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Start-up Advice

Location, Location, Location

We’ve all heard the mantra countless times. The right location can make or break your business.

Nadine Todd

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How important is it to choose the right site?

Over and above all the ways the right site can influence the success or failure of your business, lease agreements are even tougher to break than a marriage. Once you sign on that dotted line it is very difficult to walk away before the lease is up. You need to be 100% sure that the site you choose is the right one and that your business can afford it.

What should a business owner think about before signing the contract?

There are a number of important factors to take into account, but if we break it down, the core factors to consider are target market, where your competitors are situated (and fellow franchisees), rent vs location, size of the store and geographical area. More often than not choosing a location is a compromise between the ideal and what you can afford, and all these factors play a role in how much rent you can pay each month.

What impacts rental costs?

The geographical area, target market, size of a shopping centre, how large the store is and where in the centre it is situated – all these factors influence how much rent the landlord will charge. A store tucked away in the corner of a shopping centre will see far less foot traffic than one at the main entrance. Being situated next to one of the centre’s flagship stores will also ensure high foot traffic.

What happens if the store does not meet expectations?

There are always risks involved when choosing the right location, but it’s important to evaluate what those risks are and include them in an exit clause when signing a lease. If you haven’t got an exit clause and a major change occurs that leaves you dead in the water you have no re-
compense – you are still locked into your lease.

What types of scenarios could be included in exit clauses?

For example, if you are choosing to lease a store in a centre because of a particular anchor store, and that store leaves, you could stipulate that without that particular brand in the centre your lease expires. Another example is store positioning. If the centre does renovations or changes and your position – without you moving – is no longer as desirable as it was, an exit clause can protect you. Finally, how many similar stores are there in the centre? Three coffee shops are fine, four might be too many. Your landlord cares about rent, not how well your store does. If you want to limit competitors in the centre you have to insist on this point.

How many competitors are too many?

That’s an interesting question, because competition isn’t always bad. ‘Accumulative attractiveness’ refers to the grouping of similar stores, but that grouping brings you customers. They might not always come to your store, or buy your product, but they are attracted to the choice that a number of brands grouped together offers. You need to overlay your competitors with the size of your market and its buying power. Even a big market can be too small if there are too many competitors, but if you are isolated are any potential customers going to find you?

What does ‘complementary attractiveness’ refer to?

This is slightly different to accumulative attractiveness. Complementary products allow consumers to get everything they need at one centre. A large mall or a moto city are good examples of this. Moto cities will have a range of different brands that all cater for motorists, and even if some of those brands overlap, the abundance of choice will attract consumers.

What do the terms micro and macro location mean?

A macro location is the shopping centre. The micro location is where you are in that centre. When choosing a location you need to take both into consideration. You need to think about which target market frequents the centre you are considering, how close it is to main roads and freeways, which brands make up the flagship stores and how big the centre is. The micro site’s rent will largely be based on the size and positioning of the store, and the fitments it has in place.

How important is the size of a centre?

Very. You get three types of centres. Convenience centres, large malls, and centres that are in between. Anything that is not either very large or a convenience centre is high-risk. It’s too big to have a big open parking lot and be quick and easy for shoppers, and too small to offer real variety.

What should a tenant pay for a site?

Before you can make a judgement on how expensive rental should be, you need to understand your industry’s optimal ratio. Every industry has one: the trading density you need per square metre to make a profit. The expected performance versus production that dictates how much space you need and what your turnover will be. Again, it’s a case of compromise. Find the best spot for what you can afford. There is no point finding a cheap site, if you don’t get feet through the door. Similarly, you don’t want to pay more rent than you can afford.

How much research should prospective tenants do?

Research is essential. You need to understand your area, target market, competitors, the centres in the area, the size of the store you need, what you can afford to pay, and the percentage of market penetration you expect to get. But, and this is important, when you find a site, don’t wait too long to make a decision. If it’s a good site there will be other prospective tenants waiting for it and if you snooze you will lose.

What red flags should immediately warn a tenant off?

The first is failed tenants. Yes, stores fail, but not everyone is wrong all of the time. If stores keep failing in the same location, there is probably a reason why. Unless you know what that reason is and you are absolutely certain your store will be different (based on facts, not confidence) don’t take the space.

Second, if the centre as a whole has a high number of vacancies, don’t take a lease – even if the rental appears cheaper. There is a reason tenants are leaving or failing. Rather pay more for a good landlord or busier centre. And finally, look out for any potential site killers. A good example is how much money the site will cost you. If you need to refit the store, fix the airconditioning or put money into the store that you won’t recoup, rather look elsewhere.

