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Starting a Business in a Downturn

Even though the concept of a recession carries with it many negative connotations, recessions are also often hotbeds for innovation and many of today’s large powerful global companies were started by brave, enterprising entrepreneurs during an economic downturn.

Greg Fisher

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An economic recession is commonly defined as: “two consecutive quarters in which a country’s gross domestic product shrinks”. Even though the concept of a recession carries with it many negative connotations,recessions are also often hotbeds for innovation and many of today’s large powerful global companies were started by brave, enterprising entrepreneurs during an economic downturn: Microsoft, Walt Disney,General Motors, IBM, Toys “R” Us, Hewlett Packard, UPS and Wikipedia were all founded during recessionary times.

Potential clients open to new options

During an economic downturn, many companies are seriously looking for ways to save costs. They are therefore open to change and willing to consider options which offer them better value. A new start-up that offers an existing firm a better value proposition than what they are currently getting is likely to have an easy time convincing them to switch. During an economic downturn companies let go of their supplier loyalty to uncover innovative new ways to save costs and this gives new start-up businesses new sales opportunities.

Talent comes cheap

One of the largest expenses for many start-up businesses is the salary bill. During boom times salary expectations can sky rocket. During a downturn employees and contractors have fewer options and they are willing to work on terms that are more favourable to the entrepreneur.Many of today’s most successful web companies were founded by savvy entrepreneurs after the dot.com bubble burst, when there was a dearth of talented IT people looking for jobs and willing to work for very reasonable rates. In boom times talent is expensive; in a downturn talent can be accessed at far more favourable rates giving you the opportunity to get your business off the ground without overspending on people.

Excess capacity at suppliers

A recession is almost always preceded by a period of high demand. In times of high demand, suppliers build up capacity. When demand drops off, most suppliers have excess capacity. As a start-up company, in boom times, you have very little sway with suppliers but in a recession when they have excess capacity, you have more negotiating power. You can negotiate favourable payment terms and other benefits to be able to start your business off on the lowest cost base possible. In boom times many suppliers won’t even talk to an insignificant start-up, in a downturn they are scrabbling for business and will want to work with you on your terms.

What you do to make a downturn in the economy work in your favour as you launch a new business

To take advantage of the opportunities that arise during a downturn,you need courage. Peter Drucker said: “Whenever you see a successful business, someone once made a courageous decision” and that is exactly what is required to establish a new successful business in this day and age. In addition to courage, flexibility, focus and the will to negotiate will stand you in good stead as you launch your start-up.

Don’t be too locked in – adapt

Downturns in an economy are times of uncertainty, therefore don’t put too big a bet on what the future may hold. Many of the businesses mentioned earlier in this article were successful because they were adaptable. After getting into business in a downturn, the founders realised that new opportunities were emerging as the downturn came to an end. The key lesson is that all downturns are followed by up turns and entrepreneurs who are already operating and are flexible enough to be able to respond to new opportunities will be the ones to benefit most from an upturn.  Set your business up so that you are moving positively in a general direction and be ready to pounce on new opportunities as they arise.

Focus on what counts

During an economic downturn many incumbent firms will be distracted by non-value adding activities such as layoffs, restructuring, and cost cutting. Firms engaged in such activities tend to forget about the customer. As an entrepreneur it is critical for you to focus intensely on your customers. The two most important activities for a start-up are making sales and generating cash and to do these two things, you need to please customers. As you please customers you can build up new levels of customer loyalty. This creates a solid platform from which to build and grow your business in the future.

Keep negotiating

During a downturn a start-up entrepreneur should keep negotiating.Don’t just accept list prices or terms. Always seek to make your situation more favourable. During a downturn when companies are scrambling for work and can be desperate to make sales they may be more flexible in negotiating contracts to keep you happy as a customer. As you start your business during a downturn be sure that you are ready to negotiate at every opportunity, don’t accept things too easily or quickly.

Warren Buffet said: “Be fearful when others are greedy, be greedy when others are fearful”. This quote is as true for investing in the stock market (the context for the original statement) as it is for investing your time and energy in starting a new venture. Most people will shy away from launching a start-up during a recession but it is exactly that fear that opens the door of opportunity for you to establish the foundations of a new profitable, powerful enterprise.

