.6	million	self	employed	(U.S.	Small	BusinessAdministration,	2005).	Universities	have	developed	numerous	programs	to	assist	entrepreneurs(Burney,	2001;	Holcomb	&	Muske,	2000;	Muske	&	Stanforth,	2000).	Two	examples	are	the	Food	&Agricultural	Products	Center	at	Oklahoma	State	University	and	the	Food	Innovation	Center	ofOregon	State	University.From	their	work	with	hundreds	of	start-up	businesses,	the	Extension	economists	at	these	centershave	defined	a	set	of	"launch	rules"	to	help	new	businesses	avoid	common	pitfalls.	These	"rules"are	highly	recommended	actions	to	be	taken	by	entrepreneurs	as	they	stake	their	time	andresources	to	a	new	venture.These	rules	will	benefit	Extension	faculty	whose	responsibilities	include	helping	entrepreneurs.	Inaddition,	this	information	will	positively	affect	the	stakeholder	clients	of	these	programs	as	theExtension	faculty	become	better	equipped	to	provide	the	assistance	they	need.Rules	for	Launch	PreparationConsiderable	work	is	required	before	a	business	launch	should	be	considered	(Johnson	&	Holcomb,2006).	Once	these	pre-launch	activities	have	been	performed,	an	entrepreneur	must	focus	on	theplanning	functions	associated	with	a	business	launch.Develop,	test,	and	implement	a	production	plan.Form	a	distribution	plan,	including	steps	to	take	in	the	event	of	unforeseen	marketingoccurrences.Establish	a	working	capital	plan	to	carry	the	business	through	the	launch	phase.Rodney	B.	HolcombAssociate	Professor	and	C.	B.	Browning	Endowed	Chair	of	Food	ScienceFood	and	Agricultural	Products	CenterOklahoma	State	UniversityStillwater,	Oklahomarodney.holcomb@okstate.eduAaron	JohnsonAssistant	ProfessorFood	Innovation	Center	Experiment	StationOregon	State	UniversityPortland,	Oregonaaron.johnson@oregonstate.eduProduction	PlanA	production	plan	goes	far	beyond	the	process	of	manufacturing	a	product.	The	production	planincludes	all	aspects	of	input	procurement,	processing,	and	inventory	management.It	is	recommended	that	more	than	one	supplier	for	each	ingredient	and	packaging/labeling	inputbe	identified,	even	if	contractual	arrangements	are	only	made	with	one	supplier.	In	the	event	of	animmediate	need,	these	back-up	suppliers	can	be	contacted.	Manufacturing	is	notorious	foremployee	turnover,	so	considerations	must	be	made	to	have	enough	trained	employees	present	tomaintain	production	levels	as	well.Inventory	management	is	crucial	for	maintaining	a	flow	of	products	to	buyers.	Finding	the	rightbalance	for	inventories	is	best	determined	on	a	case-by-case	basis.	Experience	will	help	smallbusiness	owners	identify	seasonal	swings	and	adjust	inventory	levels.	Accountants	and	businessspecialists	may	be	useful	in	evaluating	the	logistics	and	costs	associated	with	storage	time	andspace.Distribution	PlanThe	distribution	plan	details	how	merchandise	will	get	from	its	production	point	to	the	sellingvenue.	There	are	two	types	of	distribution:	direct	store	delivery	and	indirect	distribution.Direct	store	delivery	means	that	the	manufacturer	directly	delivers	the	products	to	the	individualretail	establishments.	For	small	start-up	businesses,	direct	distribution	is	a	means	of	gettingproduct	to	the	buyer/retailer	while	avoiding	fees	and	handling	costs	associated	with	the	use	ofwholesale	warehouses	or	chain-specific	distribution	centers.	Other	times,	it	is	a	necessity	as	thestartup	doesn't	have	the	volume	of	sales	to	warrant	other	distribution	methods.Direct	distribution	does,	however,	create	management	challenges.	It	may	be	difficult	for	a	smallbusiness	owner	to	fulfill	all	the	responsibilities	associated	with	production	and	distribution.	Toooften	the	owner	will	gravitate	towards	one,	resulting	in	problems	with	the	other.	Additionally,managing	promotion	materials	and	displays	is	a	vital	part	of	direct	distribution,	but	the	time	andexpenses	associated	with	such	activities	are	often	overlooked	in	the	development	of	a	distributionplan.Indirect	distribution	means	using	brokers,	wholesalers	and/or	distributors	to	manage	distributionand	promotions.	These	players	come	at	a	cost:	commissions	for	brokers	or	slotting	fees	to	get	intoa	warehouse.	One	must	carefully	select	the	brokers	she	or	he	uses	to	launch	a	new	product	andthe	commissions	required	for	their	services.	A	good,	motivated	broker	may	collect	purchase	ordersfor	several	truckloads	of	the	new	product,	while	a	broker	with	too	many	clients	may	neglect	thenewly	launched	product	in	favor	of	consistent	business	from	his/her	other	clients	(Brooks,	2004).Warehouses	provide	the	means	for	reaching	several	retail	outlets	while	maintaining	a	single	drop-off	point.	