You’ve got a great idea for a business. But before you manufacture that product or set up your ingenious new service, you need to do your homework. So says Elizabeth Thornton, chief diversity officer at Babson College, and president and CEO of training and consulting firm, The Entrepreneurship Advantage. Thornton addressed some of the same issues in an IBM webcast during Global Entrepreneurship Week in November 2008. Thornton discussed what Babson calls the “three M’s,” beginning with:
1. Market demand.
This involves understanding the customer.
Thornton poses these questions a would-be entrepreneur has to answer:
- Who is your target customer?
- What is your value proposition?
- How strong is your customer’s pain point?
- What value do you provide that will make the customer buy your particular product or service?
“That’s what you’ve got to get really clear about,” Thornton says. “You have to be very objective about trying to evaluate who’s the right target market and what’s going to provide them with a willingness to pay for your product above all other products that might satisfy the need in a similar way. “Just because you think it’s a good idea – that you might pay for it – doesn’t mean that everyone else will,” Thornton says. “You’ve got to quantify the number of people in your particular market.”
To find that data, don’t ask your friends, Thornton warns. You won’t get an honest response. Instead, get creative. Depending on your product, you might approach people at the mall, at the gym or at your local coffee shop. You also could create an online survey using SurveyMonkey.com and send it to whatever group you think would give you a valid response, Thornton says. She cautions, however, that you can only trust a survey to a certain extent. “People will say, ‘Yeah, I’ll buy it.’ But when it’s time for them to choose between your product and something else, are they going to choose your product?”
Bottom line: Be really clear that this is something people are willing to buy, Thornton says. It has to be something they need and can’t get from other places, and it has to be sustainable over time. Once you define your market and how your product or service fits that market, you’ll be ready to tackle the next “M.”
2. Market size and structure.
This focuses on the industry itself. Is it an emerging industry or a declining industry? Is it a fragmented or a concentrated industry? Thornton suggests you have a higher probability of success if you’re in a fragmented industry because more players means more opportunities to differentiate your business.
Here are the questions you need to answer:
- Who is your target market?
- What are they offering their customers?
- To what degree can you provide something different that’s going to allow you to capture market share from this industry? What’s your sustainable competitive advantage against all others?
Don’t think your product is so new or unique that you won’t have any competitors, Thornton warns. “You always have competition. And you need to find out who your competition is, even in a local market.” You have to differentiate your product by adding some sustainable competitive advantage, so customers will switch from where they’re getting their product now, she says. Knowing market demand, size and structure, you’ll be able to home in on the third and final key to your start-up.
How much is it going to cost me to produce this product or service, and can I charge enough to make money?
“At the end of the day, your revenue minus your cost of goods should be around 40% or more,” Thornton says. “You want to have a decent gross margin because you need to be able to fund your operating expenses out of it.”
A corollary to that is how much it will cost to start the business. Suppose it’s going to cost R100 000, but you just lost 20% of your portfolio. Can you afford to put R100 000 into this venture? “So looking at your start-up expenses is part of the margin analysis when you’re evaluating the opportunity,” Thornton says.
Money considerations are not to be taken lightly, Thornton emphasises. “The No. 1 reason businesses fail in my mind is because they run out of money,” she says. “It takes longer than you think, it’s a lot harder than you think, it costs more than you think, and people might want to pay less than you think. All those things are going to impact your bottom line.” The reality is that it’s likely to take months before you generate any revenue. Let’s say it’s Day One of your business. You might spend the first 60 days filing papers, printing business cards and building a website.
The next month, you’re going to networking meetings and making contacts, but you have no sales. “Here you are, 90 to 120 days out, and you still haven’t generated any revenue,” Thornton says. “A lot of entrepreneurs will underestimate how long it will take to start their business and actually generate a cent of revenue. So I always recommend, if you cannot support yourself for at least a year – if you don’t have that in the bank – then you’re putting yourself at risk.”
Especially in today’s volatile economy, “give yourself the opportunity to be flexible, because market forces change. You have to have enough stamina from a cash flow perspective to be able to ride those waves, be flexible, execute intelligently in the moment, and try to seize and shape the opportunity.” Even if you can sell the product on Day One, Thornton says, it takes time to produce and ship it, and then wait for payment. “They might pay in 60 or 90 days. Even when you’re selling a product and generating revenue, do you have enough cash flow to be able to collect the receivables and be able to sustain your operation?”. Understanding cash flow is even more critical today, Thornton says, because access to credit isn’t flowing as well in the economic downturn. “So today you have to be even more discerning, and really understand what your cash flow needs are to sustain the business through the launch.
