Five things you must consider when starting a business.

[tec0]

This is a short post on what must be done and what must not be done, when it comes to starting a new business. I found myself in this situation time and again and realized why "some people" will keep on failing at business.

First and foremost do your own research on the product and determine if it is short term or long term. This is very important to calculate sustainability and future competition and or if the supplier is giving you a good deal or not. It will also communicate if you are able to do rebate, carry parts and stock and other responsibilities warrantee/guarantee to keep the consumer council of your back.

Second aspect is the financial burden, this connects to the first step in a strong way. Buying stock is but one aspect, storing and distribution will also carry cost and with it responsibility towards the product. All of us have seen a damage box sitting on the discount table right? That is a avoidable loss to begin with. Shelf-life is also a major aspect when buying the product, if it is short term especially, it would be worth noting how fast a product goes "if that is a constant or not" how long it will take to restock said product.

Thirdly, is getting the word out, simply having a product doesn't mean someone is going to magically find you. This is why systems like social media, internet, local radio and general advertisement is so important. It also locks into the second and first step. On your research it is important to know how you found your information and how easy or hard it was. It will also give you a good marketing strategy as to how to go about listing the product and it's information and how to draw the customer your way. It connects to the second step as well as you need to add the financial requirement for said advertisement.

Forth step is probably the most important step as this is the actual introduction between you and your supplier and the introduction between you and your customer. If you took the time to do step one properly you can show both interest in the product and knowledge of the product. The supplier agreement is an absolute must have and needs to accommodate your needs as well as their own. A strong agreement allows you to deliver to the customer, and handle returns from the customer and above all is able to minimize your cost in returns "where in if possible". Be strict on damage products and don't give your customer "something old" when they are paying you good money.

The biggest most important step is the fifth step! Don't involve people against their will like pushing your idea down on family/friends and expect them to pick up responsibility and become the primary driver of the business. A lot of new businesses have this and simply kills any chance it had. Identify responsibility and only reach out to someone if that someone is willing and able to accept responsibility. If you cannot accept responsibility it doesn't matter how much money is backing you, you will fail if not in the short them then in the long term because responsibility starts with YOU as the OWNER. Not the friend or family.

I have seen 41 businesses fail "to date" where the main responsible person FAILED to do these seemingly simple steps.

Yes there is much of that I have missed but I am sure each of us knows a few people that made these types of mistakes.

Please feel free to add to the list.

[Blurock]

The most important thing when starting a business is money. Without cash you will never get off the ground. Calculate what you need and multiply by 10. Your estimates will never be correct as it may take months before you make your first sale. In the meantime you have to pay suppliers, rent, telephone, wages/salaries etc.

Once the money runs out, you are stuck!

[BusFact]

Well, I agree that the number one reason for business failure is a lack of money, but you also run the risk of throwing good money after a bad idea and in having more cash available it simply means you will lose more in the end.

If you are getting into a business which you want to pay your salary with from month one, then yes you are going to need a lot of cash.
If you want to set up a new business with all the bells and whistles of an established firm in order to create credibility then yes you will need a lot of cash.
If you intend on going into certain types of business such as traditional retail then yes you will need a lot of cash.

But it is quite possible to start a business without much cash. Rent and salaries, for example should not be a consideration for a new small business. It does limit initial growth, but "boot strapping" is still viable.

[GertH]

Great write-up tec0, thanks! I strongly agree with your third step, it's incredibly important to market your product / service, without customers you might as well close your doors. Your marketing can also be the deciding factor of how well your business scales and grows, yet again, an imoprtant factor for any business

[daisyli]

Great idea, not involving people against their will.

[adrianh]

The step(s) that everybody seem to miss, except of course the prospective financier is this:

1. Do your numbers make sense

Even a mediocre financial person is able to see by looking at the numbers whether you understand what it takes to run a business. Most start up businesspeople do not realize that financial people are able to read numbers and get a picture of the overall mindset of the author. If you fail this part then you are doomed.


