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- Herausgeber: John Wiley & Sons
- Kategorie: Fachliteratur
- Sprache: Englisch
- Veröffentlichungsjahr: 2012
This eBook bundle is the one stop shop to all your business start-up needs! Starting a Business For Dummies is the bestselling guide from business start-up expert Colin Barrow, covering everything budding entrepreneurs need to know to get their business up and running. Whether readers are just starting out, planning a new venture, setting up at home or extending a current business online, this book is all they need to succeed. Business Plans For Dummies maps out a realistic business plan from scratch -- so your business vision can become a reality. This fully updated guide leads you through all aspects of business planning, from clarifying objectives and finding funding, to researching customer behaviour and developing an e-presence. Understanding Business Accounting For Dummies takes you through all the key elements of UK business accounting, covering everything from evaluating profit margins and establishing budgets to controlling cash flow and writing financial reports.
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Business Startup Bundle For Dummies®
Table of Contents
Starting a Business For Dummies®, 3rd Edition
by Colin Barrow
Starting a Business For Dummies®, 3rd Edition
Published byJohn Wiley & Sons, LtdThe AtriumSouthern GateChichesterWest SussexPO19 8SQEngland
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About the Author
Colin Barrow was, until recently, Head of the Enterprise Group at Cranfield School of Management, where he taught entrepreneurship on the MBA and other programmes. He is also a visiting professor at business schools in the US, Asia, France, and Austria. His books on entrepreneurship and small business have been translated into twenty languages including Russian and Chinese. He worked with Microsoft to incorporate the business planning model used in his teaching programmes into the software program, Microsoft Business Planner. He is a regular contributor to newspapers, periodicals and academic journals such as the Financial Times, The Guardian, Management Today, and the International Small Business Journal.
Thousands of students have passed through Colin’s start-up and business growth programmes, going on to run successful and thriving enterprises, and raising millions in new capital. He is on the board of several small businesses, is a University Academic Governor, and has served on the boards of public companies, venture capital funds, and on Government Task Forces.
Author’s Acknowledgments
I would like to thank everyone at Wiley for the opportunity to write and update this book – as well as for their help, encouragement, feedback, and tireless work to make this all happen.
Publisher’s Acknowledgements
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Starting a Business For Dummies®, 3rd Edition
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Table of Contents
Introduction
If you’ve pulled this book down from the shelf or had it passed to you by a friend or loved one as a gift, you don’t have to be psychic to know something about your current business situation. You may be in need of this book for any number of reasons:
You saw Lehman Brothers’ staff queuing outside their offices with cardboard boxes and don’t want that to happen to your business.
A relative, hopefully a distant and elderly one, has died and left you a pile of dosh and you don’t fancy leaving it to your stockbroker to lose on your behalf.
Your employer is in the middle of a major downsizing operation as well as proposing to close its final salary pension scheme and relocate to somewhere with lousy schools and no healthcare facilities.
You have a great idea for a world-beating product that no one has ever thought of but every one of the world’s billion Internet users desperately needs – when they hear the good news they’re going to click a path to your website.
Your brother, sister, father, mother or best friend – or worse still, all of them – has started his or her own business and retired to a chateau in France to breed horses, tend the vines and sail on a luxury yacht.
If your present situation is founded largely on luck and serendipity, that isn’t enough to get you through the business start-up process unaided. Good ideas, hard work, relevant skills and knowledge about your product and its market, though essential, on their own aren’t enough. The 400,000 small firms that close their doors every year in the United Kingdom, a figure that rose sharply in the recent recession, are evidence enough that the process is a tough one.
This book is aimed at you if you either want to start up a business or to review your prospects in the small business world. It brings together, from a wide variety of sources, the essential elements of knowledge that are a prerequisite to understanding the world of small business and to achieving financial and personal success whatever the economic weather.
Why You Need This Book
Most business failures occur within the first 18 months of operation. That fact alone has made it increasingly clear that small businesses need special help, particularly in their formative period. The most crucial needs for owners and managers include:
Help in acquiring business skills in such areas as basic bookkeeping and accounting. Most failing businesses simply don’t know their financial position. Even if the order book is full, the cash can still run out.
