Business Advice
Are you an entrepreneur?
Success in business depends on a number of ingredients: a winning idea, the right personality, sufficient resources and the occasional bit of good fortune. We can't provide the luck or personality, but our help and advice should help with the other two. Further, free one-to-one advice can be provided by your local Enterprise Agency. Click here to see the Show Guide for the next Business Startup Exhibition.
Who wants to be an entrepreneur?
Richard Farleigh talks about the Business Startup Show.
1. Introduction
In a world increasingly affected by globalisation, increased competitiveness and maturing products, the need for creativity and entrepreneurship has never been greater. Luckily, the attractions of becoming an entrepreneur have never been greater either, especially since a shift from a predominantly manufacturing- to a service-based economy has lowered the cost and barriers to entry for entrepreneurs. The British government has moved entrepreneurship (and support for it) to the top of their domestic agenda. Meanwhile, entrepreneurship has become a hot topic, with conferences, exhibitions, and even TV shows, such as “Risking it All” and “The Dragons’ Den” evidencing the popularity. But while the environmental conditions may be attractive, entrepreneurs still need a workable idea that is commercially viable. This article endeavours to assist wannabe entrepreneurs (wantrepreneurs) in coming up with ‘the plan’ so as to enable them to finally take the plunge into the world of entrepreneurship.
2. The environment
Before deciding on ‘the idea’ it is worth assessing the landscape thoroughly so as to consider the broader context and the impact that trends or changes may have on it, i.e. whether it is future-proof, etc. There are three main trends to look at – global trends, national trends and local trends.
Keeping up to date with global developments via The Economist or the BBC will certainly give you a good base to start from. However, to gain a more in-depth understanding of global changes from a business opportunity perspective, websites such as Trendwatching (www.springwise.com) are very useful. In an increasingly homogeneous global economy, it is obvious that what works well in one market can easily transplant into other ones with the minimum of localisation. Between them, these sites give a more in-depth insight into some of the latest emergent business ideas and can be considered in tandem with macro trends affecting us all, like environmental challenges, the increasing cost of oil, volatile currencies, etc.
On a national level, there are a number of trends that we are all familiar with in the UK: increased ubiquity of broadband access, the fact that as a population we are aging, increased expected life spans, growth in the number of single-person households, and so on. The key with all of these trends is to focus on the opportunities associated with these demographic shifts and trends. For example, it is safe to predict that an aging population will increase the demand for certain goods and services, such as home-help services, medication, nursing, and glasses, and that the growth in single-person households will increase the demand for convenience food products and more economical white goods such as smaller fridges and washer/ dryer all in one’s.
On a local level, there are also numerous resources we can use in assessing the local environment and, in particular, the likely demand for our goods or services. Websites such as ACORN (www.caci.co.uk/acorn) and UpMyStreet (www.upmystreet.com) provide extensive free demographic data about areas based on UK postcodes. These enable you to build up profiles of the local population and are ideal when you are looking to set up a shop or service to serve the local community specifically. Of course when it comes to local opportunities, these need to be assessed in conjunction with plenty of ‘on-the-ground’ research: walking in and around the area targeted for the new enterprise.
3. The options
The big idea
Whilst the majority of new businesses are replicas of existing businesses, some entrepreneurs will strive to create something completely unique. One of the most powerful things the Internet enables us to do is to search for solutions to problems more efficiently than ever before. Goods and services are designed to fulfill the needs of people. In other words, goods and services solve people’s problems; and while your proposed solution may be unique, it is likely the problem is not. Hence, an Internet search focusing on the problem your solution is trying to address is likely to highlight substitutes and competitors, which may all help to shape the nascent idea.
Using the Internet, you can often assess the potential demand for your service by gauging the number of people who search for a term related to the problem that your good or service satisfies. For example, our company, Palo Alto Software, produces business-planning software. One way people find us online is by searching for help for their problem: their need to write a “business plan”. Using the Key Word Assistant on Overture, we can find out how many times “business plan” and other related terms were searched for in the previous month. This data can help us assess whether “business planning” is a significantly more popular term than “business plan”? If so, we might consider renaming our product “Business Planning Pro” instead of “Business Plan Pro”.
