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The Second Time Around


by


Statistics have shown that only about 50 percent of new businesses last more than five years. Assuming a business succeeds, what then possesses some entrepreneurs to start up a second business while still running the first?

A lot of things.

Some serial entrepreneurs have a recurring itch to build something from nothing. Others may have a small, successful business but want more money or a new challenge. And some may find that a second business can be symbiotic with the first, allowing both to be stronger.

Beware: Even though entrepreneurs may have created one business that beat the odds, lightning doesn’t always strike twice.

“I wouldn’t take for granted the success of business No. 2 because you have success elsewhere,” said Elisa Waldman, a consultant with the Kansas Small Business Development Center at Johnson County Community College. “You don’t want to have that experience lead to complacency.”

For people wanting to start a second business, experts recommend a handful of tips that can help forge a successful path—again.

What’s Your Motivation?

When considering whether to start another company, it is important to understand the distinction between being a passionate business owner and being an entrepreneur.

Before her current job, Waldman owned a pottery studio for a decade. Many of the people she knew were artists and had gotten into the business because of their passion for the work. These people, she said, are business owners who would likely be happier sticking to the industry they love. A painter might not want to try and open a restaurant, just as a chef might be challenged running an art studio.

Entrepreneurs, on the other hand, can usually adapt to any industry.

“People who are entrepreneurs build business models, and the variable is the industry,” she said. “They could build around any industry very successfully.”

Roger Lee Ward III, for instance, is an entrepreneur.

At the age of 12, he sold fireworks from his mother’s store. He turned a $400 investment into $2,000. Years later, he purchased a moving company with money he had saved while serving in the U.S. Army. In 2009, after owning Marathon Moving & Delivery LLC (now Great Day Moving) for just two years, the company’s net profits increased by almost 400 percent.

In 2011, he franchised the moving company, and in 2012, he and a business partner built a franchise model within the body jewelry kiosk industry. Pierced?, the franchise company for the kiosks, has grown from two corporate locations to five corporate locations and two franchises.

“There are business metrics that pertain to all organizations,” Ward said. “I think entrepreneurs—as long as they are willing to be pliable and learn a new trade—can figure it out.”

Making Room

Another thing to consider before starting a second company is how it will relate to the first one.

At first glance, Nicki Pierce’s two companies might seem completely unrelated. One sells collectible Christmas tree ornaments and the other cruiser bicycles. But when she started Big Time Cruisers this past spring, it was a perfect complement to her other, winter-based endeavor.

About 80 percent of Hooked on Ornaments’ business runs through the Christmas holiday season. She started the Internet-based company in her home in the 1990s and moved into a warehouse facility about seven years ago.

As the company has expanded, Pierce has hired both seasonal and full-time employees. She wanted something to bring in more income and put the full-time staff to work during the off-season.

“The concept is to take two businesses that have opposite seasons to make a more rounded year,” she said.

She did a lot of research and landed on the concept of cruiser bikes. She was able to expand without much increase in overhead. The employees were already on the payroll, and she converted some of the warehouse space into a bike showroom. She had to spend a small amount for advertising, signage and website creation.

She also found that, because her first company was in good standing, she was able to use many of the same contacts for her second one. She received a good rate from her credit card company and shopping cart supplier because of her history with them.

These are some of the advantages to having one business already running, Waldman said.

“A lot of people overlook that but, obviously, there are wonderful benefits—especially if the companies are related,” she said. “There are economies of scale, purchasing, networking time and how you spend ad dollars. You can get a double bang for your buck.”

Time, Time, Time

Two things to remember about launching a second company: It will take more time than you think, and because of that, you must learn to delegate.

The first business has to be strong enough that it can stand the decreased amount of attention it will take to start up the second one, Waldman said. Like children, the second child is often easier because you know the basics of child-rearing, but each one has its own challenges and demands on your time.

Because there are only 24 hours in a day, there is usually no way to fully manage both companies at once, Waldman said. What you have to do is learn to delegate. And you will feel more comfortable doing so if you have a good team.

Pierce was able to hand over a lot of the responsibility of the second company to her sons, who researched possibilities for second companies and brought her the idea of the cruiser bicycles.

She owns the business, but her sons became experts in the bicycle industry. They and other employees helped create the name, logo and other aspects of the company.

“For example, with inventory, I established a budget and told them to spend it wisely,” she said. “They made decisions on what brands to carry and how much to bring in knowing they had to get the most they could out of the budget to get off to a good start.”

DJ Good also has two companies, but learned he couldn’t run them both. LightBridge Inc. offers data storage, and LK Communications is an IT support company.

“My businesses coincide well with each other,” he said. “I used to carry two sets of business cards around with me, but that didn’t work well.”

He acts as CEO of LightBridge and keeps the checkbook for and performs day-to-day operations for LK. The rest of the tasks at LK were handed off to his director of sales.

“I assembled an executive team,” he said. “It is a team that I can trust and that are experts in the field. You can’t know everything, and you have to have faith in people.”

A Second Startup

Another tip for the second business is to truly treat it like a brand new startup, from funding to a business plan. Elementary steps can’t be skipped just because an entrepreneur has had luck before.

“Just because something worked in one industry doesn’t mean it will work in another. It is a different beast altogether,” Ward said. “You wouldn’t use the same brush to brush your dog as you would to preen the feathers of your canary.”

Pierce found this out when she began creating a website for Big Time Cruisers. When she set up her first Internet venture in the 1990s, most companies didn’t even have websites. There was virtually no competition.

Jump to 2013 and the age of search engine optimization, and she found a whole new beast.

“With the new business, we realized we were going to spend more money than we had planned on with advertising to get good search engine placement,” she said. “You really need to do your homework and be sure to have the time and resources to dedicate to a new startup.”

From a financial standpoint, it is often easy to allow the first company to provide seed money and support the second. But Waldman recommends caution if taking this route.

“I would map it out like I would with a startup business,” she said. “You need to treat it like a bank would and understand how it will be repaid. If the second one doesn’t work out, it handicaps the first one, and I have seen them both be closed.”

Also, if company No. 2 ever has to borrow money elsewhere, it may be difficult to get a loan with no credit profile.

Even experienced entrepreneurs can use help the second time around. Tapping into available resources isn’t just for newbies.

When starting his second company, Good found resources he wished he’d had with his first, which he had grown organically. With the second, he needed an attorney, an investment consultant and programmers, and he had to raise capital. He took part in programs at the Kauffman Foundation and other training and was able to use connections he didn’t previously have.

“I probably should have done some of it before,” he said. “I didn’t think I needed it with LK and was unaware of it … and hindsight is 20/20. I wish I would have been doing this a long time ago.”

Tammy Worth

Written by

Tammy Worth is a freelance writer based in Kansas City, Mo.

Categories: Growth Strategy

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