Everyone, I mean, literally everyone, wants to have some kind
of business to their name; from those with very excellent business ideas but
without the capital, to the ones awash with both solid and liquid capital, but
devoid of basic business idea; and the perpetual “dreamers” who perceive
themselves as the next Bill Gates and Tim Cooks of this world, but lack both
the ideas and the capital to engage in any form of entrepreneurial venture. Business ideas could range from a home-based
bakery, lawn-mowing, delivery service, housecleaning, and dry-cleaning business
to a fast-food franchise chain, and a conglomerate.
However, many obstacles lie in the way of prospective entrepreneurs;
chief of which is the lack of entrepreneurial spirit itself – the drive and
determination to succeed against all odds. For those who have the spirit and
determination, enumerated below are some steps and requirements to a successful
entrepreneurial venture.
Market and Need
First on the list is to identify the market: rural, suburb,
or urban area; then, the demographic segment within the market that you want to
serve: men or women of certain age, race, education level, and income bracket;
bachelors, spinsters, couples with family, gays/lesbians, or transgender.
When you narrow down the market and the desired demographic,
the next step is to ascertain the need within the market that you want to
satisfy. Is it a good or a service? Is the need already being met by some other
provider? If so, how can you improve on, or add to, what already exists?
Finally, at what cost?
Product or Service?
In your chosen market, there may exist a need that is not
being met by a provider; in which case, you will have to start from scratch to
build a business which will provide that product or service. If the need is a
service, what is the best way to provide it? Online, direct/in-person, or
through a third party? If it is a product, do you manufacture from scratch,
assemble completely knocked down parts (CKD) and deliver, or repackage bulk
purchases for retail sales? If you are manufacturing from scratch, what will be
your initial quantity? What size of storage space would you need? What initial
manufacturing equipment would you need? All of these would contribute to determine
the size of initial capital investment you will need. Some of these same
questions apply if you are assembling CKDs, or repackaging bulk purchases.
The next decision to make will be logistics; direct delivery
by mail or with your own company vehicles and drivers? Contracting out the
delivery to a third party commercial delivery company, or independent hot-shot
delivery firms? Customer pick-up from an outlet?
Name and Registration
What comes first depends on the entrepreneur, the type of
business (sole proprietor, partnership, or joint venture), and the
product/service to be offered. Some people pick names for their companies
before even engaging in any market research, while others do so after the
research. Whichever is the case, everyone goes through the process of
registering a name for the company in their proposed city, county, state, or
nation of service. Process of registration depends on the bureaucracy of the
country and culture involved; in developed nations of the Americas and Europe,
it takes from one day to a week (in-person), and probably more if done by mail.
In African and most Asian and Central American countries, it can run into
months, if not up to one year, to register a business.
Staff and Compensation
This, also, depends on the type of business and the prospect
of expansion. A sole proprietor will not need as much staff as a partnership,
corporation, of joint venture; neither will a service provider need as much
staff as a manufacturer of products. The staff strength could range from mom
and pop to technicians, office assistants, drivers, line production staff,
loaders, etc. Depending on the product or service offering, they could range
from lobbyists, information technologists, to unskilled laborers. Also, the level
of education could range from high school graduates to postgraduates and
experienced professional certificate holders. The age range is equally a
factor; from teens and young adults to middle-age. A decision on the initial
strength and quality of staff, helps with determining the initial compensation
package offered.
Advertising/Marketing
For some prospective entrepreneurs, the next step will be to
work out an initial advertising/marketing format and budget; social media or
traditional – TV, radio, newspapers? Distribution of flyers and business cards,
or word of mouth? All these different forms of advertising have their different
costs and reach; so, an advertising budget should factor in your initial target
reach, internet and media accessibility, and the literacy level of your target
market. Where your target market is the general public, all the above forms of
advertising should be used; in the case of a narrowly-defined target market, a
specialized format may be necessary. There is nothing wrong with a combination
of the two.
While some forms of social media advertisements, like tweets,
Facebook, WhatsApp fora, etc, may be free, they are somewhat specialized; you
are targeting a particular audience; your friends on Facebook (and their
friends, et cetera), followers on twitter, and the collection of contacts you
built up on a WhatsApp forum, anything beyond that, and to reach a wider
audience, will cost some money. The hope is that your social media contacts
will help spread the news of your business. You made opt to join groups or
platforms on Facebook Marketplace, or the like, in other social media outlets;
while some have guidelines and small fees, others offer free entry and exit.
Again, the service you offer will dictate, to a large extent,
the form of advertising you elect to invest in; specialized goods and services
require targeted advertising, while general goods and services will require all
the forms of adverting strategy listed above.
Feedback Mechanism.
Establishing a feedback mechanism at the start of your
business is key to improving your product or service offerings. An efficient
and easy return/refund/exchange process, is necessary to build trust in your
customers or clients. A repair service, where necessary, should be fast and of
good quality work. Another effective feedback channel is a follow-up with
customers either by phone, information box, or ratings on social media. The
response you get will help you understand the feelings of your customers
towards your services, allow you to make the necessary changes to stay in tune
with changing needs and market shifts, and help you build a list of loyal
customer base.
