Start Up Wise

Jonathan Reuvid, Jonathan Reuvid

• Publisher: Legend Business
• Year: 2019
• ISBN:
  9781789550252
• Topic: Business
• Subtopic: Human Resource Management
• Index: Business

'The perfect concise guide to creating your own company from scratch: brilliant' Graham Richards

The Seven Stages to Launch You to Success

There is much to consider when starting a business. Knowing what to do first, whether you have a concept that works for you, what resources to access and how to get started can be overwhelming and seemingly-complicated.

Start-Up Wise is a comprehensive, all-in-one-place guide providing everything you need to know for your journey, outlining seven key steps on how to start, manage and develop your business:

• Generating, developing and confirming your business ideas
• Correct legal structure and brand identity
• Realistic business plan
• Financial and tax obligations
• Funding options
• Cost and time-effective business systems
• Building and growing your business for the future

It is important to understand why you are starting a business and then to focus on ideas and steps that will build your ideal growing and successful business. Start-Up Wise has compiled all of the key information in one guide to help you achieve this.

Jonathan Reuvid is a former economist for French oil company Total and later Director of European Operations of the manufacturing subsidiaries of a Fortune 500 multinational before engaging in joint ventures and start-ups in China. He is an experienced business writer having authored and edited over 80 business books.

1

TAKING THE PLUNGE

HAVE YOU GOT WHAT IT TAKES?

“I shot an arrow into the air,
It fell to earth, I knew not where.”

– Henry Wadsworth Longfellow (1807-1852)

At first sight working for yourself is an alluring prospect, but you should take a reality check before you embark on the adventure. Disabuse yourself up front of some popular preconceptions:

• My time will be my own

Not really true. You may not be bound by the tyranny of fixed office hours but there are time-consuming activities to which you will have to attend now that you are no longer supported, such as invoicing and debtor chasing, bill paying and credit management. How best to manage your time is discussed later.

• I shall be my own master

Yes and no. You will certainly be taking the decisions without deferring to a boss but that may be a mixed blessing if you have no collegiate support. You will be subject to the oversight of your bank manager (probably a computerised monitoring system with little recourse to a human decision maker). Above all, since you no longer receive a salary, you will be focusing on cashflow (see chapter 4) which has an authority of its own.

• I won’t have to work with people I don’t respect or like

Only partly true. If you are employing staff, the choice is certainly yours. But you will still have to deal with difficult customers and suppliers where relationships matter. You will also want to take advice from time to time and you will probably consult only with people you find compatible. That can be a mistake; critical comment from people you don’t like, and who probably don’t much like you either, may be more valuable.

• I can take holidays and time off when I want

You must be joking. For clients or customers who have an urgent need “I’m taking a few days off” is an inadequate response to demands for your personal service when there is no colleague as substitute. Going on leave whenever you want is a great way to lose business. While lifestyle books pushing for running a business on a few hours a week are in fashion, the reality for most start-ups is very long days and evenings.

Starting your own business with any prospect of success requires a particular mindset, quite different from that of a well paid employee in an organisation, whatever the role or level of responsibility. For many, independence is an uncomfortable suit of clothes. Perhaps the decision to go it alone is easier for a school or university leaver without employment experience for whom the question is primarily one of entrepreneurial instinct.

And so, before you even start to define the business product or service you might provide, make an honest and thorough assessment of yourself as a business person. You might make a balance sheet of your personal attributes, identifying your strengths as assets and your weaknesses as liabilities. Be sure to include the more nebulous qualities such as foresight, patience and persistence – they may be assets or liabilities depending on who you are.

Next, show your balance sheet to your domestic partner if you have one and invite comments. The person with whom you share your private life and home will know the “real” you better than anyone else and will not shrink from gentle and, hopefully, constructive criticism. In any case, it’s important to consult your partner, sooner rather than later, on your plans for taking the plunge. You will be counting on them for support and tolerance of changes in lifestyle, perhaps on participation if you go ahead. If you don’t have a domestic partner, consult with a close friend or relative who you know will give you their honest and valuable thoughts.

If the personal assessment is unfavourable, think again carefully about giving notice to your employer and review your reasons for wanting to leave. What are the causes for dissatisfaction with your job or the company you work for? Perhaps they can be remedied by changes in what you do or structures within the company. And if that is not possible, consider looking for a fresh challenge in another company, capitalising on your skills, strengths and experience. The aim of this book is not at all to dissuade you from the path of self-employment or business start-up; if you remain determined to follow that course, this is the last time that I shall caution you to think again about your direction of travel.

DOES YOUR PRODUCT OR SERVICE HAVE TRACTION?

Now that you remain steadfast in your resolve, you need to convert any vague feelings about the service or product you have in mind and around which you want to build a business into a precise definition of what you would offer and why it would appeal to potential customers. In the terminology of those who provide funds for new businesses, this is a definition of “concept”.

For any concept to fly it needs to have elements of a unique selling proposition (USP). In his book Business Plans that Get Investment, David Bateman offers an excellent summary of factors that can provide a USP from which I will borrow five; at least one will hopefully relate to your concept:

• Improvement on an existing product or service

• Specialisation in a specific area or niche within an existing sector

• Cheaper/more cost-effective solution than an existing offering

• New product innovation, patent protected

• First-mover advantage in your country or region (i.e replicating a product or service that exists elsewhere in the world)

Of these the first two will most likely apply to someone setting out as a sole trader or on the bottom rung of the SME (small to medium enterprise) ladder. The third may involve more investment and the last two may require serious third party funding.