Knowledge of what sorts of finance are available and how to put themselves in the best possible position to raise money. Surprisingly, funds aren’t in short supply. Problems lie, rather, in the business proposition itself or, more often, in the way in which the owner makes the proposition to the financier.
Information with which to make realistic market assessments of the size and possibilities of their chosen market. Over-optimism about the size and ease with which a market can be reached is an all too common mistake.
Skills and tools to grow their businesses into valuable assets to pass on to family members or to sell up and sail off into the sunset.
This book gives you help in all these areas.
In addition, every business needs a business plan, a statement of business purpose, with the consequences of each element of that purpose spelt out in financial terms. You must describe what you want your business to do – who its potential customers are, how much they’re likely to spend, who can supply you and how much their supplies cost. Then you must translate those plans and projections into cash – how much your business needs, how much you already have and how much you expect ‘outsiders’ to put in. This plan also helps you to avoid catching the ‘common cold’ of small businesses – underestimating the amount of start-up capital you need. Going back to a bank and asking for 30 per cent more funding six months after opening your doors, and retaining any credibility at all, is difficult if not impossible. And yet new businesses consistently underestimate how much money they need to finance their growth.
Many people have never prepared a business plan, they don’t know how to start and they need new knowledge. That’s where this book comes in. In these chapters, I give you the information you need to formulate and follow a business plan.
The book is also invaluable to innovators, who have special problems of communication and security when they try to translate their ideas into businesses. All too often their inventions are left for other countries to exploit, or they feel unhappy about discussing ideas, believing that a patent is their only protection. But more often than not, these business owners simply don’t know who to talk to, little realising that sophisticated help is often close at hand. Thus this book illuminates a path from the laboratory to the marketplace so that small firms and inventors can see a clear route.
How to Use This Book
Starting a Business For Dummies can help you succeed no matter what kind of business expertise you’re looking for. If you have a great and proven business idea, you may want to plug straight into finding out how to raise finance. If you need more than just yourself to get your great business idea off the ground, then you may want to discover how to find great employees or perhaps a business partner to take some of the financial and emotional strain. This book is set up so that you can dip in and out of it in a number of ways depending on your situation.
If you haven’t started a business before, or been profit accountable for part of an enterprise, then you may want to start at the beginning and work your way through.
If you’re more experienced, then you may start by selecting the areas you are less knowledgeable about to fill in the gaps and work outwards from there.
If you’re quite confident in the business world, you can use the book as a guide and mentor to review a particular topic. You can even use it to plan to sell your business after it’s established and move on to a different challenge.
If you learn by example, you may want to flip through the book, using the True Story icon as your guide. The text next to this icon highlights ‘straight from the horse’s mouth’ examples of how successful entrepreneurs have tackled specific situations, be it finding a partner, raising finance or getting a free grant from the government.
The next section tells you what the various parts of the book cover so that you can turn to a certain part for a specific need.
How This Book Is Organised
Starting a Business For Dummies is divided into five main parts based on the major elements involved in planning, launching and running a business. You don’t have to read all the parts, however, and you certainly don’t have to read them in order. Each chapter is devoted to a particular business start-up topic and you may need some chapters more than others. Feel free to jump from section to section and chapter to chapter; pick and choose what really matters to you and your business proposition.
Part I: Getting Started
Before you get a business off the ground you have to do all the preliminary legwork and make sure that you have a viable business on your hands before you commit too much time and money. This part gets you on track right away by helping you to gather crucial information on your marketplace, potential customers and competitors, and so test whether your idea is viable. It also provides a chance for you to check out your skills and attributes to help you establish the right business for you to start.
Part II: Making and Funding Your Plan
To ensure that your business prospers you have to know something about the legal structures under which you can trade and which suits you best at the outset. You need a business plan to help you both test the viability of your proposition and to share your ideas and aspirations with others, including potential investors, bankers or partners. You also want to review the financing options to make sure that you get both the right amount and type of finance for your business needs. You don’t have to do all this on your own, because the chapters in this part list key organisations that offer advice and help to business starters.
