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- Herausgeber: John Wiley & Sons
- Kategorie: Fachliteratur
- Sprache: Englisch
Launch your new business with confidence and skill using the latest guidance from the UK's most trusted small business guru Starting a business is one of those courageous and audacious decisions that many of us dream about. If you're ready to take the leap and turn your great idea into action, or you already have, you'll need to arm yourself with the best strategies you can find. In Starting a Business For Dummies: UK Edition, business growth expert Colin Barrow, MBA, provides these strategies as he walks you through every critical step in launching your company. From writing your first business plan to surviving and thriving in your first year, and everything in between, you'll learn how to go from concept to revenue, handle the post-Brexit United Kingdom regulatory and tax environment and utilise public grants and incentives to help get you off the ground. You'll also: * Understand how the UK business landscape has been impacted by Brexit and COVID-19 and the practical steps you can take to adapt * Finance your new venture with grants from the UK government and enjoy brand-new tax incentives aimed at R&D and innovation * Find your inspiration with motivating case studies of real-world successes who conquered every challenge the market threw at them You've spent your life building the skills you'll need for this moment. Let Starting a Business For Dummies: UK Edition show you how to apply them for maximum effect as you grow your company from an idea into an unstoppable juggernaut.
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Starting a Business For Dummies®, 5th UK Edition
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Library of Congress Control Number: 2021947387
ISBN 978-1-119-83224-9 (hardback/paperback) ISBN 978-1-119-83225-6 (ebk)
ISBN 978-1-119-83226-3 (ebk)
Starting a Business For Dummies®
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Table of Contents
Cover
Title Page
Copyright
Introduction
About This Book
Foolish Assumptions
Icons Used in This Book
Beyond the Book
Where to Go from Here
Part 1: Getting Started with Your New Business
Chapter 1: Preparing for Business
Understanding the Enduring Rules of Business Strategy
Getting in Shape to Start Up
Confirming Viability
Going for Growth
Chapter 2: Doing the Groundwork
Understanding the Small Business Environment
Defining Small Business
Looking at the Types of People Who Start Businesses
Coming Up with a Winning Idea
Banning Bad Reasons to Start a Business
Recognising That the Economy Matters
Preparing to Recognise Success
Chapter 3: Can You Do the Business?
Deciding What You Want from a Business
Exploring Different Types of Business
Working from Home
Assessing Yourself
Chapter 4: Testing Feasibility
Finding Enough Product or People
Sizing Up the Market
Working Out Whether You Can Make Money
Part 2: Making and Funding Your Plan
Chapter 5: Structuring Your Business
Choosing the Right Structure
Going into Business by Yourself
Building up to Network Marketing
Working with a Limited Number of Other People
Finding Your Way to Franchising
Founding a Larger Company
Chapter 6: Preparing the Business Plan
Finding a Reason to Write a Business Plan
Writing Up Your Business Plan
Using Business Planning Software
Presenting Your Plan
Chapter 7: Getting Help
Connecting with Government Services
Choosing Small Business Associations
Universities and Colleges
Entering an Incubator
Assisting Inventors
Chapter 8: Finding the Money
Assessing How Much Money You Need
Reviewing Your Financing Options
Determining the Best Source of Finance for You
Going for Debt
Sharing Out the Spoils
Finding Free Money
Chapter 9: Considering Your Mission
Developing Your Concept
Composing Your Mission Statement
Seeing the Vision Thing
Establishing High Values
Setting Objectives and Goals
Chapter 10: Marketing and Selling Your Wares
Making Up the Marketing Mix
