Being an entrepreneur at heart and having a product or a service worth tuning into a business will by no means ensure business success. Too many entrepreneurs start a business because of an idea, without taking the first step in business, to identify a need in the market.
When that million dollar idea pops into the head of an entrepreneur, it is normally all systems go and involves a lot of passion and drive. But is there a need in the market for what this idea will offer? Only when there is a need is the idea an opportunity. So step one: find a need in the market. The possibility exists to create a need, for instance, twenty years ago nobody needed cell phones, but to create such a need takes a lot of capital.
Filter the idea
Step two is to filter the idea, or opportunity through three filters; operational, financial and marketing. Is it at all possible to execute the idea? Are the necessary skills and resources available? Is it possible to provide the product or service at a market related price?
Being a start-up company, competing against bigger competitors, can the product be provided at a price lower or at least equal to the competitors? Are there cheaper imports in the market? The last filter is the marketing filter. Does the market want the product?
Can it be supplied according to customer requirements, at the right price, place and time? Many a retrenchment or retirement package has been wasted due to entrepreneurs investing in an idea without doing the necessary research.
Once the research has shown that the idea is executable and definitely an opportunity, it is important to define the target market clearly. Even if it is possible to service the whole world, affect the entire global population with this solution to a global need, there is not an entrepreneur in the world that can immediately take on a global campaign, marketing wise or logistically.
A well-defined target market will describe the age group, income group, qualifications, geographical area and gender of the target market, at least. In the case of a business to business product, describe the geographical area, the size of the company and the industry in which the product will be distributed.
The importance of research
Once the target market has been defined, in-depth research and development can start. The entrepreneur now knows who will buy the product, but what are the specific requirements? Would they rather buy a pink than a green one, would they like it delivered or prefer to buy it from a supermarket, what size would be most convenient for the customer.
In the service industry, extracting client requirements is even more important. Lots of efficient work can be done, but if it is not exactly according to customer requirements it will not lead to a good customer experience.
Step five is to develop the product or service, document what it is and set specifications and standards. Even if it is a service rendered, “productise” it.
Then enters the elusive and mystical business strategy part, that part that business consultants tell entrepreneurs to pay big money for, to go away for a couple of days with them and then to hand over the cheque in return for a thick book, that entrepreneurs proudly put on a shelf in the newly furnished office.
When starting a new business, strategy can easily be done without paying any money for it. What is your vision? In other words, what do you want to achieve with the company. What contribution will your newly developed offering make to the target community? A vision is a one line statement:
“To offer a high quality product to a specific market in order to fulfil a specific need.”
What’s your mission?
The next component of the business strategy is the mission. How is the vision going to be achieved, according to which principles and at which standards? Be specific. “To be the best service provider globally” doesn’t cut it. Identify each component that will contribute towards achieving the vision.
Goals and objectives should be mid-term while vision and mission are long-term. In other words, once the vision and mission has been established, set specific steps necessary to achieve the vision and mission, allocate resources and set time lines to form the goals and objectives. The final part of the business strategy is the roll-out plan. Merely a step-by-step plan of how the business will be established, managed and marketed.
The next step is to structure the company. Decide where it will operate from, what resources such as furniture and equipment will be necessary, what roles need to be fulfilled, how many people will be required and, most importantly, how much capital is required to set all this up.
Entrepreneurs are known for under-budgeting. A good rule of thumb is to do the calculations and then double the amount. That is probably what is required to set up the business.
Once all that is done create operational excellence through setting and documenting quality parameters and service standards.
Develop and map processes of how every task in the business will be executed, create policies and service level agreements, develop role definitions for employees, with clear key performance indicators to inform them about the task as well as required standards, and put measurements in place to identify any variance from the standards and objectives immediately.
A common cause of business failure is the lack of proper planning and marketing a dream rather than a reality. When the business strategy is in place, there is clear direction. When the business has been established operationally with regards to human resources, supply chain and logistics, technology, financial processes, quality control and production, it is possible to walk the talk when the market is told about your business.
