 Welcome to Adventures in Small Business. My name is Victoria and this is a collaboration between Small Business Administration and its partners where we talk about small businesses in Hawaii. Today we have a guest from the VBAC of the Pacific, Dennis Kwak. Hey. Hi Dennis. Hey, nice to be here. Thank you for being here. So I'm looking forward to talk more about how to start a business in Hawaii. Sure. But before we jump into that, can you tell us a little bit more about yourself? Oh yeah, sure. I'm the director of the Veterans Business Outreach Center. This program is an SBA program and we've been here for about three years now. Prior to me taking the job as a director, I was actually a business advisor with the Small Business Development Center here in Hawaii for about seven years. Yeah, and you know I've been in economic development for about 10 years and I just really love and enjoy working with small businesses and entrepreneurs and helping them start and grow their businesses. Nice. Me too. I enjoy that part. So can you tell us more about VBAC of the Pacific? What does it do? Oh well yeah, we're a program like I said. We get a grant from the Small Business Administration. We're housed under the University of Hawaii at Hilo and although you know that's our sponsor, I mean that's our host, my office is actually at the Manoa Innovations Center above the University of Hawaii in Manoa and we work primarily with military installations providing workshops and trainings called the Boots to Business Program where we showcase, we do two-day workshops in military installations across the islands. We also cover Guam and American Samoa. When we're not doing workshops, we do one-on-one business consultations for veterans and military families. So you have a lot of experience in small business consulting, so you're the best person to talk about how to start a business in Hawaii. I guess I don't know. So how do I start a business in Hawaii? Oh well that's a kind of a that's a simple question but a kind of a long answer but first you have to determine what kind of how you want to start that business. Most people think starting a business is about creating a business. There's other avenues that you can take. One of them is obviously purchasing a business and the other which is kind of popular in Hawaii is taking over a business from your family member or from an employer. Creating a business, a new business is everyone's idea of starting a business. So if you choose an avenue you have to do due diligence and make sure that your idea or your business model makes sense. That's how you start a business. So that's how you get it down on paper. You got to first determine the avenue you want to take. What about franchising? Oh franchising is definitely one of them and I forgot to mention that. It's another one. It's definitely another one. It's you know, franchising has a lot of benefits and one of the benefits is that there's already a built-in process and people like that they can actually work on the craft of the business and the process is already in place. There's huge market potential because you have like a big corporate backer for marketing and you know it's a proven business model. One of the risks going back to creating a new business is that when you create a new business the biggest risk is that it's not a proven business model. So with you know risk there comes great reward but on the flip side the risk is quite big. The downsides of franchising is that you have to pay royalties, you have to pay franchise fee. Yeah for sure. We have to have some money to start it. Of course yeah I mean there's a lot of downsides of starting a franchise too but if you have a good franchise or you have a good franchise model it definitely helps you start the business especially if you're new to creating your own business. But you're right franchise fees can be pretty big and as well as royalties so depending on you know what your profit margins are, even though they seem little whether it's two three percent that really dips into your profit margins at the end of the year. So there are a lot of different ways to start a business and one is not better than the other. It really depends on your goals. Of course of course and you know buying a business in which you know we talked about a minute ago it's a it's a good way to actually start a business as well. If you feel like you can buy a business and improve on the existing business model that's a great way to actually you know grow that business. But just be aware when you buy a business you have to do due diligence. You have to make sure that the business isn't good standing because ultimately you're going to inherit the good and the bad of that business. The bad being you know whether they have you know late payments they're not in you know it's standing with the state or you know you know they have problems with their vendors. The good being that you know they already have an existing client base and hopefully you can build on that. I would always say that when you're buying a business you know you look at their tax returns for three years the best way to get that is having the owners issue what's called the 4506T form which is an IRS form that kind of gives the profit and loss statements of that business to the potential buyer. And very important to have good advisors. Oh yeah I think so yeah and it's you know a lot of people when they start a new business they kind of want to remain kind of under the radar they