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The purpose of this lecture is to explore the phenomenon known as home-based businesses. It will explore the home-based business movement in its historical context, and then examine the steps necessary for any person to launch their own business from the home. Finally, the lecture addresses marketing issues facing these types of businesses. The lecture is split into two parts so that it can be more manageable on the screen. Why a Home-Based Business?It has been observed by many that everything occurs in cycles: warming and cooling, recession and expansion, war and peace. And so it goes with business. Before the US industrial revolution, most people maintained home-based businesses (HBBs) without even knowing what the concept was. They toiled as farmers and ranchers, and made many of the tools and furniture they used. During this era, each home was virtually its own business, and if a family could not produce something it needed, it would often engage in barter with another family who could. The economy was simple (if unregulated and more or less "underground"), and survival was only guaranted by hard work. The whole family pitched in, plowing, planting, harvesting, spining, churning, canning, etc....whatever it took to ensure the family's survival. The industrial revolution saw the development of smokestack industries, and Americans left their homes to work in factories, and in some cases, office buildings. Home businesses declined dramatically, except in rural reas. The calling card of the industrial revolution was mass production. "Build it, and they will come" was the creed, as companies zealously followed the teachings of Henry Ford, Frederick W. Taylor, and other gurus of the time. The notion of market segmentation was virtually unheard of (recall Lecture #1 discussion on segmentation), and the phrase "niche Marketing" had yet to be coined. Consumers were seen to be virtually all alike, and equally well served by any product. Soap was soap, and Ivory was just fine for women, men, and children. The 1960s and 1970s, though, witnessed some dramatic changes in the US: the advent of the information revolution, and aggressive market segmentation. Suddenly, the abstract concept of information became the chief economic resource, and manufacturing took a back seat, often being out-sourced to developing countries overseas. Furthermore, new products were introduced at an incredible pace, aimed at ever finer and finer portions of the market. Women had their own brands of cigarettes, and men had soaps that were reminiscent of more manly pursuits than gardenia blossoms. Along with the information revolution came great social changes, such as women entering the workforce in large numbers, the diminishing role of the family, and a shrinking degree of loyalty between employer and employe. Suddenly, husband and wife both worked outside the home, and the kids, if there were any, had to fend for themselves, chaperoned by an electronic babysitter known as the television. Add to that the economic upheaval of the 1980s and 1990s, and workers felt totally powerless, unsure if their job would still exist the next week. Society and the economy were conspiring to make the average person less and less in control of their own destinies. In other words, the time was suddenly ripe for new business opportunities. The cycle was complete: the time for home-based businesses had returned, not just as a vogue concept, but as an idea that was relevant, practical, and about as forward-thinking as you could think in the mid-1990s. With the Information Era now firmly established, and technological development running at an unprecedented pace (i.e., computers), it is now possible for "average" people to provide business services from their home. All of the equipment that a "typical" office has can now be purchased affordably and used in home businesses. The same PCs, fax machines, modems, copiers, and phone systems used by the big companies are available to households, and cost surprisingly little. Furthermore, continued refining of market segments has made it possible for small "niche" firms to pursue small, yet highly profitable, segments in a way that mass merchandisers could never imagine possible. Add to this the lack of family life in American homes, as well as the pressures of the workforce, and you have the ingredients for an economic revolution right in the home: the home-based business boom of the 1990s.