Downturn start-up success stories: Flickr USA

Scarcity of funds and resources trigger creativity & innovation: Caterina Fake & Stewart Butterfield – co-founders of Flickr.com

Husband and wife, Stewart Butterfield and Caterina Fake, started a company originally called Ludicorp soon after the dot.com bust in early 2002. Many would have suggested that it was an unwise time to start a new technology company.

There was very little to no external funding available, IT start-ups had a reputation for being fly-by-night operations and most new opportunities were thought to have disappeared when the NASDAQ crashed in 2000 and 2001. Yet the pair of entrepreneurs set out to create a new multiplayer online game called “Game Neverending”. Fake describes their timing as follows: “This was in 2002 and it was still in the great technology bust period. There were failed dot.coms all over the place, office space was cheap and some really awesome developers were available, who wouldn’t otherwise have been out on the open market two years earlier. So it was actually really well timed. I think that the timing was important because you could operate in a much more independent mode.”

Less start-up capital – greater speed & innovation

As the husband and wife team were developing their online game, which was to be their first major product, the back-end development fell behind the front-end development, and so while they were waiting for the back-end to catch up – being restless hacker types – they built an application that would allow players in the game to share pictures. After a while they realised that the picture sharing feature that they had randomly developed may have a broader application and be more valuable than the game itself.

They called the picture sharing application Flickr and launched it as an independent photo sharing website. “So Flickr started off as a feature. It wasn’t really a product. It was a kind of Instant Messaging which you could drag and drop photos onto people’s desktops and show them what you were looking at. We built it really fast; we had a lot of the technology already from the game, but we built the first instance of Flickr in eight weeks,” explains Fake. The photo sharing website, Flickr, soon became incredibly popular and Fake and Butterfield abandoned development of the game to focus on the website. Flickr was recognised as one of the pre-eminent Web 2.0 applications and was bought by Yahoo in 2005 for a reported $35 million. Fake suggests that starting in a downturn contributed to their success: “The money was scarce, but I’m a big believer that constraints inspire creativity. The less money you have, the fewer people and resources you have, the more creative you have to become. I think that had a lot to do with why we were able to iterate and innovate so fast.”

Downturn start-up success story: Clif Bar USA

Negotiations with designers, Manufacturers & distributors result in big payoff: Gary Erikson – founder of clif bar

While on a 175 mile bike ride in November 1990, Gary Erikson decided to create a company that would produce energy bars for people participating in endurance activities. He was living in San Francisco and at the time the USA was caught in the grips of a nasty recession, not that Erikson knew or cared. He worked with his mother, an accomplished baker and cook, to develop a bar that would be both tasty and nutritious.

After months of experimentation in his mother’s kitchen he had developed a bar that he was confident would appeal to cyclists, runners, climbers and others who needed easy access to nutritious food. He then needed to find a company to manufacture his bars, a distributor to get the bar into sports stores and a designer to help him develop the packaging. He found all three fairly quickly and easily, primarily because they were all looking for extra work, having been hit by the recession (not that Erikson knew this at the time).

The contract manufacturers were “delighted to do business with him” as his bars absorbed some of their excess capacity. The designer was able to devote time and attention to his packaging and his new brand and the distributor had the capability to begin distributing his products “as soon as they were ready”.

He called the products Clif bars after his father, Clif Erikson, who had instilled the love for the mountains and the outdoors in him at a young age. By the time he had his manufacturing and distribution arrangements in place it was 1992 and the economy was starting to pick up. In year one he sold $700 000 worth of Clif Bars and in year two he sold $1,2 million worth of bars. The business has gone through many ups and downs but it is now a profitable private company with $200 million in annual sales and a reach across the globe.

A business built on fortune & determination

It is only in retrospect that Erikson realises how fortunate he was to have started when he did. He was unaware of an economic recession so he just forged ahead, focusing on product development and distribution while his competitors were being distracted by many other financial and people issues. He also realises now that contract manufacturers and distributors would ordinarily shy away from working with a start-up company because the volumes are too small and the risk too high. But in a recession, when they need work, a start-up business becomes an attractive proposition.