Defining Your Product or Service Parameters
Using Advertising to Tell Your Story
Getting into the News
Using Blogs and Social Networks
Selling and Salesmanship
Settling on a Price
Pondering Place and Distribution
Appreciating People, Process and Physical Evidence
Looking at Legal Issues in Marketing
Part 3: Staying in Business
Chapter 11: Employing People
Finding Great Employees
Exploring Other Ways of Recruiting
Motivating and Rewarding Employees
Staying on the Right Side of Employment Law
Chapter 12: Operating Effectively
Proposing Premises
Taking the Make-or-Buy Decision
Choosing a Supplier
Minimising Risk and Assessing Liability
Dissecting Directors
Finding and Choosing Business Advisers
Taking Cyber Security Seriously
Making a Virtue Out of Going Green
Chapter 13: Keeping Track of Finances
Keeping the Books
Understanding Your Accounts
Accounting for Pricing
Balancing the Books
Analysing Performance
Keeping on the Right Side of the Law
Appreciating the Value of an Accountant
Chapter 14: Managing Your Tax Position
Tackling Taxes for Different Types of Businesses
Paying Taxes
Handling Employment Taxes
Surviving a Tax Investigation
Part 4: Making the Business Grow
Chapter 15: Doing Business Online
Appreciating the Power of the Internet
Reviewing What You Can Do Online
Building an Impactful Website
Selling Goods and Services
Gaining Visibility
Tracking Traffic
Chapter 16: Improving Performance
Checking Your Internal Systems
Retaining Customers
Improving Productivity
Budgeting for Beginners
Chapter 17: Exploring Strategies for Growth
Understanding the Importance of Growth
Increasing Sales
Forming Alliances
Franchising Your Way to Growth
Chapter 18: Becoming a Great Manager
Becoming a Strategist
Building a Team
Developing a Leadership Style
Measuring Morale
Part 5: The Part of Tens
Chapter 19: Ten Pitfalls to Avoid
Knowing Too Little
Being Overly Optimistic about the Market
Underestimating Start-up Time
Spending Too Much at the Start
Mistaking Cash for Profit
Choosing the Wrong Partner
Ignoring Accounting
Forgetting Working Capital
Having No Clear Competitive Advantage
Choosing the Wrong Location
Chapter 20: Ten People to Talk to Before You Start
Speaking with Your Spouse or Life Partner
Making Use of Your Professional Network
Benefiting from Entrepreneurs Who Started a Similar Business
Spending Time with a Friendly Banker
Reaching Out to Customers
Communicating with Your Current Boss
Calling Your Colleagues
Bringing in Your Best Friend
Reporting to an Accountant
Plugging into a Business Angel Network
Chapter 21: Ten Reasons for Using Social Media
Augmenting Your Marketing Budget
Acquiring Cost-Effective Exposure
Increasing Website Traffic
Moving Up Search Engine Rankings
Improving Market Intelligence
Attracting Interest to Generate Sales Leads
Growing Real Sales
Keeping Pace with Market Leaders
Creating Loyalty and Enhancing Your Reputation
Generating Referrals
Index
About the Author
Connect with Dummies
End User License Agreement
List of Tables
Chapter 2
TABLE 2-1 Business Birth & Death Rates by Industry, UK 2019
Chapter 3
TABLE 3-1 Matching a Business Idea to Your Skills
TABLE 3-2 Weighing Up the Factors
TABLE 3-3 Scoring Alternatives
Chapter 4
TABLE 4-1 Sample Size and Accuracy
TABLE 4-2 What Customers Pay for Products Like Yours
Chapter 5
TABLE 5-1 Popular Business Structures (%)
TABLE 5-2 Pros and Cons of Various Organisational Structures
Chapter 8
TABLE 8-1 Comparing Benefits of Lenders and Investors
Chapter 10
TABLE 10-1 Listing Features and Benefits
TABLE 10-2 Measuring Advertising Effect
Chapter 16
TABLE 16-1 The Fixed Budget in £’000s
TABLE 16-2 The Flexed Budget in £’000s
List of Illustrations
Chapter 2
FIGURE 2-1: Internet sales as a per cent of total UK retail sales.
FIGURE 2-2: Typical path of an economic cycle.
Chapter 6
FIGURE 6-1: Assessing the content of your business plan.
Chapter 8
FIGURE 8-1: A start-up five-week cash-flow projection.
FIGURE 8-2: Testing to destruction.
Chapter 13
FIGURE 13-1: An example of an analysed cash book.
