This is the first blog in a series offering advice and guidance to anyone considering starting a new business. We’ll be publishing further blogs over the coming months.
The fact that you’re taking time to read this means you’ve likely been thinking about setting out on your own for a while now, and you’re serious about making it happen.
Small businesses are the backbone of the UK economy – and working for yourself, free of the limitations and constraints that often go hand in hand with ‘regular’ employment can be incredibly exciting and rewarding.
But with a staggering 80% of start-ups failing before they reach their fifth birthday, the reality for a lot of business owners is that their dream can quickly become a nightmare. The fact that many of these businesses could have avoided this fate – perhaps going on to enjoy success and longevity if their owners had invested more time pre-launch makes the statistics even more poignant.
Self-belief, enthusiasm and ambition are essential traits for any business owner, but in the excitement of starting a new venture, they can sometimes lead to oversights and fundamental mistakes which only reveal themselves when it’s too late.
Before you dive in headfirst then, it’s important to take a step back, ask yourself some key questions and undertake basic tasks to ensure your start-up is built on firm footings.
To help give your venture the best start in life, and to ensure it doesn’t become just another statistic, here are our seven essential foundations for success:
1. Be sure you have what it takes
Running your own business can be tough, and before you begin the start-up process in earnest, it’s a good idea to reflect on your personal qualities, and where your strengths and weaknesses lie.
You may have a great business idea, but are your personality and character compatible with working for yourself and all this will entail?
In the early days at least, money is likely to be tight, you’ll probably have to work long and perhaps unsocial hours – and you’ll most likely be working on your own. In 2020, 76% (4.6 million) of all private sector businesses in the UK didn’t employ anyone aside from the owner(s). If you’re coming out of employment, this can be something of a shock: you’ll be used to having a team around you, people to bounce ideas off, help make decisions, share your workload and take care of specialist areas.
As Michael E. Gerber identifies in his book the E-Myth Revisited, most people setting up businesses are not entrepreneurs but ‘technicians’. While they may be highly skilled in their particular area of expertise – hairdresser, photographer, web designer or whatever, often, they will have little or no general business experience.
To run a successful business, you’ll need to be competent in a wide range of areas, including marketing, sales, operations and HR (even if you don’t have employees, there will be people integral to your business with whom it will be vital to maintain good relationships, such as partners, suppliers and family).
Then of course, there’s our own area of interest – finance. It’s no exaggeration to say that being on top of your numbers, cash flow, credit control, payments and payroll can be the difference between surviving or going out of business.
It’s very unlikely you’ll get your business up and running without encountering challenges on the way. Do you have the resilience to take inevitable setbacks in your stride? Will you have the tenacity and endurance to find ways around problems while remaining positive?
Starting a new business is not for everyone. You need to be sure you have the dedication, determination and stamina required. And how about those around you – your partner, family and loved ones? Can you depend on them to support you 100% as you get your business off the ground?
2. Question your motivation
Why are you embarking on this journey? If you’ve been an employee up to now, exchanging the security of a regular income, a career path and a structured working routine for a future that’s uncertain and fraught with potential risk, this is not an unreasonable question to ask yourself.
Ahead of committing fully and beginning to incur costs, it makes sense to check your motivation for founding a start-up and ensure you’re setting out on your journey for the right reasons.
Many people daydream of working for themselves, but simply being fed up with a 9-5 routine, wanting to be your own boss, working how and when you want and hoping to get rich quick are not – on their own at least – good reasons for starting a business. Likewise, while necessity may be part of your motivation – it’s the mother of invention after all, and many successful start-ups put down their roots following redundancy or tough economic times, it should not be your primary driver.
3. Be clear about your idea
Although success can never be guaranteed, a start-up will have a far higher chance of surviving and thriving when the business idea and the founder’s personal ambitions align. In other words, as well as having the skills and knowledge your idea calls for, it must also be something you feel passionately about.
Your idea may be a product or a service, and your target customers may be consumers or other businesses. Either way, unless it’s highly innovative or at the leading edge of technology, it’s unlikely to be unique: this doesn’t matter so long as what you’re offering solves a problem, fulfils a desire or makes the purchaser’s life better or easier in some way.
If you are planning to enter a sector where other businesses are already offering similar products or services, your business will need to have a clear differential to set it apart. It might, for example, provide a solution that adds value, be superior, or you may have found a way to make it less expensive than your competitors
4. Check your idea is financially viable
After making money to cover any set-up and ongoing running costs, your business will need to produce a profit, and you’ll have to decide on an income figure you’re comfortable with.