Downturn start-up success story: Trainiac SA

Delivery on the customers’ changing needs and tight financial control spark success: Rob Dennison – founder of Trainiac

In 2001 Rob Dennison was recovering from having been part of a failed VC funded technology company that had gone belly up during the dot.com bust. After returning to South Africa from Boston, his top priority was to create a sustainable growth business requiring minimal capital. He did not care that South Africa was in a cycle of declining GDP growth or that there were recession fears in a number of economies across the globe. What he cared about was proving to himself that he could be successful as an entrepreneur and he cared about creating something that would allow him and his family to lead a comfortable fulfilling life.

A unique product creates its own gap

What he lacked in resources, he made up for in energy and creativity, developing innovative picture based learning products from the office in the cottage in his backyard. He chose to enter the training industry because skills development was supposed to be “the next big thing” with the enactment of the skills development legislation in South Africa. He also liked training as an industry because it is an area where “creativity, not capital, creates a barrier to entry”. He had no capital but knew that as an entrepreneur and innovator, he could be creative.

In retrospect Dennison realises that the uncertain economic environment probably helped him win his first client. A major multinational company was looking to revamp its training programme for low-end employees and Trainiac’s unique picture based learning tools and methodology offered the chance to drastically reduce the training cost per employee while increasing the retention and enjoyment of the employees participating in the training. If times had not been tough, Dennison concedes that this client may not have been looking to do things differently. “They were under cost pressure and were therefore looking for an alternative approach; we offered them a value for money solution,” says Dennison.

Worthwhile disciplined financial control

In the first few years of operation Dennison and the Trainiac team did not worry about the economy because they were more worried about their own survival. “Being in survival mode forces you to learn to be lean… and operating with a very low cost base allows you to survive in any economy,” says Dennison. “We only bought the fourth desk when the sixth person arrived… looking for every possible way to save money and the philosophy of not over-spending on anything still runs deep in the company today”.

Still today, Dennison keeps a very close eye on his bank account, checking it at least twice a day. He always knows the most important financial indicators for his business such as order book, debtors days and work in progress. He developed these good basic habits because he started the business under such tight constraints. Even now that the business is growing rapidly and is profitable, he still sees it as a key part of his role as business leader, to know and respond to these indicators.

Trainiac now has over fifteen multinational clients with whom it does ongoing work and it has done over sixty projects. The company has a presence on two continents, Africa and North America, but it works for clients all over the world. Dennison moved out of the cottage in his backyard many years ago and he now houses his workforce of approximately 20 people in an office in Rosebank.

Dennison believes that as a small agile company, with a pioneering spirit and an innovative approach, Trainiac is well equipped to deal with the current slowdown in the economy. “As long as we keep doing good stuff, adding value to our clients and being creative, there is no reason why we should take big a hit,” he says.

Greg Fisher, PhD, is an Assistant Professor in the Management & Entrepreneurship Department at the Kelley School of Business, Indiana University. He teaches courses on Strategy, Entrepreneurship, and Turnaround Management. He has a PhD in Strategy and Entrepreneurship from the Foster School of Business at the University of Washington in Seattle and an MBA from the Gordon Institute of Business Science (GIBS). He is also a visiting lecturer at GIBS.

Launch

How To Make Course Corrections And Finding Your Differentiator

A lot of launching a business is starting small, and pivoting as needed.

Alan Knott-Craig

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An advisor whom we trust, and who has been involved in our business since launch would like to buy into the business. We could make use of the cash injection, and we believe his experience would be beneficial to the business. His condition is that he occupies a board seat, and that we create an advisory board that he can also sit on. Should we do it? — Mvepho

If you trust the guy and need the money, do the deal. A board seat is fine. Voting should be based on shareholding, not hands raised. Don’t allow for any special minority rights like veto over budget or right to appoint CFO.

An advisory board for a start-up seems a tad overkill, but if he wants one, give it. He’s either going be an ass, or he won’t. Only one way to find out: Get into bed.

The key provisions of the shareholder agreement relate to divorce. How do you get out of relationship? There are three key parts to consider: Forced sale provisions (death, disability, prison, leave country, etc); Valuation formula for exit (5 x NPAT); Agree to arbitration being binding.

The simpler you keep things, the easier it will be to part ways if things don’t work out.

Related: Alan Knott-Craig Answers Your Questions On Finding a Funder To Managing Your Staff

I need to attract customers away from their existing suppliers who offer a similar product to mine. My value proposition is convenience and quality. What other value should I consider? My main customers are restauranteurs and households (flats), and I provide the convenience by instant deliveries of food (chicken and eggs) to their doorstep. — Mam

Pick one differentiator. If one isn’t enough, your product isn’t good enough.