That’s especially true for women entrepreneurs. Research confirms that women have a more difficult time gaining access to capital and contracts. “Networking becomes increasingly more important,” Thornton says. “Having relationships with the decision makers in every single account and developing those ahead of time becomes important. You’ve got to call that person, you’ve got to meet that person – they need to be able to connect with you in a way that’s not the traditional way of doing it. Women have to leverage a different approach to business because there are obstacles.”
Evaluate the Three M’s
Here are the issues to be considered before taking the plunge into an entrepreneurial venture:
- Market demand: Determine who your customers are. Are they reachable? Are they receptive? How many are there?
- Market size and structure: Is the industry fragmented or emerging? Who are your competitors and what is your sustainable competitive advantage?
- Money: How much will it cost to produce the product or service? Can you charge enough to make a profit? Do you have the cash flow needed to sustain your business through the launch?
Start-ups Need More Than Money To Succeed – They Need Smart Money
Start-ups need investors who bring not only cash to the table, but also their networks and business acumen.
Ask any start-up what the single most important element to success is and – more often than not – the answer will be money. Financing always ranks as a high priority for the small fish trying to make it happen in the big pond of business – but often discussed with less fanfare is where this cash comes from and what will come with it. These are actually the most important details to a start-up.
That is not to say that money is not important. In fact, the second most common reason for start-up failure is lack of funding, according to CB Insights. Although, perhaps ironically enough, the top reason for start-up failure is lack of market need – a problem which could have been identified and avoided by investors who bring money with direction and money with experience.
Start-ups don’t just need money, they need smart money.
Start-ups need investors who bring not only cash to the table, but also their networks and business acumen. Essentially, they bring experience and direction to outfits that are usually inexperienced or directionless. So, let’s talk smart money and the start-up.
What is smart money?
“Smart money” refers to investors who are simply more intuitive and aware of market movements and business health. The Financial Times describes “smart money” as “sophisticated investors who tend to pick the right moment to buy or sell assets because they can identify trends and opportunities before others do.” These investors calculate based on history and profit and invest accordingly. Where they go, other investors follow.
These business heavyweights are invaluable to a startup because they put more than simply their money where their mouth is; they also invest their expertise. A start-up could have all the money in the world but it will fail more without the proper business direction and market placement.
Smart money works best for start-ups when nascent businesses pair with investors who provide a holistic approach to business. They can help in hiring the best talent, attracting interest from the most relevant stakeholders, securing a continuous presence in the press, avoiding pitfalls and, ultimately, fulfilling ambitions.
There are more than a few ways that money can be termed as smart. Perhaps the cash infusion also comes with experts in thought leadership and strategy, or executional capacity, or the ability to increase sales and raise funds. Whatever the method, smart money brings something more to the table than dollars. This becomes abundantly clear when conducting post-mortems of the startups which have failed.
Why do start-ups fail?
Start-ups fail all the time – and it is important to understand why. As mentioned above, the top reason start-ups fail is simply the lack of market need. Tackling problems that are interesting to solve rather than those that serve a market need is the most common issue start-ups cite for their downfall. The next most common reason for start-up failure, as likely predicted, is money. Smart or not, money does need to flow into any start-up to make it possible. Meanwhile, the third most common reason for startup collapse was team composition. More to the point: Start-ups need to comprise a diverse team with different skill sets.
These top three reasons for start-up failure could be solved with the right management approach from the top down. Each of these reasons can be addressed with smart money. The right business and management structure will allow the right hires to be made and course to be charted. Smart investors can identify the right people for your team and help you to hire staff who will take the business to the next level.
While start-ups think money is the key, it is not the end-all and be-all for their potential success. They need skills and networks. Business and innovation expert Rosemarie Truman explained this misunderstanding best: “A common mistake entrepreneurs make in their struggle to find funding is focusing too much on getting the money under specific terms and not paying enough attention to who is providing the funds.”
Show me the (smart) money
Savvy entrepreneurs recognise their businesses need more than cash to be successful – especially those at the top. Alibaba chief executive officer Jack Ma, who ranks as one of the richest people in the world, described the need for smart hires and smart staff as thus: “At first, I knew nothing about technology. I knew nothing about management. But, the thing is, you don’t have to know a lot of things. You have to find the people who are smarter than you are.”