Part III: Staying in Business
After you get going you’ll almost certainly need to employ staff either full time, part time or on a temporary basis. This involves legal responsibilities that you should be prepared for. A business needs controlling in much the same way as a car or plane does. You need to understand what the key control documents are, and what they tell you about how your business is performing. You also need to have a sound appreciation of your income, expenses and tax liabilities, and how to minimise those liabilities legitimately.
Part IV: Making the Business Grow
After you have your business up and running you want to see how fast you can make it go without blowing a gasket or running off the road. Part of this process is a bit like fine-tuning a car engine. But part involves substantially changing everything, including the products and services, the markets you serve and perhaps even the very nature of your business operations. The process may even involve adopting a strategy to franchise your business idea, bolt a franchise onto your venture or form some other form of strategic alliance. This part covers the ins and outs of expanding your business safely and smartly.
Part V: The Part of Tens
The Part of Tens presents four chapters. One is a collection of warnings about the problems that most new businesses are likely to encounter and how to counteract them. Another contains details of the people you absolutely have to talk to before, during and after you’ve started up. The third chapter gives vital details on how to cut costs and so keep your business competitive. The final chapter provides pointers on maximising the value of your business, finding a buyer and then moving on to pastures new.
Icons Used in This Book
To help you pinpoint vital information, I’ve placed icons throughout the text to steer you to nuggets of knowledge.
This icon calls your attention to particularly important points and offers useful advice on practical topics.
This icon serves as a friendly reminder that the topic at hand is important enough for you to make a note of.
Business, like any specialist subject, is awash with specialised terms and expressions, some of which may not be familiar to you. This icon draws your attention to these.
This icon alerts you that I’m using a practical example showing how another business starter has tackled a particular topic. Often you can apply the example to your own business.
This icon alerts you to a potential danger. Proceed with caution; look left and right before crossing. In fact, think carefully about crossing at all when you see this icon.
This icon refers to specialised business facts and data that are interesting as background data but not essential for you to know. You can skip paragraphs marked by this icon without missing the point – but reading them may help you build credibility with outside investors and partners.
Where to Go From Here
Take a minute to thumb through the table of contents and get comfortable with the topics the book covers. Pick a chapter that strikes a particular chord with the aspect of starting a business that’s uppermost in your mind. Read that and see where it leads you.
You can also use Chapter 6, ‘Preparing the Business Plan’, as a framework for gathering knowledge and diving back into the other chapters as you go.
If all else fails, start at the beginning. That technique has a pretty good track record.
Part I
Getting Started
In this part . . .
Before you can think seriously about starting your own business, you need to make sure you are ready for such a big step. This part lets you check out your skills and aptitude and see how they compare to the business idea you have in mind. You can see if your idea looks able to make the kind of money you’re expecting. Then check if you should start up on your own or perhaps find others to help you.
Once you’ve done the groundwork you can start investigating the market in more detail and lay the groundwork for opening your doors for business either at home or in dedicated premises. With this work done you are ready to take your business forward!
Chapter 1
Preparing for Business
In This Chapter
Getting to grips with the basics of business strategy
Working up to opening up
Measuring your business’s viability
Growing for success
When you’re starting a business, particularly your first business, you need to carry out the same level of preparation as you would for crossing the Gobi Desert or exploring the jungles of South America. You’re entering hostile territory.
Your business idea may be good, it may even be great, but such ideas are two a penny. The patent office is stuffed full of great inventions that have never returned tuppence to the inventors who spent so much time and money filing them. It’s how you plan, how you prepare and how you implement your plan that makes the difference between success and failure. And failure is pretty much a norm for business start-ups. Tens of thousands of small firms fail, some disastrously, every year. Most are perfectly ordinary enterprises – catastrophe isn’t confined to brash Internet whiz kids entering markets a decade or so ahead of the game.
This chapter sets the scene to make sure that you’re well prepared for the journey ahead.
Understanding the Enduring Rules of Business Strategy
When you’re engulfed by enthusiasm for an idea for a new business or engaged in the challenge of getting it off the ground you can easily miss out on the knowledge you can gain by lifting your eyes up and taking the big picture on board too. There isn’t much point in taking aim at the wrong target from the outset!