In this case maybe it’s convenience. Or maybe it’s speed of delivery (30 minutes from order). Or maybe it’s the best eggs in SA.

Whatever. Ask customers what the most important thing is, then focus on pushing that as your unique selling proposition.

That doesn’t mean you ignore the other inputs. It just means your pitch is predicated on one key selling point.

My partners and I have managed to get an investment opportunity for our app but now we have an issue about how we should spend that money.

I think we should first get some traction with users with a MVP even though we’re not delivering on our value proposition in the beginning i.e selling before we commit to building and iterating based on user feedback before adding new features.

My partners think that now that we have an investment opportunity, we should build the app with all the features because that’s what differentiates us in the market.

How would you handle a situation like this? — Tula

Start with MVP. Get feedback. Iterate.

Do not start with an app including all the bells and whistles. Firstly, it will take too long to make and get bogged in scope creep. Secondly, if you’re on the wrong track and you’ve already spent all your money, its game over. Insert coin.

Rather start small. It lets you course correct faster and keeps you in the game longer.

Related: Your Questions Answered With Alan Knott-Craig

My waiter has contracted a chronic infectious disease (not HIV). He’s worked for me for seven years, but I can’t risk my staff/customers getting sick. What should I do? — Bob

The business comes before individuals. It can be painful losing a loyal long-time staff member, but you have to do it if he jeopardises your business survival. Exhaust all options, but if there is no medical solution then you have no choice. But you can’t just cut him loose. If you do that, all your other long-standing staff will look at you and think, “He doesn’t care for me.” Morale will go down, and your business may fail anyway.

If you are forced to lose a loyal staff member, you must go out of your way to ensure he/she is financially taken care of, either through a pension or a lump-sum payment.

It’s the right thing to do, and it will show your other staff that you have their backs through thick and thin.


Read this

13-rules-for-being-an-entrepreneur-coverAlan Knott-Craig’s latest book, 13 Rules for being an Entrepreneur is now available.

What it’s about

It’s easy to be an entrepreneur. It’s also easy to fail. What’s hard is being a successful entrepreneur.

For an entrepreneur, there is only one important metric of success: Money. But life is not only about making money. It’s about being happy.

This book is a collection of tips and wisdom that will help you make money without forgoing happiness.

Get it now

To download the free eBook or purchase a hard copy, go to www.13rules.co.za.  To browse Alan’s other books, visit bigalmanack.com/books/ 

Ask  Al

Do you have a burning start-up question?

Email: alan@herotel.com

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(Infographic) The 20 Most Common Reasons Start-ups Fail And How To Avoid Them

These do’s and don’ts can make or break your start-up.

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So, you have a great new idea or invention, and you are ready to open your start-up business. But, you’ve been scared by the well-publicised statistic about start-up failure – more than 50 percent of small businesses fail in the first four years.

Opening and operating a successful start-up requires some luck hard-work and thoughtful planning – as well as the ability to adapt that plan. Having been involved as a consultant to numerous start-ups over the past decade, I have seen some fail, some achieve a modicum of success, and some make it big.

Here are a few do’s and don’ts that will help guide your start-up to the promised land:

Business plan

  • Don’t think that a great idea or a great product is enough. The start-up graveyard is littered with amazing ideas and products that have failed.
  • Do have a business plan that includes every aspect of how you will run your operation and how it will be successful. It should include all anticipated costs, marketing, manufacturing, the technology required and staffing. A business plan should also include how you will market and sell your product.

Related: 4 Tips To Secure Funding For Your Start-up

Research

  • Don’t think your idea or product is original and because you and your friends think it’s amazing, means that it is and there’s a market for it.
  • Do lots of research before you spend your money. As a consultant, I have on three separate occasions been asked to help with a business plan for a start-up, where I discovered almost exactly what they are doing has been tried before and failed. In two of those instances, the previous failures indicated that the idea wasn’t good. In the third instance, we were able to learn from the previous mistakes and actually make a successful run at it. The number one reason start-ups fail is that there is no market for their offering.

the-top-20-reasons-why-start-ups-fail

Funding

  • Don’t assume you will get financing other than the money you start with from yourself, family and friends. Only a very small percentage of start-ups get Venture Capital (VC) funding and in fact, the funding bubble has burst. And that means early-stage start-ups are getting little or no love from outside equity firms.
  • Do assume the initial funding you have will be all you get, so the goal is to have the lowest burn rate possible. Therefore, your initial business plan should have a route to profitability and sustainability before the money runs out. The number two reason start-ups fail is that they run out of money.

