The taproots of success. (home business entrepreneurs Robert McElwain, Bruce Terkel, Donna Partow)
by Rosalind Resnick

When it comes to running a business from home, there's no sure-fire recipe for success. Although computerization is virtually essential to compete, it takes a lot more than a trusty PC to start a successful business. Toss in raw ambition, add hard work, stir in a pinch of market savvy, and in the end you could still be stuck with a money-losing flop. That's because no amount of ambition, hard work, and market savvy can guarantee that your biggest customer won't go belly up, your competitors won't slash their prices, or somebody else won't come along with a better mousetrap.

Even so, these unavoidable business problems aren't always the things that sink a new company. More often than not, small businesses fail not because they lack good products but because their owners lose sight of the fundamentals: cash flow, marketing, collections, and long-term planning. Interestingly, not only shortsighted businesses run into trouble. Successful companies have the same kinds of problems. The difference is that successful businesses tend to spot these problems early on and correct them long before they get too big to handle.

Of course, it's entirely possible to sidestep many of these pitfalls if you know what to expect beforehand. To that end, we've interviewed three successful home-based entrepreneurs. We asked them to talk about some of the mistakes they made along the way--and how they managed to turn lemons into lemonade. Essentially, what we've asked them is this: If you had it to do all over again, what do you wish you had known before you took the plunge and started your own business?

How to market my services. Robert McElwain, 51, once a stockbroker with some of the nation's leading brokerage firms, dropped out of the corporate rat race in 1984 to launch North American Capital Management in Shawnee Mission, Kansas. Though Shawnee Mission is a long way from Wall Street, the Kansas money manager and his stock-picking prowess have rated favorable mentions in Money, Wealth, and other national magazines. McElwain now manages more than $12 million for clients nationwide and says his company's annual billings are comfortably "in the six figures."

When McElwain first went out on his own, he very nearly became a victim of his own success. "In the beginning, we were very fortunate because we were featured in Money, U.S. News & World Report, Wealth, even the local newspaper," the money manager recalls. "The effect was that I got spoiled, and I forgot that you're supposed to market your services. It was not until a year or so ago that we realized we needed to get back to the basics and start doing some marketing."

McElwain's solution: an information-packed newsletter targeted at affluent individuals and pension managers nationwide. Thanks to McElwain's renewed emphasis on marketing, he's seen his business grow from $10 million in assets under management--the commonly used benchmark for the money-management field--to over $12 million since he launched the newsletter in November.

How to speak my customers' language. Bruce Turkel, 34, quit a good job at a Miami advertising agency to freelance from home eight years ago. Today, Turkel is president of Turkel Advertising, which employs 14 staffers and racked up $8.6 million in billings last year, thanks to clients like American Express and Turbana, one of the world's largest fruit companies. Turkel says that his billings are up 42 percent over last year and that his company now ranks 32nd out of approximately 260 Miami-area and agencies.

When Turkel quit his job as an art director to start his own agency, he often found himself trying to explain to his business-owner clients the creative concepts behind his ads. It wasn't long before he realized that he was wasting his breath. "Advertising is not what they know," Turkel says. "They know about widgets. Now, I speak to what my clients want to know: that we're going to boost their image and expand their business. How we do it doesn't matter to them."

With a bit of chargin, Turkel notes that, while his ad agency has snared a number of prestigious industry awards, many of his clients remain unimpressed. "One client said to me, 'I just want you to win me green awards,'" Turkel recalls. "'As long as you win me green awards, I don't care what you do.'"

How to diversify my customer base. Donna Partow, 30, owner of Syntax Services in Barrington, New Jersey, is a marketing consultant and freelance copywriter. Partow, who had previously worked at a bank, opened her home business shortly before her daughter, Leah, was born three years ago. Working from home allows Partow to spend the day with her child without sacrificing her career. Last year, she raked in $22,000 in revenues--not bad for 20 hours a week of work.

Partow says it's easy to get hooked on a single client, especially when you're just starting out. But, while that regular income stream can be a life-line, it can also become a dangerous addiction that saps the strength of a growing company. Partow recalls, "One client wanted me to call on clients, do business development, all kinds of things. I began spending most of my time developing his business, not mine. One day, I actually heard myself referring to him as my boss. That's when I knew the relationship was over."

Partow's solution: informing the client that she wouldn't be available to work more than five to ten hours a week for him. "It's better to have multiple clients rather than just one big one," Partow says now. "I think that's a mistake a lot of people make. You get one client and just lean on him. That's not wise."

How to get my customers to pay me. Early on, Turkel, who started his business at the tender age of 25, also learned some costly lessons about handling receivables. "I believed that if you do the work, you get paid," Turkel recalls. "It was what my dad called 'the confidence of ignorance.'" At the beginning of his second year in business, Turkel got a rude awakening: A client that had always paid on time before stuck the fledgling agency with $40,000 in unpaid bills. Though Turkel took the client to court and won, he wasn't able to collect his judgment. That left Turkel on the hook to pay all the outside vendors he had hired to help him with the job.