Credit for devising the most succinct and usable way to get a handle on the big picture has to be given to Michael E. Porter, who trained as an economist at Princeton, taking his MBA at Harvard Business School where he’s now a professor. Porter’s research led him to conclude that two factors above all influence a business’s chances of making superior profits – surely an absolute must if you’re going to all the pain of working for yourself.
The attractiveness or otherwise of the industry in which it primarily operates. That’s down to your research, a subject I cover in Chapters 2 and 4.
How the business positions itself within the industry in terms of an organisation’s sphere of influence. In that respect a business can only have a cost advantage if it can make products or deliver services for less than others. Or the business may be different in a way that matters to consumers, so that its offers are unique, or at least relatively so.
Porter added a further twist to his prescription. Businesses can follow either a cost advantage path or a differentiation path industry wide, or they can take a third path – they can concentrate on a narrow specific segment either with cost advantage or differentiation. This he termed focus strategy, which I discuss in the following sections.
Focus, focus, focus
Whoa up a minute. Before you can get a handle on focus you need to understand exactly what the good professor means by cost leadership and differentiation, because the combination of those provides the most fruitful arena for a new business to compete.
Cost leadership
Don’t confuse low cost with low price. A business with low costs may or may not pass those savings on to customers. Alternatively, the business could use low costs alongside tight cost controls and low margins to create an effective barrier to others considering either entering or extending their penetration of that market.
Businesses are most likely to achieve low cost strategies in large markets, requiring large-scale capital investment, where production or service volumes are high and businesses can achieve economies of scale from long runs. If you have deep pockets, or can put together a proposition that convinces the money men to stump up the cash, this could be an avenue to pursue. (I cover everything you need to put together a great business plan in Chapter 6.)
Ryanair and easyJet are examples of fairly recent business start-ups where analysing every component of the business made it possible to strip out major elements of cost – meals, free baggage and allocated seating, for example – while leaving the essential proposition – we will fly you from A to B – intact. Enough of a strategy to give bigger, more established rivals such as British Airways a few sleepless nights.
Differentiation
The key to differentiation (making sure your product or service has a unique element that makes it stand out from the rest) is a deep understanding of what customers really want and need and more importantly what they’re prepared to pay more for. Apple’s opening strategy was based around a ‘fun’ operating system based on icons, rather than the dull MS-DOS. This belief was based on Apple’s understanding that computer users were mostly young and wanted an intuitive command system and the ‘graphical user interface’ delivered just that. Apple has continued its differentiation strategy, but added design and fashion to ease of control to the ways in which it delivers extra value. Sony and BMW and are also examples of differentiators. Both have distinctive and desirable differences in their products and neither they nor Apple offer the lowest price in their respective industries; customers are willing to pay extra for the idiosyncratic and prized differences embedded in their products.
Consumers can be a pretty fickle bunch. Just dangle something faster, brighter or just plain newer and you can usually grab their attention. Your difference doesn’t have to be profound or even high-tech to capture a slice of the market. Book buyers rushed in droves to Waterstone’s for no more profound a reason than that its doors remained open in the evenings and on Sundays, when most other established bookshops were firmly closed.
Focus
Your patience is about to be rewarded. Now I can get to the strategy that Porter reckoned was the most fruitful for new business starters to plunge into.
Focused strategy involves concentrating on serving a particular market or a defined geographic region. IKEA, for example, targets young, white collar workers as its prime customer segment, selling through 235 stores in more than 30 countries. Ingvar Kamprad, an entrepreneur from the Småland province in southern Sweden, who founded the business in the late 1940s, offers home furnishing products of good function and design at prices young people can afford. He achieves this by using simple cost-cutting solutions that don’t affect the quality of products. (You can read more about Kamprad in the nearby sidebar ‘Less is more’.)
