Marc PeskettFollow on twitter www.mprgroup.com.au/cms-business-advisory/
Eight gaps that first-time start-ups need to plug
I recently had the pleasure of being involved in judging the StartupSmart Awards and was asked to review entrants’ submissions.
There’s a multitude of talent and ideas out there, being brought to life by brave business owners (many of them first-timers) who have decided to take the plunge into business ownership.
While they obviously have the passion and belief in their concept, there were a number of gaps in how they explain their business. I see these common gaps time and again in my role as an advisor to SMEs.
Addressing them will help any new or potential business owner in their endeavours to establish and maintain a successful business:
1. What problem are you solving?
First and foremost you need to be very clear about what problem you are solving or need you are satisfying and for whom? Are you addressing a problem lots of people want to solve (or a need they want filled) and does your solution solve the problem or satisfy the need in a compelling way.
2. Show me the money
While getting rich might not be your motivation for becoming a business owner, making money is a necessary by-product. You must be very clear about your forecasted revenues and exactly how you’re going to achieve them, in order to meet your business and personal financial needs.
You’ll need a budget and cashflow forecast to understand when you need cash. Often it’s not how much you need but when you need it that makes a new business come unstuck.
Having an accurate picture of your month-by-month cash needs in the first year and every year afterwards will provide the motivation for implementing a solid plan to make money.
As for the plan to achieve that, it helps to be granular and break down the activities of the business in a quantifiable way. There are many tools you can use to achieve this. One of ours is called the growth equation, which helps you break down your revenue targets into the key drivers: number of customers, number of transactions and transaction value.
3. How you’ll get money to make money
Businesses need cash to make cash. Once you have profits you can reinvest them to fund business growth, but you’ll need external sources to get started and most likely to supplement the business’ cash needs throughout its life. While many SMEs are familiar with debt and equity, not enough know about or pursue grants.
Grants are a valuable source of cash that can be used to meet a plethora of business activities including growth, innovation, investing in equipment, training, exporting, and digital development.
The best way to maximise your grants and external funding opportunities is to create a funding plan, so you can be ready well in advance of when the actual need for cash arises.
Click here for a link to a blog I’ve previously written that covers what you need to know about funding plans.
4. Think about scale
Your next thought should be how scalable delivering your product and service is. Scale means growth, revenue and if you’ve got your operating model right, then this should equate to more profit. In order to achieve this, your growth needs to be sustainable. To this end you need to consider what additional resources such as cash, supply inputs, staff and distribution points you need to facilitate and service that scalability.
If you consider this at the outset, you’ll be in a better position to take advantage of opportunities to scale early on and more quickly establish a solid footprint for your business and achieve a quicker financial return on investment for you as its owner.
Story continues on page 2. Please click below.
5. Segment your target market
Not every customer buys for the same reason or values the same things. In order to have a compelling value proposition, you need to be crystal clear about who your customers are and how you’re going to capture their attention before their dollar.
Work out the precise problem you are solving for each segment, their needs and purchase decision trigger points, then create a promotional strategy tailored to each segment. By doing this, you will help cut through the general noise created by an abundance of competition from other coffee shops and web developers, for example.
6. Differentiate, differentiate, differentiate
A lot of new business ideas aren’t actually new. Many of the ideas I see have been done before in pretty much the same way, making it difficult for a potential customer to determine why they should choose you over your competitors.
My industry, the accounting industry, is a prime example for this. It’s virtually impossible for a business owner to distinguish between the job two accountants will do on your annual financial statements and tax return.
As much as a business needs this work performed, it’s become a commoditised price driven purchase decision and once the purchase is made, the client often sees no reason to switch to another accountant to perform the same job.
So we use grants and funding plans as a differentiating point that helps to distinguish us from our competition. It also creates what we call “doors“. There are multiple doors our clients can come to us through, and once they do we usually end up servicing their general accounting needs as well.
7. We’re all in the business of people
Unless you plan to operate as a sole trader, you’ll need to hire employees at some point in time. Think carefully about this and consider the skillsets, values, experience and attitude you want from your team and how you can best introduce and utilise your human resources (including yourself) to get the best leverage and results for the business.
Part of this involves a clear perspective on your own skills, interests and capability gaps and how you can meet those gaps when employing staff.
8. Paint the picture
If you don’t know where you’re going, then you probably won’t get there. You need a clear picture of what the future of your business will look like. Some of the questions that will help create the picture are:
- How big do you want to become?
- Who do you want to be known by and what for?
- What value will you create in the business?
Establishing a business involves a lot of nitty gritty detail that you’ll need to roll up your sleeves and make happen. It’s easy to get caught up in the here and now and become obsessive about the first year or two. Having a vision for the bigger picture can help you to stay focused on the end game, motivated during the tough times and make the right decision when you’re in the thick of it.
As you start making some wins and hitting the major milestones on your path to that future, you should take the time to celebrate the successes and share the wins. Some business owners are visionary and don’t have a problem with focusing on the big picture, but instead keep moving forward to the next opportunity without pausing to enjoy the moment and acknowledging the results of their efforts.
Stopping, reflecting and acknowledging your achievements, both internally and externally, is a good thing to do. Not only does it act as a kind of reward for your efforts, but success breeds confidence and acts as a magnet that helps draw the right people to you and can open doors.