On another level, the phrase “dog grooming London” had only 81 searches in April 2006, according to the Overture search, so the U.S. affection for this service clearly hasn’t reached UK shores yet. Half of the searches were for dog grooming courses, so any thoughts of opening a new dog grooming shop in London would need some more clear-cut evidence of demand, given the preliminary findings of this rough and ready search. By analysing the search terms for your idea with these tools, you can assess potential market demand, get ideas for appropriate names for your good or service, and use the findings as one reference point in your analysis.
If the intention is to set up a local service, then familiarity with the local area will be as powerful a resource as any Internet search method. The lesson here is also that ‘entrepreneurs’ don’t necessarily have to be inventors, merely people who can spot opportunities to do something better or more cheaply than others, or provide a local version of a business run elsewhere. Having decided upon the good or service to be provided, a wantrapreneur must research the opportunity to ensure familiarity with some of the key issues. You can search for sample plans from similar ideas on www.bplans.co.uk or look at Business Opportunity Profiles from Cobweb at www.scavenger.net to help you understand your specific business. Savvy entrepreneurs will back up online research with face-to-face conversations with potential customers and other business owners. Finally, an extensive search of Google is recommended to ensure that your market research is as up to date as possible.
The ‘Bricks to Clicks’ model
You can also do an analysis of incumbents in the various markets of your potential interest to see if there are inefficiencies or unnecessary costs in the process of getting the goods to the consumers. It is pretty obvious that the Internet has enabled a more efficient means to showcase product wares to a much larger audience (and also a more geographically dispersed one). It is also clear that more traditional retailers with high street stores carry a much higher cost burden. Providing you can configure your business accordingly, there are opportunities here to undercut the traditional behemoths. An online store can take the place of the high street store in many instances and offer the same good or service at a much more competitive price level. Glasses Direct (www.glassesdirect.com) is one such example, where the young British entrepreneur James Murray Wells decided to set up his own online optician as a direct response to the prohibitive cost he believed he paid for glasses while he was a student. Without the overheads of the likes of Specsavers, Glasses Direct is able to undercut the standard retail prices by significant margins while still being very profitable.
The growing rental market for DVDs, spearheaded by the likes of Amazon and ScreenSelect, is similarly targeting the long-standing high street players such as Blockbuster.
They both recognise that ultimately, the consumer just wants to be able to choose a DVD and play it, and this can be facilitated without a costly store infrastructure. If you think something is bad value and you do some research regarding the industry structure, competition, distribution, product components and so on, you may stumble across a brand new idea for improving the overall offering by replacing the most costly elements, such as the overhead on a high street store. Finally, a popular way to dip your toes into entrepreneurship is to set up an eBay shop. eBay even has a facility called ‘eBay pulse’ http://pulse.ebay.co.uk/ which can help you to assess the potential demand for any product by enabling you to see what the hot products selling on eBay are. No prizes for guessing that PlayStations, DVDs and iPods are amongst the most popular.
The branch out strategy
While setting up in business always contains elements of risk, there are ways to reduce the levels of inherent risk. The most obvious one is to branch out into an area in which you have previously worked. For example, a Manchester-based nursery school teacher deciding to open her own nursery in Cheshire is a considerably less risky proposition than if she moved overseas to France to open up a boulangerie. Indeed, branching out is how many people start up. After spending a number of years in a particular industry or firm as an apprentice, they decide to go it alone. This is undoubtedly a sensible strategy, particularly as you are a subject matter expert who understands the market and you may have an existing base of clients who will follow you to your new company.
The acquisition
Another option to consider is acquiring an existing business. The key here is to have a clear idea of the sorts of industries and geographic locations in which you want to work before you start. Sites such as those run by BusinessesforSale.com (http://uk.businessesforsale.com ) have a database of 1,000s of businesses that are for sale and that may be of interest. While not a low-cost method of going it alone, there are advantages in that the business will already be trading and there will be a record of how it is performing and whether there is room for improvement. One of the critical elements in this option is setting a value for the business. Valuations for a particular business can vary wildly and there is no generally agreed method for valuing a business objectively, although there are several standard calculations which are often used in conjunction. The key challenges are assessing the current cash-generation capability of the business, and realistically assessing its future capabilities. In short, acquiring a business is best left to the more sophisticated entrepreneur who has a team in situ looking for undervalued businesses with strong growth potential.