Warren Buffett, the world’s richest man, knows a thing or two about focus. His investment company combined with Mars to buy US chewing gum manufacturer Wrigley for $23 billion (£11.6 billion) in May 2008. Chicago-based Wrigley, which launched its Spearmint and Juicy Fruit gums in the 1890s, has specialised in chewing gum ever since and consistently outperformed its more diversified competitors. Wrigley is the only major consumer products company to grow comfortably faster than the population in its markets and above the rate of inflation. Over the past decade or so, for example, other consumer products companies have diversified. Gillette moved into batteries used to drive many of its products by acquiring Duracell. Nestlé bought Ralston Purina, Dreyer’s, Ice Cream Partners and Chef America. Both have trailed Wrigley’s performance.
Businesses often lose their focus over time and periodically have to rediscover their core strategic purpose. Procter & Gamble is an example of a business that had to refocus to cure weak growth. In 2000 the company was losing share in seven of its top nine categories, and had lowered earnings expectations four times in two quarters. This prompted the company to restructure and refocus on its core business: big brands, big customers and big countries. Procter & Gamble sold off non-core businesses, establishing five global business units with a closely focused product portfolio.
Appreciating the forces at work in your sector
Aside from articulating the generic approach to business strategy, Porter’s other major contribution to the field was what has become known as the Five Forces Theory of Industry Structure. Porter postulated that you have to understand the five forces that drive competition in an industry as part of process of choosing which of the three generic strategies (cost leadership, differentiation or focus) to pursue. The forces he identified are:
Threat of substitution: Can customers buy something else instead of your product? For example, Apple and to a lesser extent Sony have laptop computers that are distinctive enough to make substitution difficult. Dell, on the other hand, faces intense competition from dozens of other suppliers with near identical products competing mostly on price alone.
Threat of new entrants: If it’s easy to enter your market, start-up costs are low and no barriers to entry, such as intellectual property protection, exist then the threat is high.
Supplier power: Usually, the fewer the suppliers, the more powerful they are. Oil is a classic example where less than a dozen countries supply the whole market and consequently can set prices.
Buyer power: In the food market, for example, just a few, powerful supermarket buyers are supplied by thousands of much smaller businesses, so the buyers are often able to dictate terms.
Industry competition: The number and capability of competitors is one determinant of a business’s power. Few competitors with relatively less attractive products or services lower the intensity of rivalry in a sector. Often these sectors slip into oligopolistic behaviour, preferring to collude rather than compete You can see a video clip of Professor Porter discussing the five force model on the Harvard Business School website (http://hbr.org/2008/01/the-five-competitive-forces-that-shape-strategy/ar/1).
Recognising the first-to-market fallacy
People use the words ‘first mover advantage’ like a mantra to justify a headlong rush into starting a business without doing enough basic research. That won’t happen to you – after all, you’re reading this book and by the end of this section you’ll be glad you paused for thought.
The idea that you have the best chance of being successful if you get in first is one of the most enduring in business theory and practice. Entrepreneurs and established giants are always in a race to be first. Research from the 1980s claimed to show that market pioneers have enduring advantages in distribution, product-line breadth, product quality and, especially, market share.
Less is more
Furniture company IKEA was founded by Ingvar Kamprad when he was just 17, having cut his teeth on selling matches to his nearby neighbours at the age of 5, followed by spells selling flower seeds, greeting cards, Christmas decorations and eventually furniture. Worth £16 billion, Kamprad is the world’s seventh richest man, but lives frugally, in keeping with the functional nature of the IKEA brand. He lives in a bungalow, flies easyJet and drives an 18-year-old Volvo. When he arrived at a gala dinner recently to collect a business award, the security guard turned him away because he saw Kamprad getting off a bus. He and his wife Margaretha are often seen dining in cheap restaurants. He does his food shopping in the afternoon when prices are lower and even then haggles prices down.
Beguiling though the theory of first mover advantage is, it’s probably wrong. Gerard Tellis, of the University of Southern California, and Peter Golder, of New York University’s Stern Business School, argue in their research that previous studies on the subject were deeply flawed. In the first instance earlier studies were based on surveys of surviving companies and brands, excluding all the pioneers that failed. This helps some companies to look as though they were first to market even when they weren’t. Procter & Gamble boasts that it created America’s disposable-nappy (diaper) business. In fact a company called Chux launched its product a quarter of a century before Procter & Gamble entered the market in 1961.