don't want other people to steal their idea but I always think that's kind of paranoia and I don't think that's a good way to actually you know go into researching about a business you know because having feedback is a you know really good validation for your idea. I always say if your business is great sooner or later somebody will copy you so you just have to accept that if your business idea is not great you're safe. Yeah that's true that's true. So no need to worry about that. Yeah no need to worry I mean there's always gonna be people trying to emulate you but you should take that in you know good stride and try to improve on what we already built. Great so the most popular one is actually the new business creation right? Yeah. So let's say I have an idea how do I know I got it right how do I know my business idea has potential? The first thing you need to do like we were talking about is you need to do some vetting to make sure that the idea resonates with your potential customers. There's really nothing better than getting validation from your potential customers and making sure I mean for them saying hey it's a great product it's a great idea and when I say potential customers I'm not talking about your auntie and your uncles but people that might really purchase your product or service. I also think that your idea has to relate to some kind of friction or bottleneck and when I say that I mean like your idea has to have some kind of value proposition where it helps you know basically or improve somebody's life. There's got to be something that it makes a situation better for your potential customers. Is either you solving a problem or you providing a solution to someone's need? Of course yeah and if you look at all the great businesses that's been built in the past ten years it's always about addressing issues where there's bottleneck or where there is friction you know and you talk about you know the companies or like industry changing companies like Uber you know they saw kind of a friction or bottleneck in transportation logistics and they kind of change that around in technology you know but I always think that if you have some kind of value proposition where it matters to your potential customer I think that is a great business idea. There are so many businesses out there already how to be unique. That is a good question. Yeah it's definitely hard and being unique is it can come in all different kinds of you know factors I mean it could be unique in product and service but it could be also unique in location it can be unique in you know price points too I mean you might have the exact same product as somebody else but you know you're at a better price point you know you're gonna have that edge and that's gonna be your niche you know so I mean I don't think one is greater than the other but you definitely have to be different if you just are among the crowd you won't stand out and in this competitive environment you definitely need to stand out. So you mentioned market research and that you have to talk to your customer just to validate your idea do you have any ideas how how can I do market research for my business idea? Yeah I mean when you're talking about market research you know we're talking about understanding your customer base I always found the census has a lot of great data especially when you're kind of honing in on you know what the population size is demographics and geographics are your potential customers and when you're talking about industry data I always like IBIS world I don't know what IBIS stands for I know it's an acronym or something is IBIS but they put up very comprehensive industry reports where you can really do some research on the industry and whether that industry has legs whether it's an upward tick or a downward tick and I would always advise clients that it's hard to be a superstar in a downward spiraling industry you know I mean certain industries just have you know a downward path and no matter how good of a business person you are if you're fighting against that kind of momentum of a downward industry it's very hard to kind of come back and thrive in that industry just like retail business well yeah like you know I mean we hear every day that retail is dying and you know a lot of times point their fingers at Amazon I mean that's retail too but yeah traditional brick and mortar retail it's you know it's seen better days and I think that you know retail will it'll always be there but I don't think it'll thrive like it did you know 20 30 years ago it will definitely it'll definitely change that's why I have to do market research that's why you have to do market research yeah for sure yeah and we should mention that to get IBIS World Report you can actually contact VBock yeah because we have access to market research yeah so if you're a veteran or you know military spouse and you're thinking about starting a business and let's say you want to do like trucking or let's say food and beverage it's a great way to actually just reach out to us and say hey you know I want to know more about this industry does it have legs we can provide you a pretty comprehensive report yeah for free yeah I like yeah I think everybody likes free so that's industry research and then market research is talking to customers doing surveys do you suggest some specific ways talking to customers yeah I mean surveys seems to work and you know we're talking about that you know getting in touch with your potential customers it's a