MDUDUZI LUTHULI: Five lessons to learn when starting a business
No matter how prepared you think you are when launching a new business, there will always be a curve ball. Whether you’re a seasoned entrepreneur with several businesses or an ambitious one on your first voyage, we can all agree that the first 365 days can be the most frightening.
Few small businesses make much profit in their first year — if any profit at all. Even with a low startup cost business, you must eventually invest money to grow it by expanding products, services, moving into new geographic territories, or hiring others to help you.
I’ve been running my own business since September 2016. Here’s what I’ve learned.
When you’re not looking for an investor or bank loan, it’s tempting to skip a business plan altogether. However, the process of writing out your plans is a great way to hone your vision: what problem are you trying to solve? Whose lives are you trying to improve? What’s your realistic time frame for launch, sales, and profitability? You don’t need a 100-page document, but your plan should be detailed enough to determine if you have a good target market and business model.
Set aside money to help fund your operations for the first year if you want to give your business a fighting chance. A good rule of thumb is to have saved enough money to live for a year before you quit your day job to launch the business full time. If you’re planning to fund the business yourself, set that money aside in a separate account to better track expenses, income and how much runway you have left at any given time. If you’re going to need investors or a loan to get started, make sure you have access to that money before you open shop.
When you start a business, you must wear a lot of hats. You’re the manager, sales team, production worker and bookkeeper. That said, you can’t build a business alone.
You need a network of people to help you. Lawyers can help you work out the legal requirements for registering your business. Insurance agents can tell you what kinds of coverage you need. Third-party recruiters can help you develop sourcing strategies for finding your first employees. And bankers can provide you with the right funding options.
Build relationships with the people who can get your business idea off the ground. Connect with individuals who will give expert advice and save you from making unnecessary start-up mistakes.
Understanding when you need to make a change is very important in any business. For example, if your business is more robust on the internet, make it an online business. If your business is better in a certain location, change it. Cater to your audience’s needs and be willing to take honest criticism and accept change.
No matter how hard you work, there will always be ups and downs in your business. Adaptation is key to risk management.
If you are looking to rapidly expand your business you must learn to keep pace with the competition. However, this doesn’t mean you should spend a huge amount of money on research and development. Instead, concentrate on your target audience and discover their key motivators and pain points, to make sure your product or services address them.
Keeping your offer ahead of the competition and convincing your customers that you are the best in the market is a challenging task. Try to find the perfect balance between price and the quality you are offering.
Never try to take on the big players by slashing your prices to the point where you undercut yourself. Instead, motivate your customers with other unique selling propositions — whether that’s great service, amazing aftercare, or the personal touch only a small business can provide.
Good luck! You’re going to need it.
• Luthuli is an independent financial adviser and founder of Luthuli Capital..