Investor deck

  • Don’t think that your expert knowledge of your business, a well-developed business plan and proficiency in PowerPoint are enough to craft an investor deck that will get a private equity firm’s attention.
  • Do hire an expert consultant who has done this before. VCs can smell an embellished or amateurish deck 100 miles away. You typically only get one look by a potential investor, so make sure your investor deck is the absolute best it can be.

Related: 9 Quotes Every Entrepreneur Should Live By

Tech

  • Don’t assume that technology will be easy or come as scheduled. In almost every start-up I have been involved with, where the need for technology advancement was crucial to success, there were unanticipated issues and delays.
  • Do assume that there will be delays in technological deliveries and therefore you need to leave a buffer for that in your business plan. Do have a competent development team and if they are not performing, replace them as soon as possible.

Team

  • Don’t think that you can go at this alone or that it will be easy to assemble a winning team.
  • Do select your team members carefully, trying to add as much diversity as possible. The most successful start-ups that I have seen have mixed experience and newbies as well as the more traditional kind of diversity. The number three reason startups fail is that they have the wrong team.

Ego

  • Don’t think customers are just waiting for your offering and investors will be lining up to give you money simply because your idea is amazing – even if you have been a successful serial entrepreneur in the past.
  • Do be humble and realistic about everyone you meet. Relationships are a key to success, and like with personal relationships, if you want to be successful, be sure you see yourself as others see you. I have witnessed a lack of self-awareness and a big ego from owner’s doom potentially successful start-ups.

Related: 7 Strategies For Development As An Entrepreneur

Old-Fashioned values

  • Don’t think you are leaving a nine-to-five job for the easy and flexible life of being your own boss. A start-up is a seven-day-a-week occupation and now it’s your money and reputation that are solely on the line.
  • Do plan to work harder than you ever have with little return on your efforts for an extended period. Do be honest with everyone you interact with, as your reputation will ultimately be a key to your success.

To have big success as a startup, you’ll have to master all the do’s and don’ts above, and that’s a daunting task. So, before you begin, the question you must ask yourself is: “How badly do you want it?!”

This article was originally posted here on Entrepreneur.com.

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The Complete How-To Guide for Starting a Car Wash

What you need to know about opening your own car wash in South Africa.

Katie Cubitt

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We all love to have a clean car – start your own business today

Shiny wheels, the perfectly clear windows and not a streak in sight. In today’s fast paced world we often don’t have the time to do it ourselves – and when we do, there are other things that quickly fill that time.

And so we pop off to the local car wash to have it done and ticked off the list so that we can move on to other things.

How often have you sat considering owning a car wash of your own while you’re waiting for your car to be done? If it’s more than once, then maybe you should consider taking the leap and starting a car wash business. 

Contents in this guide

  1. How to Choose What Type of Car Wash to Open
  2. Steps for Registering a Car Wash Business
  3. Car Wash Funding Options
  4. Choosing a Location for Your Car Wash
  5. Car Wash Insurance and Liability Cover
  6. Car Wash Equipment and Supplies
  7. Car Wash Marketing and Branding Basics
  8. Hiring and Managing Your Car Wash Staff
  9. How to Set Your Prices?

How to Choose What Type of Car Wash to Open

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There are many different kinds of car washes to choose from

The first decision that needs to be made involves deciding between a franchise and an independent business model. Both of these come with their own set of risks and rewards – all of which have been set out in the table below.

Pros and cons of a car wash

The decision between an independent venture and a franchise opportunity must be a personal choice based on your personality.

In general – if you are someone who likes to blaze your own trail and like to have complete and utter control over every aspect of your business, then starting a car wash, or any business, as an independent is the way to go for you.

If however, you are better at working within the guidelines and like the freedom of someone else, in this case the parent company, making the decisions for you – then starting a franchise is the way forward.