2. Do you fully understand what you are busy with.

Ok, so lets say you have a great financial mind and you've convinced the financier that you understand the numbers now comes the tricky part. Are you able to answer various questions off the top of your head; how big is the market, who are your customers, woh are your competitors, how are you going to make money in the industry, do you have industry experience and and and...if you are unable to answer any of the questions off the top of your head then you don't know your stuff. Industry experience; financiers hardly ever back people with no industry specific experience. That fact that you are a brilliant woven basket salesmen does not make you a brilliant yoyo salesman if you have never been active in the industry.

You need to understand that financiers back people who have already put their nuts on the line to learn the industry and are looking to expand their output though investment....but here is the catch, every single investor is going to ask "What's in it for me". Entrepreneurs are of the mistaken belief that people will invest money in their new en devour simply because they have nothing better to do with their money, it doesn't work that way. The investor can leave his money in the bank and get a fairly risk free return. The question that you need to ask yourself is can you give your investor his cash back with more interest than he can get by simply leaving his money in the bank. If the answer is yes then you need to be able to quantify the associated risk, and of course the bigger the risk the bigger reward the investor will want.

I am of the opinion that each and every entrepreneur needs to look at his own business in the same critical way that an investor would. If you are unable to convince yourself that you should put your balls on the line for your business then you will never convince a financier.

At the end of the day the only thing that really matters are the numbers. Know your numbers and you are halfway there.

[Conspirors]

One of the most important aspects of starting a business is knowing your customer and what they need, also showing them what they need in the future.

[ians]

25 years ago, on the 15 feb I decided to take the step. 25 years ago the fail rate within the first 5 years was 50 % .

The bank requested some documentation to show them i had done my homework and had all the figures worked out. 25 years later i still not produced this piece of paper. I have overdrafts on all my cheque accounts. I was offered R 100 000 facilty on my credit card.

I had done absolutely no customer research.

I bought a golf and a 6 ft ladder.

Trust me when i tell you it hasnt been as easy journey. I have made more mistakes than i would like to remember.

My goal 25 years ago, was to just last 5 years. The business just kept growing and growing.

All you need in life and business is will power. If you want it bad enough you will go and get it no matter what it takes.

Cash flow is king. A R100 million contract is worth nothing until it is in your bank account. No matter how big or small your business,all it takes is 2 or 3 bad customers and you fall faster than rand after a budget speech.

[ians]

Another danger for small business. These People who get contracts then look for others to complete the contract. Be Careful out there, i have been approached twice and turned them both down.

Big estate developments another quick way to go bankrupt

All that counts at the end of the day is cash flow. Cash is king.

[Susan Smith]

I agree with the cash flow problem. I am in the service industry. You deliver the service, and the clients (especially big ones) try to keep their cash in their banks as long as possible. What is supposed to be a 30 day agreement sometimes extends to 6 months. I've got rid of those clients. I need awesome clients that will pay and appreciate what I have to offer.

I have had successful businesses in the past, and closed them down when changing course. I love what I am doing now, so much, that I am expanding and branching out. Quite daunting. I started with nothing, did everything myself. I have found myself still doing most things, although I am starting to outsource some things to free up my time to do marketing and promoting the business. It's been a tough ride, opening up just before the recession hit.

My reputation has been my brand though, so word of mouth, delivering what I promise, I think is key to ensuring referrals and repeat business.

So, for new businesses:-
- watch every penny - you don't necessarily need fancy offices, stationary and machinery unless it is a critical part of your production.
- drop your standard of living - you are a student all over again
- don't live off your business if you can help it
- keep up to date with your money - understand where your break-even point is, and where your profits start to emerge. Look at your statements every day, track your invoices, and payments.
- keep your suppliers happy, as they will give you grace when you really need it
- you will get to a point where you are not coping with the workload - and at this point, it is to ask yourself what you can outsource, or hire someone to do
- your business must be your passion, but it must be something that can ultimately run without you. You want to build something you can sell and walk away from and which does not define you.

[SSS100]

Know and understand the stages of business cycle: .. Stage 3 is very critical and hard to accomplish because GOOD employees and NOT easy to get and you need them to get into stage 4... Expansion

Stage 1: Seed And Development
This is the very beginning of the business lifecycle, before your startup is even officially in existence. You’ve got your business idea and you are ready to take the plunge. But first you must assess just how viable your startup is likely to be.