great way to actually just get some honest feedback and we call that like primary market research is when you actually are on the floor talking to potential customers whether that be you know on the street or you know getting a survey done about focus group focus group is another great example sure yeah there's definitely a lot of ways you can do you know online marketing or online surveys but I always thought like that you know personal face-to-face with a potential customer has the has the most potential and the most honest feedback but what we see actually in real life a lot of small business owners skip that step even though we think it's very important yeah and you know I think that is I don't know I think it's just that people are a little bit hesitant to share their ideas and it's really about like oh I don't want my idea to be stolen you know I want my idea to be protected but once you start selling and once you start manufacturing or you know you know market start marketing your business and if it's a great business people are like we said they're gonna try to emulate you and that's you know you can take that you know as a pride point you know rather than you know trying to push that back because any great idea is gonna be copied in some form or fashion yeah I agree yeah so we talked about validating your idea market research what about economics of a business what are the key things to consider in terms of economics oh well you know I think everybody goes into business for some kind of financial gain you know if you're not doing that then you probably shouldn't go into business but you should be aware of like an economic model that makes sense for your business there's some key levers that you should really pay attention to and we teach this in boosted business but one of the key levers is revenue streams you know or you know sources of revenue that is probably the biggest just because you might have one product or one you know service but you ultimately have to build on that it's very hard to kind of thrive in this business if you just have one product one service we were currently working with the food and beverage a restaurant recently and you know your primary source was actually you know selling food but you know they found a market where you know a lot of customers were coming in and these customers their market base were you know tourists from overseas and they wanted some kind of like a gift that they could take away with them so they started selling little trinkets key chains t-shirts and you know this is a great example of how they added a revenue source and now that accounts for I believe like 12 or 13 percent of their total annual sales which is you know something that they didn't just they didn't really recognize an opportunity but you know adding these kind of little revenue streams can really bolster companies financials the second lever I believe is obviously you can't take one without the other but it's really margins and margins and volume but yeah I mean you got to have some kind of margins from each sale you know if you're making just one dollar out of you know 10,000 you know 10,000 units you know it's not as much as obviously you know making a little bit more so you got to be kind of cognizant about you know your margins and your volumes and given time frame that's totally makes yeah thank you so we're gonna take a short break and we will be back in one minute. Hey hello everyone and welcome to the Think Tech Hawaii studio my name is Andrew Lanning I'm the host of Pretty Matters Hawaii we air here every Tuesday at 10 a.m. Hawaii time trying to bring you issues about security that you may not know issues that can protect your family, protect yourself, protect our community, protect our companies the folks we work with please join us and I hope you can maybe get a little different perspective on how to live a little safer. Aloha. Aloha I'm Mellie James host of Let's Mana Up. Tuesdays every other Tuesday from 11 to 1130 this show is meant to dive into stories of local product entrepreneurs and how they're growing their companies from right here in Hawaii. I'm so thrilled to have our show kicked off and so please join us on Tuesdays at 11 o'clock as we talk to local entrepreneurs and hear their stories. Aloha welcome back to Adventures in Small Business my name is Victoria and today I'm talking to Dennis Kwak from the VBock of the Pacific and we are talking about how to start a business in Hawaii. Yes. Welcome back. Thanks. Well thanks. So we talked about market research and we talked about business model and economics. What about legal entities? I feel like it's a big question for a lot of small business owners. Yeah. Of course. Yeah. It's one of those big questions that we always get asked. You know what kind of legal entity should I have. Well you know them knowing that they have to have a legal entity is a good starting point. But there's a lot to choose from. There's sole proprietorships. There's different kinds of partnerships. General partnerships, limited partnerships, limited liability partnerships. But it seems like the most popular one for small businesses is what's called a limited liability company. Limited liability company is recognized by the state but the IRS doesn't recognize it so we'll have to kind of choose a different entity for filing with the IRS but every state has a limited liability company option. One of the great things about limited liability companies is that it gets funneled into