Is it better to take a store that isn’t first choice or to wait?

Obviously you don’t want to wait too long, but don’t lock yourself into a lease that isn’t right either. In the long run it will cost you money or even hurt your business. You will need to compromise, sure, but compromise doesn’t mean settling for the wrong site. ­­

How important is the micro site if you have found the right centre?

The actual site you choose is more often than not a compromise. You need to balance what you want with what you can afford. However, often for a bit more rent, you get a much better site and generate a far higher turnover. Nando’s in Sandton City recently moved to a better site. The centre is excellent, so any site would be good, but the micro site is still a key factor. For marginally higher rent that store has doubled its turnover.

For more information, contact Stephen Walters on +27 (0)11 712 1739 or visit www.fernridge.co.za

[box style=”gray,info” ]Where You Are Matters More Than What You Pay[/box]

Nadine Todd is the Managing Editor of Entrepreneur Magazine, the How-To guide for growing businesses. Find her on Google+.

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Start-up Advice

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.

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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‘).

Related: 7 Ingredients Of Small Business Success Online

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.

Related: 7 Strategies For Development As An Entrepreneur

Key Features

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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Start-up Advice

Beauty Of Failure: The Art Of Embracing Rejection

In this piece I will try demystify failure, and look into why it should be embraced and not feared.

Jordan Stephanou

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“Chaotic”, “uncertain”, and “rollercoaster” are three words that would effectively describe almost any entrepreneurial journey. If death and taxes are certainties in life, then failure and taxes are the only two guarantees in business.

If failure is (to some degree at least) inevitable, why should we fear it? In this piece I will try demystify failure, and look into why it should be embraced and not feared.

1. It’s Part of the Job

We can start by separating failure into two different categories – micro and macro-failure. If a macro-failure can be considered as the overall failure and shutdown of the business, micro-failures can be seen as the day to day events that go wrong – that potential client that hangs up on your cold call; the sales pitch that gets the soft-no response of “we’ll call you”; the product launch that no one pitched up to. As Mark Manson puts it, business (as in life) is just a process of becoming less wrong over time.

Everything is a hypothesis that needs to be tested, and the process of business is applying the learnings from each hypothesis – each micro-failure – to be less wrong next time to move the business forward.

As Seth Godin says, “The cost of being wrong is less than the cost of doing nothing”. Embrace being wrong. Rejection and failure are part of the job.

Related: The Art Of Embracing Rejection

2. Opportunity to Refine

There is one undoubted truth about every failure – and that is, each failure gives an experience to dissect and learn from. The Roman Emperor Marcus Aurelius had a similar view; that to one person a situation is good, and to another, that same situation is bad – Only perception decides.

As an entrepreneur, it is important to adopt this stoic thinking of managing your perceptions. Look at situations rationally, and perceive rejections as opportunities to refine the product that the market really needs – not the product you are forcing on your market.

3. With each Failure, Fear it Less

fear-of-failureOne of the great things about rejection or failure, is that the more often you are exposed to it, the less you fear it. In fact, micro-failures can become such a common part of an entrepreneur’s day, that you stop even noticing them as failures at all.

You may look back on a day with multiple rejections from prospective clients as a normal day on the path to building a business. The goal is to get to that point as quickly as possible.

4. One Less Avenue

In the beginning, any failure will elicit a strong emotional response, however, when it becomes embraced as part of the journey, as crazy as this sounds, you may even get excited for the next rejection or micro-failure.

Why? Because each micro-failure takes away one possible path you could go down in your business. Entrepreneurs tend to be highly ambitious, highly idealistic people. This may result in wanting to do too many things, take the business in too many directions simultaneously, and run before walking.

The beauty of failure is it re-clarifies the path, stops the entrepreneurial mind from getting carried away, and brings everything back into perspective. What’s better than pursuing 1000 potential clients? Pursuing 999 higher potential clients.

Eliminate avenues that aren’t right for your business as quickly as possible so that you can spend time on providing best possible product or service for the ones that are right.

Related: 10 People Who Became Wildly Successful After Facing Rejection

5. Practical Tip to Embrace Rejection

So with all this theoretical talk out of the way, how do we get over that fear of failure to see the beauty of it? Start by watching Jia Jang’s TED talk of 100 Days of Rejection: https://www.ted.com/talks/jia_jiang_what_i_learned_from_100_days_of_rejection. The talk genuinely impacted my life. I have since implemented an annual (and much less impressive) 10 days of proactive rejection in my life. The goal is for 10 days, to do anything in any aspect of life that you would do if you weren’t ruled by fear. Ask yourself today, “what would I do if I wasn’t scared?”