Because	warehouses	service	retail	outlets	with	truckloads	of	multiple	products,	thedistribution	costs	per	unit	are	lower	for	all	items,	thus	products	can	be	distributed	over	a	largergeographic	region	at	less	expense.Warehouses	typically	operate	at	or	near	full	capacity	with	low	per-unit	margins	on	the	productsthey	carry.	Slotting	fees--i.e.,	the	initial	cost	of	"buying"	space	for	a	new	product	in	a	warehouse--can	occur	in	some	industries	and	are	prominent	in	the	food	industry.	Several	factors	figure	into	thelevel	of	slotting	fees	(e.g.,	sales	potential,	storage	requirements,	and	the	product's	perishability).In	addition	to	slotting	fees,	a	warehouse	may	request,	on	behalf	of	the	retail	outlets	it	represents,that	the	manufacturer	pay	for	and	participate	in	specific	promotional	efforts	to	bolster	retail	salesof	the	product	and	increase	turnover	in	the	warehouse.If	product	turnover	declines	or	quality	problems	are	experienced,	the	warehouse	may	require	themanufacturer	to	"buy-back"	the	products	at	a	higher-than-wholesale	price	(even	up	to	retail	price)to	recapture	costs	associated	with	warehouse	storage	expenses.Working	Capital	PlanThe	amount	of	money	needed	to	successfully	launch	a	new	enterprise	is	commonlyunderestimated,	largely	because	a	business	and/or	product	launch	takes	longer	and	cost	morethan	anticipated.	One	should	estimate	how	much	capital	will	be	needed	for	the	start-up	effort,	andthen	have	a	larger	amount	on	hand.At	or	after	the	launch,	one	of	the	most	common	cash	management	mistakes	results	from	theincorrect	notion	that	products	manufactured	are	immediately	sold	and	the	revenue	collected.	Inthe	early	stages	of	a	new	business,	a	considerable	amount	of	money	may	be	used	manufacturingproducts	to	meet	initial	orders	and	build	inventory.	Further,	retailers	or	warehouses	may	wait	amonth	to	pay	the	invoice	amount	for	a	shipment.	Thus,	the	level	of	accounts	receivable	growswhile	available	cash	quickly	declines.	A	wise	entrepreneur	will	plan	ahead	for	such	activities	and	beprepared	with	factoring	agents	and	an	accounts	receivable	loan	at	his/her	bank.A	working	capital	plan	also	needs	to	include	contingencies	in	the	event	a	large	customer	is	lost.Balancing	the	number	and	size	of	one's	clients	is	a	difficult	task,	and	the	upside	of	having	a	fewlarge,	consistent	clients	overshadows	the	potential	drawbacks.ConclusionsDeveloping	and	launching	a	small,	new	business	requires	considerable	research	and	meticulousplanning	to	improve	the	odds	of	success.	These	"rules"	are	highly	recommended	actions	to	betaken	by	entrepreneurs	as	they	stake	their	time	and	resources	to	a	new	venture.	It	is	hoped	thatnew	entrants	into	any	industry	and	the	Extension	specialists	assisting	them	will	carefully	considerthe	suggestions	and	examples	that	have	been	incorporated	into	this	article	before	starting	newventures.ReferencesBrooks,	J.	(2004).	Are	food	brokers	right	for	you?	Oklahoma	Cooperative	Extension	Service,	OSUFood	&	Agricultural	Products	Center	Fact	Sheet,	FAPC-130.Burney,	A.	B.	(2001).	Food	entrepreneur	assistance	program.	Journal	of	Extension	[On-line],	39(4).Available	at:	http://www.joe.org/joe/2001august/iw5.htmlHolcomb,	R.	B.,	&	Muske,	G.	(2000).	The	role	of	Extension	specialists	in	helping	entrepreneursdevelop	successful	food-based	businesses.	Journal	of	Extension	[On-line],	38(1).	Available	at:http://www.joe.org/joe/2000february/a2.htmlJohnson,	A.	J.,	&	Holcomb,	R.	B.	(2006).	Golden	rules	of	new	venture	creation.	Journal	of	Extension[On-line],	44(2).	Article	2IAW2.	Available	at:	http://www.joe.org/joe/2006april/iw2.htmlMuske,	G.,	&	Stanforth,	N.	(2000).	The	educational	needs	of	small	business	owners:	A	look	into	thefuture.	Journal	of	Extension	[On-line],	38(6).	Available	at:http://www.joe.org/joe/2000december/a4.htmlU.S.	Small	Business	Administration,	Office	of	Advocacy.	(2005).	Small	business	profile:	UnitedStates.	Retrieved	October	25,	2005,	from	http://www.sba.gov/advo/research/profiles/05us.pdfCopyright	©	by	Extension	Journal,	Inc.	ISSN	1077-5315.	Articles	appearing	in	the	Journal	become	the	property	of	theJournal.	 Single	 copies	 of	 articles	may	 be	 reproduced	 in	 electronic	 or	 print	 form	 for	 use	 in	 educational	 or	 trainingactivities.	Inclusion	of	articles	in	other	publications,	electronic	sources,	or	systematic	large-scale	distribution	may	bedone	only	with	prior	electronic	or	written	permission	of	the	Journal	Editorial	Office,	joe-ed@joe.org.If	you	have	difficulties	viewing	or	printing	this	page,	please	contact	JOE	Technical	Support©	Copyright	by	Extension	Journal,	Inc.	ISSN	1077-5315.	Copyright	Policy

Launch Rules for Small Businesses

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Launch Rules for Small Businesses

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