FIGURE 13-2: A basic profit and loss account.
FIGURE 13-3: An example gross profit calculation.
FIGURE 13-4: A manufacturer’s gross profit.
FIGURE 13-5: Expanded gross profit calculation.
FIGURE 13-6: Business expenses.
FIGURE 13-7: Levels of profit.
FIGURE 13-8: Breakeven chart.
FIGURE 13-9: Jane Smith Limited Balance Sheet at 5 April 202X.
FIGURE 13-10: Jane’s reserves.
FIGURE 13-11: Formula for calculating gross profit percentage.
FIGURE 13-12: Calculating operating profit.
FIGURE 13-13: Calculating net profit percentage.
FIGURE 13-14: Calculating return on capital employed.
FIGURE 13-15: Calculating gearing percentage.
Chapter 15
FIGURE 15-1: Richness versus reach in the book business.
FIGURE 15-2: Monitoring website traffic.
Chapter 16
FIGURE 16-1: Setting cost-cutting priorities.
Guide
Cover
Title Page
Copyright
Table of Contents
Begin Reading
Index
About the Author
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Introduction
If you 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:
A relative, hopefully a distant and elderly one, has died and left you, rather than the government or a dogs’ home, 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, not such an unusual event these days, as well as proposing to close its final salary pension scheme and relocate to somewhere with lousy schools and no healthcare facilities.
You’ve a great idea for a world-beating product, bigger than Apple and Amazon combined, that no one has ever thought of but every one of the world’s billion-plus 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.
You’ve heard that the World Bank’s Doing Business study has revealed that Britain is the best big country in Europe to start, grow and run a business. Fired up with enthusiasm, you’ve decided it’s now or never to get your business off the ground.
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 350,000 small firms that close their doors every year in the UK, a figure that rose sharply in the recent pandemic, are evidence enough that the process is a tough one.
This book is aimed at you if you 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.
About 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 the following:
Help in acquiring business skills in such areas as basic bookkeeping and accounting. Most failing businesses 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. Rather, problems lie 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 a common mistake.
Skills and tools to grow their businesses into valuable assets to pass on to family members or to sell and then 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 spelled 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. Yet, new businesses consistently underestimate how much money they need to finance their growth. Many people have never prepared a business plan, don’t know how to start and need information. That’s where this book comes in. It gives 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. However, 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 market place so that small firms and inventors can see a clear route.
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, 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, you may want to start at the beginning and work your way through.
If you’re more experienced, you may start by selecting the areas you’re less knowledgeable about to fill in the gaps, and then work outwards from there.
If you’re quite confident in the business world, you can use this 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 entrepreneurs have tackled specific situations successfully, be it finding a partner, raising finance or getting a free grant from the government.
Foolish Assumptions
This book gathers together the essential, need-to-know information about getting a business up and running. It assumes that you’ve not yet been in business but that you’re giving some serious thought to starting one. It also assumes that you can produce and deliver products or services that people will be willing to pay you for. These products and services can be anything – you’re limited only by your imagination. Finally, this book assumes that you don’t already know everything there is to know about starting your own business but that you’re eager to get cracking.
Icons Used in This Book
To help you pinpoint vital information, I’ve placed icons throughout the text that highlight nuggets of knowledge.
This icon calls your attention to particularly important points and offers useful advice on practical topics.
The Remember 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.
When you see this icon, I’m alerting you to the fact that I’m using a practical example showing how another business starter has tackled a particular topic. These examples are usually businesses facing today’s difficult environment, and often you can apply the example to your own business.
Proceed with caution; look left and right before crossing. In fact, think carefully about crossing at all when you see this icon, which alerts you to potential dangers.
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.
Beyond the Book
As you travel on your journey of discovery through starting up a business, you can augment what you read here by checking out some of the access-anywhere extra information that is hosted online. You can find the book’s cheat sheet by going to Dummies.com and typing “Starting a Business For Dummies UK edition Cheat Sheet” in the search box.
