This article was written by Ed Hatton for the column the Start up Coach and published by the South African edition of Entrepreneur magazine in April 2012 and is posted here by their kind permission.
Start ups in small towns need excellent marketing strategies
This entrepreneur plans to start an event business that will offer wedding and party planning and a catering service offering African gourmet meals with a twist. He requests advice on marketing and penetrating the limited market in his small town. As an unknown young black entrepreneur he has concerns about succeeding in marketing to a predominantly white and older community.
The first step is market and competition evaluation, to determine if there is enough market, and whether his business could win against established competitors. If either of these are negative then the entrepreneur needs to answer totally different questions.
Assuming this has been done and the market is available, then there is a mix of good and scary news. The good is that he is thinking of how to be different. The idea of gourmet African meals is exactly the sort of unique selling proposition that great businesses are made of. The scary part is that any market is really hard to penetrate. What is usually in the target’s mind on first approach is something like:
This article was first published in the South African edition of Entrepreneur magazine as an opinion piece.
Eighty percent of all start up small businesses will fail within two years, right? Or is it 94% within a year? Franchised businesses are safer, are they not? But by how much seems to be a closely held secret.
Into this catalogue of failure and uncertainty a large infrastructure of very smart people and institutions devote huge amounts of money, thought, assistance and support to educate and support entrepreneurs to open up new businesses and grow existing ones. Banks vie for attention, great publications have large circulations, business coaching is one of the fast growing sectors. Against these supposed market results I have to ask: ‘why’?
One reason is that we individually experience much higher success rates than those quoted so universally. I have yet to find anyone associated with the SME sector whose clients’ exhibit the level of failure quoted. It seems that the failure rate only happens to the other guys.
Another reason is confusion about what constitutes a business failure. We identify the surviving businesses, not the failed ones. If only 6% of businesses survive and employ staff then what happened to the other 94%. Did they fail? Did the entrepreneurs die, emigrate, remain sole traders or close their companies when they accepted a job offer? Did they merge with another company or relocate offshore? We don’t know. Continue reading
This article was written by Ed Hatton for the column the Start up Coach and published by the South African edition of Entrepreneur magazine in February 2012 and is posted here by their kind permission.
Having one large customer is wonderful – until something bad happens
This entrepreneur has printed training manuals for a large national company for 18 months. He purchased additional machinery for their work, although there was no contract in place. Recently the orders have dwindled and the new machinery stands idle. The buyer now places orders with a friend. The entrepreneur asks if there is any way he can complain about cronyism.
Most small businesses dream of having at least one really large company as a customer. Big orders mean rapid growth and the cost of sale is lower than dealing with many small businesses. But there are disadvantages – entrepreneurs entering deals with very large organisations should consider Porter’s ‘Five Forces’ model, where the power of customer is identified as a competitive force. Continue reading
This article was first published as a Sanlam Cobalt Business Tips article. Sanlam great resources for entrepreneurs – I suggest you subscribe.
Take this light-hearted, but important test to see how your business is doing in providing great customer care.
This article was written by Ed Hatton for the column the Start up Coach and published by the South African edition of Entrepreneur magazine in October 2011 and is posted here by their kind permission.
The answer to insufficient sales may be more money invested, but there are other opportunities
By Ed Hatton
I have just started a college with a unique range of course offerings. Enrolment numbers are poor due to a low advertising budget. How do we get investors involved without having surety?
Existing entrepreneurs reading this will probably be smiling wryly. Cynics say the first two laws of start-ups are:
In this case the entrepreneur has assumed that the only way to increase enrolment is to put a lot of somebody else’s money into advertising. There are a couple of issues with this proposed solution.
Firstly investors put funds into businesses because they believe they will make a good return. So this entrepreneur will have to demonstrate that the project will make money, despite the fact that early enrolments are poor. Facts, figures and hard information are needed, not just self belief and enthusiasm. Continue reading
Start ups must respond to aggressive and bullying tactics to survive
By Ed Hatton
A small concrete pipe manufacturer with great customer service opened a factory in East London to support the local demand from local contractors and government. This reduced the cost and delays in transporting pipes and was an immediate success; turnover increased rapidly. The large and powerful manufacturers in this industry lost market share and reacted by slashing prices dramatically, absorbing reduced or negative margins with their substantial resources to attack the upstart. The new factory cannot match these prices and there is no product differentiation. Their question: how do they compete?
Voltaire wrote that “God is on the side of the big battalions”, but I wonder if the Almighty would want to be associated with some competitive practices of large and predatory organisations. Entrepreneurs starting new ventures in competition with powerful organisation often face the kind of threats experienced by this questioner. The competition may be price based as in this case or it could be massive increases in marketing spend, cornering the raw materials supply, buying key staff from the start up and others. Many believe that free competition and entrepreneurship are the best routes to more employment, but sadly practices on the ground are often very different.
How can this entrepreneur compete? Continue reading
All start-up entrepreneurs should understand their business finances before they launch
By Ed Hatton
An entrepreneur is planning to start cattle farming, but has very little economic or entrepreneurial background as he works in the medicine field. He wants to know what the growth in capital ia that is needed by a business during its first year to sustain further development and growth.
