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Start-up Advice

The 4 Pitfalls Small Businesses Face

The ups and downs will come for SMEs, here are some tips for dealing with them.

JT Ripton

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Start-up companies face many ups and downs on the road to success. Making mistakes is part of the all-important process, offering you the opportunity to learn from them and implement new procedures so you can avoid similar pitfalls in the future.

Growing pains can make start-up companies stronger. Still, it’s good to be informed on things you could face along the way, so you can prepare for them.

Here are four common challenges:

1. An unstable market

One of the primary reasons start-up companies fail is they rush into production without having a stable market for their product or service. Even with a solid idea, your business could crumble if you haven’t researched the market.

Things to watch out for when entering the market:

  • There isn’t an intriguing enough value proposition to cause buyers to commit to purchasing your product or service. Ask yourself whether the product or service you’re offering consumers is “nice to have” or a “must have.” This will help you decide whether it’s worth investing your energy in this or should move on to something entirely different.
  • Even if you have a valuable product or service, the time you enter the market could be what eventually becomes a hindrance on your business. Your idea could be so great that you might be years ahead of your market, which ultimately results in consumers who aren’t ready for your product or service. If you’ve got the funding to stick it out for a few years while the market catches up, it’s worthwhile to do so.
  • The market size of the people who want your product or service and have the funds for it isn’t large enough.

2. A poor business model

Another reason start-up companies fail is that many entrepreneurs are overly optimistic about how easy it’ll be to gain customers. Although having a good product or service and an interesting website to promote it helps, it’s only the start of the journey of building a successful business.

It’s expensive to attract and win customers. In most cases, the cost of acquiring a customer (CAC) is higher than the lifetime value (LTV) of that same customer. With that said, many business models fail because entrepreneurs don’t think about the relationship between CAC and LTV.

These are two questions you should ask yourself while forming your business model:

  • Can I find a scalable way to gain customers?
  • Can I monetise those customers at a higher level than my cost of acquisition?

Keeping these questions in mind will help you develop a better business model that keeps your CAC less than the LTV.

3. Too much work and not enough employees

Most start-ups have very lean budgets. Because of this, it’s often hard for these growing companies to keep up with the amount of work that flows in. More work means more sales, but often that money doesn’t turn into profit. Instead, it turns into another payroll slot or an increased salary.

A possible solution for this business woe is to outsource as much work as possible. Many professional contractors are available for hire for much less pay than your employees are.

However, if you don’t want to outsource work, try boosting company morale and rewarding exceptionally productive employees to see you through the short-staffed time period.

4. Not enough funding

Last but not least, another reason start-up companies fail is because they either run out of cash or can’t find the funding to stay afloat in the market.

It’s vital for you to understand how much cash you have at all times and whether the amount will carry your company to a successful milestone when financing or when a positive cash flow will become available. Assuming that your start-up company will gain instant profits will lead to you to eventually drowning in the market.

Essentially, you should plan for the worst and expect at least two years to pass before your startup company starts turning a profit. Make sure that you create a detailed budget that’ll help sustain your business during those tough times.

After you’ve figured out how much capital you’ll need to have in the bank, add another 50 percent just to be on the safe side. The key to sticking to your budget is patience. Rushing to expand too quickly will result in a loss of cash flow before you know it.

JT Ripton is a business consultant and a freelance writer who enjoys writing about a myriad of topics, business and technology being a couple of them. Ripton occasionally writes for frontierinternet.com.

Start-up Advice

Start-ups: Creating A High Tech/High Touch Environment

Here are some practical tips for creating a ‘high tech/high touch environment’.

Dirk Coetsee

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In this fast-paced tech orientated world things are changing at a frightening yet exciting rate. It is so easy and so quick to create a tech start-up from anywhere in the world and office space as a requirement to start up has become obsolete, your garage will do. Yet because it is so easy and so cost effective for so many to create a start-up it is so hard to stand out amongst this entanglement of serial tech entrepreneurs and innovative start-ups.

The millennial generations’ general paradigm of thinking, which is more open –minded and entrepreneurial is slowly but surely breaking through the barriers of traditional business operations, mechanisms and methods, imbalances are created, however, when tech is the sole focus and people are forgotten in the process. As is so evident throughout history eventually by some means balance is sought in order to create equilibrium.