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, such as finding the money or doing business online. 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 dive into the other chapters as you go. If all else fails, start at the beginning. That technique has a pretty good track record.
Part 1
Getting Started with Your New Business
IN THIS PART …
Use your knowledge of business cycles to get your business off to the best possible start, and appreciate the effect that the state of the wider economy will have on your business.
Lay the groundwork for opening your doors for business either at home or in dedicated premises.
Check out your skills and aptitudes and see how they compare to the business idea you have in mind.
Investigate your idea and its market in detail.
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
Since the last edition of this book, a host of well-established companies with decades of experience behind them have been rocked to their foundations. Burton, Debenhams, Dorothy Perkins, Jaeger, Le Pain Quotidien, Oddbins, Pizza Express and Victoria’s Secret are just a few of the companies that have hit the buffers in the UK. Big-name catastrophes in the US include companies that have been around for over a century like Hertz, JCPenney and Brooks Brothers (which still hopes for life in some form after filing for bankruptcy).
According to figures from the Office for National Statistics (ONS), the number of failed UK businesses has averaged more than 330,000 annually over the past three years. This tough landscape is on top of conditions the past few decades that have seen unemployment pass 11 per cent, inflation hit 16 per cent, interest rates of 17 per cent and profits reduced by 35 per cent. ‘Normal’ in the business world is bumpy in the best of conditions.
However tough it is out there, plenty of great businesses always seem to get underway even in the roughest of conditions. Microsoft started in 1975 when unemployment and inflation were heading up and the economy heading down. In 2000 as the internet bubble burst, Justine Roberts set up Mumsnet, the successful website and internet community that now has over 15 million monthly users. In the same year, Baroness Martha Lane Fox and Brent Hoberman CBE launched Lastminute.com, one of a handful of survivors of the dot-com bubble. As the financial crisis of 2008–2010 set in, Holly Tucker and Sophie Cornish got serious funding for Not On The Highstreet. Also in 2008, Alex Chesterman and Simon Kain launched Zoopla, the property search website.
Your business start-up idea may be good and it may even be great, but ideas are often two a penny. The patent office is stuffed full of great ideas for inventions that have never returned tuppence to the inventors, regardless of how much time and money they spend inventing them. When starting a business, good ideas aren’t enough. It’s how you plan, how you prepare and how you implement your ideas that makes all the difference between success and failure. This chapter sets the scene to help you feel 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. You won’t gain much from 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 and took his MBA at Harvard Business School. 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. Alternatively, 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 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 with cost advantage or differentiation. This path he termed focus strategy, which I discuss in the following sections.
Focusing on focus – and a bit more besides
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 can use low costs alongside tight cost controls and low margins to create an effective barrier to others considering 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’ve deep pockets, or can put together a proposition that convinces the money men to stump up the cash, this avenue may be one to pursue. (I cover everything you need to put together a great business plan in Chapter 6.)
Ryanair is a classic example of company that analysed every component of its business, letting it cut costs by using less popular airports, ditching meals and free baggage while leaving the essential proposition – we fly you from point A to point B – intact. This plan proved enough of a strategy to give bigger, more established rivals such as British Airways a few sleepless nights.
Differentiation
The key to differentiation (ensuring that 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. Sony and BMW are also examples of differentiators. Both have distinctive and desirable differences in their products. 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. 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 Waterstones 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. The world’s largest furniture retailer, IKEA, for example, targets young, white-collar workers as its prime customer segment. 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. IKEA achieves this quality and price by using simple cost-cutting solutions that don’t affect the quality of products. (You can read more about Kamprad in the sidebar ‘Less is more’.)
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 situation 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. Company sales in the first quarter of 2021, a challenging year if ever there was one, were $19.3 billion, a 9 per cent increase over the prior year.
