I’m a high school student. I’ve been selling key rings and other collectibles on eBay for over a year. I’ve found that I love doing business, and would like to continue this in the future – I’d like to own a company myself. I would like to expand my business to selling clothing and other items, but a large amount of homework and a lack of money is holding me back. What do you think I should do? – Felix Yim, Australia
Felix, I really admire your enterprising instincts and ambition to expand your business. Running this start-up will allow you to learn a lot about entrepreneurship, and with limited financial risk.
You’ve made some great choices so far. Your business does not involve growing or manufacturing a product, and the only office you need is likely your room at home. Through eBay you can distribute your goods to markets far and wide, reaching customers instantly and without a marketing budget. These are all tremendous pluses for any business, and especially for a young person without much access to funds.
The importance of education
Given the fact that you’re considering expansion, it sounds like your enterprise is doing well, which brings me to your question about homework: I left school at 16 to run Student magazine, because I felt that I could not do well at both.
Also, my dyslexia made schoolwork quite frustrating, and I wanted to focus on something I could do well. On the other hand, many people who become successful entrepreneurs complete high school and obtain university degrees.
When you and your family are discussing your options, remember that learning the ins and outs of running a business will be helpful to you throughout your career.
I was around your age when I started up two ventures with a friend: growing and selling Christmas trees and then breeding and selling parakeets.
They both failed: We hadn’t realised that we had to protect our saplings from rabbits, which feasted on our tiny forest, and keeping large numbers of birds proved to be much more difficult and noisy than we had expected.
This taught me to assess the risks associated with a business and to make sure that I had the resources and manpower to keep a venture going – lessons that I have applied throughout my career.
However you decide to balance homework and business, here are a few basic steps you can follow to boost your enterprise:
1. The ABCs of raising capital
You indicated that you need money to acquire more products to sell. It can be very difficult for young people to obtain access to loans, but on the other hand, it’s unlikely that you need to pay for living expenses right now, so any money you obtain can go a long way.
When I was starting out, I raised the cash we needed for seedlings and birds by doing things like delivering newspapers, washing cars and mowing lawns.
Could you earn the money to buy your stock? If this is a good option, try asking your parents, neighbours or the owners of local shops if they are looking for extra help.
2. It’s all in the name
Have you come up with a good name for your store on eBay? A catchy name will help people to remember who you are and what you sell, and make it easier to find on search engines. Then put that name on every receipt and marketing item – remind customers of it at every opportunity.
3. Hunt for treasure
One of the best ways to keep customers coming back is to sell unique products that they won’t be able to find anywhere else. At Virgin Records, we prided ourselves on offering customers hard-to-find albums – we stocked live recordings of concerts and many foreign imports.
In your line of business, you might search for collectibles at flea markets, garage sales and charity shops.
4. Stand out from the crowd
It would be good for business if you can find a way to make your store stand out from the others, especially on a site as popular as eBay. Providing great service is a good start, but your customers may need to know more about your ability to find and curate collectibles.
We always looked for stunts or stories to make our businesses noteworthy. Is there something you could do to make news in the community of collectors?
5. Keep in touch
Once you have customers, make sure you keep them coming back. Send them news about new products, special offers and other developments in their areas of interest.
If you look after your customers, they are more likely to buy from you again and to recommend your business to their friends – and a recommendation is far more valuable and cost effective than an ad.
Good luck! No matter what field you go into, remember the basics of success: Keep enjoying what you do and do what you enjoy.
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How do you think Felix could better juggle schoolwork and his business venture?
Alan Knott-Craig Answers Your Questions On Money And Partners
From starting the right business, to managing business partners and finding your magic number, there is a secret to happiness.
If I get rich will I be happy? — JC Lately
Does money equal happiness? Mostly, yes. Research in the US shows that your happiness is proportionate to your earnings up until you earn $80 000 per annum. Thereafter, incremental income gains have a negligible effect on your happiness.
In other words: More money will make you happy as long as you’re poor. Once you break out of poverty and enter a comfortable middle-class existence, more money will not make you happier.
These are the top three for old folks:
- I wish I’d spent more time with family.
- I wish I’d taken more risks.
- I wish I’d travelled more.
Therein lies the secret to happiness. Spend time with your family. Take risks. Travel.
But first, make money. Don’t do any of the above until you’re making enough money not be stressed about money.
What is the magic number? — Mushti
The magic number is the amount of money you need to not worry about money ever again. If you don’t need toys like Ferraris, yachts and jets, the magic number is R130 million. Here’s the math: R130 million will earn R9,1 million in interest annually (assuming 7% interest). After tax that is R5,46 million.
Assuming you need 50% to maintain a good lifestyle, that leaves approximately R2,7 million for reinvestment, which is enough to keep your capital amount in touch with inflation for 50 years. The balance of R2,7 million (after tax) is for your living costs. In South Africa, R2,7 million will afford you a lifestyle that allows you to send your kids to a great school and university, to travel overseas a couple of times a year, and to live in a comfortable house.
Over time your living costs (and inflation) will eat into your capital amount. After 50 years you should be down to nil, assuming you earn zero other income in that time.
In 50 years, you will probably be dead. If you’re not dead, your kids will be able to support you (because they love you and they have a great university education).