The good entrepreneurs fail due to too much business. Rapid growth at the start of the business phase will put pressure on finances, capacity and operational structures. The art of entrepreneurship is to balance capacity with marketing in order not to over or under sell.
The wise entrepreneur sells exactly what can be delivered at a standardised high quality. But a key word here is marketing. When there is no marketing, or sales, there is no business. In order to offer a product or service it is necessary to tell the market that the product or service is available.
When the need is real, the offering is in line with customer requirements, the operational capacity has been established and the sales drive is executed in an integrated manner, all that remains is to collect the money. But even in the collection of the money, failure can occur. When work in progress is not invoiced, debt collection days are longer than payment days, or incorrect invoices are issued, the brand and cash of the business will be seriously affected.
Excellence and efficiency
The ultimate ingredient to the business success recipe is excellence and efficiency. To do everything in a well-planned manner, to build quality into every step of the production and non-production processes and to create a cohesive team, all with one vision and mission in mind.
Even when this is achieved, however, entrepreneurship is still a gamble, requiring a lot of tenacity, risk taking propensity and an incredible ability to handle stress. At least when all the steps are properly followed, the stress will be manageable. In fact, that is what business is about, plan, lead, organise and control.
The 3 Blueprints For Starting A Business
There are three templates to starting a business. Get this first step right, and success will fall into place.
“One reason that America continues to do so well as a market,” an economist explained to the audience at a recent conference, “is that they are still leading the charge to do new things. In addition to pioneering new products, they are still pushing the boundaries of frontiers like space-travel and technology. They don’t merely copy the products made in other countries. They make and do entirely new things, and that matters.
“By contrast,” he explained, “many of the older economies, like Europe, are just ‘kicking the can down the road’. They don’t really have a vision for the future. They’re just trying to maintain what is, to survive a little longer.”
Grow or shrink
Companies, countries and entire economies are all broadly following one of these two approaches. One is the bold, growth option, while the other is only about maintaining what already exists. The trouble with maintaining, however, is that, in a dynamic system, you tend to be either growing or shrinking. A dynamic system rarely tolerates anything simply standing still. To stand still is, often, to shrink.
Once in a lifetime chance
Your company, team or organisation’s founding moment is a once-in-a-lifetime opportunity to get this one right. Are you simply going to kick the can down the road? Or do you want to build spaceships? Are you going to be a soulless ‘also played’? Or would you prefer to do something new and meaningful? Mission matters greatly.
In Exponential Organizations: Why New Organizations are Ten Times Better, Faster, and Cheaper than Yours (and what to do about it), Salim Ismail calls it a ‘Massive Transformative Purpose’. The stronger your purpose, the more you attract tribes of people, both as aspiring employees and as a supporting community of customers.
This is not to say that you are obliged to invent something brand new and original. A good deal of research is showing that pioneers in a new industry do not tend to do as well, or last as long, as the ‘settlers’ who come after them. One reason is that the pioneers have to make all the initial mistakes. The settlers get to enjoy greater leverage, by observing what has already worked or failed, then capitalising on that learning.
The idea of founding a company that thrives on meaning has more to do with how meaningful the work is, and how much of a drive to achieve goals is built into your corporation.
Elon Musk’s SpaceX is certainly not the pioneering organisation in space-travel. We have left earth’s atmosphere before, decades ago. In that sense, SpaceX is a settler, and not a pioneer. That said, it is nevertheless a strongly goal-oriented, purpose-driven organisation. You don’t have to invent something entirely new to create a mission-driven company.
The Israeli Defense Forces is highly mission-driven, because it has to be. Pixar is mission driven, because it chooses to be, and because it believes in magic.
Being mission-driven, from the top to the bottom of an organisation, changes the energy. It converts ‘mere work’ into ‘shared purpose’.
Sociologist James Baron and his group of experts led a study in the mid-90s looking at how people founded their companies, across a wide spectrum of industries, including hardware, software, medical devices, research and manufacturing.
The study asked about their original blueprints. What organisational models did they have in mind when they started?