It is very important to pay close attention to the negative
feedbacks, because those are of a greater value than the positive ones. In the
event of a possible expansion of your market base, negative, or critical
feedbacks, allows you to offer divergent goods and services to segments of a
market.
Inventory
What to hold, when to hold, and how much to hold. First, you
must determine, based on the life span of the good you offer, if you should
hold inventory and how much. Perishable goods with short lifespan? A
just-in-time inventory process may be the best option. If you are in the business
of manufacturing or distributing durable non-perishable goods with extended
shelf life, a three to six months’ worth of inventory may be ideal. Of course,
as a startup company, three months will be just right. This is an important
factor in determining your overall startup cost. As the year progresses, and
you are able to predict your quarterly business volume, you can gradually
increase your inventory holding and budget.
There is no need for inventory if you are offering consulting
and other advisory services. However, some hospitality businesses, like
housekeeping, does require the holding of some inventory of cleaning products.
So, how much, and if you hold inventory at all, depends on the line of business
you want to get into.
Product/Service Pricing
As a beginner, strategic pricing is very important; the idea
is to attract and retain customers. Regardless of what good or service you are
offering, it is to your initial benefit to start low; though, at a cost.
However, in the long run, due to high sales volume, you will be able to recoup
those initial losses. There are different pricing scales for different goods
and services in every market segment, and to wet one’s entrepreneurial feet in
any market, one needs to either, initially, offer a promotional price, which is
usually at a heavy discounted rate; or, offer coupons to be redeemed upon
purchase of a second item, or a reach certain amount of total purchase.
Once you have established your presence in your chosen
industry, you can begin to offer specialized pricing in your market. Where multiple
goods and services are offered in diverse market demographics, you can offer
pricing to suit specific markets or demographics.
Where you intend to offer the same type of good in diverse markets,
you may choose to apply a uniform price in all the markets. So, there may be no
need for specialization. This strategy comes with drawbacks, though. One,
high-end markets may not accommodate low-rate goods and services; so, the
prospect for growth will be very minimal. Second thing to keep in mind is that
incidents of “dumping”, from foreign or outside competition, is greater in
low-end markets than high-end ones. With it comes the risk of being pushed out
of the market even before you can break even.
It is very important to consider all the above scenario
before deciding on a pricing plan for your goods and services. Also, always be
mindful that market forces, both internal and external, will always dictate
prices in a market, non-monopolistic, economy, and be prepared to adjust to
suit turbulence of the times.
Startup Capital
You would not know how much you need as startup cost until
you have figured out all of the above. When you have decided on those, the next
step is to start sourcing for capital. The three main capital markets for
entrepreneurs are savings, loans, and partnerships. We will look at these three
in details;
1. Savings: we will explore three sources of
savings here, private, family, and retirement, or 401K. The type and scale of
business determines the amount of startup capital, some people may have access
to family savings (old money), trust funds, or their individual retirement
accounts (401K). Access to substantial amount of old money is always a plus
when planning to set up a business; unless one is very sure of a steady stream of
profit to replenish what is borrowed from the retirement account, raiding your
401K for startup capital is not
encouraged.
2. Another
source of capital is loans. You can borrow from banks, which will require
having good credit, a collateral, or guarantor of the loan; from friends, some
of whom may request to be partners in the business, or from family
member/members. Loans from the bank, apart from a collateral, comes with
interest rates which may depend on your credit score, and a timeline to finish
payment. Family members can be more generous than the banks, but available
funds are usually limited. A pool of loans from friends may be able to meet
your financial needs, but some, if not all, might ask for partnership in
exchange; especially, if the prospects for profit are favorable. Where that is
the case, it is up to you to decide what arrangements you are comfortable with.
3.
Partnerships,
limited and otherwise; dormant or active/managing, and joint venture, are all
other ways to raise initial capital for your business. You can draw partners
from your group of friends, siblings, other relatives, or college alumni. The
share of ownership, and the role of each partner in the business, depends on
the percentage of their contributions, their interest in being actively
involved in the business (determined by available time), what skills they bring
to the table and how those skills can contribute to the success of the business.
It is important to work out and sign off on all the details of succession, what
to do with the profits, and how to proceed with expansion plans ahead of time
before any partnership agreements are sighed.
4.
Joint
venture does bring with it two things: capital or technical skills. For easy
access to capital, you may want to consider a joint venture partnership, if you
have either the needed skills or access to raw materials or market that will
attract venture capitalists. Again, there is a lot involved in this type of
partnership; so, depending on the size of your vision, a joint venture may not
be necessary at the initial stage. All
the same, as you begin to contemplate expansion, do not rule it out.
When you have lined up all these requirements in the
necessary row, and worked towards meeting all of them, your pathway to business
success is assured. One thing cannot be ignored or de-emphasized here; you may
have all the best plans in the world, graduate from the best business schools
in the US and Europe, or have access to all the material and financial capital
imaginable, and still end up a failure. It requires entrepreneurial skills to
establish and run a business successfully. You do not have to be a Harvard or
Yale graduate to have that, though they may enhance your natural knowledge and
skills; you have to be a graduate of the school of common sense, first.