LESS IS MORE
Furniture company IKEA (www.ikea.com) was founded by Ingvar Kamprad when he was just 17. Kamprad cut his teeth selling matches to his neighbours at the age of 5, followed by spells selling flower seeds, greeting cards, Christmas decorations and eventually furniture. Before he died in 2018, Kamprad was worth £16 billion, and lived frugally in keeping with the functional nature of the IKEA brand. He lived in a bungalow, flew easyJet and drove an 18-year-old Volvo. Once when he arrived at a gala dinner to collect a business award, the security guard turned him away because he saw Kamprad getting off a bus. Kamprad and his wife Margaretha were often seen dining in inexpensive restaurants. He even did his own food shopping in the afternoon when prices were lower – and even then haggled prices down.
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 the 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 exist, such as intellectual property protection, 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 Review website (
https://hbr.org/2008/01/the-five-competitive-forces-that-shape-strategy
).
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’ve 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.
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 fact helps some companies to look as though they were first to market even when they weren’t. Procter & Gamble boasts that it created the USA’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); Bookshop.co.uk (right). Amazon opened on 16 July 1995. Bookshop.co.uk opened in 1992 and was bought out by WH Smith in 1998 for £9.4 million.
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.
Search engines:
Google (wrong); Archie (right). The credit for developing the first search engine goes to Alan Emtage, a student at McGill University in Montreal, who in 1990 created Archie, an index for archiving computer files. The following year, Mark McCahill, a student at the University of Minnesota, used hypertext to create Gopher, which was able to search for plain text references in files. Then the search engine race was on, starting with Excite (1993), followed by Yahoo!, WebCrawler, Infoseek and Lycos (1994), AltaVista (1995), Inktomi (1996) and Ask Jeeves, now Ask (1997). Google didn’t come on the scene until 1997, making it 11th in the race, but nevertheless the winner.
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’ve 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 closely align 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 a business, successfully or otherwise, you’re highly likely to start up your own business. No big surprise here, because the rules and experiences of business are being discussed every day in such families and some of this knowledge is 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, two 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 you need 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 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.
This questionnaire from the Canadian bank BDC includes 50 statements that assess your entrepreneurial potential. The questionnaire takes about ten minutes to complete, and results are compiled and ranked against the average scores of successful entrepreneurs. Scores lower than average point to areas where your entrepreneurial skills may need bolstering: www.bdc.ca/en/articles-tools/entrepreneur-toolkit/business-assessments/self-assessment-test-your-entrepreneurial-potential.
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 upon.
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 https://uk.trustpilot.com. Then scour blogs (short for weblogs), where irate people can complain their hearts out. Check out websites such as https://blogs.botw.org, www.blogarama.com and www.bloggernity.com, which all operate blog-indexing services that can help you filter through the 600 million plus blogs and 31 million active bloggers and reach those 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 the USA’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 US 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 – 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 things may include working hours that suit your lifestyle, the opportunity to meet new people, minimal paperwork or 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. An idea is 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 to have the answers to all the important questions concerning your marketplace already. 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.
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 (head to Chapter 4 for all the details). The purpose of this 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 the following:
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 may be, 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 services.
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. (Check out the ‘
Carwow: Adapting distribution to changing circumstances
’ sidebar to see how to change distribution channels when the situation calls for it.)
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 you’re in this position, you need to have a strategy to make sure that potential customers can find your website (see
Chapter 15
).
CARWOW: ADAPTING DISTRIBUTION TO CHANGING CIRCUMSTANCES
Buying or selling a car is a difficult process in the best of times, but add a pandemic into the mix and the difficulties grow exponentially. The UK-based car-buying comparison site Carwow (www.carwow.co.uk), founded by James Hind, simplifies this process for both dealers and car buyers. With operations in Germany and Spain, Carwow’s website lets you choose a vehicle, compare dealer offers, and purchase a car without ever leaving your home. When reviewing offers from dealers, you can see which dealerships let you purchase 100% remotely or which might offer disinfected delivery or ‘click-and-collect’ type handovers.
Prior to 2020, Carwow had charged dealers a fee per car sale; during 2020, it switched to a cost per enquiry model. Carwow invested further in its Web presence, and monthly unique visits to its UK website rose on average from 2.2 million to 2.4 million. From 2020 to 2021, the company more than doubled its number of YouTube subscribers from 1.5 million to 3.1 million.
