If you’re an entrepreneur starting up a new business, you want to make sure it keeps going.
Eight out of 10 startups fail within two years, according to Bloomberg, so how can your startup be in the successful 20 per cent?
The secret is to prepare your business for the challenges that will come during those vulnerable early years.
Here are our best tips for business owners who want to know how to run a successful startup.
Choose the right business partners
If you’re founding the business with someone else, make sure they are the perfect fit both for you and the business.
Don’t allow yourself to be biased towards a friend or a relative.
Yes, it’s important that you get along, but a small amount of personal friction is better than having someone who isn’t up to the job. Remember, you are trusting this person with your livelihood.
Select business partners who bring something to the table that you don’t.
Avoid people who have exactly the same skills as you and who think the same way. Diversity is strength.
Manage your risks
Think about all the risks that could cause your business major problems in its formative years.
- Loss of a major client
- IT problems or data loss
- Running out of cash
- Supply chain problems
- Fierce competition
- A physical disaster (e.g. fire or flood)
There may be other serious risks that spring to mind, depending on the nature of your business.
Make a list of them all, rank them in order of seriousness, and then create an action plan for how you’d deal with (or prevent) each one.
Here you can find out how to create a disaster recovery plan.
Risk management is about more than just reducing risks – it’s about knowing when to take them too.
For instance, it may be a risk to take on a big new client, but the rewards could be huge if you get it right.
Again, consider the risks involved in each new opportunity, assess them against the likely benefits, and make your judgements accordingly.
A rich network of business contacts is essential for any startup.
Develop and nurture professional relationships that will help you keep abreast of the current market, monitor the competition and find opportunities.
Tireless networkers put themselves at an immediate advantage – you never know who might be your next potential client, supplier, partner or advocate.
Networking with the bosses of other startups is also a great advantage – you can learn from their experiences, tap into their existing networks and offer mutual support (so long as they’re not a competitor).
Online platforms such as LinkedIn and Shapr are good ways to manage your network, but don’t rely on them exclusively for building it.
There is no substitute for meeting someone in person, so attend relevant seminars, festivals and other events and be as outgoing as you can.
Avoid being pushy early on – the first step is just to gain their interest and respect.
Hiring staff – when should I do it?
The answer to the question ‘When should I hire staff?’ is usually, ‘When you have no alternative!’
Staff represent one of the most costly business overheads, so the moment to hire your first employee is when you already feel as if you’re doing the work of two people.
The same usually applies to subsequent hires: you should wait until your workforce is stretching its capacity before investing in a new team member.
The exception might be when you need to bring in additional skills or branch out into new areas of expertise.
Even then, make sure you have a strong commercial case before setting off in a new direction, as it may be some time before it justifies the investment.
Find out how to be a good employer.
You will be probably want to grow your business as fast as possible – but the key word here is ‘possible’.
Your small business may struggle if you try to take contracts that are too big in the early stages, or take on too many clients.
The consequences of biting off more than you can chew include:
- Cash flow problems
- A reduction in quality or delivery times
- Logistics and capacity problems
- Reputational damage if you disappoint your customers
When going for growth, build your targets into your business plan including what will be needed to achieve each step in terms of staff, funding, logistics etc.
To get a better idea of this, look at similar startups and investigate:
- How have they grown over the years and at what cost?
- What challenges have they faced?
- How have they overcome these setbacks?
- Have they stayed true to their original brand?
- How has their business model adapted with their growth?
If you do come across a huge opportunity that is too good to pass up, then consider the risk in advance and plan for them as thoroughly as you can. Don’t just go for it and hope.
Develop your marketing
Marketing is the tool you use to reach out to your customers.
Don’t expect people to just show up and buy from you, and don’t trust to word-of-mouth (which in the digital age is nowhere near as powerful as it used to be).
Remember those 80 per cent of small businesses that fail in their first two years.
It’s not long to make a name for yourself, so it’s at the start that you need to shout loudest of all.
Find out how to build your marketing strategy.
Master your finances
Whatever money is needed, add a further 25 percent to cover any additional costs.
These unforeseen costs might include insurance, tax bills, repairs and any extra equipment you need.
Track your spending. Keep a budget spreadsheet and record all your income, outgoings and any debts accumulated.
This will come in use later down the line when you’re budgeting for a new project, or putting together a pitch or business proposal, for example.
Unless your business is very small, an accountant is usually a must.
One of the trickiest things to get right can be managing your cash flow.
It’s easy to confuse your total assets with the amount of ready cash you have available right now, and find yourself with unpayable bills despite otherwise healthy finances.
Remember, cash is king.
Sooner or later, you will make mistakes and you will try something and fail.
What matters is how you respond to that and come back from it.
Remember that the most successful entrepreneurs have experienced failure – try to do what they did, and learn your lessons from it.
Never let yourself get in a position where a failure could mean disaster.
Failure is always an option, so plan to deal with it in advance.
Build in plan Bs and plan Cs into your business plan, so you can change tack with no loss of momentum.
And like a canny investor, never stake more than you can afford to lose.
When mistakes happen, hold debriefings with your team to figure out what went wrong.
Don’t use these to apportion blame, but to learn lessons for the future. Usually you’ll find something positive to take away too.
Sometimes a setback will identify a weakness in your business model or plan.
Take the opportunity to make improvements and the experience will prove a valuable one.