The goal is to actively seek rejection to remove the power of fear from damaging your business’s potential.

Finally, I believe we should get our heads around the idea of celebrating our failures. Go for a drink as a team and give a toast to that failure even more than if it was a success. After all, if life is more about the journey than the destination, surely we should celebrate and cherish every event of the journey along the way?

Every event that happens will be critically important in forming the empire of a business that you are building. Take a step back, see the big picture, and smile whenever it doesn’t go as planned. See the beauty of failure.

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Start-up Advice

6 Resources For Start-ups Looking For Funding

Here are 6 online resources that can help you pay the bills and grow your business at the same time.

Josh Althuser

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Anyone who has ever considered starting their own business, or is currently in the process of doing so, knows that every little bit helps when it comes to making ends meet. Part of the charm of start-up culture is the low-budget creative atmosphere that seems to continually fuel innovation. But, eventually you’re going to have to keep the lights on and water running, and you can’t do that with creativity alone.

Whether you are a business that is just starting out, or already well on your way, there are plenty of online platforms that offer start-ups advice and funding opportunities. Here are 6 online resources that can help you pay the bills and grow your business at the same time.

1. Kickstarter

kickstarter-logoAt one point it seemed that anyone with a clever idea could make a video showing why the world should invest in the next big thing. While a lot of crazy projects have gotten funded over the years, utilising a crowdfunding platforms like Kickstarter continues to be a viable way to get your project off the ground. Of course, if you want to reach your funding goals, it’s best that you have already done your market research, have a solid plan, and treat crowdfunding like a global VC.

Visit Kickstarter here.

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

2. Toptal

toptal-logoThose who are new to the start-up world might not know exactly where to start when it comes to looking for funding. While the freelance economy has grown immensely in the last 5 years, it’s important to know where to look.

Platforms like Toptal offer a wide range of freelance professionals that specialise start-up funding. Start-ups seeking a consultant on Toptal can also rest easy knowing that they carefully screen each candidate, ensuring they have the necessary professional background and experience to guarantee a successful project. 

Visit Toptal here.

3. Appbackr

appbackrIf you couldn’t already tell by the name, appbacker is definitely worth checking out if you are a start-up working in app technology for both Android and Iphone. The platform helps people discover different apps through the crowdsourcing model. Investors can scroll through apps from around the world, and if they like what they see, they can choose to invest. Funding incentive is based on an investor’s ability to purchase an app at the wholesale price, eventually making a profit once the app starts flying off the shelves in the official app store.

Visit Appbackr here.

Related: 7 Strategies For Development As An Entrepreneur

4. Gust

Gust logoInvestors are more likely to invest locally, which is why Gust is an attractive option for start-ups around the world, as they represent over eighty countries worldwide. Founded by a team of investors and lawyers, Gust knows their way around the start-up world.

With portals for both start-ups and investors, the platform seamlessly connects those seeking funds and those looking to invest. Start-ups can create a profile on Gust, and also have access to tools and tips to help them regulate finances and legal matters. 

Visit Gust here.

5. AngelList

angellist-logoNot just for investment, although that is a major part of the platform, AngelList is also a great place to find start-up jobs as well as recruitment. Those start-ups that are looking to expand can greatly benefit from this feature, while also getting their name out there to potential investors.

Their syndicate platform, led by technology experts make room for those who are looking to invest the chance to apply to a lead or directly invest in a fund.

Visit AngelList here.

Related: 6 Steps To Building A Million-Dollar Ecommerce Site In 60 Days

6. Seedrs

seedrs-logoFrom top corporations to big name accelerators, Seedrs aims to simplify the funding process for investors. Providing a vast network of investors from 48 different countries, who tap into an additionally impressive network of start-ups, there is plenty of room for collaboration on this platform. Seeders also encourages investors and start-ups to continue their relationship after the transaction is made. Their online and offline networks aim keep both start-ups and investors in the loop.

Depending at what stage of development your company has currently reached, exploring various funding options available to you is a worthwhile endeavour. Rather than blindly pitching investors, investigating each potential platform, whether it’s crowdfunding or a hiring a freelance funding expert, will save you time and resources so you can focus on the right type of investment based on your needs.

Visit Seedrs here.

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