Make sure when investigating the car wash franchise you are interested in, that you choose a recognisable brand with a good reputation in order to get the full benefit of buying into a franchise.

With both franchising and independent ventures, you now also have the choice of starting a mobile car wash, instead of a fixed full time entity.

Need to know: Should You Purchase An Existing Franchise?

This also comes with pros and cons and these are listed below.

Pros and cons of going mobile

Steps for Registering a Car Wash Business

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Register your business using this easy guide

Here are the main steps for registering your new small to medium enterprise:

Register your business with the Companies and Intellectual Property Commission (CIPC). This involves lodging a Notice of Incorporation (CoR 14.1) and a Memorandum of Incorporation (CoR 15.1 A-E). These forms are available at www.cipc.co.za. They take roughly five to seven days.

Alternatively, it is possible to use a service that registers your company for you with the CIPC such as this one. These services do of course have their own fees attached.

Thereafter, you must open a bank account for your business. Depending on the correctness of the application forms, this only takes a day or two and is free of charge.

For an SME, earning less than a million rand a year – the only form that SARS requires is the IT77C that must be accompanied by a certified copy of your ID and a copy of the company’s registration documentation. The IT77C form is available from www.sars.gov.za. If your employees aged 24 – 65 will be earning more than R5 000 per month, then you will need to register for UIF and PAYE.

Read: Start A Business They Said… It’ll Be Easy, They Said…

To register for unemployment insurance – visit www.labour.gov.za for more information on the process and for the forms.

The final step that takes place in conjunction with the step above is to cover your employees in terms of occupational injuries, diseases or death in terms of the Compensation Fund. This is optional. These forms are available from www.labour.gov.za

In terms of the permits and licenses you will need to start a car wash you need to first assess whether or not the premise you want to work from is purely residential or if it has been zoned to allow it to be a business property.

Related: The Basics Of Registering A New Company

Furthermore, to operate a car wash you might need to apply for a permit under the water restriction bylaws depending on your municipality and the province you are in. For more information on the permits possibly required visit the Department of Water Affairs website.

Car Wash Funding Options

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Fund your business using this guide

Before you even begin to look for funding, you will at this point need to create a detailed business plan. No institution will give you funding without one. For instructions on how to put a business plan together watch this video on business plans for dummies.

Sourcing funding for a start-up can be a bit of a challenge if you do not know where to go or what they are expecting of you. Here is a quick rundown of what you would need to prepare in order to encourage others, such as financial institutions, to give you the funding you need to start your venture.

Related: New Ways SMEs Can Find Funding

Broadly speaking there are four main options available to entrepreneurs starting their own businesses. These are: Loans from financial institutions, own capital, investors and grants. Grants usually come from the government and are loans that you won’t have to repay, but grants come with strict guidelines on how the funds may be used.

It is always preferable to start with the bank that you already do business with – that way they have all your information and know your financial habits and behaviours as well as your credit record. Another option is to look at credit unions.

When applying for funding here are a few tricks to help you get the cash:

  • Make sure that you have a detailed business plan that shows how the funds will be used and spent. It is highly necessary for you to have a detailed knowledge of the costs involved in your business – from supplies to staff to overheads and equipment.
  • Know about the industry and the market you are entering. It can be beneficial for you to do a market analysis.
  • You will more than likely have to use your personal assets and wealth as collateral for your new business.
  • It will show your dedication and commitment if you use your own capital to place an initial investment. In some cases, it is required for you to do so – such as with SEFA – the Small Enterprise Finance Agency who require a 10% personal initial investment.

Related: Attention Black Entrepreneurs: Start-Up Funding From Government Grants & Funds

Choosing a Location for Your Car Wash

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Location, location, location

With a fixed location – most of your business will come from ‘walk ins’. It is essential to your business that your car wash, or any service based business, is in a location that is convenient.

More often than not people do not specifically set out to go have their cars washed but rather end up having it done because it was easily available and they had the time.

Here are a few tips of choosing a successful location:

  • Being near a shopping area is always preferable
  • Heavily populated residential areas with high traffic volumes are better for business
  • The site must be easily accessible from the road
  • It must be easy for customers to get back onto the road once their car is clean
  • Highly visible
  • A decent size car wash has more than one washing and drying bay, there needs to be enough space for these as well as a waiting area
  • Enough space for cars to queue
  • It is also in your interest to pick a location that will allow for expansions as your business grows.