Stage 2: Startup
Once you have thoroughly canvassed and tested your business idea and are satisfied that it is ready to go, it’s time to make it official and launch your startup.
Many believe this is the riskiest stage of the entire lifecycle.

Stage 3: Growth And Establishment
If you’re at this stage, your business should now be generating a consistent source of income and regularly taking on new customers. Cash flow should start to improve as recurring revenues help to cover ongoing expenses, and you should be looking forward to seeing your profits improve slowly and steadily.
The biggest challenge for entrepreneurs in this stage is dividing time between a whole new range of demands requiring your attention– managing increasing levels of revenue, attending to customers, dealing with the competition, accommodating an expanding workforce, etc.
Hiring smart people with complementary skillsets is necessary to make the most of your company’s potential during this phase, and so any good founder will be spending a lot of time directly involved in the recruitment process.
It is essential that you start to come into your role as head of the company in this stage.

Stage 4: Expansion
At this stage you might feel there is almost a routine-like feel to running your business. Staff is in place to handle the areas that you no longer have the time to manage (nor should you be managing), and your business has now firmly established its presence within the industry.

Stage 5: Maturity And Possible Exit
Having navigated the expansion stage of the business lifecycle successfully, your company should now be seeing stable profits year-on-year.

[Dr Thomas]

Some things I wish I had known from the start...

1) It's much easier to supply a product to a great demand than to supply a great product where you have to create the demand. In other words, just because you have a great idea or great product, doesn't mean the market is ready for it. Companies spend millions convincing consumers of the 'next big thing', but most people resist change and as a small business focus on giving people what they want rather than on convincing people of what they want.

So if you want to start a business, first find a demand to supply rather than first trying to supply a demand (I hope I'm making sense!)

2) Marketing is 50% of the business. The best idea/product in the world won't make you money just by itself. And in fact, some really stupid/dodgy products can make money just from sheer marketing. It's better to have a smelly donkey cart hooked up to a stallion than to have a beautiful carriage hooked up to a two-legged mule. The donkey cart can at least go somewhere. Rather have a relatively dull business hooked up to a decent marketing campaign than have a brilliant business concept but no marketing.

3) Keep overheads and costs low. You WILL make mistakes in business, but your mistakes are directly proportional to how much money you're spending. If you're spending a lot = big potential mistakes. You WILL lost money when starting out in business (mistakes cost money), but small costs = small potential mistakes. Also don't sign lease agreements, if possible, unless you have a proven moneymaking concept (by proof, preferably this means you have been paid for the service/product even before you signed the lease).

4) Accept that failure is a necessary stepping stone to success. Very few business people are successful from the start. You have to be able to emotionally and financially be able to cope with failure.

5) Almost every business needs to 'pivot', that is, it needs to change what it does to remain profitable. So don't fall too much in love with what you business does in the beginning, you have to change it after all.
This guy on YouTube explains this point better than me: https://www.youtube.com/watch?v=-2m6JkJvv4w

[Blurock]

One of the biggest risks in a startup is to run out of money.
If your budget shows you need R1 million, you will actually need 10! This may not apply to buy and sell, "me too" businesses, but in manufacturing that is definitely the case.

[Electrode]

Considering that I lost my business due to non-payment from my 'business partners'. All I can say is make sure you know who you are dealing with. Because if they are corrupt or untrustworthy in any way you will end up exactly like me. I lost my business, lost my livelihood and above all lost my physical stock. Even if there is a rumour of your partners being unethical in any way or form you should take note and base your actions on that rumour. I ignored the rumours. Lastly allays use a legal aid.

[Justloadit]

In my experience, the acceptance and signing of a contract is no guarantee that it will happen. The deal is only concluded when the money is in the bank, especially if part of the terms and conditions includes investment up front.

I made this mistake by investing a huge amount of money in development upon signature of the contract, and when the project was almost complete, and I requested the deposit as per terms and conditions before work started, it never materialised. Fortunately I was able to survive, but it did hurt me financially for a few years where my nest egg was depleted and I had no spare capital to do other ventures.

Yes I could have gone the legal route, but it would have been spending good money after bad investment. Legal battles are not cheap or for the faint hearted.