Who has never impressed their friends and family with a business idea?
But guess what? They’re biased! Your enthusiasm, along with your close connection to them, means this research will not stand up in the real world.
Although many start-ups develop detailed business plans before they launch, much of the research done for the business plan is limited. It’s either secondary research (such as desk research) or it’s biased primary research conducted among family and friends.
Having a great idea is not enough — it needs to be proven. Moreover it must be proven in a reliable way. By simply questioning biased participants, you risk going forward with unreliable figures.
However, many entrepreneurs still do it. Being realistic is the key to business success for start-ups. Objective research is vital; you need real opinions from your target audience. You must target the type of people that you plan to sell your product or service to. This is your opportunity to get inside the consumers’ minds and ask the important questions.
Objective market research delivers unbiased views, reliable statistics and valid results. Proper market research can also help you when you are seeking funding. Start-ups have a series of barriers to overcome when seeking credit. Reliable data is likely to make your business plan stronger and any pitches you make should be more successful.
So don’t make the mistake of just surveying those in your close circle. Independent research should be at the heart of a realistic, impartial business plan.
Many times I’ve heard people say, “I only do business with people I like” – but is this a sensible approach?
Most small businesses operate in markets of limited size. They have a finite amount of potential customers, with a range of competitors doing more or less the same thing.
So, for example, if a rude and unpleasant customer walks into your business, do you do business with them, even if you don’t like them? Would you rather say no and not be too miffed if they head off in the direction of one of your competitors?
You might not mind too much. You might say: “I wanted to set up my own business partly so I could choose who I work with”. The truth is, only doing business with people you like will limit your ability to grow.
Don’t get me wrong, if you can have a good, personal relationship with a customer, that’s the icing on the proverbial cake. To strive for that with every customer will limit the scalability of your business and your revenue opportunities.
Having good business relationships with customers, based on mutual trust, respect and understanding is certainly a goal to strive for. But that doesn’t necessarily mean you’ll become best buddies and regularly chat on the phone every day.
In the summer I started working on a project with a guy I got on very well with. Nights out together, drinking beer, good laugh, but the perfect person to do business with? No. When working with him I found him to be unreliable. He talked a good game, but failed on three important deadlines, which ended up costing me time and money.
Would I ever go for a beer with him again? Sure. Would I ever do business with him again? No chance.
Liking me as a person is not the same as liking the way I do business. Only doing business with people you like is restrictive. The best way to know how you’ll do business together is by doing business together. To build a business of scale, it’s impossible anyway to know all your clients personally. Getting on with each and every one of your customers doesn’t guarantee success.
Darren Leighfield, Director at EtcEtc Ltd
When you start an online business, as well as deciding what to sell, you have to make some fundamental decisions about your “platform”. In other words – what technology and payment methods are you going to use.
The last few years has seen a dramatic rise in “online marketplaces” such as eBay and Amazon. These have helped tens of thousands of people to start ecommerce businesses and some have gone on to major success.
The great advantage of marketplaces is you don’t really need any technical knowledge to start selling and even more importantly, they deliver visitors to your store from day one, so you don’t need any knowledge of online marketing either.
The first marketplace downside is cost. Listing and transaction fees will take a big bite out of your profit margin – up to 15 per cent of sales in many cases.
The second is control. You must adhere to the marketplaces’ strict policies and your business can disappear overnight if they decide you have stepped out of line. And this really happens to some people. It may not be important when you’re a part-time start-up, but it’s critical once you have an established business.
The final disadvantage is slightly ironic. Because it’s so easy to get started, there is a constant stream of new competitors, many of whom are running their business in the evenings. The most common approach of these businesses is to compete on price, which puts pressure on margins for everyone. Most of these businesses do not last long, having exhausted their savings selling at a loss. Unfortunately, there are always new ones to take their place.
The alternative is to register your own domain name and run your own store. If you are going to do this it’s sensible to choose one of the online store or shopping cart providers. Again, that pretty much eliminates the need for technical knowledge. Search for ‘ecommerce software’ to find the top providers.
You will need to learn how to attract traffic, probably using search engine optimisation and pay-per-click advertising through Google, but you will be rewarded with much better margins. I must declare an interest here as my company, provides a low-cost start-up online store called SellerDeck Express.
It’s also worth thinking about telephone ordering. This is more critical for certain demographics and products, particularly technically complex and higher priced items where customers want to be sure they are ordering the correct item. Telephone ordering won’t work through marketplaces, because they require their margins.
The final decision is how to take payment. The main choice is between using PayPal (which allows payment from a PayPal balance as well as by payment card) or having your own merchant account that allows you to accept card payments directly.