I am the sole director of a company (the others still have full-time jobs and don’t want to be conflicted) and there is pro-rata shareholding based on our initial shareholder loans. However, I am putting in most of the hard work, together with one of the other actuaries. How best do I manage the director/shareholder dynamic? I obviously want to make as much progress as possible but there are times when I need the input from the others (and their responses aren’t always as quick as I would like). — Mike
If you have any perception of unfairness regarding effort/risk vs reward, deal with it NOW! You can’t do so later. The best approach is honesty. Call your partners together. Explain your thinking. Perhaps argue for 25% ‘sweat equity’ for yourself. Everyone dilutes accordingly. Ideally cut a deal whereby you have an option to pay back all their loans, plus interest, within six months, and you get 100% of equity (unless they quit their jobs and join full-time).
Equity dissent must be resolved long before the business makes money, otherwise it will never be resolved.
What do you think of WiFi in taxis?— Ntembeko
It’s a good idea, but not original. Before embarking on a start-up, you should survey the landscape for competitors. Just because there are none doesn’t mean no one has tried your idea.
It just means that everyone that tried has failed. You need to be 100% sure that you have some ‘edge’ that makes you different from everyone who came before you (and failed). Otherwise you will fail. What is your advantage that is different to everyone who came before?
Read ‘Be A Hero’ today
What You Need To Know About The Lean Start-up Model
The Lean Start-up philosophy was developed by Eric Ries, a Silicon Valley-based entrepreneur who also sat on venture capital advisory boards. He published The Lean Startup in 2011, igniting a movement around a new way of doing business.
The model follows key precepts that include:
Taking untested products to market
The fact that too many start-ups begin with an idea for a product that they think people want, spending months (or even years) perfecting that product without ever testing it in the market with prospective customers.
When they fail to reach broad uptake from customers, it’s often because they never spoke to prospective customers and determined whether or not the product was interesting. The earlier you can determine customer feedback, the quicker you can adjust your model to suit market needs.
The ‘build-measure-learn’ feedback loop is a core component of lean start-up methodology
The first step is figuring out the problem that needs to be solved and then developing a minimum viable product (MVP) to begin the process of learning as quickly as possible. Once the MVP is established, a start-up can work on tuning the engine. This will involve measurement and learning and must include actionable metrics that can demonstrate cause and effect.
Utilising an investigative development method called the ‘Five Whys’
This involves asking simple questions to study and solve problems across the business journey. When this process of measuring and learning is done correctly, it will be clear that a company is either moving the drivers of the business model or not. If not, it is a sign that it is time to pivot or make a structural course correction to test a new fundamental hypothesis about the product, strategy and engine of growth.
Lean isn’t only about spending less money
It’s also not only about failing fast and as cheaply as possible. It’s about putting a process in place, and following a methodology around product development that allows the business to course correct.
Progress in manufacturing is measured by the production of high quality goods
The unit of progress for lean start-ups is validated learning. This is a rigorous method for demonstrating progress when an entrepreneur is embedded in the soil of extreme uncertainty. Once entrepreneurs embrace validated learning, the development process can shrink substantially. When you focus on figuring the right thing to build — the thing customers want and will pay for, rather than an idea you think is good — you need not spend months waiting for a product beta launch to change the company’s direction. Instead, entrepreneurs can adapt their plans incrementally, inch by inch, minute by minute.
Start-Up Law: I’m A Start-up Founder. Can I Pay Employees With Shares?
Bulking up employee salaries with equity is a common method to attract, retain and incentivise top talent.
Every early stage start-up company battles with restricted cash flow and not being able to pay market related salaries to their employees. Bulking up employee salaries with equity is a common method to attract, retain and incentivise top talent.
Can I pay salaries with shares?
South African labour laws require that employees be paid certain minimum wages, and “remuneration”, as defined within the Basic Conditions of Employment Amendment Act, either means in ‘money or in kind’. ’In kind’ does not include shares or participation in share incentive schemes, as determined by the Minister of Labour. As such, there is no room for start-ups to completely substitute paying salaries with shares or share options. However, there is no restriction in topping up below market related salaries with equity via an employee share ownership plan (‘ESOP‘).
Employee Share Ownership Plans
There are a variety of ways in which employees can be incentivised, and it will always be important for the start-up founders to consider what goal they wish to achieve by incentivising their employees.
ESOPs can be structured in several ways, for example: employees may be offered direct shareholding in the company, options for the acquisition of shares in the future; or alternatively, a phantom / notional share scheme can be set up.
ESOPs permit employees to share in the company’s success without requiring a start-up business to spend precious cash. In fact, ESOPs can contribute capital to a company where employees need to pay an exercise price for their share options or shares.
The primary disadvantage of ESOPs is the possible dilution of the Founder’s equity. For employees, the main disadvantage of an ESOP compared to cash bonuses or bigger salaries, is the lack of liquidity. If the company does not grow bigger and its shares does not become more valuable, the shares may ultimately prove to be worthless.
Some key features to consider when setting up an ESOP are:
- ELIGIBILITY – who will be allowed to participate? Full time employees? Part-time employees? Advisors?
- POOL SIZE – what percentage of shares will be allocated to incentivise employees?
- RESTRICTIONS – will employees be able to sell their shares immediately?
- VESTING – will there be a minimum period that service employees will have to serve with the start-up to receive the economic benefit of his or her shares?
Employee share ownership plans are great corporate structuring mechanisms for attracting and retaining employees, as well as fostering an understanding of the company ethos and encouraging loyalty and productivity. It is essential when implementing an ESOP that all the tax implications are considered and that the correct structure and legal documentation are in place.
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