All time top 5 tips for start ups
22 February 2012b
I've been writing about strategy and business matters for start ups for some time now. While there are lots of issues that business owners face, both on a day to day basis and on a more macro level, there are five key tips that I think are valuable for every start up to know. I've condensed those tips into a concise summary for you:
1. Start with a compelling reason why.
Having a clear reason "why" you're going into business is important to you and your customers.
Your reason why often starts 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 knowledge and skills to solve a problem or better deliver what customers want. This becomes your value proposition which distinguishes you from your competitors and provides your customers with a compelling reason to buy from you.
What keeps customers coming back is your passion and belief in what you deliver and how that permeates your interactions across the business including with your staff, suppliers and customers. Your reason why sparks this passion, gives you courage and helps sustain you through the tough first few years. Your reason why feeds your belief in what you're doing on a day to day basis and helps you carry on every time a potential customer says, "No" or a deal or development doesn't turn out the way you had planned. Remembering your reason why helps you to quickly recover from these set-backs, refocus, and as the slogan says and, "Keep calm and 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 being too few buyers and insufficient revenue to meet operating costs or sustain the business' development plans.
Far better to identify and challenge any assumptions you have about your business idea, test those assumptions with a selection of actual paying customers and gather their feedback about your product or service, pricing, frequency of purchase, distribution, expectations and experience post purchase. Use that insight to capitalise on all that information when you take it to the market with a full scale, fully funded strategy.
3. Have a funding strategy.
You can have the best idea and execution strategy in the world but without cash the business will go nowhere.
Once you know why, are clear on how and know your business idea is viable, the success of your start up becomes about the money. Cash provides the "oxygen" the business needs to start, grow and then flourish. It is important therefore that start up businesses fully understand their cash needs and have a comprehensive funding strategy in place.
The funding strategy should answer three key questions:
- How much cash is needed and what will it be spent on (Application)
- When is the cash needed (Timing) and
- Where will the cash come from (Source).
Apart from the owners, their friends and their family, cash is available to start ups from three other key sources:
- Bank lending
- Equity investors or
- 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 in the startup 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 and how quickly you'll arrive at them in your business journey.
There are 4 types of businesses:
- Scalable businesses are designed for rapid growth when demand or the opportunity arises. These businesses need specific strategies and sufficient cash to fund their ambitious growth plans.
- Saleable businesses are 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 look for steady growth designed to improve their financial and/or lifestyle position and prepare them for a suitably funded retirement. That 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.
- Bought yourself a job is what business owners who earn about what they would have as someone else's employee, have done. 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 more of the 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 the business off the ground. At some point in time, as the business grows, they find they become too stretched to do it all. They're forced to assess their personal skills and interests and decide what effective role they should play in the business going forward, and then hire or outsource the rest.
Smart start ups identify their skills and interests at the outset and employ the support of mentors and advisors that assist them with uncovering, clarifying, testing, executing and taking advantage of the areas outlined above and much more. By doing so they access expertise, form winning strategies and implement the best processes at the outset, designed to keep them informed, under control and on the right track to achieving their goals and reason why they went into business in the first place.