Entrepreneurship and microenterprises: how to start your own business

Creating your own business is one of the four ways of working described by the Ruta de Vida guide, published by IPA-Copan in partnership with Rotary, along with being a volunteer, being an employee, and working as a contractor. You become your own boss and gain a great deal of freedom; in exchange, it is hard to control how much you will earn each month, and you will often have fixed costs, such as rent, that you must pay even when sales are low. Most businesses require an investment before opening to the public.

This topic summarizes the three steps the guide proposes for starting a microenterprise: the market analysis, the capital requirements, and the business plan.

1. Market analysis

The goal of the market analysis is to give you confidence that your business really can succeed.

Market size

What is the demand for the product or service you plan to offer? If the business you want to open does not yet exist in your area, it could be because there is very little demand. A shop selling expensive brand-name clothing in a village will have few customers; if there is no psychologist in town, it may be because people are not in the habit of seeking or paying for that service.

Competition

Practically every business has competition. A competitor may offer the same products as you, or a different way of meeting the same need: you could sell motorcycles and your direct competitor could be the bus service.

The example of the corner store (pulpería) explains it well. If you open one fifty meters from another that already exists, it will be very hard to make it profitable. And even if there is no other one today, it is very easy for someone to open one nearby if they see you doing well: in business it is said that the barriers to entry are low. Two corner stores in the same place do not double the customers; they split the demand that already existed.

Competitive advantage

What will you do differently so that customers choose you, and what will keep competitors from copying you right away? An excellent example of competitive advantage is education and technical training: it is costly and slow for competitors to match your studies. At the other extreme, almost anyone can set up a basic laundry service, because it requires little capital and no complex training.

2. Capital requirements

To plan a business, you need to prepare a detailed budget of the investment required before opening your doors: premises, furniture and basic fixtures, a computer and office equipment, tools, raw materials or an initial inventory, machinery, utensils for serving customers, or a vehicle such as a cargo motorcycle.

One thing becomes clear when you look at that list: a personal services business may need little more than basic furniture and a computer with internet, while businesses with physical products require a much larger investment. Decide what you strictly need, get real quotes in your area, and calculate the total. You do not need to buy everything on the first day: some investments can wait until the business generates profits to reinvest.

Where to get the funds

• Your personal savings from previous jobs.
• Loans from your family.
• Loans from your community savings bank (caja rural), if there is one. If it exists, the best thing is to join and start learning from the experience of others.
• Loans from a banking institution.

Local or informal moneylenders are not recommended: their interest rates are usually outrageously high. The guide acknowledges that in some villages they may be the only source of immediate money, and precisely for that reason it insists on the caja rural.

The loan for ETAOO graduates

If you graduated from the ETAOO and want to start your own business, you can apply for a loan with very attractive conditions, with a low annual interest rate, intended exclusively for buying the tools, equipment, and basic supplies to get started. There are two paths: if your community has a caja rural, first check whether they manage these loans (you will probably need to be affiliated as a member); if not, you can request it directly from the program. Write to the team to schedule an appointment.

3. The business plan

A business plan is a document that describes the objectives, the strategy, and the path your business will follow. Writing it forces you to think carefully about each element and helps you identify any problem, risk, or gap in time. This is the complete list of sections the guide proposes; some may not be necessary for your type of microenterprise.

1. Executive summary. The purpose and main objectives; what products or services you will offer; what your target market is and why it is attractive.
2. Company description. The name; where it will be located and why it is a good place; the legal structure: sole proprietor, partnership, or cooperative.
3. Market analysis. The structure and size of the market in your community; your customers’ needs; who will buy; who your competitors will be, with their strengths and weaknesses; how you will attract customers.
4. Organization and management. What knowledge and experience you have; who the owners will be and their roles; which employees, advisors, or suppliers will take part; where you will buy merchandise.
5. Marketing and sales strategy. How you will advertise and promote; what methods you will use to sell; how you will set prices and what they are based on.
6. Seed capital. How much money you strictly need to start; how you will distribute it; what sources it will come from.
7. Financial projections. The monthly income and expenses you expect; how long you estimate it will take to reach the break-even point and start being profitable.

Once you have the projections, the topic on managing your money will help you keep the business finances separate from your own.

Before you decide

There is no perfect job. The best decision usually combines what you enjoy doing, what you do well, the opportunities that exist, and the lifestyle you want to build. Many people start as employees to gain experience, then work as contractors, and later create their own business. If you work and study at the same time, working for yourself is also the easiest way to resolve the clash between the job schedule and weekend classes.