This Enterprises UP Expert Explains Why Start-Ups Really Fail

This Enterprises UP Expert Explains Why Start-Ups Really Fail

SHARE
dr-alex-antonites

Vital stats

  • Player: Dr Alex Antonites
  • Organisation: Enterprises University of Pretoria
  • Position: Professor in Entrepreneurship in the Department of Business Management at the University of Pretoria. Consults for Enterprises UP.
  • Established: 2000
  • Visit: enterprises.up.ac.za

As a lecturer at the University of Pretoria and a consultant to Enterprises UP, Dr Alex Antonites has dealt with a lot of new entrepreneurs. And one of the main reasons their young businesses go under is a failure to focus on the fundamentals.

Too many new entrepreneurs are so eager to get out there and sell, that they neglect important support functions until it is too late.

Related: Entrepreneur BB Moloi’s Inspiring Story of Rise To Success Through Grit And Hard Work

Here are Dr Antonites’ tips for getting the fundamentals right.

1. Do your research

“Many new businesses fail because the entrepreneurs involved simply don’t understand the market or the industry,” says Antonites.

“Before investing too much time and money into a business, you need to do research. There’s a lot of information out there these days, you just need to access it. Examine the nitty gritty of an industry. What are the rules and regulations involved? How saturated is the market? Who are the main players? What kind of capital do you need to set up this particular kind of business?

“You also need to do what is called customer discovery. Before launching a business, get out there and speak to people. Find out if there really is a market for what you’re selling before you invest too much time and money.”

2. Understand turnover

“When it comes to ascertaining the health of a business, we don’t actually pay much attention to turnover. It all depends on the industry you’re operating in and the margins you’re dealing with,” says Antonites.

“In an industry like mining, for example, you could have a massive turnover without really making much money. So, in order to be successful, you need to understand — and pay attention to — things like gross profit, net profit, debtors, creditors, etc.

“You need to know exactly what the financial situation of your business is at all times. You need to know what’s coming in and what’s going out every single day. You also need to be able to read a financial statement and know what’s going on. Some financial literacy is important. You don’t need to have a degree in accounting, but you need to understand the basics.”

Related: RocoMamas Founder Brian Altriche’s On Fabulous Failures And Visualising Success

3. Ask the experts

“When your business is new and you’re not really making a lot of money yet, employing a financial or legal consultant can seem like an unjustified expense. But getting an accountant to look at your books or a lawyer to examine your contracts is worth it. A lot of businesses bring in experts only when there’s a problem. That’s often too late. What you should do is bring in knowledgeable people early on. Many businesses make mistakes during the first year or two that they end up paying for long afterwards. This is especially true when it comes to contracts with clients, suppliers and employees. So a lawyer can end up saving you money in the long run,” says Antonites.

4. Spend as little as possible

“While some things, like getting an accountant or lawyer, might be justified, it’s still important to manage your expenses carefully,” says Antonites.

“Moving into expensive offices or hiring a lot of people can cripple a young business, so you want to keep your expenses as low as possible.

“Where a lot of small businesses end up losing money is in procurement. I had a student a while ago who was in the construction industry. His turnover was very decent, but he wasn’t making a profit. When I started questioning him about it, it became clear that he was purchasing his building supplies from a retail store, so he was paying R2,10 for a brick. Once we found a place where he could buy supplies at wholesale prices, he was suddenly only paying 90 cents a brick, which meant he was now making a solid profit.

“Even as a small business, you need to find ways of getting good deals from suppliers. Paying retail prices is not an option. One strategy that often works is setting up a buying cooperative. Teaming up with two or three other businesses can give you a much better bargaining position.”

Related: How Neil Robinson Is Saving The World 1 Bracelet At A Time

Take note

It’s tempting during the early days to neglect admin and financial controls in favour of getting out there and selling, but it’ll be detrimental to your business in the long run. A sustainable business establishes the right controls early on.

GG van Rooyen
GG van Rooyen is the deputy editor for Entrepreneur Magazine South Africa. Follow him on Twitter.