John Mason is in the midst of writing a new business book. Here is an extract from part of it. -rough draft at this stage.
New businesses need to deal with five things:
1. Getting a Product that can be sold
2. Establishing Systems to manage the business
3. Finding Potential Customers
4. Selling to those Potential Customers
5. Delivering the Product
This may be a simplistic view of business, but it is a very helpful way of understanding what needs to be done, and doing it properly.
Think of these as “five key areas of business”.
Businesses Don’t Need to Fail
We’ve all heard stories about how 10% of businesses fail, and those stories may well be true; but businesses that fail will usually fail for one simple reason; because they don’t attend to all five areas of concern above.
Some businesses don’t attend to these things because they don’t have the resources to deal with the things that need doing. For example, it is not good enough to develop a fantastic product, and expect the marketing, sales, customer service and other things to just look after themselves.
When you start a business, you must be conscious of the resources you have at your disposal (including money, time, expertise, networks, property, equipment and anything else). Deciding on the product may well be the first step in starting any business; but that decision must be tempered with an awareness of the systems required to manage that product, the market potential of that product, how well you will be able to sell that product and what is required to deliver that product to customers. If your product is not matched with your capacity to handle it; you may well be entering a business doomed to failure.
What Products or Services?
Most businesses tend to start with an idea for a product or service.
Common starting points may be:
• Being told by others that you are “so good” at something that you should start their own business.
• Seeing someone else being successful at something, and thinking “I know more about that; and I could do it better”
• Noticing an unsatisfied demand for something –an opportunity waiting to be exploited
• Studying something that qualifies you to work in a job where most people run their own business.
• Creating something (eg. an invention, a very large building, a book, crafts, etc) as a hobby, and wanting to do something positive with your creation.
Do any of these scenarios ring a bell with you?
In themselves, any of these scenarios may be a valid starting point, but alone, none of these things is reason enough for starting a business.
Not every idea is a good one for a new business.
Being capable of supplying a product or service to customers is nowhere near enough for someone to be successful in a business.
Just because you like a product or service doesn’t mean that other people will like it enough to buy it.
Consider the level of demand that may exist for what you propose to offer. Do people need it badly? Can they live without it? Do you have competition for customers? Who would be a potential customer, and how many likely customers are there? Is demand likely to grow over time, or is there a chance that it may decrease? How much control can you exert over the future of your business? (eg. If a single change in government policy or law is able to damage your business; you may be looking at a risky enterprise)
Consider your personality, health and situation in life, not only today, but over the next few years.
• Start up businesses are often more demanding upon time than what is expected. Families can suffer and stress levels can increase.
• A good business person needs to be healthy, pragmatic and a clear thinker.
• People who overwork, often succeed in establishing a very successful business; but a high proportion of these people will eventually have serious health problems. They may die young, they may be forced by health issues to sell their business.
• People who develop too much of a “personal” stake in their business sometimes find it hard to be “objective” in making business decisions. They can continue doing unprofitable things, because psychologically they cannot accept failure of something the are too close to.
• People who are not serious enough can just as easily fail in a business. Starting and running a business simply does not work if the boss has a heap of other things going on in their life that they consider more important than the business –just as much as if the boss gives priority to working in their business over and above everything else in their life.
How to Manage the Business?
Businesses need to manage all sorts of things, including
• Supply of product or services –Whatever you are selling, you will only have so much that is available to sell over a particular time period. If you are providing a consultancy service, and your business only has one consultant, you may only have 20 or 25 hours a week that you can provide and charge for those services. If you are growing and selling vegetables, you will be limited by the varieties and quantity that can be harvested each week. You need to set up systems that identify the quantity and quality of what can be supplied; and manage that supply. Contingencies need to be in place (eg. What happens if the consultant gets sick); and any necessary goods must be acquired ahead of being needed, and stored properly so they are available when needed (eg. Office supplies, goods purchased for resale).
• Finances –Businesses are always going to be seeing money going out and coming in. The availability of finance needs to be assured (liquidity); and the level of both spending and income must be controlled and recorded (bookkeeping)
• Legal –Any business will be affected by the laws of the land that it operates in. The business must understand those laws and put procedures in place to ensure staff and the business as a whole is operating in accordance with those laws.
• Staffing –Procedures need to be clear and consistent, to ensure staff do what needs to be done, when it needs to be done and in a way that it needs to be done.