This is question all start-up entrepreneurs should ask themselves. The focus is usually on the initial capital needed to start operations, but sustaining the business past the first year is equally important.
To answer the question we need to take a step back to the business plan for the new venture. This should start with how much the entrepreneur wants from the venture as a monthly income and / or capital gain. That will tell him how many calves he will have to sell each year if he makes assumptions of the sale price and cost of breeding, rearing and sale. The estimated yield will tell him how many breeding cows he will need. The size of the breeding herd and the capacity of the land to produce grazing and fodder will tell him how much land, labour and infrastructure he needs. These factors will determine his start up capital needs Then he needs to do the cash conversion cycle (from when cash is laid out to produce stock to the time cash is paid as a result of sales) and work out the operating cost of running the business during that period to establish his working capital needs.
This is a business like any other. The entrepreneur has to identify his target market and see what it needs, decide how to compete, then get the right product (breed and quantity) and distribution channel to sell his breeding stock, find the right production facility (land and infrastructure) and identify the right labour and management to handle the required volume. Continue reading
Securing advertising income in a massively competitive environment requires smart strategy and good delivery – by Ed Hatton
An entrepreneur wants to approach businesses to advertise on his free business listing website. He has all the stats of how many visitors he has to his site but he doesn’t know what angles to use.
This entrepreneur has chosen the online sector for his new business. One of the key issues is the speed of development; new innovations change the landscape all the time. Another risk is the extent of the competition. There are thousands of directories, and hundreds of search engines, all trying to attract people searching for information or potential suppliers.
In this heated environment it is easy to focus on the measures that the industry uses – page impressions, unique visitors and click-throughs. But these are only measurements of traffic. The entrepreneur’s business must find and address a need profitably if it is to survive and prosper. All the visitors in the world mean nothing unless visitors use the information from the directory to buy or enquire about services. Similarly companies listing on his directory are there to source new enquiries which they can turn into business opportunities.
So now the question becomes ‘how can this directory generate business opportunities for the business listed?’ This must be done in a highly competitive environment with industry giants and thousands of small competitors trying to do the same. Continue reading
Picture a large, rude, aggressive and menacing doorman, who did his best to intimidate customers into turning away from your business and upset those who persevered. Few businesses would want him harassing and insulting their customers and stopping them from buying, and yet so many do put rude, insulting and harassing barriers between themselves and their customers, making it difficult and demeaning for customers to approach them.
Even your business may have allowed some of these horrors to creep in.
The most common insult is the vanishing telephone message. The switchboard operator, if there is still such a person in the business, no longer takes messages nor does she know when people are in, on leave or in meetings. The customer needing information or wanting to complain is put through to an extension that (tick one or more) rings endlessly; goes to voicemail with the message is never returned; tells the customer to call on a cell number which repeats the process; or is diverted to another extension which also repeats the process. All levels of government and many very large businesses are even worse than this. If you haven’t done so recently, listen in as a friend tries to reach your sales or production manager, query a delivery or find someone who can explain a product feature. Then fix the problem. Customers who want to talk to your business are actually good news, not the nuisances some staff members and managers seem to think they are. Continue reading
….the simple plan
That they should take who have the power
And they should keep who can – Wordsworth
Will you be the growing business taking more market share? A defender of your customer base? Or one of those that lose ground to better planned and organised competitors? Do you have a plan to guide your business? Does it work for you?
Eisenhower famously said, “Plans are nothing, planning is everything”. The process of developing a good business plan will force you to think about your customers, competitors and the resources you need, and that thinking should drive your business in the future.
Assume you want to develop a plan for 2011 to defend your market share, or take new business. You may be tempted to download one of the excellent business planning templates and then concentrate on filling in the blocks. Some entrepreneurs, especially those starting out, will engage a cut-and-paste business plan developer. But there is a much better way: Simply follow Eisenhower’s advice and focus on the process of planning. Continue reading
If you are planning to open a new business you will need to think of many different things. Here are a few really key questions that you may not have thought about. If you cannot answer any one of these satisfactorily you may be taking unnecessary risks. With the horrifying failure rate of new start up businesses you would want to reduce risk as much as possible, so if any of these questions cannot be answered or leave you feeling uneasy, then my advice would be to attend to this urgently, even if it means delaying your launch.
If you look at the ranks of business books in any bookstore you will see lots of ‘how to’ books, and even more ‘how I did it’ guides. So if you just follow the route taken by Richard Branson or Robert Kiyosaki or Jack Welsh you too can be a success. Web sites (including my own business site) are filled with case studies of business successes. But where could you go if you wanted to study failure, if you wanted to avoid doing what caused the downfall of the failed entrepreneur?
Contrast that with learning to drive a car or fly an aeroplane. You may read stories of famous racing drivers or see films of daring fighter pilots, but that is not how you will train. Instead you will be taught how many ways there are to get it wrong, and what to do about it. Driving a car or flying a plane start with the belief that success is required, that failure is to be avoided. Business training seems to work on the basis that failure is expected, that success is for the few high priests of entrepreneurship, and we may be able to stave off disaster by following their lead. How peculiar. Continue reading