Home Start-Ups: The Right Recipe - starting an at-home business

Kiplinger's Personal Finance Magazine, Feb, 1999 by Ronaleen R. Roha

Sometimes you need to rethink the ingredients that go into the mix.

Like many home-based entrepreneurs, Lindsay Frucci got off to a painfully slow start. After one year of operation, No Pudge! Foods, which sells fat-free, fudgy brownie mixes, posted just $6,000 in revenues. But last year--her company's third--Frucci topped the $500,000 mark. Her goal this year: $1 million.

Frucci, 47, of tiny Elkins, N.H., has had to take a few calculated risks to develop her business while juggling family duties at the same time. In the process, she has learned some valuable lessons that could help other home businesses.

* Find good advisers for your start-up. Frucci developed her brownie recipe with the idea of starting a business. But, she admits, "once I developed the recipe, I didn't have a clue where to go with it." Her stints as a pediatric nurse and real estate agent weren't much help.

She found expert advisers--cheap--by calling SCORE (Service Corps of Retired Executives). SCORE (www.score.org) is a gem of a program sponsored by the U.S. Small Business Administration (SBA) that pairs entrepreneurs with experienced business people, who provide free counseling. Every few weeks for the first eight months of her start-up, Frucci brainstormed with two SCORE volunteers. The team still meets every six weeks or so.

You can also get free start-up guidance from one of the more than 1,000 Small Business Development Centers (www.sbaonline.sba.gov/sbdc) and 69 Women's Business Centers (www.onlinewbc.org/resourcedatabase.html), which are also sponsored by the SBA.

* Learn to trust your instincts. To boost sales, Frucci wanted to trim prices, which would cut her profit margin in half. She also proposed to negotiate a deal to sell her mix at Trader Joe's, a large discount food chain.

Her advisers were opposed to slashing profits so drastically. But she went with her instincts, and the results proved her right: Growth followed, and she got the account with Trader Joe's.

"Sometimes your instincts will be wrong," says Sarah Edwards, who, with her husband, Paul, wrote Making Money With Your Computer at Home (Tarcher/Putnam, $15.95). "But trusting and following them is how you learn." A good exercise is to put together the most cogent case you can to try to persuade your advisers. Even if you don't win them over, as Frucci did, "the process helps you develop trust in your instincts," Edwards says.

* Don't rush online. Frucci believed she had to get into the Internet malls. "Dollar signs danced in my head," she says. She paid to sign up her Web site, www.nopudge.com, with a company that promised top design work and Internet-mall placement. But she did not check out the firm. It was an expensive mistake: She later fired the company, losing $5,000.

A lot of small businesses are losing money on "the Internet experiment," says Alice Magos, a small-business analyst with CCH Business Owner's Toolkit (see the box on page 74). Take it slowly: Find several Internet sites that you like and contact the design company (normally identified on the site). Then ask for a list of a half-dozen other sites the firm has designed and contact the site owners to see if service and site support are good and promises have been kept.

* Keep costs low. Altogether, Frucci has invested only about $28,000 in her business. "You don't have to spend all the money that people around you are telling you to spend," she says. She works on a laptop that she bought used, and she shares a copier and fax machine with her husband and an Internet phone line with her kids. She seldom pays for advertising (seeking free publicity instead) and relies on materials created by a friend with public relations experience who charges an hourly the.

* Control the credit. Frucci has a $15,000 line of credit at a local bank that she uses for such things as ordering bags for the mixes and attending trade shows. She always pays off the loan as fast as she can.

Using a credit line for current working capital is tine, says Clark Childers, an accountant and business consultant with the CPA firm Offutt Childers & Putman, in Vienna, Va. But don't use it tin' long-term financing or to cover for customers who aren't paying up. Used this way to disguise bad management, all a credit line does is "stretch out the inevitable," Childers says. And it could be called by the bank, which could kill your business.

* Be flexible. One advantage of a small business is its ability to change direction quickly. Frucci first planned to sell frozen, ready-to-bake brownie batter. Then she learned about the high costs and high rate of spoilage of such products, so she switched to dry mixes. And when she received queries about her product from outside her markets, she opened a mail-order operation.

But this kind of flexibility may not come naturally to you. If not, work on it. Edwards suggests you change one simple routine each day, such as reading the paper after your morning coffee, instead of with it. Or pursue activities that encourage flexibility. Edwards took classes in improvisation to learn how to think on her feet.