Also, the questions used to gather much of the data in earlier research were at best ambiguous and perhaps dangerously so. For example, researchers had used the term ‘one of the pioneers in first developing such products or services’ as a proxy for ‘first to market’. The authors emphasise their point by listing popular misconceptions of who the real pioneers were across the 66 markets they analysed:
Online book sales: Amazon (wrong); Books.com (right).
Copiers: Xerox (wrong); IBM (right).
PCs: IBM/Apple (both wrong); Micro Instrumentation Telemetry Systems (right) – it introduced its PC, the Altair, a $400 kit, in 1974 followed by Tandy Corporation (Radio Shack) in 1977.
In fact the most compelling evidence from all the research is that nearly half of all firms pursuing a first to market strategy are fated to fail, but those following fairly close behind are three times as likely to succeed. Tellis and Golder claim the best strategy is to enter the market a few years after pioneers, learn from their mistakes, benefit from their product and market development and be more certain about customer preferences.
Getting in Shape to Start Up
You need to be in great shape to start a business. You don’t have to diet or exercise, at least not in the conventional sense of those words, but you do have to be sure that you have the skills and knowledge you need for the business you have in mind, or know how to tap into sources of such expertise.
The following sections help you through a pre-opening check-up so that you can be absolutely certain that your abilities and interests are closely aligned to those that the business you have in mind requires. The sections also help you to check that a profitable market exists for your products or services. You can use these sections as a vehicle for sifting through your business ideas to see whether they’re worth the devotion of time and energy that you need to start up a business.
You may well not have all the expertise you need to do everything yourself. Chapter 7 introduces you to the zillions of agencies and advisers who can fill in the gaps in your expertise.
Assessing your abilities
Business lore claims that for every ten people who want to start their own business, only one finally does. It follows that an awful lot of dreamers exist who, while liking the idea of starting their own business, never get around to taking action. Chapter 3 looks in detail at how you can assess whether you’re a dreamer or a doer when it comes to entrepreneurship. For now, see whether you fit into one of the following entrepreneurial categories:
Nature: If one of your parents or siblings runs their own business, successfully or otherwise, you’re highly likely to start up your own business. No big surprise here, as the rules and experiences of business are being discussed every day and some of it’s bound to rub off. It also helps if you’re a risk taker who’s comfortable with uncertainty.
Nurture: For every entrepreneur whose parents or siblings have a business there are two who don’t. If you can find a business idea that excites you and has the prospect of providing personal satisfaction and wealth, then you can assemble all the skills and resources needed to succeed in your own business. You need to acquire good planning and organisational skills (Chapter 6 covers all aspects of writing a business plan) and either develop a well-rounded knowledge of basic finance, people management, operational systems, business law, marketing and selling, or get help and advice from people who have that knowledge.
Risk taker: If you crave certainty in everything you do, then running your own business may be something of a culture shock. By the time the demand for a product or service is an absolutely sure-fire thing, there may already be too many other businesses in the market to leave much room for you. Don’t confuse risk taking with a pure gamble. You need to be able to weigh matters up and make your risk a calculated one.
Jack-of-all-trades: You need to be prepared to do any business task at any time. The buck definitely stops with you when you run your own business. You can’t tell a customer that his delivery is late just because a driver fails to show up. You just have to put in a few more hours and do the job yourself.
Discovering a real need
You may be a great potential entrepreneur, but you still need to spell out exactly what it is you plan to do, who needs it and how it can make money. A good starting point is to look around and see whether anyone is dissatisfied with their present suppliers. Unhappy customers are fertile ground for new businesses to work in.
One dissatisfied customer isn’t enough to start a business for. Make sure that unhappiness is reasonably widespread, because that gives you a feel for how many customers may be prepared to defect. After you have an idea of the size of the potential market, you can quickly see whether your business idea is a money-making proposition.
Aside from asking around, one way to get a handle on dissatisfaction levels is to check out websites that allow consumers to register their feelings, such as www.complaints.com, www.grumbletext.co.uk and www.blagger.com. Then scour blogs (short for weblogs), where irate people can complain their hearts out. Check out websites such as www.technorati.com,www.totalblogdirectory.com and www.bloghub.com, which all operate blog-indexing services that can help you filter through the 70 million plus blogs and reach the few dozen that serve the sector you’re interested in.
