This article was published as the Sanlam Business Market, Business Tips: December 2013 newsletter. The Sanlam Business Tips is an incredibly useful and free resource for entrepreneurs. If you have not yet subscribed you should.
Many business plans lead businesses into disastrous situations
We all know we should check our cars before travelling. Equally important is the need to check your business plan for faults and potential failures before making it the core of your business, or using it to ask for finance. Here is a 6 point check:
This article was written by Ed Hatton, the Start Up Coach for Entrepreneur Magazine (South African edition), as the My Mentor column published in November 2013 and is posted here by their kind permission
You have to tell potential customers what you offer – even with no money
It is almost a caricature. A new business is launched. The entrepreneur has used all the available funds to perfect products. There is no marketing and consequently no customers and all the technologically wonderful products remain unsold. The world does not beat a path to the door of the person who has the better mousetrap; it continues to buy whatever it has done in the past.
The message is clear – you have to tell people who could buy from you that you exist and why they should consider you. You can do this with little or no money for marketing promotions, but there are some rules.
The first one is to realise that with limited funds you needs to reach the people likely to buy from you as efficiently as possible; you cannot afford to market to people who will never be your customers. It is amazing that this simple piece of logic is so often ignored. Identify who your most likely customers are, and then to figure out the best way to get a marketing message to them with as little wastage as possible.
The right media
Another rule is that you have to use the right media. It does not make sense to advertise wedding dresses by flyers in business post boxes. Instead you must be on the internet – unless you can afford to be at bridal exhibitions or to advertise in specialist magazines. Find out which information sources are used by your target market and then use the most cost effective ones. A useful cost saver is to form an alliance with a non-competitive supplier to the target market. The allies agree to share exhibition or other marketing costs, but they also introduce each other to their customers.
Barter is an ancient and honourable way of saving cost – you print my brochure and I will plan your conference for example. Community service by you and your staff can attract the attention and goodwill of community minded businesses and individuals and it is free. Continue reading
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 November 2011 and is posted here by their kind permission.
Entrepreneurs need to think creatively about their capital needs
My challenge is finding capital. I am a full time mom with no income or assets, so a bank loan is out. I’ve consulted family members with my business plan without success.
My business idea is to supply a niche market with, latest technology imported equipment. I’ve done market research this business seems very promising. But where do I obtain initial capital?
Getting finance to start a business is very difficult. Whether the investors are family members, finance houses, venture capitalists or angel funders, start up capital is scarce and difficult to secure. This gets worse if the would-be entrepreneur his little or no surety, has not previously run their own business or has no relevant business experience. But good entrepreneurs are a hardy lot, and used to finding solutions to intractable problems, so they do find ways to start businesses despite these problems.
Before answering this potential entrepreneur’s question I would like to pose one of my own: If she had sufficient money to start this business would she commit the funds, even if it was all she had? How sure is she that the business idea will work? If there are question marks then the entrepreneur should go back to the business plan and research more and test the concept to reduce the risk of failure. Few funders will finance a business where the entrepreneur would not risk her own funds. 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 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
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