your it's a straight run through so basically it gets funneled into your personal access when you file. But it's actually considered two separate entities in that state. So it's kind of a you know separating those entities your personal and your business and which kind of provides a lot of protection for that individual that is the owner of that limited liability company. But LLCs or limited liability company seems to be the most popular. I just want to say that you know because we're not attorneys we don't really give legal advice. But from what I've seen limited liability companies. Yeah. Yeah. What about corporations? Yeah of course corporations is a big one you know C Corpse but you know we don't because we primarily deal with small businesses and small businesses you know it's a big it's a big portion of why small business I'm a wise businesses but it also is you can be a small business and have you know 100 employees or 90 employees and there's a lot of small businesses that are C corporations but I'm talking really more about starting out when you're starting out I think in the LLC is probably the better way to go and then C corporations you know one of the you know one of the good things is you are offered more protection as a C corporation and you can it's much easier to raise money or raise equity in a C corp. But the flip side of that of raising money is that you know you're gonna have what's called double taxation. You're gonna get taxed on the corporate level and you're gonna get taxed on the individual level. So a lot of people are kind of swayed away from that because of the double taxation and it's much easier to go from an LLC to a C corporation rather than going from a C corporation down to a C corporation. So just start with LLC and then as you grow maybe switch to a C corporation. Yeah I would always say yeah LLC is the best way to start just because you want to make sure that you know you're giving the freedom to kind of move about your money and if after the year or two you feel like your company has legs and it's got financial legs and it's doing well then you can kind of migrate toward filing as an S corporation an LLC with a state but an S corp. An S corporation is basically putting yourself as an employee of that said business and that kind of you know mitigate some of the kind of tax obligations that you might have or you know your business. Once again this is not illegal twice. This is just talking from experience. Yeah and what we've seen exactly from all the clients that we work with. And would you say I need to hire a lawyer to register a business or no? You know you could hire an attorney and I always think it's good to speak to an attorney. I don't think it's a necessity. In Hawaii through eHawai.gov it's kind of a fairly easy process to register a business. So I would say that you know you can try a gander trying to do it yourself. If you kind of run into troubles you don't understand what kind of questions they're asking. Maybe seek assistance from a resource partner or an attorney and they'll can hopefully provide you some good advice. That's what I really like about Hawaii. I think it's pretty cheap to start a business especially all C and pretty easy. It's all online such as Department of Commerce and then IRS and if anyone needs help we have SBA, SBDC, VBOC, Women's Business Center. So a lot of resources to support small business owners. So I totally agree with you. Yeah it's good to have a lawyer but not a necessity in terms of registering a business. But then some other legal issues like contract and maybe patents or trademarks that might need some assistance from a legal attorney. Yeah I mean if contracts definitely you want to make sure you're protected as well as your business and as well for like intellectual property like patents and the things like trademarks you should definitely seek advisement from an attorney or from an IP attorney. And that could be expensive but again we have business law court. Oh yeah yeah we do yeah. So you know we partner up not we but the Economies Women's Business Center and the Small Business Development Center and as well as us we partner up with the business law court and the business law court has been a valuable resource where they kind of offer legal advice for free. And it happens like every week right? Yes every other week. Okay yeah. Great so we talked about legal entities now another important topic is how do I finance my business. So most small business owners they don't have enough money to finance this startup so where do I go what do I do? Well I think it really depends on the type of business that you want to start and the type of person you are in terms of you know what kind of financial backing you know each different each is it's hard to kind of say this is the best path to go forward but we've seen people the most successful ones are that utilize a lot of different sources of financing options. The first and primary is owner savings that seems to be the biggest and it really should be you know the biggest just because it's hard to start a business and leverage and a new business and try to get financing for that. But owner's financing is the biggest. People do use credit cards and I have kind of a love hate with credit cards it's good when you start out but if you can if you know you can pay that back before the increase your APR then definitely you can use credit cards and of course small business loans is definitely an option. Banks are weary about