With all of the societal ingredients in place for home-based businesses to grow exponentially, there are a number of very compelling reasons why a home-based business is a logical type of economic and professional activity. Never mind that it can be very profitable as well. For example, with housing costs often consuming 30-40% of one's take-home pay, and everything else taking of the rest, it behooves many families to find supplemental income. A home business is a great way to do just that, but without the burden of having to manage multiple work schedules, or the stigma of "moonlighting." If anything, individuals and families with home businesses are seen as being very creative, taking a proactive approach to overcoming financial hard times. In fact, the whole family can work to this end, and the business serves the twofold functions of added income and quality family time. Another compelling reason for home businesses is that many families find it difficult for both parents to juggle careers AND family life. A home business is perfect for the stay-at-home parent, as it allows one or both parents to work at home and simultaneously be able to attend to household and family needs. Women in particular have felt this tugging from both sides, as careers and family beckon in opposite directions. For the woman who aspires to both motherhood and a career, a home business can allow her to "have her cake, and eat it too." During this era of mergers and corporate downsizing, many professionals are finding their jobs are no longer guaranteed, even at middle- and upper levels of management. A home business is a good hedge against layoffs, or even a new career, should a person be downsized out of a job. For a variety of reasons, companies are no longer as loyal to their employees as they once were, and it is now up to the workers to maintain their own line of defenses against economic uncertainties. If a layoff does ocur, the home business may be able to provide a safety cushion while other employment is sought, or, if the the business succeeds, it can become the next job. Some people pursue home businesses because they are tired of helping someone else make money. Instead, they go to work for themselves, and keep all of the money. This may sound, at the surface, like a good reason for going it alone, but the reality of it is quite the opposite. Unless you are one of the reasons why customers patronize your employer, think twice before setting sail on your own venture. There's usually a good reason why customers seek out companies, and if you are merely a small cog in the operation, you may be surprised when no one beats a path to your door. The only times this option is viable is when you cna attract customers to your firm because of who you are or what you can do, and only because your firm can do it better, faster, cheaper, etc., than your old employer. Remember, whenever we go to work for someone, we admittedly are helping them make money, but they re also helping us make money. Don't jump ship thinking you can swim on your own, when in fact you are incapable of doing so. A particularly good reason for a home-based business is that it can allow you to turn some type of hobby activity into a profitable venture. Granted, the IRS usually does not approve of "hobbies" as legitimate tax deductions, but if you run your operation as a real business, there is nothing that can be said. The key is that it really is run like a business, and not just for the personal gain of your hobby (e.g., using the business as a ploy to write-off expenses associated with going to swap meets, acquiring items for your collection, etc.). As long as you can show a legitimate business profit motive, then you will be in the clear. Another lure of the home business is the sheer challenge of it. In fact, having a business can often be somewhat intoxicating in a strange kind of way. Seeing your efforts reap profits is very fulfilling. If you are the kind of person who thrives on taking on big projects, and has the patience to see them through to their completion, then a home business can be a good choice for you. Yes, running the business is challenging, just like training for the Boston Marathon is quite a challenge. But finishing the race, or seeing your business thrive, are incredible rewards that can yield heightened levels of confidence and emotional highs, as well as financial gain. One of the most compelling reasons I can think of in favor of home businesses is the education it provides. Even though I am a professionally trained educator in Marketing, I contend that my real education came from running our home business. That is not to downplay my formal training; rather, it means that by virtue of having both the formal training and practical experience, I feel like I have a better command of the subject matter. Of course, not everyone id an educator. Still, the education one can get from a home business is phenomenal. For example, you can learn the fine art of negotiating, both with suppliers and customers. You also learn how important it is to maintain professional relationships and strategic alliances. You learn how hard it is for a business to show a profit, and you get a better appreciation for the dollar. Furthermore, you learn firsthand how marketing, accounting, and management skills are all required for a business to be successful. It is the blending of all these skills that is the mark of a truly successful company. Finally, you learn the importance of these traits: patience, diligence, and hard work. Nothing can come of anything less. A related reason for a home business is the satisfaction it gives the owners (assuming it is profitable, of course!). There is an associated feeling of immense pride when one's work produces results, and the feeling is magnified when you can see directly this cause and effect relationship. Perhaps even more important is the control that you will have. You are your own boss; you report to no one other than yourself. Profits are a direct result of your efforts and planning. If your business prospers to the point that you can live off of it alone, then you will never have another boss to whom you must report. Many persons pursue home businesses precisely for this reason; they no longer wish to be under someone else's control, and subject to the whims and dictates of personal and corporate agendas other than their own. Finally, a home business is nothing less than pure, unbridled, old-fashioned American capitalism, entrepreneurship 1990s-style! As you will see in the pages ahead, starting a home business in America is one of the easiest things anyone can do, and it is because of our pro-business environment. Without this commitment to business in general, and support of entrepreneurs in particular, there would be little reason for this lecture.
