Partner Article

Start-ups: realising the dream, or creating failure

We all know the fantasy, the idea of starting a business. Having the autonomy, the freedom, to be the “author of one’s own destiny”. Add the prospect of the ability to make long-term decisions, and levels of income that could not be achieved in employment and range of other factors, and it is easy to see how so many people can be tempted by the prospect of self-employment and starting up an enterprise.

Now I agree with all of those motivations, and if it works, it proves the theorem! The problem is, however, the real life of business is very different to how many people who are not in commerce fantasise it to be. So, without wanting to ‘rain on anyone’s parade’, a modicum of reality testing makes a lot of sense if one is not going to go with the best of intentions and lumber into a business that is ultimately an economic disaster.

Working with many start-ups, some that have been capable of exponential high-growth and others that are frankly teetered, there are some very key questions that people need to sit down and consider. Some would call this tarnishing the dream somewhat; I call it reality testing. Without reality testing our goals and ambitions, they remain just that; ill formed, difficult to operationalise and ultimately likely to be unsuccessful.

We have to accept that for every Dragons’ Den success there are probably 10,000 businesses that just didn’t make it and at least a couple of thousand that struggle to make a way forward, never quite getting the “big break”, that so many people seem to search for. So when thinking about business, here are a few considerations:

One: Is your business marketable? You may have a good idea for a product or service that can be translated into something that people will actually want to buy. It is with this thinking the businesses often fall at the first hurdle. The business owner is in love with the idea of his own idea. As we all, through confirmation bias, believe people think like us, why shouldn’t they buy it? Of course if that were true every business would succeed and clearly they don’t. Refine your idea, test it with potential customers and analyse the market generally;

Two: What differentiates your business? You know we love to talk about innovation and uniqueness, but whilst it exists, it is comparatively rare compared to the overuse of these terms. Again, market testing and doing a competitor analysis will help you establish whether in fact there is something unique and innovative about your business. In many cases, any innovation and uniqueness is about a combination of elements rather than unique activities per se. If this is the case, it does not make for a non-viable business, but it does affect how you will market and talk to customers if you want their business.

Three: What is your ambition and how does this match the business you’re in? Successful businesses have a match between the ambitions of their owners the nature of the business itself. It is possible that entrepreneurs who may know very little about something may, with appropriate levels of risk and reward incorporated into their business activities, nonetheless produce small fortunes. But that is because their ambition is to be making a large highly profitable business fast and they find businesses that will do that, so proving the theorem. This leads to our next point:

Four: Is the business model easily scalable? Scalability of an approach allows it to expand beyond the capacities of the current initiators. Scalability comes from core processes that can be easily replicated. It can also come in complex processes, whether sufficient time and investment in development to drawing skills and technologies to support the expansion. It requires an ability to reduce the business to its most simple essential component parts and pass those on to others in order that they can increase output whilst maintaining quality. For many, subcontracting or automation will allow scalability to occur. For the small business, scalability is the dilemma that occurs when a business owner, providing goods or services finds the capacities exceed their own ability to deliver or that of the small things they currently have. It is a key consideration around business planning and many people struggle with the transitions of change practice that occurred during the scaling process;

Five: How do you resource the operation? Almost all new businesses in particular all those that are going through rapid growth underestimate their need for finance. They assume that the return on investment will somehow come in through sales and fill the difference where, inevitably, there are lags. We all know the old issue of ‘cash flow’! The truth is every strategic decision and organisation large or small is inevitably a financial decision. The decision to have a day off, or stop for a cup of tea, to do a leaflet drop instead of a social media campaign, all of these decisions have financial implications that need to be assessed. That brings us to our next point:

Six: Get your head around money. I’ve been amazed at how many businesses I’ve coached that have counted virtual income rather than dealing with actual costs and available financial resources. Many businesses simply look to their account to keep straight and there are few accounts that will give the forecasting, financial advice that will substitute for a business owner looking at the figures regularly and intelligently and adopting some of the financial considerations that come from disciplines such as accountancy. Prudence and rounding down, for example, are not reflective of an absence of positive psychological process in the mind of a business owner, it is a sensible reality-grounded process that allows a margin for error and a healthy caution. Even the most entrepreneurial, risk-taking businesses have, at their core, this quality. I’ve heard so many times people think they’ve closed the deal and start talking, “happy days”, as if they’re pursuing a fantasy realm. There is a need for the grounded reality about what this means to the company down to the last penny where possible;

Seven: Identify a clear and sustainable supply chain and outsource facilities. Reliable supply chains, whether these are for raw materials or services to support your business, are essential. Good outsourcing of certain organisational functioning, can substitute for the expensive in-house services, especially during periods of growth. In fact we have seen a trend for outsourcing in modern business that is only just beginning to reverse as business confidence improves and companies are beginning to value more the continuity of in-house staff;

Eight: Invest in skills. Whether this is thinking about an apprentice or skilling oneself up to the next level, a neglect of training and development within your organisation will very quickly result in bankruptcy of ideas and competitors having the edge. In times of hardship or times of intense organisational growth, it is often the time to train and develop that gets neglected. The “competitive lag” that is to come is typically six months to two years later, but come it does and then your competitors are ahead of you and you are playing catch up. Equally it makes recruitment harder as people tend to go to organisations that will invest in them;

Nine: Never forget the work-life balance. Some people overdo this, so there’s more life than work and, to build a business, one sometimes has to work disproportionate hours in the early days and indeed maybe the long term. It is important, however, that one does not become habituated to this so a pattern of long hours over many years with corresponding levels of the neglect of self and relationships, family et cetera may mean you survive in business but do not survive in other aspects of your life. We all know of people so successful with their single-mindedness around their work discipline their personal lives have massively suffered;

10: Reflect. Top companies use coaching and mentoring for a reason. Even those that have internal coaching facilities often get the top staff to experience external cultures for the vital cross-fertilisation and ability to think in a constraint-free, confidential, open space where they can reflect without consequence before taking action. There is a view of business, where people, “go it alone”, we celebrate self-reliance and emotional resilience. All of these things can be enhanced by coaching, they are not undermined by this process. The reality testing that has been mentioned right through this article is not a luxury, most businesses with a coaching orientation see it as invaluable and would not be without it. They are usually highly successful businesses.

So, moving forward in business has its challenges, but is quite do-able and can be immensely rewarding, literally and figuratively. The key issue is that we take enough time to think and reflect on the key components of a business and indeed how we ourselves ensure an appropriate harmonisation of effort and ambition.

I have known businesses that have never considered even half of the above list and grind forward, making a living. The differences in running a business and being what I always call ‘savvy’ in business, is having the insight to address, review, reality test, engage with and reflect upon our business’ processes, rather than simply do the minimum and hold onto the initial dream that took us into business.

That approach, unfortunately, ultimately generates nightmares more often than not! So let’s enjoy selling a business, talking about business, doing business, developing growth for ourselves, for our staff and for our communities. For those new to business and indeed those stuck ‘surviving’ in business, the route to success and prosperity requires one shed load of careful thinking and being prepared to do the things that we are often very happy doing.

Psychologists call it behavioural flexibility that is central to being able to run a business effectively.

Good luck to you all. But good thinking works better!

David Cliff is Managing Director of Gedanken and Chairman of the Institute of Directors’ Northern Sector Group.

This was posted in Bdaily's Members' News section by David Cliff .