Baron determined that there were three templates for starting a business. You might start your company based on:
- A Professional blueprint, in which you hire people with a preference for specific skills (prior to its fall from grace, Kodak hired people based on specific educational qualifications)
- A Star blueprint, in which you hire ‘superstars’ based on future potential, placing a premium on choosing or poaching the brightest hires. You look for raw potential, not current knowledge
- A Commitment blueprint, in which you believe that skills are nice, but cultural fit and buy-in to shared values is more important. You build strong bonds to the company. Employees tend to be passionate about the mission.
Baron and his experts tracked the firms through the 1990s and into the next decade. Those that used the Commitment blueprint, which prioritises a shared sense of mission and values, greatly outperformed the others. The failure rate for firms with a Commitment blueprint was zero.
Failure rates were substantial for the Star blueprint, and more than three times worse for the Professional blueprint. It seems these approaches don’t keep people going in the same way that buy-in to a mission does.
Nevertheless, the Professional blueprint, which prioritises the specific skills on people’s CVs, tended to be the most common.
There were two other rare blueprints: Autocracies and bureaucracies, focusing on detailed rules and procedures. These blueprints were the most likely to fail, and autocratic was most likely to fail out of the two. This is an important point: Rules-based organisations and dictatorships, according to this finding, are so likely to fail that investing in them is not worthwhile. But where a culture of people is part of a mission, they are most likely to succeed. Translation: Autocracy rarely ever works, and systems of intense rules and guidelines work slightly less badly.
Rules and dictatorships = likely to fail.
Mission-driven culture = 100% success rate.
Most real-world autocrats would probably agree with this finding, if they heard it. Then they would continue to run their business as autocrats, because, they’d say, “My situation is different, I happen to be right, and people should do what I say.”
When you’re an autocrat, it’s hard to know that you’re an autocrat. When you create your business to follow a mission from the word go, and you allow a degree of genuine democracy in which others can outvote you for the good of the mission, you instil the possibility of overcoming this blind spot, sometimes in spite of yourself.
Now, here’s the kicker: The Commitment culture is extremely effective in starting an organisation and ensuring its initial survival. But over time, the same study found, it is not the best performer.
The challenge is that when organisations mature, encouraging layer upon layer of like-minded people tends to discourage innovation and original thinking. Too much shared value = groupthink.
So, what’s our total moral? In a best-case scenario, we need to start with a common mission and committed people, and focus on growing. Once we’ve matured, we need to make a point of bringing in diverse thought, in order to avoid too much homogeneous thinking and yes-mannery.
In Originals: How Non-Conformists Move the World, Adam Grant shows how these findings map perfectly onto the rise and fall of Polaroid. Like-mindedness worked well to get the brand going initially, but then, ultimately, the same like-mindedness prevented them from learning, growing, changing and adapting in a volatile market.
Like the IDF, they had a strong sense of shared purpose. But unlike the IDF, they were incapable of a belief system that said ‘the only tradition is that we have no traditions’. They were not a learning and growing organisation.
The more a company develops a culture, the more it will tend to hire for that culture, and the more resistant its own people will be to new ideas or contrary views.
So what if…?
What if you decided to be an organisation on an important mission, rather than merely a group of people kicking the can down the road?
The 7 Culture Pillars That Will Skyrocket Your Start-up To Success
Culture can make or break the future growth potential of your start-up. Are you giving it the focus it deserves?
Culture eats strategy for breakfast. Every time. This is especially true in the world of start-ups. I liken a start-up to flying a plane, and then attempting to build the engine in mid-air. The engine in this case is the team, and culture powers the plane. Without the right culture , start-up founders can quickly see their perceived Concorde unravel and turn into the business equivalent of the Hindenburg disaster.
Culture vs Strategy
The reality today is that a start-up’s strategy is often forced to adapt to shifting market conditions, changing customer needs and to an increasing extent, disruptive competition. But regardless of the strategy, it still requires a team and, ultimately, culture to drive its agenda internally and its execution in the market place.
