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Top ten things to think about when setting up a new business

The food and drink entrepreneur Assad Khan, who set up growing bubble tea brand Bubbleology, gives his top ten ‘things to think about’ when setting up a new business.

1) Have an idea that you think will work? Then go for it, and don’t ever hold back! Sure, it may not work, but it very well could have worked and life is not a dress rehearsal! Most successful entrepreneurs have a few failures behind them, but it’s important to learn from them and gain valuable experience. However you must always develop a business feasibility plan to see if the idea has legs before you start risking capital.

2) Before you begin, be very careful about the founding team. The world of start-ups is riddled with horror stories of bad chemistry between founding partners. Just because someone is your friend and you like them, and they want to help you develop your great idea, is NOT a reason for you to get them onto your founding team! It is important that everyone can add value from the beginning. Draw up a shareholders agreement before you begin. Consult a lawyer on this, do not do it on the back of the envelope. Friendship and kin will go out of the window when disputes arise.

3) So you have decided to either go solo, or you now have the perfect launch A-Team. You can now move onto the business plan, and focus on the one part that is usually neglected - the financial model. More often than not, turnover is exaggerated and losses minimised. The reason is because many start up founders are not honest with themselves, as they are too emotionally connected. You need to be as honest as possible when developing your financial model, with your P&L accurately reflecting the real world. Get an independent accountant to review your findings and give an opinion. Take their advice seriously.

4) So by this stage, if your business feasibility plan has been executed properly, with a solid business plan, you should know whether to move forward or not. If there is indeed an opportunity, then try and test the concept in the market. For example, tech start-ups usually launch working Beta products, or if you wish to try a new food or drink idea, then spend a small amount of money and get a temporary stand or pop up store in order to test the concept. When doing the testing, you need to be very careful on how you assess success or failure. Also, DON’T make the mistake of researching only business success stories in your industry – you will gain invaluable lessons from the business failure cases. Research, and learn from others. Ask for help and advice and you will be surprised how often you get it!

5) Avoid the 3 F’s – Friends, Family and Fools. Friends and Family will more often than not be biased towards your venture, and so as a general rule should not be relied on for appraisal of your idea. The third F, “fools”, refer to those individuals who attempt to add value to your idea when in fact they are hopelessly out of depth. Network heavily, find independent experts who can assist you. A poor team means a poor product.

6) Don’t rely on banks for finance. In spite of their latest round of adverts the truth is they will rarely lend to start-ups by first time founders, and only if they provide collateral. I would personally challenge any bank who says otherwise. If your business plan and concept is solid enough, then you should look for equity financing from a third party or group.

7) Brand/ PR/ Marketing – many businesses spend all their start-up money on creating a great product or store or website and then forget to leave enough money to promote it. Rule of thumb is that you need to spend as much if not more on marketing your product than on creating it. Start-ups can get a better return on investment from PR than advertising. But unless you’re an expert don’t do it yourself as you only get one chance to make a first impression.

8) If you decided to launch your business because you always dreamed of having a coffee shop by the beach, and like the idea of relaxing and seeing your friends and family all the time then stop. Entrepreneurship will be the biggest challenge of your life. You are on call 24/7. You need to be emotionally tough, and a bit ruthless. Many start-up failures can be attributed to the founders severely under-estimating the lifestyle changes involved. You need to maintain a positive mental attitude, and know your business inside out – as the buck stops with you

9) Six months after launch, your business is hopefully showing signs of profit, and now you have entered the next stage – how to create a long term growth strategy. Any start up founder who says that they don’t want to grow, and are happy with their business being small is totally missing the point. In business, the numbers do not lie, with sales either increasing or decreasing, they don’t magically stay static. If you only want that single coffee shop by the beach, then great, but don’t neglect the business by refusing to innovate, by refusing to put work into sales plan, a marketing plan, etc. Otherwise you end up being eliminated by economic Darwinism. If you intend to grow your business through multiple outlets/ increased distribution then you need to plan. Remember that you always need to be showing positive growth compared to the previous year, and that means having a growth strategy

10) Aside from getting the start-up finance right, the exit plan is usually the second most neglected aspect of a new business. You should have an exit plan before you launch, which is constantly refined during the progression of your business. What is the right time to sell or exit the business and how will you get there? You may opt to never exit, and instead enjoy dividends every year, but regardless you should have some kind of exit plan in mind. The majority of start-ups dream of the big ticket exit after 3-5 years, which is perfectly fine – but you will need a solid plan. You will need to ensure that you have the right calibre of execution team, you are adequately funded, that the booking-keeping and accounts are up to scratch, and that you make your business as attractive as possible to a third party. Research and study other buy-outs in your industry – why were they successful?

This was posted in Bdaily's Members' News section by Assad Khan .