Starting your own business is a big opportunity, but it doesn’t come without risk. Only 80% of startups survive the first year of trading, with most new businesses finding it a challenge to last five years or more. But why is starting a new business such a high risk strategy? And what can you do to increase your chances of long-term success?
If you talk to most business advisers, their advice will be to focus on building solid foundations, with a clear plan and strategy for your business idea. But how do you do this? And what are the most effective ways to plan out your business journey?
1. Having a clear vision sets you off on the right path
If you’re going to go through the turbulent times of starting a business, you’d better have a great idea of WHY you’re starting a business. This means sitting down to think through your business idea, your inspiration and the main drivers that are pushing you to become a founder and business owner.
Ask yourself:
- What’s my elevator pitch for the business? Can you actually communicate in a sentence or two what this business is for? An extremely focused and engaging pitch will go a long way to convincing potential investors and customers. It also helps keep you and your team focused, giving you a defined vision of where the company is going and what you want to achieve.
- What do I want to achieve with the business? The world is full of businesses (333.34 million of them!). What is going to make yours different? Try to pin down what your overall purpose is, beyond turning a profit, and set some clear goals to achieve. Are you aiming to revolutionise your sector? Or are you hoping to build a company that you can sell in five years? Do you want to make the world a better place and help your local community? Or do you want to be an amazing employer that gives talented people a place to explore their skills and build something special?
2. Every business needs a solid financial model
To be able to sustain and grow a business, your company has got to make money. Whatever sector you’re in, or whatever niche you decide to follow, the company needs a steady stream of cash (capital) coming into the business to operate, trade and provide any profit.
To keep on your top of your finances, aim to:
- Understand your cashflow position – lack of cash is one of the main reasons for business failure in startups. Balancing the cash coming into the business (income) against the money going out (expenditure) is a constant battle – and that’s why good cashflow management is so important. It’s worth investing in the latest cashflow forecasting tools, so you have a helping hand when it comes to keeping the business in a positive cashflow position.
- Work to a defined budget – whether you’re founding a new business, or planning out a new project, it’s vital to have a well-costed budget. Calculate the costs of every element in your plan and find out exactly how much capital you need to get this thing off the ground. Base your price point on the revenue needed to cover this total cost, with a margin built in that will generate a profit.
- Turn a healthy profit – if you’re not generating profit, eventually your startup is going to fail. Barely covering your costs is not a formula for success, so you need to think carefully about how your financial model will generate profit. That profit isn’t just about what goes into your pocket, either. It’s about creating a big enough profit margin that you can reinvest money back into the business – to hire new staff, buy new equipment or invest in scaled-up sales and marketing activity etc.
3. Long-term goals are what push you forward
Many founders and new business owners will place a huge amount of focus on getting their company off the ground. But what are you going to do once the company is finally trading and has a more secure foothold in the marketplace?
To stay in control of the business journey:
- Set clear targets to attain – by setting targets for the business, you give some momentum to your growth. You also add motivation for your team, so they feel more engaged by your vision. The targets can be financial ones, but they could also be based around how many new customers you convert, how much you can raise brand awareness or how you can raise your customer satisfaction scores. The key here is to put some impetus behind the business, so you know where you’re heading in the long term.
- Track your performance – recording and tracking your performance over time will help you see whether you’re moving towards your defined targets for the period. Today’s business software allows you to track your cashflow, your profit and loss, your sales, your marketing return on investment (ROI), your customer satisfaction score…in fact, any business metric that can be quantified, recorded and shown in your dashboard.
4. Understanding your customers helps you evolve
A business with no customers is no longer a business. Your customers are the reason the company exists, and the drivers of your success. So, if you’re going to build a loyal customer base, it’s vital that you know as much as possible about your customers – both your existing customers and those potential customers who are still targets.
To do this:
- Define your ideal customer – who are your products and/or services aimed at? Do you know who your dream customer is and why your offering should be their perfect purchase? Put some thought into who these customers are. Where are they located? What’s their income? What profession or industry are they in? What are their interests? And (the big one) why should they be interested in your products and/or services? The more forensic you can get with these ideal customer profiles, the more you know about the people you’re targeting.
- Listen to your customers – your products and/or services don’t exist in a vacuum. What your customers think about these offerings is incredibly important, so listen to your customers and make sure you fully understand their needs. That means engaging with customers through your social channels, asking for feedback following a purchase, and tracking online reviews and customer ratings. The more you can do to understand your customer’s feedback, the better you can refine and evolve your products to meet their needs. It’s that simple.
5. Good management is about looking to the future
You might know where your business is NOW. But where is this company going to be in two years time, or ten years down the track? Part of being a great entrepreneur is having a clear vision of the business journey, where you know in your mind where (and when) the key goals in your business journey will happen. But that takes a forward-looking approach to management.
To stick to this future positive outlook:
- Keep updating and evolving your business plan – your market and the wider economy don’t stand still. So, there’s a burning need to keep your business plan relevant and tailored to current and future conditions. Revisit your plan at least every quarter and make the changes that will keep you focused, effective and profitable, both now and in the future. The further you can look down the road ahead, the better prepared you are for the opportunities and potential threats that may lie ahead.
- Use forecasting and scenario-planning to aid your strategy – forecasting is the friend of a forward-looking approach to management. With today’s digital systems, you can get incredibly accurate forecasts and projections about the future path of the business. Use these forecasts to aid your planning, and try running different ‘what-if scenarios’ so you can scenario-plan multiple future outcomes and see what the impact will be on your operations and long-term success.
- Share your vision with the whole team – your people are one of the most important assets in your business. So, make sure you’re being as transparent as possible with your future vision for the business. Tell your team where you want to take the company, share your goals and make sure everyone is on board and ready for the ride. A team that knows where it’s going is likely to be a far more effective business unit.
HELP! I’ve Started A Business
My new book, ‘HELP! I’ve Started A Business’ is your 101 guide to the whole business journey – from start to finish.
This book takes you from your first rough idea through to becoming a fledgling startup. From becoming an established company through to scaling up and (eventually) selling the business at the end of the journey.
If you’ve just begun your business adventure, or you’re looking for new ways to make your enterprise run more smoothly, this is the book you need on your desk.
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