In South African law, verbal leases can be upheld in court, but it is always best to get the agreement in writing.

In clear and concise language that both parties can understand, make sure that your lease covers any changes you may or may not make both structurally and superficially.

Make sure you know how your rental will be calculated – it is usually quoted in Rands per square metre per month, excluding VAT for commercial and industrial properties in South Africa. Make sure you both agree on what costs will be covered by your rental and what costs you will incur (i.e. electricity).

Resource: How do I go about analysing and choosing a possible location for my business?

Know under what circumstances the lease may be voided by either party. And finally, know who is liable for damages to the property or for instances of burglary.

Car Wash Insurance and Liability Cover

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Ensure your business is fully insured

First off, for new owners the importance of a disclaimer needs to be highlighted. A disclaimer can exempt car wash owners from covering the costs of repairing vehicles that are damaged on their premise but they do not cover gross negligence on behalf of the business owner.

It is the responsibility of the owner to ensure that all machinery and equipment is well maintained and is regularly checked for foreign objects that could cause damage. It is also the responsibility of the owner to make absolutely sure that all cleaning products used throughout the process are car-friendly.

Furthermore, public liability cover is not enough. Property in the custody, care or control of the car wash owner is excluded from cover under the public liability section. The correct policy to have in place is the Motor Traders Internal section.

Your level of insurance coverage will have to be higher if you and your employees are the ones driving and moving the cars.

It is important that you as the owner of the car wash to have general liability insurance that covers:

  • Medical expenses to yourself and your employees in case of injury
  • Custody, care and control coverage
  • Equipment break down
  • Damage to cars – you will need to set this limit for your policy
  • It is also important (especially if you have bought the property) that you have property insurance that will cover your premise in terms of theft, damage, fire, flooding etc.

Leonard Degee, who has been in the independent car wash industry for 12 years, knows that in order for his car wash to continue successfully, it is important that only management handles all the cars.

Related: Insurance For Small Businesses: What Should Be Covered?

Not only does it make the insurance coverage easier and cheaper, but customers are usually happier knowing that the person who might be moving their car is more accountable.

Car Wash Equipment and Supplies

automatic-car-washing

Obviously the equipment you need will depend on the type of car wash you open.

In some cases, all you’ll need is a bucket, clean water, soap and some good cloths – and the willingness to approach people to offer your services. But if you would like to open a more professional business and reach a broader market then there is some equipment that you’ll need.

If you are opening a franchise, the parent company or franchisor will be making the decisions for you. If you are opening an independent location or mobile business then you will need to source the necessary equipment.

The basic equipment needed for a manual car wash is:

  • High pressure system
  • Oil/water separation Unit
  • Drainage unit
  • Industrial vacuum cleaner with wet upholstery cleaning option
  • Possibly an upholstery cleaner
  • Depending on the products you choose you might need a foam attachment on your hose.

Alongside your basic equipment you will also need your location to have:

  • Concrete wash bay slab
  • Pump room
  • Drying bay
  • Ancillary Walling and Paving

The Basic equipment you will need for a mobile car wash is:

  • Pressure washer hose with a compressor
  • An industrial hose with nozzle and gun
  • A good sized tank in the back of the truck/van or even trailer
  • A generator (remember to keep extra fuel handy)
  • A powerful vacuum cleaner

For cleaning products and supplies, you have a multitude of varieties to choose from. If you are inclined to go the eco-friend route, there are even ranges of waterless cleaning solutions.

The cleaning product basics you would need are:

  • Car soaps
  • Metal polish
  • Plastic polish
  • Car wax
  • Glass cleaner
  • Fabric shampoo
  • Leather cleaners
  • Detergent for the pedals
  • And then sponges, cloths, brushes – preferably suitable for use on all cars.

Here are some suppliers of equipment and cleaning products:

Keep all equipment in good working condition with regular check-ups. For an easier resale, make sure you have detailed maintenance records on all equipment.

In  Degee’s car wash, they purchase R3000 worth of stock every month – which covers the 360 or so  cars that they clean.

Car Wash Marketing and Branding Basics

car-wash-sign

Simply put, branding is your promise to your customers; marketing is communicating that promise to them.

