I have several friends in a similar position to me, newly married, getting out of school debt, and working jobs we don't like hoping something better comes along. Some of these friends and myself have expressed interest in opening our own business.

We've got some talented woodworkers among us, as well as a guy with a degree in web design. We've been playing around with the idea of starting a custom-built furniture company, but we don't even know where to start to get off the ground.

We need to know about:
Business plans/models
How to research our market
Finding startup capital
Being able to provide for our families at the same level we're at now.
Is it better to incorporate or do some kind of Limited Liability setup?

Any advice you have I would really appreciate it.

__________________
Never sign intellectual property agreements...

Business plans/models

You need to get an idea of your overall costs, the income you'd all like to derive from it, and therefore work out the profit margin you'll need to push for on your sales.

Costs aren't simply labour and supplies - they are also your advertising costs, basic rental/energy costs of your office, general maintenance costs, internet costs, travel, etc etc.

Never underestimate these from your equations for working out profitability - consider as many possible costs as you can feasibly imagine, project them for an annual basis, then divide by 12 to get an idea of monthly running costs.

May even be a good idea to inflate whatever overall cost price you arrive at by 20%-100% - point being that these can be so seriously underestimated. Especially advertising. You often don't know what some costs are until you dip your foot in, so you'll need to be able to account for an extended spend as required.

How to research our market

If some of the people you are talking to are woodworkers, get them to find out the state of the market - what people are buying, what price they are buying at, importance of local vs national suppliers, etc. You really need to have a decent handle on what you're getting into.

It may even be an idea to just set up some craft working as a hobby, in order to get an idea of the practical basics before investing in it.

Finding startup capital

For a small business, you're probably going to be a lot better off being self-financing. Funding can be a loooong process to jump through the hoops of, and third-party investors of any kind can place a lot of conditions and restraints on how you run your business if not careful.

Being able to provide for our families at the same level we're at now.

Expect a new business to take as long as two years to develop market strength.

Which is a little conservative, but you absolutely need to be prepared for a serious loss of income at the start and the hardship that can come from throwing your lot into self earning.

Local and national market conditions, along with your own company's competence, help determine how quickly you can develop an income you can live from - but predicting all this is very difficult.

Business plans tend to be a way of trying to gauge your own costs, and although they often require an income projection, we're really just talking guesswork here.


You almost give the suggestion of setting up a partnership - in which case, be very very aware that while great partnerships can work great, they can so easily go wrong.

Personally I think it's usually better that a single vehicle has a single driver at the wheel, because there's far less room for friction - but do be very aware that if you do look to incorporate with yourself just in control, do be aware that if you're relying on employing the skills and goods from friends that they will expect paying for those services as delivered, even if you don't yet have a cash flow.

Also be very aware that no matter how great one's friends are, it is not their own responsibility to keep your business running and your family fed, so do keep your options open, and trying not to place too much reliance on a single supplier for any part of the service/sales chain. Redundancy is definitely somewhere to bear in mind and plan for.

Also, be aware that running a business requires taking risks, but even more so, being able to learn to calculate which are the risks worth taking. A lot of new small businesses find themselves become significantly dependent on a single large client or supplier for a while, which is a risk that you can ride for a time - but rely too much on it and you increase vulnerability to adverse change. I think many small businesses fail because they do set up on such a dependency and fail simply because of the weak link of over-reliance on one specific area, which lets them down suddenly and without warning.

As for setting up on the internet - sheesh, there's a whole range of pitfalls and issues here - but if anyone needs to ask about setting up online, feel free to ask and I'll be happy to provide advice as required.

Anyway, hope that helps for starters.

Excellent post, brian!

How to research our market
Another thing you want to check on is how you are going to differentiate yourself from your competitors. Are you going to handmake all of your items or are you going to use power tools? What kind of products are you going to produce and why? While there is a huge market for inexpensive mass produced things there is also a large market for hand crafted items. A guy I know from my home town makes hand crafted wood items(chairs, picture frames, woodcuttings) and makes very good money on them but they take a long time to produce sometimes hundreds of hours. His chairs sell for 1K EACH and he seems to sell them often.

I know that the business I am in has a lot of mass produced poorly cut gemstones but a lot of people want untreated precision cut gemstones from American cutters. I am rarely the lowest priced but I can still sell my gemstones pretty easily. Make your products sell themselves in terms of rarity, beauty and the most important; Value.

"Price is only an issue in the absence of Value."

It is good to find a base to begin with. Maybe there is a local store, or store in a neighboring area that would be interested in your product line(s). Find someone (a retailer) who is interested in buying a base amount of product. Once you have that established, covering the costs of keeping the doors open, then you have time to work on your internet market.

If each of you had your own company...your own business, one in manufacturing, one in marketing, one in packaging, one in distribution, etc. you could have a working agreement between yourselves. If someone didn't perform, you could add another vendor or switch vendors completely for that part of the process. In fact, you may find you can market several lines of product at once, sharing the marketing expense between several manufacturing groups. Look for things that might complement your furniture styles; lamps, wall hangings, coffee table items, throw rugs, etc.


It is a competitive market so you do need an angle, and some working capital to get it started. Don't expect it to be able to support you for a couple of years. That period you will have to plow all the earnings back into the company to cover expenses and growth. The internet is a big marketplace, so your volume could become bigger than you anticipate and overwhelm you with commitments and deadlines. Your marketers need to know what your production capacity can handle so they do not out sell you. That would be another reason to pick up additional lines of product.

Before you start any of this, I would recommend attending a couple of buyers markets. There are several around the country (and the world) where manufacturers show their product and make deals. Get to know the industry. Talk to people about what they find customers want to buy. Are there items they have had a difficult time finding? If they could buy custom crafted items, what would they look for? This could be a good way to create your base, reserving the internet market for yourself. Be aware that your wholesale customers will not want to compete with you, so you will have different items (styles) for them and different items for your direct sales.

Thanks for all the advice, I asked a woodworkers forum to basically build their dream workshop and come up with a price tag so we can figure out our starting equipment costs. Two of us also started taking some woodworking classes to learn more techniques and tricks so our products can be more versatile.

Most of us have worked out our budgets to live on 60% of what we make now, however, since we're all in entry-level jobs, it shouldn't effect our income too much.

Nobody has quit their job yet, right now we're doing fact-finding stuff, talking to people in the area about it (many wealthier people get their custom furniture from 500 miles away, and they pay $20,000-$40,000 for furniture of questionable quality.

We've also talked to the shop teacher at the local high school about recycling our scrap material into the wood shop there, so buying our product will support a community. He is all in favor because his budget is stretched razor thin, and he would even let us use the equipment in his shop after school hours.

__________________
Never sign intellectual property agreements...