Do You Need to Know Your Business?
The answer is a resounding YES! If you are starting a business, your business venture should be something in which you have experience or professional training. The only exception to this rule is if you buy into a franchise, but it is especially true if you take over an existing business. Sometimes there are people working in the business who can help provide institutional information about the business, but you need to make sure you trust the people giving you advice. In those cases, the franchise company typically provides some training. (Even so, I would not suggest buying a food franchise if you have never worked in a restaurant.)
If you buy an existing business, you must make sure the employees who are left are interested in the business being successful. You also need to quickly determine who you can trust. Many times the original owner stays on in some role for a couple years to make sure there’s a smooth transition, but there is no guarantee that the founder of the business will work hard for you either.
I have a friend who was an investment banker, who wanted to get into the production industry. So, he researched the industry, found out who the major players were, and identified a business he wanted to buy in the Midwest. The company he had his eye on was the top post-production house in that town. He bought it for millions and then sunk millions more into it upgrading all of the equipment to HD and renovating the space so that people would just want to come by and hang out there and, of course, do business. The place was a showpiece. He even threw the industry Christmas party at his business location, so people would see how fabulous the place was on the inside. Everything was steady the first year, but within three years of the purchase, he was out of business.
Why did this happen? He should have had business lined up around the block with a facility like that, but because he didn’t know the industry, and more importantly – the culture of the industry so he made many costly mistakes. Within the first year, three of his top producing editors left the company. It wasn’t about the facility- his talent drove the demand – it was about the specific editor. Then, advertising people followed the editor they wanted to work with. He also rubbed industry people the wrong way by how he went about getting business; advertising creatives never respond favorably to being told what vendors to use. He was friends with the clients of some of his customers and was perceived as trying to get his friends to strong arm their ad agencies into doing business with him. He also turned off other production industry veterans in his town by being so flashy and bold. This is a brilliant guy, who had plenty of resources to run his business, but he had no industry experience. He also bought from a man who he couldn’t trust. The former owner was not invested in his success. He was just looking for a payday. The former owner didn’t help him understand the culture of doing business in the advertising industry. Not knowing how business was done in this industry, cost him his business. He thought – if he built a top-notch state-of-the-art facility, that would increase the business – but it didn’t. Here’s SmallBizlady’s rule about buying an existing business Do not just buy a business because you like their balance sheet.
I hold a degree in Broadcast Production from Virginia Tech. I worked for six years in television as a news producer before I started my multimedia production company. Work for a business like the one you want to start for at least a couple of years before starting on your own. Do not start a daycare center if you have never worked with kids, just because you heard those kinds of businesses make a lot of money.