giving small business loans to startups but it definitely does happen and people can utilize you know lending institutions and of course SBA loan program. A lot of options but the best would be just to save money. Yeah I would use some. And the reason I say that is because you know paying back a loan when you're starting out can be cumbersome for a small business so it's good to have combination of everything you know your own personal savings some loan maybe not the bulk of it but some loans can come in form of a term loan or a line of credit and maybe some equity injection from you know some friends and families and using some credit card to you know finance your business but kind of a mix of financing is probably the most risk averse. So here again depends on your goals I guess if you're okay with losing some of a control you can go with investors route because sometimes they want a part of your company a lot of times they want a part of your company. Yeah business loan you really have full control of your business but you have to start paying back the loan right away. Yeah so there are pros and cons and depends on. Yeah it depends on the business owner's goals and also depends on you know you know what kind of industry you're in you know certain industries are more susceptible to raising equity or raising you know investors' monies especially if you're in like biotech or technology but some industries like food and beverage usually you know owners you know put in a lot of money other money and they get some financing for the banks. What about crowdfunding? Yeah crowdfunding is an idea but you're not gonna get the bulk of the money from crowdfunding and you know crowdfunding is really about exposure as well as raising a little bit of money but I think the facet of marketing and exposure has a greater impact than actually raising money but there are some ridiculous campaigns that went out on crowdfunding sites that's done tremendously well but I think those are kind of one-offs not like a standard bear. There are a lot of maybe IT or art type of for sure yeah sure okay so crowdfunding and we can consider but probably very small businesses not gonna bring the bulk. Yeah and it like you know crowdfunding casts a wider net you know you can it's out on the web so you know you have a wider net you know they're investing maybe fifty seventy five dollars at a time but it's not really substantial to I guess you know getting a loan and you're kind of on the behest of these people that you don't know and you don't know you know you don't know where that money is coming from too so you know a lot of people are kind of have a love-hate relationship with crowdfunding. Yeah but that could be also a good market research opportunity to see how people are reacting to your idea. Definitely I definitely agree with that like we were talking about it's a marketing effort and to see kind of you know validation points for your business idea. Okay so business planning and business plan how do I start writing a business plan what are the must-have sections for a lot of people this is kind of a difficult topic and intimidating do you have any advice in terms of business plan starting on it. Well I think a lot of the things that go through your mind when you're starting a business has to be put down because you know your mind works in a million miles an hour so best way to do it is actually putting it down on paper and the business plan is kind of that form. There is no real right format there's a lot of great software out there like live plan but you know it's the must-haves of a business plan is like the executive summary you know you got to have financials you got to have marketing you got of all those things basically kind of and I know you're giving me the signal that I got to stop but there's definitely a lot of things but you should check out people can check out the economic developments organization like the SBDC and VBOX and these women's business center or the MIG Center for Businesses and Leadership to kind of put their business plan together and it will definitely help. And what I personally really like is business model canvas yeah I think that's a good first step because it's all in one page so start with that and then move on to business plan there are templates on the SBVAP site and then again we can help you through the process. So thank you so much I know you have an announcement. Yeah I do well I want to say that you know National Veteran Small Business Week is coming up on November 4th through the 8th it's kind of a great week where we celebrate veteran entrepreneurship and small business owners and I would love for everybody to get involved and we're gonna do our third annual small business veteran small business awards here in Hawaii and it's going to be on November 8th the location is yet to be determined but when we decide that please check us out on our website and you know hit us up and I hope everybody could nominate some veteran owners as well as new veteran businesses and veteran advocates for the awards. Looking forward this should be a fun event. It definitely is every year we have a lot of fun. Yeah so thank you so much Dennis for sharing your wisdom and thank you for watching. Please follow us on social media, look for VBock of the Pacific on Facebook and Twitter and follow our YouTube channel Hawaii Small Business. I'll see you next Thursday at 11 o'clock at adventures in small business. Stay tuned and thank you for watching aloha.