Branding and marketing are two very different concepts, both of which are highly important to the effectiveness of your business.

In order to bring the customers to you, there are a couple of things you could do. These involve connecting on an emotional level, staying relevant and flexible, committing to the community you work in, staying visible and finally aligning your marketing tactics with your brand strategy.

The biggest secret to marketing is being able to differentiate yourself from your competitors. Brand Strategy Insider is an online resource for branding and marketing and they list 50 ways to differentiate your brand.

Related: Smart Marketing Ideas For Small Businesses

For the car wash business here are the applicable ones:

  • Expand your appeal
  • Rewrite the experience
  • Break away from conventional wisdom
  • Be the expert
  • Share values with your customers
  • Engage the senses
  • Focus on aesthetics
  • Treat people differently than your competitors do (treat them better)

When you are implementing these values in your brand, make sure that they go deeper than just your aims. Make these things that make you different the foundation of your business.

That means engraving these changes in the mission statement and instilling it in your staff. It’s important to note that your staff are your brand ambassadors. A good service experience means that people will come back and more than that, they will tell others about you too. Word of mouth is a powerful tool in launching a new business.

Degee says that the best marketing strategy they have is their car wash’s visibility.

Related: The Complete Guide To Writing A Marketing Plan

In terms of marketing schemes available to you as a new business owner, you have a couple of easy options:

  • Keep the conversation active with your customers
  • Flyers
  • Customer databases so that you can text or email them your specials (these must be opt in)
  • Signage
  • Posters
  • Advertisements in local papers and on local sites
  • Promotions
  • Coupons
  • Specials
  • Discounts
  • Always squash any bad word of mouth by proving the opposite
  • Consider loyalty reward programmes to encourage repeat customers.

Hiring and Managing Your Car Wash Staff

car-wash-man

Hiring staff should be your next priority

“Good management and good staff is the most important thing,” says Degee. With your staff often handling the money, it is easy for untrustworthy staff to “slip it into their pocket.”

Make sure your staff is reliable and Degee advises that you need to keep theft as low as you possibly can.

If you open a bigger operation than just yourself, or if you are needed to expand your business as it grows, then you will need to hire staff. Because you are in the service delivery industry, you need to remember that your staff needs to treat your customers well – as do you.

To this effect, hire people that are

  • Polite
  • Friendly
  • Punctual
  • Efficient
  • Have a good sense of service delivery.

The number of people you hire depends on your expected workload. The more washing and drying bays you have, the more people you will need. You also need to consider how many days of the week you are open and how many hours a day.

Read: As An Entrepreneur, Be A Motivational Leader To Your Staff

Obviously, if you want to go the more automated route with a machine run conveyor system, then the need for physical staff will be less.

How to Set Your Prices?

drying-car

People will pay a little more if the service that they receive is outstanding – but the quality of your work must justify the price.

If you are going to give a variety of different services then you should have options for all budgets and time frames to suit the biggest market possible.

As with any service industry business – you need to have competitive prices for the services that you offer. It’s important to do some market research in your area as to what your competitors are charging for which services.

Important factors to consider:

  • The cost of your cleaning supplies
  • Your overhead costs
  • The amount of cars you can do in an hour
  • The number of staff members you have
  • Your working hours for the week
  • Competitor prices for similar services
  • The type of area you are in (residential, urban, rural, business?)

For a mobile car wash it is important to consider many of the same factors including fuel price and distance travelled. In general, the cost of a mobile car wash service is higher than that of a car wash that a patron will go to because of the added convenience factor for the customer.

When deciding on prices for a mobile business, you will once again need to do current market research into what your competitors are charging.

To end off, it is important that you and your staff do a good job on the cars that you clean. The best way to get repeat customers is to supply the ones you have with an amazing service. For an in-depth tutorial on how to professionally clean a car – watch this video.

Advice from Car Wash Pros

Degee offers a few tips for an entrepreneur starting his own car wash.

  • Trustworthy staff is hard to find. Sort that out before anything else.
  • Sometimes, the easiest way to bring in new staff is through our existing staff.
  • A high turnover rate brings the possibility of more theft – try keeping good staff for as long as possible.

For the International Carwash Association visit www.carwash.org.


Next guide: How Do I Start a Transport or Logistics Business?

truck-driver

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