This writing serves as advice to all tech start-ups to seek balance from the onset in creating a “high tech/high touch” environment. A “High tech/high touch” environment can be defined as a balanced approach where both tech solutions, and of equal importance, team empowerment and inspiring leadership form a potent combination of enduring success.

Related: What Is Limiting Your Entrepreneurial Mindset

Technology by itself cannot solve everything but technology applied in unison with a strong people centred approach can be a powerful catalyst towards solving at least some of this worlds’ major challenges.

Although many factors such as for example fiscal discipline and other management controls play a vital role in your start-ups’ success do not forget to create an inspiring environment for your team within which they feel safe and united in purpose. Key to business growth is the individual growth of all team members and no stone should be left unturned in moving from a toxic and/or culture of complacency to a learning and growth culture.

Co-create an inspiring vision for your team and get their full buy-in. If you cannot do that you might have to put in more effort when it comes to your own leadership skills and/or “free up the future” of complacent and lethargic employees whom simply do not want to work hard to collectively actualise your business’ co-created vision.

Although very hard, it is worth the effort to only hire people that are passionate about and have integrity in what they do. If a sustainable and successful “high tech” environment is the aim ensure that it is underpinned by very smart hiring and training practises further enhanced by a good dose of inspirational servant leadership.

Generally speaking, everyone wants to feel part of something bigger, exciting, and inspiring. It is your responsibility as founder and leader to create a motivating and energetic business climate wherein every team member is empowered to execute at a rapid pace and with a “zero defect” mind-set. A team environment wherein everyone sincerely wants to be great at what they do and are energised by ‘small wins’ on the path to actualising the grand vision of the company is far more inspiring and sustainable as opposed to an environment where ‘subordinates’ are only managed and basically forced to do their jobs.

Related: The Anatomy Of Peak Performance

Sincerely care for your people yet maintain balance,as caring does not mean you treat them like children. Caring means taking great interest in both their career and personal development, and to be tough enough to eventually let those go that does not constructively contribute to a positive growth culture.

Here are some practical tips for creating a ‘high tech/high touch environment’:

  • Have a balanced approach in hiring. Hire for technical and people skills and ensure that there is a clear development and training plan for all team members that is reasonable and attainable.
  • Find your purpose as an entrepreneur and with great enthusiasm model that purpose at every juncture as to inspire others to find their purpose.
  • As ‘culture eats strategy for breakfast’ guard the positive and growth culture that you model as a leader with all your energy and remove anything and anyone from the aforesaid culture that is counter-productive to your business performance.
  • Sincerely care about and show that you care about each individual team members’ personal and career development.
  • Regularly put having fun and inspiration high on meeting agendas as we generally take ourselves too seriously.

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Start-up Advice

Why You Shouldn’t Quit Your Job To Start A Business

Rather than taking the plunge, consider dipping your toe in first

Yannick van den Bos

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As the world becomes more digitized and access to the internet is something we all enjoy, more and more of us want to quit our day jobs to start our own businesses. The word “entrepreneur” is thrown around a lot these days, with many people seeing it as a means to enjoy a whole new level of professional, financial and personal freedom.

It is not difficult to see why, either. Having the ability do what you love, when you want and on your own terms is certainly attractive, especially when you could potentially build it into a sizeable income. Don’t be too quick, however, to abandon your day job to pursue your entrepreneurial dreams. Many of today’s best-known entrepreneurs consider doing so to be reckless and unnecessary.

“Entrepreneurs” are rarely the modern-day maverick who suddenly decide one day to quit their jobs and pursue their dreams. After all, quitting a job to pursue business is risky, especially without having a safety net in place. In fact, the majority of people who decide to start an online business will fail within the first year.

Further, there is far more involved in transitioning from being an employee of others to becoming your own boss than you may realise. Changing your mind-set from that of an employee to an entrepreneur is a major key to successfully bridging that divide.

Related: 3 Key Law Areas To Know When You Launch That Start-up

If you operate with the mind-set of an employee — a person who is used to working for others and being paid by them – you will almost certainly fail. When you work for others, you do what they tell you to do. As an entrepreneur, you decide what the next best step is, and you execute that step in your day-to-day actions. The latter requires both a significant mind-set shift and major discipline.

At the same time, in our rapidly changing economy, you would almost be doing yourself a disservice not to start a business. But, how can you do so while working full-time?