When calculating the revenue you need to generate to produce your required profit, remember that your capacity to deliver will be restricted because you will have to allow time to carry out all the tasks associated with running the business.
It’s worth pointing out that we often see new businesses – especially those operating in the service sector, make the potentially fatal mistake of underpricing and overdelivering.
Factoring in cash flow will be central to your financial forecasting. As an employee, you’ll have been used to getting paid at the same time every month, come rain or shine. As a business owner however, your business will have to get paid before you can pay yourself. How long will this take? How quickly can you invoice customers, and when will they pay? What expenses are you going to have to cover before you pay yourself? What about start-up costs such as premises, stock, materials, tools or equipment and the like? You’ll need to account for how these will be paid upfront and how long the costs will take to recover.
Having what you believe to be a great idea is just the start. Before you go any further, you need to prove to yourself that it has the potential to become a real business. This will mean rolling your sleeves up and conducting research into key areas, including:
- Your market
Although you may be convinced there’s a market for the product or service you’re planning to offer, you need to conduct analysis to confirm this is the case, to clarify where you’ll fit in and satisfy yourself that the marketplace is big enough to support your long-term goals.
- Your target customers
Who are your ideal customers, where will you find them, and how will you engage with them to promote your business? These are crucial questions you’ll need to answer before launching.
A good strategy is to create personas for each type of customer you want to target. You should capture as much general information as possible. For a B2B start-up, customer profiling will include business sector, job title, business size and turnover. For a B2C start-up, age range, demographic data and any gender bias will be key.
For all customers you’re planning to target, you’ll need to identify the specific problem, challenge, want or need you’re going to address.
- Your competitors
Find out everything you can about businesses you will be directly or indirectly competing with for market share. What are they doing well – or badly? How will what you intend to offer be more attractive to customers? Don’t just think about the short-term; if you’re taking business away from competitors, they’re likely to react. What might they do, and how will you respond so customers stay loyal to you?
Now that you’ve satisfied yourself your idea works on paper, it’s time to put your theory to the test in the real world. It might be tempting to skip this stage and move directly to launch, but only by robustly testing your hypothesis will you know for certain that you have a concept worth investing in.
Devise tests to help you answer critical questions such as what price will customers pay? What volume of products or services will you be able to sell? What level of revenue will you be able to generate? What will your marketing and sales costs be? The testing methods you decide to use will depend on the nature of your business and how you intend to promote and market it.
Strategies for evaluating interest and obtaining feedback could include creating a landing page or a simple online store and promoting it using a small-scale email marketing campaign, telemarketing or paid-for advertising. For some B2C start-ups, attending public events such as markets or festivals might be appropriate.
7. Create a business plan
When you’ve researched, tested and refined your concept, you’ll need to create a business plan. This is a comprehensive written document describing your business, your objectives and how you will achieve them. It will detail strategies, sales, marketing and financial forecasts, and the process of writing the plan will help you to clarify your idea, set goals, and identify problems you may not have thought of.
As well as providing a roadmap for you to follow and measure progress, a business plan will be essential if you’re looking for investors or need to approach a bank for a loan.
You’ll find plenty of information online explaining how to structure and write a business plan. An excellent place to start is the gov.uk website, where you’ll find plenty of helpful advice and resources, including a link to a free downloadable business plan from the Prince’s Trust.
Plan to succeed
If you’re thinking of turning a passion, a skill or a hobby into a business, you must plan properly. Anyone can set up a business, but for it to succeed and be sustainable requires investing time into preparing thoroughly and addressing all the above points.
A good deal of the foundation work can be carried out in your own time while you’re still employed (as long as you don’t infringe any contractual obligations you may be subject to), helping reduce the financial pressure to launch before you’re fully ready.
Alongside researching, testing and refining your concept, you can better prepare yourself, improving your knowledge by reading business books (Michael E. Gerber and Simon Sinek are essential reading), and you might want to think about connecting with our colleagues at ActionCOACH who, as well as business coaching, deliver a wide range of events designed to help business owners turn their dreams into reality.
For more than 20 years, Inca has specialised in working with the owners of micro to small start-ups, helping them build and grow successful, sustainable businesses. 63.9% of the new start-ups we work with get to celebrate their fifth birthday – a success rate more than 300% higher than the national average!