As a start-up, it’s best to use PayPal, because this gets you going quickly and easily. However, once you are up and running it’s best to add ‘merchant status’ from a bank. This enables you to accept card payments without going through PayPal, and it’s much cheaper.
It’s worth keeping the ability to accept PayPal balances because some online shoppers have a balance in their account, especially if they have sold items on eBay. This can burn a hole in their pockets and some sites report up to 10 per cent of more sales from accepting PayPal.
The choices are fairly clear, Marketplace versus own store, PayPal versus merchant status, or a combination of them all. Get your choice of platform right and you could end up on the high-speed train to success.
As the founder of an organisation that helps small businesses grow, one of the key challenges owners often face is how can they boost their productivity? At a basic level, increasing productivity starts with developing an optimised, streamlined workflow for day-to-day administration.
Thankfully, there are literally dozens of tools that can help you do just that. Here are a few of the ones I use.
A message from Phil Orford, chief executive of the Forum of Private Business
Last week, we launched Get Britain Trading — a new FPB campaign designed to transform the fortunes of smaller businesses across the UK.
Get Britain Trading is all about improving the conditions small firms are forced to operate under — but it also aims to inspire business owners with a strong message of confidence and positivity.
We’re only a day into the campaign, but we’ve already had a phenomenal response. The Forum has been inundated with emails, Tweets and calls from small businesses expressing their support and asking how they can get involved.
A number of trade bodies have also been in touch, both to back the campaign and to ask us to link up with them on future initiatives which they have in the pipeline.
Get Britain Trading comes from a simple premise — small firms make a massive contribution to the UK’s economy. They employ half of all the workers in the UK, make up around 99 per cent of businesses, and contribute well over a third to the country’s income. Why is it then that successive governments have made things so difficult for them, adding layer upon layer of complex legislation and making the process of employing people risky and confusing?
If we were smart and were looking to give our economy a real boost, making things simpler for small companies would seem like an excellent solution to the economic problems we’re experiencing. Not only would business owners benefit from increased profitability, but jobs would be created and unemployment would go down, creating a real win-win situation for everyone.
The current Government does seem to be taking some steps in the right direction, but there is much, much more that could be done.
And that is what Get Britain Trading will do. It will raise awareness of the massive contribution small firms make, and lobby the Government to make changes that will enable small firms to grow and become more profitable.
But in order to do this, we need as many businesses as possible to support Get Britain Trading. You can do this simply by visiting www.getbritaintrading.co.uk and signing our pledge — it literally takes just a few seconds.
It also worth mentioning that we want to hear your suggestions for what could be done to help your business, and other firms like yours.
You can get involved through the Get Britain Trading website, where we’ve also got a group of experts together and asked them to share their tips on ‘getting your business trading’. Businesses will be able to download this advice guide when they sign the pledge.
We’ve got a big task on our hands, but there are actions that we can all take to Get Britain Trading for the benefit of the economy and everyone who lives in Britain. Please don’t hesitate to submit your ideas and suggestions via the comment boxes below.
This blog post originally appeared on the Forum of Private Business website
Over the years I’ve experienced the pleasures of working at a successful start-up – and heard about the disappointments of being trapped in a failing one. Often there is a thin line between success and failure, and you’ll want to be on the lookout for any signs that your company is not heading in the right direction. So what are the signs?
It’s a familiar story for many self-employed people. The end of the month comes round and you don’t have enough cash in the bank to pay yourself, but hope there will be enough cash next week. This particular ‘next week’ never comes. Then, in a couple of months, you find you haven’t taken a wage and are in mortgage arrears.
DON’T do it. Not being able to pay yourself in anything other than extraordinary circumstances is the first real signal that something is wrong. If having enough money to pay yourself becomes a persistent problem – close the business down and get a ‘proper’ job.
DON’T do it. If you use three personal credit cards to pay business suppliers, all with £10k credit limits, and your business fails – imagine being left with £30k of personal debt.
You never have any cash in the bank, you are running an overdraft and you’re continually hovering around your limit. If you can run your business within your overdraft limit – why can’t you run it without an overdraft?
You dread that phone call from the bank manager asking you to come in and see him. Once that panic sinks in, the alarm bells should be ringing. Don’t let it get this far down the line.
Don’t fret if you recognise these warnings. A failed start-up is not the end, it can be a stepping stone onto your next idea, which could be a much more successful business. Noticing the downward spiral and avoiding the accumulation of unwanted debts and wasted time – now that’s a real life saver.
Take solace in the fact that it took my boss three businesses before he started Stinkyink.com. The lessons he learned from his failures helped shape the company into the success it is now. So whatever happens with your business will doubtless make you stronger.