Traps for first-time start-ups

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2014-04-05 10.37.06I went on a trip down to Bloemfontein en route to a game park in the Free State where the Caledon and Orange Rivers meet. On the Saturday morning we went shopping in Bloemfontein in the smaller suburbs and came across a small burger business called Burger Mania that is doing very well.

On the way to the game park we came across a roadside stall that is doing a thriving business despite being situated in a remote area along the N1 highway. This roadside stall mainly stocks home-made food products and crafts that are made by locals. You won’t find one packet of branded chips there. Almost everything comes from small suppliers. The business owner told me that she’s been running her roadside stall for seven years and is doing well.

Even in the suburb where I live in Johannesburg I have seen over the past few months restaurants with different formats starting up and run by entrepreneurs. It seems that with the tough economy, new businesses are forming out of necessity yet there is more experimentation and daring.

We all know that entrepreneurs are almost by definition risk takers yet there are common misconceptions that entrepreneurs fly blindly into starting small businesses. Let’s look at some of the common misconceptions.

Misconception: Entrepreneurs are more willing to take risk than other people. Yes, this may be so but entrepreneurs are careful about identifying potential risks in the businesses before they start and work out how they can manage or reduce the risk.

Misconception: A small business these days doesn’t need a business plan. This might be the flavour-of-the-month advice from small business magazines and websites but in reality successful business people plan their market entry carefully even though they might not put it all down on paper. Banks require your business plan if you loan money but they’re not really interested in the success of your business but rather how they can secure your personal assets if you fail to pay back your loan. A business plan forces you to think beyond year one and understand what you need to do on your business journey. Optimistic and conservative scenarios help your planning to get more in touch with reality.

Misconception: You don’t need to spend anything on marketing, word-of-mouth is all you need. Even if you’ve opened a store on main street, you will still need to advertise. Once you have repeat business, then you may be able to put the brake on your advertising. But a start-up requires customer acquisition and you need to let people know who you are and what you have to offer.

Misconception: You will offer the best product or service and customers will come. It doesn’t work like this anymore. You need to constantly show your potential customers how good you are and how you differ from competitors. Okay, now you might say that price in this market is all that matters. But reliability, confidence and trust are just as important. People like doing business with people who respect them and listen to their needs and wants.

One thing that sets apart start-up owners and entrepreneurs is that they are able to visualise and actualise – which means that they can carry out an idea whether it be a business model they have come up with or even a franchise outlet, says Robert Schwartz an entrepreneurial expert.

Entrepreneurs and start-up business owners also realise that they might not know everything and need the advice of business advisers. Yet selecting business advisers can be one of the biggest mistakes small business owner makes. Unless a business adviser has run a business themselves and has the proper qualifications and experience be very careful. I saw the other day that some small business development agency was advertising for a business adviser and – can you believe it – all they required was to 2-for 4 years experience in a small business development environment either as a business owner, manager or employee. Can you believe it? That’s really setting the bar low. What business person in their right mind is going to get advice from someone like that?

It’s exciting to see start-up and small entrepreneurial ventures being started but only those who to the proper planning, manage risks and run their business well will be able to thrive and not fall foul of the 80% and more failure rate for small businesses in their first year.

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