In my interviews with some of the world’s leading CEOs and entrepreneurs, the influence of culture is often credited with playing a key role in business success. It’s ironic however, that even though a high-performance culture is a critical aspect of succeeding in business, start-up founders commonly overlook and often under-appreciate its role in building and running a successful business.
The Seven Pillars
A business culture can also be described as an expression of the dysfunction of management. The strategic management function is critical in creating and developing a winning culture. Here is my view on how to do just that.
1A Landmark Methodology
The lean start-up methodology by Eric Ries is designed to eliminate the uncertainty in the product development process by validating iterations of product developments with customers. It has become the status-quo in terms of building a new start-up. While it is an excellent methodology in the product development context, the value and impact of culture dwarfs the value that is created by the lean start-up methodology.
Let’s take Steve Jobs for example — imagine if he attempted to validate the iPhone using the lean start-up methodology. My guess is that it simply wouldn’t work. What differentiates Apple, is their innovation-led culture, and their unique approach (‘Think Different’) to product innovation and its underlying business model. It’s what fundamentally makes them the company they are today.
I recently interviewed the serial entrepreneur Vinny Lingham and he said: “If Henry Ford asked his customers what they wanted, they probably would have said faster horses!”
When start-ups are establishing a play on the edges of what’s known to be possible, it becomes increasingly harder to validate ideas. This puts a greater emphasis on the engine — the culture of the business — to redefine what innovation means and the categories within which they operate.
2A Compelling Narrative
The human brain is hardwired for stories. We find messages that are framed as stories more memorable, easy to understand, and convincing. Because of this, a brand’s story is equally important to its customers and to the staff that serve them. Seeing things through the lens of narrative can lend a start-up’s culture meaning and texture, and they can galvanise a team around a single purpose and goal.
To quote Elon Musk: “A company is just a team of people working towards the same goal.” His space exploration company SpaceX has one ridiculously compelling narrative — to enable humans to become a multi-planetary species. Besides showing that innovation is truly iterative, their attempts at creating reusable rockets is a classic narrative that they uniquely own and it’s a narrative that speaks volumes to their business culture and ambition.
3A Forward-Looking Business Model
In today’s digitally enabled economy, if the rate of innovation inside your company is slower than the rate of innovation outside it, then you’re likely to run into trouble. Disruptive competition is on the rise, and legacy traditional business models are paying a heavy price because of it.
The same can be said for start-ups. Even if you have first mover advantage, it’s likely that before long you’ll be joined on the ‘beachhead’ by a competitor who’s learnt from your initial mistakes, and has since come up with a shiny, new and improved product and business model designed with the sole purpose of eating into your existing and hard-won market share.
Future-proofing a business relies heavily on business model innovation i.e. the process of defining new ways to deliver existing products to existing customers using existing technology. A tool I’ve found helpful is the Business Model Canvas — it’s an attempt at providing a common framework that all businesses can use to create new or improved business models.
4A Powerful Belief
One of the more striking commonalities between successful CEOs and entrepreneurs that I’ve interviewed, is their unwavering belief in what they are doing in business. Successful founders and executives use belief to inspire mass corporate action, and to align organisational behaviour towards a common goal.
To quote Steve Jobs: “A lot of companies have chosen to downsize, and maybe that was the right thing for them. We chose a different path. Our belief was that if we kept putting great products in front of customers, they would continue to open their wallets.”
5A Striking Motto
Mottos have been used to express cultural beliefs for centuries. From America’s ‘In God We trust’ to Airbnb’s ‘A World With No Strangers’, Apple’s ‘Think Different’ and Nike’s ‘Just Do it’ — they are simple but essential forms of communicating cultural beliefs. Mottos (or slogans) impart a key message into the minds of consumers and most importantly, the staff that serve them.
6A Strategic Vocabulary
The enablement of a strategic vocabulary in a business’s culture goes a long way to driving the organisation’s collective understanding of a top-down business strategy. One could even argue that it is a pre-cursor to the strategic alignment of disparate business functions and ultimately the enablement of business performance through collaboration.
