Assistant Professor of Entrepreneurship Tim Michaelis in the Department of Management was recently featured in a WalletHub special 2022 report on the best large cities to start a business. The following Q&A was conducted by WalletHub Managing Editor John Kiernan and is being reshared here.
Q: What tips would you offer an aspiring entrepreneur?
TM: Hire a good accountant and lawyer before launching your venture, especially if you are co-founding the venture with multiple stakeholders. Focus on primary market research, where you (the entrepreneur) are the one conducting the initial interviews with customers – do not offload important decisions related to product and service development. Find multiple mentors, each with unique expertise, early on and maintain these relationships. Take a long-term orientation. Most new businesses take a long time to be profitable, so prepare yourself mentally for thinking about your venture needing 5-7 years to get established – do not become discouraged if things do not work out immediately.
Q: What are some of the biggest mistakes entrepreneurs make?
TM: Not investing enough time and resources into testing their ideas. Many entrepreneurs are moonlighting or known as “hybrid entrepreneurs” who may be working full-time for another company while also dipping their toes in the waters of entrepreneurship. There comes a point when you need to focus all your energy on a new business – it is very difficult to split one’s attention between two jobs (one’s venture and employment role).
Not charging enough for their time (for services) or their products. I have noticed many entrepreneurs will undervalue their solutions and try to reduce the price to compete with other similar ventures. However, it is difficult to raise prices after starting with them being low – this can have disastrous effects for the long term.
Q: Besides technology, what other sector is ripe for disruption by entrepreneurs? What is the next big thing?
TM: Housing and Retirement Communities. The COVID-19 pandemic has resulted in a large population shift and a “housing crisis” in many locations in the United States (and around the world). Affordable housing (and smart housing) is likely a good place for new ventures. Second, the pandemic has also resulted in large amounts of retirements (i.e., the great resignation) from the Baby Boomer generation. Affordable and improved elderly care will be a natural market for entrepreneurs over the next decade.
Q: In the context of the ongoing pandemic, what are the advantages and disadvantages of starting a business in a big city?
TM: Being in the Chicago area, I have noticed a lot of accelerators and co-working spaces were forced to go remote during the pandemic, which resulted in many entrepreneurs losing contact with mentors, friends, and a network of support in maintaining their ventures. While the highest investments were being made in the digital transformation of businesses, many entrepreneurs with physical products and brick and mortar locations were forced to close or pause. Big cities bring advantages like more access to customers, more help from mentors, accelerators, universities; however, big cities also bring more competition and can be overwhelming for those new to the area. An important question for an entrepreneur to ask is what type of industry seems to flourish and be in demand in big cities? Use databases like PitchBook, Crunchbase, and PrivCo to compare investments being made across industry sectors before moving to a city to launch a new venture.
Q: What is the best source of funding for new companies?
TM: The most common source of funding is from the founders themselves. Most entrepreneurs are about 40 years old and use their savings, 401(k)s, or loans to start a business. In terms of the best funding source, I would also agree that funding or bootstrapping your business without giving away equity is the best route. If an entrepreneur doesn’t have the means to fund a business then I would focus on asking:
- Family and friends.
- The small business innovation research (SBIR) program for tech-based ventures.
- Small Business Association loans, and my personal favorite.
- Ask your customers to pay you in advance for the products OR work with a larger company to co-develop a product and then set up a royalty-free license so the larger entity pays for the development cost and you (the entrepreneur) only invest your time and effort.
Q: What is the most effective way state and local authorities can stimulate entrepreneurship and new business development?
TM: My perspective of policy shaping entrepreneurship is those programs and laws that help entrepreneurs focus their attention on their new ventures and minimize all the other difficulties associated with everyday life. Thus, local and state governments should focus on the following:
- Health care plans that are affordable and easy to manage.
- Affordable child care.
- Low rent housing.
- Free access to co-working spaces.
- Discounts on the cell phone and internet plans.
- A curated and vetted list of accountants, lawyers, co-working spaces, accelerators, universities, and other resources that can help entrepreneurs quickly navigate an overwhelming landscape of resources and focus their time on building a successful new business.
by John Kiernan, management editor of WalletHub; reshared by Michelle De Jean, director of marketing, NIU College of Business.