Smart business owners want to work with investors who provide not just money but also their expertise, time and access to networks – and this is especially important for businesses looking to scale. The proof is in the research: Take for example a paper by Morten Sorensen, professor of finance at Copenhagen Business School, about venture capital and its impact on an overall business. Sorensen found that companies funded by more experienced venture capital funds were more likely to go public, and also that more experienced venture capital funds invest in better companies, leading to better long-term business health.
So, the question then becomes: Where does one access smart money? The answer will depend on whom is asked, but startups that have survived and later grown into viable businesses are a good place to start. The founders of collaborative blogging platform Niume, Daniel Gennaoui and Francesco Facca, have this advice for start-ups who are on the hunt for smart money:
“First, you need a strong founding team with complementary skills that can actually deliver on their promises. Second, you need a working minimum viable product (MVP), showing that there is traction and interest for the product and people willing to use and pay for it,” the founders said. “The actual amount they invest is far less important than the value they bring to your company.”
It is also worth noting that crowdfunding can be considered a form of smart money, as it brings an ecosystem of partners who will help to scale and countless brand ambassadors who have invested their hard-earned cash.
It’s simply more than capital
Gaining start-up finance is not only venture capital or crowdfunding – it should also provide an ecosystem of business management and be viewed as such. It’s simply wrong to think funding is only funding. Start-ups can have all the money in the world but will fail more often than not without the proper business direction and market placement. Those who want to make a lasting impression in their given field need the guidance and support smart money brings.
This article was originally posted here on Entrepreneur.com.
7 Lessons For The New Entrepreneur To Take Into 2019
You already have what it takes to make this year successful, but keep these points in mind.
Human behaviourist, Dr John Demartini upacks some important lessons that new entrepreneurs would be wise to take into the new year.
1. Find a need to fill that will also fulfill you as well
First and foremost, the most important thing an entrepreneur needs to do is to find out what exactly it is that businesses or people need, and make sure that this matches what is absolutely most meaningful and inspiring to you.
This need or value that you are going to fill must also be important to you and on your list of highest values so that you have a relentless drive to go and serve this need. In other words, it is important to make sure that you are doing something that’s meaningful and inspiring to you and serves a great number of people.
Related: Awaken Your Entrepreneurial Spirit
2. Clearly define all the functions required to build your business
Those functions are based on exactly what is systems and structures are required to fulfill your customer’s needs or values and to profit.
You must imagine every single step required to serve the customer. This helps build an infrastructure step by step.
3. Meet the need and generate the income
I think a great number of entrepreneurs set up fantasies that they have to depend on money to get their business started. Many have this grandiose idea that they’re going to do this, and then they need a certain amount of capital to get it going, instead of going in and actually meeting a need and generating income and then infusing capital into a proven model.
If you do it that way, then you don’t have to give away portions of your business and accumulate possibly unnecessary debt. Ask how you can be paid up front to fulfill each essential step instead of how you can borrow to fulfill them. Sure selling in advance is often wiser than borrowing and gambling on what customer might want.
Those who decide to wait for capital before they start their business often feel they can’t get it started without outside capital. Then, a year later they’re still trying to get the capital together to get their business started. It’s often wise to actually make sure you have something that really meets a need and be willing to work from the grassroots up and prove yourself and then infuse capital based on what’s already produced and proven and build it that way.
4. Manage money wisely
Save a portion of the money earned, and take another portion and return it back into the business to grow it. It’s important to have a liquid cushion – it’s unwise spending all your money or putting all of it back into the business and then having no cushion to fall back on.
Make sure that a portion of the money is put into liquid cash. The greatest companies have a great reserve of cash. Liquid cash is important. Many entrepreneurs are gambling instead of investing and looking for a quick return instead of being patient.
5. Have adequate liquidity to prevent opportunity take overs
Watch out for opportunists – when you are running a successful business. There will be opportunists who come along and offer to purchase the business for much less than it may be worth. That is another reason to have adequate liquid capital on hand, because without it, you can become vulnerable to others coming in and taking over the business. Leverage buyouts can occur.
Remember, cash is king. Cash grabs opportunities. So be sure to save and invest.
6. Keep focused
If you are not making money, then you must not be serving people. So make sure you are truly meeting your customer’s needs and serving them. Don’t take your focus off your mission. Don’t forget what got you to a point of success.
Related: Make A New Start In 2019
7. Be true to yourself
Don’t try to be somebody that you are not. Don’t envy and imitate other companies, you may end up not being authentic and true to what your values are. It is wiser to recognise where and when you already own the traits of those you admire according to your own highest values. You already have what it takes.