The franchise
According to the British Franchise Association (www.thebfa.org ), “Business format franchising is the granting of a licence by one person (the franchisor) to another (the franchisee), which entitles the franchisee to trade under the trade mark/trade name of the franchisor and to make use of an entire package, comprising all the elements necessary to establish a previously untrained person in the business and to run it with continual assistance on a predetermined basis.”
Franchising is an increasingly popular route to going it alone. As with the acquisition option, franchising requires that you have capital to invest and are looking to introduce an existing ‘winning formula’ into your own area. There are a number of franchise websites and magazines, such as whichfranchise.com (www.whichfranchise.com) which contain further details regarding the benefits of franchising. Again, once you have decided that franchising is something you want to pursue, you’ll need to decide in what industry you want to franchise. Past personal experiences and franchise coverage in your area should play a role in the decision.
The add on
By observing successful products and growing trends it is also possible to piggyback on the successes of others at very low cost. As the saying goes, “success breeds success”. For example, when I searched for “iPod” on eBay (May 2006) I found in excess of 50,000 ‘solutions’. While the iPod has been a phenomenon in its own right, it has also resulted in major successes for the likes of Belkin, which creates cables, cases and chargers for the iPod, Bose, which produces speakers, and Griffin Technology, which produces iPod accessories such as the iTrip, an FM transmitter. In other words, one new product can create a whole raft of opportunities in ancillary products and services. Is there a new product that you can exploit with a complementary device that makes the whole experience of using the core product a better one?
Although the above examples may relate to larger companies, there are also thousands of smaller eBay-based companies benefiting from identifying the success of one item and offering all optional complements to enhance the user’s experience. Indeed, even eBay itself has been the target for one such company, iSold It (www.isolditonline.co.uk ). iSold It is a nationwide chain of eBay drop-off stores that makes it easy for anyone to sell their wares on eBay. The lesson is simple. Once something becomes successful, it is likely to spawn a myriad of resulting opportunities. The key is to identify them before anyone else does.
4. The plan
Having decided upon the business you want to pursue, the next challenge is to create a business plan to exploit the opportunity you have identified. Creating the business plan is a very important part of the process as it forces you to consider the opportunity in a holistic manner. You need to give some thought to everything from sourcing raw materials, to competitor analysis, to pricing, to distribution. If you are replicating an existing business, the scale of research required is not as rigorous, as there will be some existing players which you can study. If completely pioneering an idea, your task will be more difficult, but the rewards will be potentially greater. Regardless, a plan will force you to do a thorough analysis of a range of issues and commit them to paper. There are extensive resources available at www.bplans.co.uk to aid you in the business planning process.
5. The implementation
Finally, once the plan has been drafted, you must put it into action. Perhaps it will be used to secure funds, or communicate an idea more widely. Either way, to bring the idea to fruition, the plan must be turned into concrete actions. Create a small team with clearly defined roles, and undertake the less attractive components of starting up, such as legal obligations, red tape, etc. Again, help is at hand with websites such as www.businesslink.gov.uk and start-up books from the likes of Pearson.
6. Conclusion
The path to entrepreneurship is varied, with a range of different options available to the ‘wantrepreneur’, all with different risk/return profiles. While never easy, entrepreneurship is rewarding and the Internet has reduced the risk of starting up even further. The key to a successful start-up is to prepare a robust business plan and get a solid team in place to put it into action. While the odds are stacked against all start-ups, you can improve your chances by carefully managing certain key areas. Cash flow is the life blood of any company, and all entrepreneurs must guard against the dangers of insolvency by careful forecasting and appropriate financing. A second, related area that is often the cause of failure is over-estimating demand for the new product or service. All forecasts predicting demand levels should be conservative with a capital ‘C’. That vital characteristic of all entrepreneurs, ‘excessive optimism’, needs to be reined in while revenue predictions are being discussed.