If you’re thinking of setting up your own venture, you’ll want to know what it’s really like. Here, we shatter three of the greatest myths, and tell you how to become a successful start-up:
Small is beautiful. The reality is that small can be extremely difficult. In fact, running your own business requires great effort and the casualty rate is high. A small business is much more vulnerable to a recession than a larger business. For example, when a big firm loses a major contract, it’s upsetting but not disastrous. However, to a smaller business, it can make the difference between being (just) solvent and going bankrupt. Remember, the vast majority of start-up businesses close within the first year, many with horrendous debts. You need to get the right mix of ingredients together before you begin. So, be sensible, have another source of income for the first year or two.
The people who are best placed to succeed are those who have spent some years working for someone else in their chosen field. You need to know what you are really up against. The highest failure rate is among those people who go into areas they know nothing about. For example, they’ve eaten in a fancy restaurant many times and think it looks easy to manage a restaurant. Also, pick the right associates– this is often overlooked. People go into business with family and friends, usually not the right people at all! A business must have a good balance of talents: an ideas person, a manager, a sales director, a first-rate accountant.
Banks know best. The local branch managers know something about their community, and will have their own personal views on the scope of a potential business, based mainly on previous cases they have dealt with. But, they rarely have any of the specialist knowledge required for success in a particular field. So, if significant amounts of capital are involved, they will need to consult with a regional or head office – and these people have even less expertise on how businesses are run. That’s because they are money-lenders, not business experts. So, make sure you know much more than the banker – prove it, and you will usually get your money.
To raise business finance, understand the nature of the lender, and lending. In fact, commercial loan decisions are based heavily on the impression made by the entrepreneur – the financially literate and articulate borrower has a huge competitive advantage. You require a well-prepared business plan which will show you have done your homework. Expect questions about the key assumptions behind your figures. Also, you need to score highly on the five ‘Cs’ – character of borrower, capacity to repay, conditions (product, industry, economy), capital provided (debt/equity ratio) and collateral.
Gurus have all the answers. Reality: most gurus contradict each other with maddening regularity. This is because most of them have never actually owned their own business, let alone managed one. For example, Peter Drucker, the doyen of gurus, admits he has never run a business or worked as a manager. Important: be selective about who you turn to for help and advice – watch out for: gurus with a passion for fancy jargon, convoluted theories and incomprehensible diagrams. This is because it often turns out to be pretentious waffle.
Take advice from those people who have ‘been there, done that’ before you – they are most likely to offer the best and most relevant guidance. Tip: the best theorists stimulate thought and provide genuine insights – people like South African hotel magnate Sol Kerzner, who bases his advice on what he learned by building his own business