How Not to Start a Business

How Not to Start a Business


South Africa is hungry for business and all of the associated benefits this entails. Lack of employment and high poverty levels have bred a generation of entrepreneurs keen to create opportunities for themselves and others.

While many have succeeded, there are also many failures. As a specialist in SME development, I have learnt from experience how aspirant entrepreneurs get it wrong and how they can avoid the pitfalls of being an entrepreneur.

The first mistake would-be entrepreneurs make is trying to start a business for the wrong reasons. If freedom, job creation or wealth are driving you to start your own business, then it’s doomed to fail. These benefits usually stem from running a successful enterprise that has identified and met a genuine need in a unique fashion. They should not form the basis for starting a business.

Getting it right

Aspiring entrepreneurs need to understand that the basis for a successful business revolves first and foremost around satisfying the needs of customers. A business can be likened to a ‘jealous lover’ in that it will demand most of your time, it requires significant commitment, sacrifice and passion, and it will interfere with all of your plans.

Once a need has been identified, entrepreneurs need to do their homework. Simply put, if you do not fully understand what it is you want to offer, who your target market is, the costs involved, or who your competition is, you are setting yourself up for failure. Researching all of these aspects is vital and should help you determine whether or not your business has a shot at being viable.

Once your ‘homework’ is done and your business established, it’s important to stay focused and keep in mind that clients’ needs evolve and businesses need to evolve with them. As an example of how market needs have changed within a relatively short space of time, consider the cell phone industry and how one-time brand leaders are now struggling to keep up with new entrants because they were complacent, failed to remain relevant and failed to evolve accordingly.

Read Next: 12 Rules for Start-ups

Show me the money

Implementing proper financial controls from the start is also key to success. A few basic rules apply when it comes to running a business. These include: drawing up a reasonable budget then sticking to it, and avoiding the temptation to use your business as your own personal piggy bank.

Rather pay yourself a set salary every month and live within your means. Staying in touch with your book-keepers and keeping your finger on the pulse of your business’s financials is also crucial.

Poor credit arrangements, lack of financial planning, unnecessary overheads, inadequate cash flow and a lack of basic reserve funds are amongst the key reasons start-up businesses fail. Entrepreneurs from disadvantaged backgrounds sometimes create cash flow problems for their businesses when they hit the ‘big time’ as they are overwhelmed with their new-found fortune and splash out on luxuries.

If you find yourself tempted to splurge, step back, remove your previous circumstances and ego from the equation, and decide whether or not what you’re about to do is going to compromise your business.

Be realistic

It’s also important to understand what your business can and cannot achieve. Know your business’s limitations and understand that you cannot be everything to everyone. Successful entrepreneurs do not over-promise and under-deliver.

You can have all the correct processes and operations in place but if for example, you accept a R100 million order and are only capable of meeting the requirements for a R10 million order, you’re taking on too much financial and reputational risk.

Other principles essential to business success include: keeping things simple, avoiding distractions and employing the right people for the job. Proper risk planning, networking, promotion, presentation and perception also play important roles.

Ultimately, the fact of the matter is that some businesses survive and others do not. The business of entrepreneurship is not an exact science and not everyone is cut out to be an entrepreneur. It requires drive, an appetite for risk and a tolerance for pain.

That said, if you adhere to the fundamentals and give it everything you’ve got, then you’ll be giving your business the best possible chance at success.

Read Next: How to Quit Your Day Job

Denvor Phokaners
Denvor Phokaners spent 15 years in business development in South Africa and abroad before launching his enterprise development consultancy, Enterprise Development Essentials.