The easiest way to fill a need that people are going to pay to have satisfied is to tap into one or more of these triggers:
Cost reduction and economy: Anything that saves customers money is always an attractive proposition. Lastminute.com’s appeal is that it acts as a ‘warehouse’ for unsold hotel rooms and airline tickets that you can have at a heavy discount.
Fear and security: Products that protect customers from any danger, however obscure, are enduringly appealing. When Long-Term Capital Management (LTCM), one of America’s largest hedge funds, collapsed and had to be rescued by the Federal Reserve at a cost of $2 billion, it nearly brought down the American financial system single-handedly. Two months later Ian and Susan Jenkins launched the first issue of their magazine, EuroHedge. At the time 35 hedge funds existed in Europe, but investors knew little about them and were rightly fearful for their investments. EuroHedge provided information and protection to a nervous market and five years after its launch the Jenkinses sold the magazine for £16.5 million.
Greed: Anything that offers the prospect of making exceptional returns is always a winner. Competitors’ Companion, a magazine aimed at helping anyone become a regular competition winner, was an immediate success. The proposition was simple: subscribe and you get your money back if you don’t win a competition prize worth at least your subscription. The magazine provided details of every competition being run that week, details of how to enter, the factual answers to all the questions and pointers on how to answer any tie breakers. It also provided the inspiration to ensure success with this sentence: you have to enter competitions in order to have a chance of winning them.
Niche markets: Big markets are usually the habitat of big business – encroach on their territory at your peril. New businesses thrive in markets that are too small even to be an appetite whetter to established firms. These market niches are often easy prey to new entrants because businesses have usually neglected, ignored or served them badly in the past.
Checking the fit of the business
Having a great business idea and possessing the attributes and skills you require to start your own business successfully are two vital elements to get right before you launch. The final ingredient is to be sure that the business you plan to start is right for you.
Before you go too far, make an inventory of the key things that you’re looking for in a business. These may include working hours that suit your lifestyle; the opportunity to meet new people; minimal paperwork; a chance to travel. Then match those up with the proposition you’re considering. (Chapter 3 talks more about finding a good business fit.)
Confirming Viability
An idea, however exciting, unique, revolutionary and necessary, isn’t a business. It’s a great starting point, and an essential one, but you have to do a good deal more work before you can sidle up to your boss and tell him exactly what you think of him.
The following sections explore the steps you need to take so that you don’t have to go back to your boss in six months and plead for your old job back (and possibly eat a large piece of humble pie at the same time).
Researching the market
However passionate you are about your business idea, you’re unlikely already to have the answers to all the important questions concerning your marketplace. Before you can develop a successful business strategy, you have to understand as much as possible about your market and the competitors you’re likely to face.
Inflated numbers on the Internet
If you plan to advertise on an Internet site it makes sense to check out the different sites you’re considering. Be aware that some sites publish a fair amount of gobbledygook about the high number of ‘hits’ (often millions) they receive. Millions of hits don’t mean that the site has millions of visitors. Some Internet sites increase their hit rate by the simple expedient of leading each viewer through a number of pages, each of which adds to the number of hits. Another mildly meaningless measure of the advertising value of a site is the notion of a subscriber. In Internet parlance anyone visiting a website and giving over their email address becomes part of that company’s share price! Compare that to the suggestion that anyone passing a shop and glancing in the window turns into hard cash the following day.
Any real analysis of website use starts with page impression, which is a measure of how many times an individual page has been viewed. The Audit Bureau of Circulations, which started its life measuring newspaper response, has now turned its attention to auditing websites (www.abc.org.uk). Also check out the World Internet Usage website (www.internetworldstats.com/stats.htm) for the latest statistics on Internet penetration by continent and country. That gives you a realistic measure of the maximum traffic and relative importance of each market you’re interested in.
The main way to get to understand new business areas, or areas that are new to you at any rate, is to conduct market research. The purpose of that research is to ensure that you have sufficient information on customers, competitors and markets so that your market entry strategy or expansion plan is at least on target, if not on the bull’s-eye itself. In other words, you need to explore whether enough people are attracted to buy what you want to sell at a price that gives you a viable business. If you miss the target altogether, which you may well do without research, you may not have the necessary resources for a second shot.