Outdoor Versus Indoor: How Different Conditions Will Impact Your Budding Marijuana Business
When starting out you should know the difference between indoor and outdoor production and why it matters to your future cannabis business.
If you’re looking to start growing and cultivating a strategy in the hopes that weed will be legalised, you’ll need to do some experimentation. Growing marijuana is a science and will require more than just a splash of water every other day like normal house plants.
Firstly, you’ll need to determine if you can grow your “crop” outside or if you’ll need to set-up a space inside. Here is what you need to know about growing cannabis inside versus outside:
Optimised versus natural
Deciding which option will work better for you depends on your unique circumstances. If you have access to an outdoor area you can use the natural resources of the sun and wind. If, on the other hand, you prefer to grow your crop inside you’ll need to cater for the natural elements you’ve lost, but you can also optimise the environment to give you exactly what you’re looking for.
When growing indoors you can control:
- Light source
- CO2 production
This will create a stable habitat for your weed plant to grow in, without having to risk any outdoor elements. Keep in mind, no bulb is going to be able to produce the same spectrum of light as the Sun, which will leave you will smaller yields and less vigorous plants.
You’ll also find it challenging to simulate the natural environment. For example: wasps, ants and ladybugs are natural helpers against mites, you won’t be able to mimic this ecosystem indoors, and if your plants become infested with mites it can be difficult to control. To avoid using pesticides and insecticides some cultivators could find the trade-off of growing outdoors appealing.
Outdoor growers will need a suitable climate for cannabis production such as:
- Good sun exposure
- Hot days, warm nights
- Low humidity.
Can you afford to grow indoors versus outdoors?
Whether you’re growing indoor or outdoor there will be significant initial costs, however, the difference will come in when it comes to long term costs.
An indoor climate control system can be quite capital intensive compared to outdoor where the majority of the costs are in the initial start-up.
The expected labour costs for indoor and outdoor are also quite different. There is always work that needs to be done to create an optimal environment with indoor marijuana growing. With a smaller yield, like in indoor growing, pruning, trellising, watering, feeding and harvesting are more demanding and continuous.
When growing cannabis outdoors, you’ll work on one crop throughout the seasons. A farm with a large output typically can sustain four full-time workers until harvest, when more employees will be needed.
You can recoup the high cost of indoor weed farming through:
- Breeding projects
- Year-round harvests
- Potent products
- Higher selling points.
Indoor marijuana farming also allows you to cultivate strains that wouldn’t thrive outdoors.
Pro tip: Keep in mind, with the rising cost of energy and an increasing demand for more product within the current marketplace, outdoor farming could produce quality product at a more reasonable price.
Will outdoor or indoor offer you better quality?
Being able to optimise your environment and accelerate breeding has allowed indoor cannabis to hold the title of top of the line product and generate beautiful strains with powerful flavour profiles. With indoor marijuana growth you can increase the CO2 level increasing bud growth and producing higher THC levels, which are difficult to obtain outdoors.
Indoor buds also remain in pristine condition as they aren’t exposed to the elements. Having an indoor operation enables you to harvest crops at peak conditions and curing the product in a controlled climate.
On the other hand, many users prefer the sun-grown organic marijuana. Although the actual plants tend to be more damaged, so the product isn’t as pristine. However, once you’ve gained enough experience you should be able to produce products of the same high quality as indoor growers.
The best of both options
There has been a growing trend of commercial greenhouse marijuana farming. This seems to capture the best of both methods. It produces high quality cannabis, while using natural elements and optimised environments simultaneously.
Both styles of farming offer positives and negatives, and as a consumer or a future producer, you’ll need to continually educate yourself on the current trends. Continue to evolve your process, try something new and keep your mind open to possibilities.
Start-up Advice1 week ago
6 Fundamental Steps To Consider Before Venturing Into The South African Cannabis Industry
Business Landscape1 week ago
How Algorithmic Forecasting Can Improve Business Efficiency In Challenging Economic Times
Business Ideas Directory7 days ago
300 Business Ideas To Inspire You Into Entrepreneurship
Start-up Advice1 week ago
Outdoor Versus Indoor: How Different Conditions Will Impact Your Budding Marijuana Business
Women Entrepreneur Successes1 day ago
How A Serious Car Accident Led Founder Relebohile Moeng To Starting Afri-Berry
Lessons Learnt3 days ago
(Slideshow) Top Advice From Local Entrepreneurs That Will Change Your Business In 2019
Start-up Advice1 week ago
4 Things Nobody Tells You About Entrepreneurship
Company Posts1 week ago
Success Fuelled By Partnership