Creating and implementing strategies that ultimately create value for customers, stakeholders and shareholders, all need to be aligned with a broader business vision and communicated in a similar fashion and at all customer touch points (both offline and online).
It is also vital that executives give their staff the tools and training they need to acquire their own rich strategic vocabulary as it relates to specialised departmental functions and disciplines.
7An Open Talent Policy
Businesses with the best people win. Period. An open talent policy should creatively address the way start-ups acquire, develop, reward and retain their staff to address ‘the future of work.’ This means that employers and employees must come to terms with a new working environment in which flexibility and adaptability take priority over job security and long-term employment, structured environments, and standardised roles. A fresh approach should be adopted by start-up founders so that their staff can enjoy better work/life balance, autonomy and career control.
Early to bed, early to rise, work like hell and merchandise. But take heed of your culture — it’s important to get it right to truly enable disruption and challenge the status quo. Happy flying.
How The Sanlam Enterprise And Supplier Development Programme Is Helping Start-up Businesses
The balance between funding, business development and mentorship can make or break an enterprise development programme
165 new employment opportunities, 172 SMEs developed and 1046 jobs sustained. These are some of the numbers recorded by Sanlam as the company prepares to wrap up the fourth year of its Sanlam Enterprise and Supplier Development (ESD) programme.
The flagship incubation scheme has turned around loss-making enterprises, helped some participants get critical accreditation and funding, but most importantly, R12.6 million was spent procuring goods and services from the participating businesses by the end of 2016.
Receiving funding isn’t the secret to start-up success
Francois Adriaan, head of Sanlam Foundation says the secret to a successful enterprise development programme is not the amount of funding big corporates can give SMEs: “It’s having the right mix of mentorship; business intervention and procurement spend flowing from your corporate to small businesses.
You have to show the entrepreneur you are mentoring that you trust them enough to do business and walk the journey with them instead of giving them a once-off grant and leaving them to their own devices,” says Adriaan.
Financial support that’s timed to business need
Like in many other ESD programmes, participants in the Sanlam ESD programme also have access to funding. But what sets the programme apart from others, says Adriaan is that the amount of funds disbursed to each participating businesses is directly linked to its need, its commitment and progress record.
“Financial support is timed according to the specific needs of each SME. Those who qualify for funding are then provided with a further seven years of SME growth support through the ASISA Enterprise Development Fund.”
The Sanlam ESD programme
The Sanlam ESD programme was launched in July 2013 in collaboration with the Association for Savings and Investment South Africa (ASISA) to empower SMEs, create jobs and contribute to economic growth in South Africa. An independent evaluation shows that participating enterprises have grown their annual revenue by 19% on average.
D&P Auto participants
One of the programme participants is D&P Auto, a panel beating business based in Retreat. For two decades, the owners of the business (husband and wife) poured their life savings, bank loans and even pension policy pay-outs into the business to keep it afloat because it was not making profit. Three years of focused business incubation and mentoring under the Sanlam ESD programme resolved D&P Auto’s 20-year loss-making battle.
“Our business has grown from a non-profitable business to the extent that we now have to pay provisional taxes to SARS for the first time in 24 years,” said Pam Douglas on their business maiden profit.
Successes of the incubation programme
The incubation from the programme has helped other participants brush up their bookkeeping skills, file successfully for tenders and get accreditation that took their businesses to the next level.
G&T Auto, the only fully accredited Major Structural Repairer in the programme, bagged Mazda accreditation last year, a rare accolade that will see the enterprise repair Mazdas that are still under warranty. The owner, Thembi Sithole says the programme has given her confidence to approach bigger clients as she now understands the requirements to get big contracts. She has also become more knowledgeable about financial statements and their impact on obtaining funding.
Adriaan says enterprise development initiatives of this nature give big corporates an opportunity not only achieve their business objectives, but also impact broader South African society.
“This commitment is around impacting issues of inter-generational poverty, unemployment and inequality. It is also about aligning around public-private-civil society partnerships in sustainable ways,” concludes Adriaans.
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