The road to entrepreneurship is a thorny one, fraught with challenges. As you embark, you may have a particular focus – one aspect of the business that you think about most. It could be the location of your headquarters, your marketing strategy or the profile of the perfect employee. As with many pursuits in life, blinkered analysis like this will not lead to success. You need to attend to all of these aspects and many more, if you are to found a business with legs.
If you have ever seen a formal business plan, you will know they are structured to include comprehensive explanations on everything from the nature and marketability of the product or service a business provides, to the background of the founders and management team. For example, how will your company be owned: sole trader, limited liability, partnership? What does your typical customer look like and how will you persuade them to engage with you?
Getting the mix right and having a plan for every nut and bolt (staffing, funding, marketing and more) will make the difference between a thriving, growing enterprise and a flash in the pan. Here are the main areas to focus on and some advice on how to give your start-up the optimal potential for long-term survival.
Finding the people that are capable of making your vision come alive is not as simple as stumbling across the right CV. Even the right talent may not want to take a risk with a start-up; or their salary expectations may be beyond your budget. The subtleties of building a strong management team supported by a dedicated operations staff cannot be underestimated.
If you find someone who apparently fits the role you have in mind, says all the right things at interview and is happy with the remuneration package you’re offering, be careful not to leap too quickly into hiring them.
“I would recommend checking all new hires’ references extensively, with at least six reference checks,” said Jackson. “As a new business, you cannot afford to carry average employees.”
Often referred to in more woolly terms, such as “strategy” or “focus”, and often overuse of the word “market”, this simple phrase should become your mantra. Are your customers male? Female? Business owners? Private consumers? What is their typical salary range? How old are they? Do they own their accommodation? Do they drive? Only once you know the answers to these questions and many, many others can you even start to ask the more fundamental question: “Why would they buy my product/service?”
- Focus operations on goods/services
Once you get the day-to-day essence of your business up and running, it is important to keep tightly focused on what you do for your customers. While customer service and experience are vital to your industry reputation, you should remember that you are not a therapist or a camp counsellor. You provide a product or service for a cost.
“SMEs have to ask themselves if they have clarity on their core customers and what they promise them,” Jackson said. “Too often, we try to do everything for our customers by delivering on all their ‘wants’ rather than being focused on needs. This, in effect, puts constraints on people and cash resources.”
Business metrics are a headache for many entrepreneurs. The term itself is vague because the variation in metrics – their form, function, how they are applied and acted upon – is as wide as the concept of “business” itself.
“SMEs also need to question, in terms of execution, do they have clear priorities and are they measuring the right things to drive the right activities,” said Jackson.
One approach to the problem could be to write down everything within the business that needs to be optimised for the enterprise to perform well – workforce, cash flow and sales, for example – and determine how you can measure them and how you can act on the results. Some methods are obvious and others not, but if you can afford it, outside consultants can point you in the right direction.
- Find out where the money is coming from
Raw materials, machinery, labour and premises need to be paid for. There is no such thing as a zero-overhead business. Even if you work from home delivering intangible services, you still need to pay yourself so you can eat and have a roof over your head. Where is that money coming from? Savings? A loan?
At the other end of the scale, a manufacturing firm will require substantial start-up capital, which could come from a bank loan or an outside investor.
“Cash is oxygen for an SME,” Jackson said. “SMEs must reduce their cash conversion cycle – which is the time it takes from when you’ve spent a dirham to when you get it back with profit. This can be achieved by invoicing quickly or even requesting payment upfront of your service. Entrepreneurs should negotiate longer payment terms with suppliers, be clear how you pay yourself and do not just take cash out of the business, as if it were a personal bank account.”
But remember, as a start-up you may encounter resistance from customers who want to stretch out payment terms, while suppliers insist on shortening them. This dichotomy can put strain on a fledgling business that has not secured cash reserves to cover the lag.
© Zawya SME 2021