Unfortunately, there are a number of negative aspects to operating a business out of the home. You would be naive to think that home businesses are nothing but bunches of roses, for there are thorns beneath those pretty blossoms. Any endeavor's success is directly proportional to the time investment made in it. In other words, home businesses take time! Keep in mind that you will likely be running your home business in addition to your regular professional, family, and social obligations. In other words, your business will be consuming any personal time you have remaining after all other duties have been completed. There are many "time traps" in home businesses, such as order fulfillment, bookkeeping, tax preparation, and ordering. Each of these tasks take time. You may spend a lot of time on the phone taking care of business, doing paperwork, or manufacturing your product. In ny regard, be prepared to spend time with this project. Another drawback to a home business is that the business can consume your home! Your house may no longer qualify for a feature story in "Better Homes and Gardens," because of inventory in the laundry room, and a work tation in the living room. The business creeps along slowly until it consumes every aspect of your home. If you are insistent that your house look like a showcase, then a home business is not for you. This is not to ay that your home will always look messy; rather, it just means that you will necessarily be sharing your living quarters with a commercial entity. As a home businessperson, it is a requirement that you always be willing and able to deal with customers and clients. You may be able to hide behind a desk or telephone at your day job, but your home business will thrust upon you new responsibilities that will often require you to wear many hats simultaneously, including the ones for customer service and personal selling. In other words, if you are extremely introverted, you may find some of the elements of doing business somewhat uncomfortable. In a home business, though, there often isn't anyone else to whom you may pass along these duties. It is now up to you to possess the charm, confidence, and charisma of a top saleperson. A major drawback of the home business is that, whenever you are home, you are open for business. Unless you want to turn away customers, you may have to deal with them at all hours of the day and night. If you sell products internationally, you may receive calls from people who forget about time zone differences. Your quiet evenings alone may become a distant memory, because the phone may ring off the hook for several hours while customers call you when it is most convenient for them. It is certainly alright to establish limits for your business' hour of operation, such as turning on your answering machine after a certain time in the evening. But, remember that you may be turning business away in the process. It all depends on how badly you want your business to prosper and grow. You can find a balance, but it can be a precarious balance, and may take a little fine-tuning before you fing the right balance. The IRS and the State Comptroller require you to keep meticulous records. If you are collecting state sales tax on any sales, then you will have to submit paperwork and pay those taxes on a regular basis. (The frequency is determined by the taxable sales volume of your business; it can range from monthly to annual.) If you do business in parts of your state that have different tax rates, then this must be recorded. As far as your income taxes are concerned,
the best advice that can be given is to save
Even though there are many compelling reasons why you should start a home business, some of the "downsides" discussed above can throw a knockout punch to your business plans if you are not able or willing to accept them. Still, all told, home businesses are a unique option for many people in that they offer some incredible benefits unavailable to those who pursue only "traditional" employment. Among those benefits are the following:
Preliminary Planning
You may well be thinking that our economy is so well developed that there is no need for any more businesses, especially small, home-based businesses. Nothing could be farther from the truth. It would be easy to fall into a trap set by the "category-killer" chains so popular in the 1990s: that there is no way a small store or business can compete with these giants. True, our economy and society in general have changed dramatically since the turn of the century, favoring the largest and most powerful corporations. But that does not mean the end for "mom and pop" companies. Instead, we need to recognize that the evolution of our economy and society have presented a wealth of untapped market opportunities. Instead of seeing these two entities as threats, we should see tham as providing the chance to explore new options. "behind every threat lurks a golden opportunity" is a phrase I use with my Marketing students. One of the critical skills needed for success in business is the ability to sense opportunities, even before they happen. We need to be like detectives and sniff out clues for new business opportunities. A good marketer (by the way, a home businessperson, by default, is a marketer) is always in a perpetual state of seeking out new opportunities, trying to always stay at least a step ahead of the competition. The analysis begins by recognizing that there are Five Macro-Environmental Variables that have a huge impact on virtually every aspect of the economy and society. They are:
Whenever I do an analysis like this in class, I get excited just thinking about the business opportunities that have yet to be exploited. There are always so many new opportunities waiting to be taken advantage of by willing entrepreneurs. Furthermore, many of these opportunities can be exploited by home businesses. Below are several implications of the environmental changes noted above. I'm sure you could add a dozen more to this list.
These are just a handful of the thousands of ideas one could list for viable home-based businesses:
The list of things you can do is much longer than the list of things you cannot do. There is obviously no reason for anyone to think that home businesses are limited. If anything, they are virtually unlimited!
Lecture 13 Part 2 |