Our first example is Alice, an experienced public relations manager in a national PR agency, based at a high profile city in the South of England commanding national attention with a strong base in science, technology, manufacturing and education, who decided to go local on her own. Let’s call this Case A. The essence of Alice’s concept was to give a more human, hands on service to local enterprises at a significantly lower cost than a nationally branded agency. The concept relies on satisfying the second and third criteria.

The second example (Case B) is also a local business addressing all of the first three USP factors. Fred is a qualified plumber, already self-employed, who works freelance for a number of private sector building contractors and developers on new housing projects within his local area. The rates of pay that he can earn as a subcontractor are a fraction of the main contractors’ charges to local authorities and developers. He is also a dab hand at painting and decorating and as a glazier. Fred thinks he can do better serving owners of older homes who have regular and occasional demands for repairs, renovation and maintenance of their properties. His concept is grounded on friendly, quality service at lower charges than local firms who have grown into substantial businesses on the back of lucrative new housing and office developments and who factor overhead costs and management charges into their quotations.

Case C involves technical innovation. Simon is a skilled software systems engineer working for a large international managed services provider. He has achieved a middle management position and travels widely but his career prospects are limited and he would like to spend more time with his young family. Recently, the fuel oil tank in Simon’s garden was raided during the night and drained of more than £1,000 of fuel for which he was uninsured.

He perceives fuel theft as a major risk for householders, schools and village halls in rural neighbourhoods throughout the UK and has designed an app which can be connected to a locked fuel tank cap and can be activated remotely by those with the entry code. This solves the problem of manually locked caps which need to be unlocked any time that the oil supplier delivers and the householders may be absent. Simon has found a British manufacturer of manually locked caps who is interested in his technology. Alternatively, Simon has identified a manufacturer of remote controlled caps in Australia and could negotiate a distribution agreement.

Cases A and B are real and Case C is imaginary, but Case D, which conceived a global opportunity in intellectual property (IP), is a project which I pursued some four years ago. The concept was to create an online marketplace for brand and trademark license trading and transactions. Based on membership subscriptions, the digital platform would connect brand owners and their agents seeking to sell IP licenses to other manufacturers or service providers looking for high recognition brands, trademarks or designs to adopt. Commission would be charged on completed transactions and collected online together with licensing fees. Unlike the three previous cases, Case D required substantial up front funding for sophisticated new software and website development before the product could be offered to potential users.

All four concepts make sense and seem attractive but much work needs to be done to verify whether there are practical market opportunities. Your concept will also require similar research, however self-evident its merits may seem to you.

BASIC RESEARCH TO DEFINE YOUR MARKET

There are two research strands in defining your market: quantifying the value and charting the channels to market.

Quantifying value

There may be some difficulty in establishing an absolute value for your service or product. And the numbers you come up with may not be wholly meaningful.

The limitations of what is possible are illustrated in terms of the four concept cases outlined above:

Case A

Alice used an online survey which she sent digitally to all businesses and other organisations in her catchment area having an annual sales value of £100,000, the minimum she felt would be able to support basic HR consultancy. She analysed the results into four sectors: manufacturing industry, business services, science and technology establishments and local government/public services plus charities. She found that the strongest sectors in terms of current or potential HR spend were manufacturing, business services and a handful of charities. Assuming an average spend of £5,000 the realistic target market value was assessed at £1,250,000 – just sufficient to justify her start-up. Alice’s initial survey was supplemented by 50 telephone and face to face interviews with established contacts within each sector.

Case B

Fred’s research was rather less structured. He knew that there were 1,500,000 older homes in what he regarded as his catchment area and from observation driving around the villages he could see that many properties were more than 100 years old with some of them being listed buildings. He estimated that on average these homeowners would replace or improve either their bathrooms, showers or kitchens at least once every 10 years and with installation work of no less than £500 a job (excluding hardware), the minimum market value for his services would be £75,000 per annum plus call-outs for maintenance work and emergencies. He supported this calculation by consulting with friendly contacts in other building trades: electrical and heating engineers. For Fred this seemed a reasonable market to attack and he realised then that if he was successful he would have to take on additional staff or an apprentice.

Case C

Valuing the market for Simon’s remote control fuel cap lock was more difficult.

The UK manufacturer of mechanical fuel caps was able to tell him how many they sold nationally and he postulated a premium selling price, including delivery, of £65 against £52 for the standard product. However, quantifying how many would convert to the remote control product or how many unsecured fuel tank owners might be tempted to buy the sophisticated new product was no better than guesswork. In the end, Simon came up with a minimum potential market of 60,000 units over three years and a maximum of 500,000 units.

Case D

We started with global statistics of IP activity. Every year 7 million new trademarks and brands are registered. We found that in 2013 royalty revenues of $5.6 billion were generated from the licensing of trademarks and brands in the top 5 product sectors in the US and Canada alone. Of course, these mouth-watering statistics were virtually meaningless in helping us to frame realistic projections, except to say that the potential market for our concept was vast. In the end, what we did was to take conservative targets for a build-up in revenue from membership subscriptions of £1,000 and scalable commission at a basic rate of 15% on completed transactions from the second year onwards. This enabled us to forecast revenue rising from £30,000 in the first year to £600,000 in the third.

Whatever the limitations, you must carry out the quantification exercise at this early stage. It is the first test of whether your concept is realistic and a primary ingredient for business planning.

Channels to market

Having identified a value for your market you need to check its credibility b...