The Covid-19 pandemic caused car dealers to adapt to reduced showroom walk-ins, pivoting quickly to online sales. Consumers adapted, too, quickly becoming comfortable making a purchase without ever physically seeing the car. Carwow claims that the sales leads it delivered to dealers accounted for one in 12 UK sales during 2020, putting its share of December 2020 private new car sales at 9.81 per cent, and 8.35 per cent for full year 2020.
Try to spend your advertising money wisely. Nationwide advertisements or blanketing the market with free offers 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. Chapter 10 contains lots of tips on advertising.
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, 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 the following for your business:
Day-to-day operating costs
How long it will take to reach breakeven
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 that 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. The higher your fixed costs, the longer it usually takes to reach breakeven point and profitability. 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.
INFLATED NUMBERS ON THE INTERNET
If you plan to advertise on an internet site, make sure that you 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 an 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.
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 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 may 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.
Writing up the business plan
A business plan is a selling document that conveys the excitement and promise of your business to potential backers and stakeholders. These potential backers can include bankers, venture capital firms, family, friends and others who may help you launch your business if they only know what you want to do. (Chapter 8 considers how to find and approach sources of finance.)
Getting money is expensive, time consuming and hard work. Having said that, you can get a quick decision. One recent start-up succeeded in raising £3 million in eight days, after the founder turned down an earlier offer of £1 million made just 40 minutes after he presented his business plan.
Your business plan should cover what you expect to achieve over the next three years. (Chapter 6 gives full details on how to write a winning business plan.) Most business plans are dull, badly written and frequently read only by the most junior of people in the financing organisations they’re presented to. One venture capital firm in the USA went on record to say that in one year it received 25,000 business plans asking for finance and invested in only 40. Follow these tips to make your business plan stand out from the crowd:
Hit them with the benefits.
You need to spell out exactly what you do, for whom and why that matters. One such statement that has the ring of practical authority is: ‘Our website makes ordering gardening products simple. It saves the average customer two hours a week browsing catalogues and £250 a year through discounts not otherwise available from garden centres. We have surveyed 200 home gardeners who rate efficient purchasing as a key priority.’
Make your projections believable.
Sales projections always look like a hockey stick – a straight line curving rapidly upwards towards the end. You have to explain exactly what drives growth, how you capture sales and what the link between activity and results is. The profit margins are key numbers in your projections, alongside sales forecasts. Financiers tend to probe these figures in depth, so show the build-up in detail.
Say how big the market is.
Financiers feel safer backing people in big markets. Capturing a fraction of a percentage of a massive market may be hard to achieve – but if you get it, at least the effort is worth it. Going for 10 per cent of a market measured in millions rather than billions may come to the same number, but the result isn’t as interesting.
Introduce yourself and your team.
You need to sound like winners with a track record of great accomplishments.
Include non-executive directors.
Sometimes a heavyweight outsider can lend extra credibility to a business proposition. If you know or have access to someone with a successful track record in your area of business who has time on his hands, you can invite him to help. If you plan to trade as a limited company (
Chapter 5
has details on legal structures), you can ask him to be a director, without specific executive responsibilities beyond being on hand to offer advice. But non-executive directors do need to have relevant experience or be able to open doors and do deals. Check out organisations like The Non-Executive Directors’ Association (
www.nedaglobal.com/organisations/recruitment-services
) or First Flight’s non-executive search site (
https://firstflightnonexec.com
) for information on tracking down the right non-executive director for your business.
Provide financial forecasts.
You need projected cash flows, profit and loss accounts and balance sheets for at least three years ahead. No one believes them after Year 1, but the thinking behind them is what’s important.
Demonstrate the product or service.
Financiers need to see what the customer is going to get. A mock-up is okay or, failing that, a picture or diagram. For a service, show how customers can gain from using it – that it can help with improved production scheduling and so reduce stock holding, for example.
Spell out the benefits to your potential investors.