The areas to research include:
Your customers: Who may buy more of your existing goods and services and who may buy your new goods and services? How many such customers exist? What particular customer needs do you meet?
Your competitors: Who are you competing with in your product/market areas? What are those firms’ strengths and weaknesses?
Your product or service: How can you tailor your product or service to meet customer needs and give you an edge in the market?
The price: What do customers see as giving value for money, so encouraging both loyalty and referral?
The advertising and promotional material: What newspapers, journals and so forth do your potential customers read and what websites do they visit? Unglamorous as it is, analysing data on what messages actually influence people to buy, rather than just to click, holds the key to identifying where and how to promote your products and service.
Channels of distribution: How can you get to your customers and who do you need to distribute your products or services? You may need to use retailers, wholesalers, mail order or the Internet. These methods all have different costs and if you use one or more, each wants a slice of your margin.
Your location: Where do you need to be to reach your customers most easily at minimum cost? Sometimes you don’t actually need to be anywhere near your market, particularly if you anticipate most of your sales coming from the Internet. If this is the case you need to have a strategy to make sure that potential customers can find your website.
Try to spend your advertising money wisely. Nationwide advertisements or blanketing the market with free CD-ROMs may create huge short-term growth, but little evidence exists that indiscriminate blunderbuss advertising works well in retaining customers. Certainly, few people using such techniques make any money.
Doing the numbers
Your big idea looks as though it has a market. You’ve evaluated your skills and inclinations and you believe that you can run this business. The next crucial question is – can it make you money?
You absolutely must establish the financial viability of your idea before you invest money in it or approach outsiders for backing. You need to carry out a thorough appraisal of the business’s financial requirements. If the numbers come out as unworkable, you can then rethink your business proposition without losing anything. If the figures look good, then you can go ahead and prepare cash flow projections, a profit and loss account and a balance sheet, and put together the all-important business plan. (Chapters 6 and 13 cover these procedures.)
You need to establish for your business:
Day-to-day operating costs
How long it will take to reach break-even
How much start-up capital you need
The likely sales volume
The profit level you require for the business not just to survive, but also to thrive
The selling price of your product or service
Many businesses have difficulty raising start-up capital. To compound this, one of the main reasons small businesses fail in the early stages is that they use too much start-up capital to buy fixed assets. Although some equipment is clearly essential at the start, you can postpone other purchases. You may be better off borrowing or hiring ‘desirable’ and labour-saving devices for a specific period. This obviously isn’t as nice as having them to hand all the time, but remember that you have to maintain and perhaps update every photocopier, printer, computer and delivery van you buy and they become part of your fixed costs. The higher your fixed costs, the longer it usually takes to reach break-even point and profitability. And time isn’t usually on the side of the small, new business: it has to become profitable relatively quickly or it simply runs out of money and dies.
Raising the money
Two fundamentally different types of money that a business can tap into are debt and equity.
Debt is money borrowed, usually from a bank, and that you have to repay. While you’re making use of borrowed money you also have to pay interest on the loan.
Equity is the money that shareholders, including the proprietor, put in and money left in the business by way of retained profit. You don’t have to give the shareholders their money back, but shareholders do expect the directors to increase the value of their shares, and if you go public they’ll probably expect a stream of dividends too.
If you don’t meet the shareholders’ expectations, they won’t be there when you need more money – or, if they’re powerful enough, they’ll take steps to change the membership of the board.
Alternative financing methods include raising money from family and friends, applying for grants and awards, and entering business competitions. Check out Chapter 8 for a review of all these sources of financing.
The Financial Services Authority, a City watchdog, ordered all banks to publish statistics on complaints on their website from 31 August 2010. Lloyds had received 288,717 complaints in the first six months of the year, Santander 244,978, Barclays 195,956 and HSBC had just 65,236. If your bank is high on this name and shame list get straight on to Chapter 8 where I cover all aspects of raising money.
Writing up the business plan
A business plan
