Napoleon once famously referred to the UK as a nation of small shopkeepers. Although times have changed with international business threatening in some places to take over our high streets, the tradition of small business and entrepreneurship still stands firm. It is in partial recognition of this that one of the key aims of the Government is the encouragement of new business with various measures being introduced in the last Budget to encourage business and enterprise.
Despite this Government encouragement the grim statistics still show a high rate of failure within the first three years of a new businesses life. However, there are 5 key areas that anyone thinking of setting up a business should concentrate on and these will considerably enhance the chance of success.
1. The Idea
Avid watchers of Dragons Den will be familiar with the scenario of a potentially wonderful new product being turned down flat as not likely to make money. It is a common human trait to become wildly enthusiastic about a new idea with that enthusiasm overriding common sense. Unfortunately, our family and friends are the first recipients of the idea and they will encourage it out of love and friendship.
The sad truth is that not every idea will make money. Sometimes this is due to the market already being saturated. Add in the cost of the product or service being more than the selling price and the level of demand being low and you finish up with an idea that will not make money.
The key to understanding this first potential hurdle is in depth research and detailed cost planning. Research among local businesses, by stopping people in the street or within local business networking groups. Wherever possible engage the services of a reputable research organisation and make sure that the research covers the product and price.
2. Marketplace
Even if your initial research shows that people would buy your product or service at a cost effective price, you can't assume that you will instantly gain access to a worldwide audience. For example, you may have invented a gadget to ensure cakes always rise. If there is already a similar gadget on the market then the market may be saturated. Your product or idea would need to have an added twist to make it saleable. Again research into the marketplace will give you guidance.
3. Prospects
Following on from marketplace comes the likelihood of potential customers coming to you. This does involve more research. You need to understand what will attract customers and what would entice them away from existing suppliers. This research will include a look at pricing as well as terms and conditions. Equally important as identifying how you can attract clients is the identification of what will put clients off. For example, a slower delivery time or onerous terms and conditions will put clients off.
4. Competition
From your research on marketplace and prospects you should have built up an idea of existing businesses which offer the same or similar products or services. Mystery shopping these businesses will give you further insights into their strengths and weaknesses. Depending on the business sector some potential competitors will gladly give their time in giving you hints on starting up your business, others will not.
Never forget that existing businesses will have built up a loyal customer base and are in a good position to hold on to those clients. To break into their marketplace you need to understand their strengths and weaknesses, their unique offering and make sure that you can offer something different which will attract clients away. This does not mean just offering a cheaper price. Often this will only lead to your failure and too cheap a price will not attract clients.
5. Finances
Go through your finances with a fine tooth comb and take advice from your accountant. Particularly when offering a service you should expect to invoice monthly and to wait at least another month to be paid. This means that cash flow is critical with outgoings in at least the first two months not covered by income.