Now, Turkel says, his agency estimates every job up front and sets a "comfort level" for unpaid receivables beyond which the agency will call a halt to its work. With one client, that level may be as low as $2,000; with another, $10,000 or higher. "It has nothing to do with trust; it has to do with business," Turkel says. "It's a lot better to do it this way than to do the work and have the client not pay us."

But Turkel admits he still occasionally gets burned. Recently, a client filed for bankruptcy protection--owing Turkel's company $20,000.

How to manage my cash flow. In the burst of excitement that comes with finally going out on their own, many home business newcomers forget that they probably won't see any money from their labors for at least 30 to 60 days. That's how long customers typically take to pay their outside vendors (often longer in these recessionary times). A good strategy is to moonlight, as Turkel did, before quitting your job to go out on your own or, at least, to sock away enough cash to get you through a couple of lean months.

Advises Partow: "Don't quit your day job until you have thoroughly researched your business, analyzed your market, and completed a detailed business plan. I quit my job, opened up shop, and bought a computer, and said, 'Now what?' As a result, I had to wait months before seeing any cash flow." Also, she adds, "Don't bank on showing a profit the first year."

How to find my niche. Some of the more fortunate home-based entrepreneurs have a skill or a customer base that they can take with them from their old office jobs. McElwain, for example, had spent years as a stockbroker, and Turkel had three years' experience at various ad agencies. But for people without those ready-made connections, finding a niche can be much more difficult.

Partow was an English major who had honed her writing skills by writing booklets, brochures, and articles while an investment banking rep at Mellon Bank. But when she launched her marketing and copywriting firm, she realized she needed to be more of a specialist to get where she wanted to go. While she hasn't reached her goal yet, she's gaining a reputation as a home business expert by teaching a class at a local university, writing books on the subject, and contributing to a newsletter for people who work from home. Her book on starting a home business, Homemade Business: A Woman's Step-by-Step Guide to Earning Money at Home, is now available; ordering information can be found in the product box accompanying this article.

"You need to find your niche and stay focused," Partow says. "Clients are willing to pay you more if you're a specialist."

When to reach out for help. Running a home-based business doesn't necessarily mean going it alone. Though the work force of the typical home business consists of a self-employed individual or couple, farming work out to independent contractors with different but complementary skills isn't unusual.

McElwain, the money manager, is unusual in that he has four part-time employees, including his wife, who all work in his home office. One is a freelance computer programmer; another customizes software for Harvard Graphics. McElwain's wife works at the company two days a week to handle the bookkeeping. Fortunately for McElwain, his office is large enough to accommodate a staff that size. It measures 1400 square feet, has its own entrance, and houses five desks and three computers.

"The employees can come in in blue jeans and fix themselves a cup of tea or have a Coke," McElwain says. "It's very informal and relaxed."

How to leverage my business through technology. These days, it's hard to imagine a home business that doesn't have a personal computer. Add on a printer, modem, fax machine, and some basic desktop publishing software, and your fledgling business has most of the tools it takes to compete with the pros. Nevertheless, how much technology to buy, which technologies you need, and how to get them to do what you want them to can still be a struggle.

"I wish I'd known more about computers before I started my business," says Partow, who still has the same IBM XT clone she started out with. "I think the people at WordPerfect know me by name."

Keeping up with technological change can also be a challenge for more sophisticated users like McElwain, who runs his business on an old IBM PC and two newer 286 AT clones. "Each time I've bought a computer, I've bought it based on what I thought I needed at the time, but each time the software packages have been upgraded to operate at far greater speeds. Now, I'm planning to get a 486 machine with a math coprocessor to help me crunch the numbers."

How to delegate responsibility. Once you get your home business up and running, you may find that it literally spills across your living room and out the door. Unlike McElwain, who employs people at his home, most home business owners who hire employees eventually break down and lease office space. But while hired workers can help expand your business by multiplying the amount of work you can take on, they can also pose new problems as the individualist entrepreneur is forced to become a team player again, this time as the boss.

"When I started hiring creative people, I would give them the concept of a job, and they would give me back the copy," Turkel says. "I learned that it doesn't have to be done the way I would do it. It just has to be done well."

One of Turkel's main challenges, he says, has been keeping his employees motivated. "I think I spend more of my time getting my people excited than anything else," he says. "People love to work if they're doing something they believe in."

How much I'd enjoy having my own business. Though the prospect of cutting the corporate umbilical cord and starting your own business may seem scary at first, it's amazing how many home business people say they wish they'd gathered the courage to strike out on their own long before. McElwain, for one, says he wishes he'd taken the plunge ten years ago. Partow, too, says she wishes she'd started her home business sooner.

"Now I can work where I want and when I want," she says. "That's about as good as life gets."