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The how to guide for start-up challenges

Friday, 20 August 2010 | By James Thomson
You have to be brave, passionate and smart to start a business. Given how challenging the process can be, it pays to be a little crazy as well. Finding investors, managing cashflow, building credibility and establishing a great team are just some of the problems start-up entrepreneurs face.
A new wave of budding start-up owners is currently confronting - or preparing to confront - these issues. Research shows the number of self-employed owners of home-based businesses has risen sharply during the downturn. On top of this, the economic recovery will tempt many people to leave their jobs and strike out for themselves.
As part of our search for Australia's Start-Up Hero (part of SmartCompany's inaugural Business Start-Up Awards) we have decided to take a look at some of the biggest challenges faced by start-up entrepreneurs.

The following list comes from the brilliant entrepreneurs on our Smart50 list.

Selling the vision

  • One of the most common problems faced by entrepreneurs is raising capital. It gets even harder when your business idea has never really been tried before. So it was for Sumo Salad founders Luke Baylis and James Miller, who were in their late 20s when they started one of Australia's first healthy fast-food chains
  • .
"In the early days no one apart from our family and friends believed in our concept for Sumo Salad, and being quite young it was hard for people to take us seriously. A lot of hard work from our end and financial help from private investors finally enabled us to overcome this challenge," Baylis says.

But the real key was building something tangible that allowed them to show potential investors and franchisees their vision.
"Once the first store had proved itself a huge success, it also became easier for more people to buy into our idea."

The consultant's curse


Paul Quinn of Quinntessential Marketing learned about the consultant's curse soon after setting up his business in 2001.

"Unlike a permanent job, if you're consulting and decide to go away on holiday for three weeks it's time you're not getting paid for. It can also be hard sometimes to know where your next dollar is coming from, as four-to-five weeks of delivering a marketing project for a client can often mean that your own business development activities get neglected."

Three years into the company's life he hit upon a solution by changing his business model to focus on a subscription-based software product, where clients are invoiced up front for an annual renewable licence fee.

"It changed the face of our business. The regular subscription revenue gave us a strong base on which to employ staff and re-invest in product development to help ensure we compete and win during side-by-side comparisons between us and cheaper US-based software."


The employer who wouldn't let go


Less than three years have passed since Vanessa Garrard, Richard Chen and Jillbert Mulder made the brave decision to leave their jobs and start consumer electronics accessories business E3! Style. They faced all the typical challenges, particularly around money - the trio worked for the best part of a year without salaries in order to build cash reserves, and were even forced to turn orders away due to cashflow constraints.

But the biggest challenge came from their previous employer, who wasn't happy with the new competition and tried to stop them from doing business in Australia.

"Unsubstantiated claims were made but the case ceased when we proved our position through their lawyers. But this caused unnecessary stress and emotional strain as well as financial burden," Garrard says.

The lesson? "Stay focused. Continue to drive the business; don't let the noise of other distractions take your eye of the ball."


Living up to the promise of the brand


The idea behind Aussie Farmers Direct is brilliantly simple - fresh food, grown by 100% Australian-owned farmers, delivered to your door. Only one problem: the number of 100% Aussie-owned farmed is falling fast.

"The brand's integrity of 100% Australian was a challenge during the initial start-up, and continues to be a challenge today," co-founder Shane Hodskiss says. "This is due to producer's ownership, production and profits being taken offshore by foreign owned entities. Today, over 95% of liquid milk that is manufactured and retailed in Australia is foreign owned."

The company has worked hard to win the trust of local producers that could support the rapid growth of the business, which grew revenue by over 200% last year. "As Aussie Farmers Direct cut out the middleman and focused our efforts on local producers, individuals rapidly signed up."


Building credibility


For Anthony Moorhouse, founder of risk management specialist Dynamiq, convincing clients to come across to a new business was not easy. "Because our competitors are largely multi-nationals, the biggest challenge was to convince our prospects that we could do the job, but still be ourselves and not try to impersonate our competitors. Creating an identity and playing to your strengths is not easy for any start-up."

After 18 months, the quest to win business wasn't going well. But an almost chance business with the managing director of a travel and expat insurance underwriter, Accident and Health International, David Epper, changed all that. "David started Accident & Health International, so knew what it was to start from nothing. He took a liking to us on the spot and 15 minutes later a deal was done for Dynamiq to support their 150,000 travel and 20,000 expat clients around the world."

Moorhouse admits there was some luck involved in getting this break "but then luck equals preparation plus opportunity. I had spent 18 months knocking on doors, but the opportunity didn't present itself until I met David."


How do you sell products you can't afford to buy?


Mark Harrison, founder of highly successful online digital photography site camerasdirect.com.au, faced a big challenge when he started up - he couldn't actually afford to buy in the products he wanted to sell.
"Importing product meant paying for it upfront. I started with literally $20 or so and a borrowed computer. The first 12 months was about being creative with making sales from small ticket items with larger margins and moving volume."
This slow-and-steady approach was crucial in building a strong company. "I learnt that a passion for what you do is more important than the money you have to invest, so long as you are prepared to give your baby time to grow," Harrison says.


Dealing with rejection


Katie May, founder of online parents directory KidzSpot, faced a hard slog in building her business with a small team of sales people in an outbound call centre.
"It was so difficult for us to convince a small business operator that online was essential to their marketing - just think of a fairy party or jumping castle operator taking our call as they're en route to a party. They were not convinced about online and trying to get them to a computer to show them was impossible. Needless to say, there was a lot of rejection in the first six months."

Keeping the team going was hard work, and May says she had to invest relentlessly in fun incentives and motivation to keep the call volumes and staff spirits up.
"It was hard. I suppose the biggest learning on this front was that you can motivate a team on more than sales results. Because results were few and far between in the early days, we learnt to motivate based on other metrics, such as total number of presentations in a day. It took us months to realise that salespeople need to feel like they're winning each day. That worked and kept them motivated until the sales did come more regularly."


Earning respect by paying your way


Plenty of unproven start-ups struggle to earn the respect of investors, customers and suppliers. But when you are only 22, winning these groups over is even tougher. Just ask Costa Anastasiadis, co-founder of Crust Gourmet Pizza Bars.

When he started business as a stand-alone store, he quickly found that suppliers were hesitant to deal with him because of his age and relative inexperience - not a great situation when you've got big growth plans.

"My strategy was to make sure I paid all my suppliers on time, week in week out, to build a professional reputation. Being a good payer gets you a long way."


Not killing the golden geese


Inovia IP, founded by Justin Simpson, have revolutionised the way patents are lodged in foreign jurisdictions, slashing the cost of the process through the clever use of technology. One of the company's main customer groups is patent attorneys - who naturally weren't exactly impressed at the idea of a new service that could slash their revenue.

"The business challenged the status quo and there were (and are) strong vested interests held by patent attorneys in maintaining client relationships and the 'old' way of doing business," Simpson says.

The key to solving this problem was in the positioning of the company.
"We learnt to position our brand and services as an opportunity to attorneys instead of a threat and in doing so have won more than 50% of our business through this market."