The five keys to ensuring you don't crash and burn
Here are the five keys to making your start-up a success:
1. Start with a compelling reason why
Having a clear reason why you’re going into business is important both to you and your customers.
Your reason why should start with a problem or a need that is currently unmet. It typically stems from having a strong understanding of the market and knowing how you can use your skills to solve a problem for your customers. This becomes your value proposition, which distinguishes you from your competitors and provides your customers with a compelling reason to buy your products.
What keeps your customers coming back is the passion and belief you have in what you deliver and the way that permeates your business. This includes your relationships with staff, suppliers and customers.
Your reason why should spark this passion, give you courage and help sustain you through the tough times. Your reason why must feed your belief in what you’re doing on a day-to-day basis and help you carry on every time a potential customer says ”no” or a deal doesn’t turn out the way you planned.
Remembering your reason why will help you to quickly recover from set-backs, and allow you to carry on.
2. Use discovery driven planning to validate your assumptions
While your reason why feeds your passion and belief to start the business, you need to validate your reasons and make sure they are in line with what the market is actually willing to buy.
I’ve seen many examples of businesses that were pushing a product or service that was simply too limited in its application or delivery. The result was that there were too few buyers, leading to insufficient revenue to sustain the business.
It’s far better to identify and challenge any assumptions you have about your business idea and then test those assumptions with a selection of paying customers.
Get feedback about your product or service, pricing, frequency of purchase, distribution, expectations and post-purchase experience. Then capitalise on these insights by taking a full scale, fully funded strategy to the market.
3. Have a funding strategy
You can have the best idea and execution strategy in the world, but without cash your business will go nowhere.
Once you know why and know your business idea is viable, the success of your start-up becomes about the money. Cash provides the “oxygen” your business needs to start, grow and then flourish.
It is important, therefore, that you fully understand your cash needs and have a comprehensive funding strategy in place.
Your funding strategy should answer three key questions:
- Application: How much cash is needed and what will it be spent on.
- Timing: When is the cash needed.
- Source: Where will the cash come from.
Aside from your savings, or those of your friends and family, cash is available to you from three other sources:
- Bank lending.
- Equity investors.
- One or more of the 600+ grants available to businesses in Australia.
For most start-ups, cash is often hard to get. Therefore, it is important that you minimise cash burn during your start-up phase by “bootstrapping”, and employing lean start-up methodologies.
4. Work out what type of business you are
Knowing what type of business you want will help you work out what your key milestones will be.
There are four types of businesses:
- Scalable businesses that are designed for rapid growth when opportunity arises. These businesses need specific strategies and sufficient cash to fund ambitious growth plans.
- Saleable businesses, established with a purpose to be built and sold within a certain timeframe for a target sale price. Again, this could require an ambitious growth strategy and funding plan designed to build value in the business.
- Small business entrepreneurs who look for steady growth designed to improve their financial and/or lifestyle position and prepare them for a suitably funded retirement. Steady growth means less time pressure when it comes to planned strategies for the business. However, it’s still important to have the capacity and resources required to take advantage of opportunities when they arise.
- Buy yourself a job businesses, where an owner earns about the same as they would as someone else’s employee. Because these businesses are so heavily reliant on the owner for their knowledge, skills, production, delivery and to manage the business as well, there is limited capacity to build the business. This means there’s less need for funding to execute growth strategies. However, having a risk and contingency plan and the resources to execute it becomes a key focus.
5. Take advice
Start-up owners often try to be a jack of all trades, covering as many bases and roles as possible while they get their business off the ground. At some point in time, as their business grows, they find they become too stretched to do it all.
They’re forced to assess their personal skills and interests to decide what effective role they should play in the business going forward, while outsourcing the rest.
To avoid this trap, you should identify your skills and interests at the outset and employ the support of mentors and advisors that will assist you with uncovering, clarifying, testing, executing and taking advantage of the key points I’ve listed above. By doing so, you access expertise, form winning strategies and implement the best processes at the outset.
This is the key to achieving your business goals.
Marc Peskett is a director of MPR Group a Melbourne based business that provides finance lending, grants advisory and capital raising services as well as business advisory, tax, outsourced accounting, and wealth management to fast growing small to medium enterprises. MPR Group is a member of the Proactive Accountants Network.
You can follow Marc on Twitter @mpeskett