Take the “hybrid path” to entrepreneurship

If you’re willing to sacrifice much of your free time now to reap the rewards later, you have what it takes to become an entrepreneur. Often called the “hybrid path” to entrepreneurship, many successful entrepreneurs started their business while still being employed full-time.

Research has shown that those who kept their day jobs while starting their businesses were 33 percent more likely to be successful than their risk-taking counterparts.

Leveraging your full-time job in the early days of your business, allows you to build on firmer financial ground, increasing the likelihood that your enterprise will last and thrive through the initial stages.

Related: What You Need To Know About The Lean Start-up Model

In addition, being entrepreneurial within your existing job allows you to build the necessary skills and traits you will need as you transition from your employee to entrepreneurial role.

Being impatient and chasing short-term gratification by quitting your job and going all-in, is risky and often ill-advised. Building slowly and steadily for the long-term is often the wisest course of action.

Today, it’s more important than ever to start a business

Still, with all that being said, the time couldn’t be more right to start your own business and become self-sufficient. Unlike in years past, having a job no longer guarantees financial security.

Rapid developments in technology and the ever-increasing digitization of our world puts creative and business-building tools in the hands of everyone. Whether you have skills to market or a great idea for a product, you too could be the next Bill Gates or Elon Musk.

Even if you set your sights a little lower, consider what skills you have that others would gladly pay you for. Figure out what you can charge per client, and how many clients you would need to completely replace your income. Unless you’re already earning seven figures, you’ll soon realise that the numbers are not that daunting.

Related: 6 Resources For Start-ups Looking For Funding

I was able to build my first business through affiliate marketing With affiliate marketing, you don’t have to create your own product. Rather, you earn a commission by promoting other people’s products.

Though the thought of running your own business, spending your days working on something you’re passionate about, and choosing how and where you spend your time is enticing, realise there are days if not years of sleepless nights, cash flow shortfalls and mind-set hurdles between you and your destination.

By building your business while working full- or part-time, you will have the cash flow in the short term to get your enterprise off the ground. Once your business begins bringing in an income which rivals that of your day job, then and only then should you consider whether to pursue it full-time.

Building a business is not for the faint of heart. But, if you’re willing to work crazy hours, delay gratification and learn from your failures, you can build both a business and life like few others. After all, “Life is too short to be living somebody else’s dream.”

This article was originally posted here on Entrepreneur.com.

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Start-up Advice

How To Survive 150 Straight Rejections

And come away smarter, tougher, and more successful.

Joe Keohane

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Sam Sisakhti had an idea for an e-commerce company called UsTrendy. It would sell clothing made by talented, unknown fashion designers from around the world — acting as a marketplace for great styles that could not be found anywhere else.

It didn’t matter that he had no experience in fashion or building a brand, or that he had just quit his first job out of college after only four days. What mattered was that he believed that this idea could be huge. And to get it there, he figured, he needed to raise money. A lot of money.

Initially, it seemed easy. On their very first pitch, Sam and his associate landed a $500 000 offer. “Crazy,” he says. But there was a catch: The VC required them to move to Silicon Valley to receive the money. Sam’s right-hand man didn’t want to move. Sam decided he’d just do it himself.

Related: Beauty Of Failure: The Art Of Embracing Rejection

So he moved, failing to understand that investors buy into a team, not just an idea. He promptly lost the funding. No matter, he thought. He’d just get more money

Thus began Sam’s real journey. He started pitching to anyone and everyone, regard-less of their field of expertise. It went badly. By his count, he was rejected around 150 times in a row over 18 months. Worse, he kept revising his business plan based on their feedback, reducing it to an ever-changing muddle that made it even harder to sell.

This beating culminated with a meeting with a VC who, humiliatingly, was a family friend. “He threw my business plan in the trash, right in front of me,” Sam says. “And I just remember thinking, Man, what am I doing?”

Entrepreneurs hear a lot of nos. In fact, it’s probably the word they hear more than any other, especially starting out. It can come in torrents. It can get crushing. The key, as Sisakhti learnt, is twofold: To survive it, and to learn from it.

And here’s what Sam realised: He needed to stop pitching. Not every business needs funding, nor is every business ready for funding.

“I was spending all my time pitching, and I wasn’t spending any time building the business,” he says. So he scaled back. “I went from wanting to create the next Amazon to just saying I wanted to grow a business organically,” he recalls. “I just wanted to pay for a modest, middle-class lifestyle.”

Freed from the ceaseless need to fundraise, Sam drew on his natural creativity and resourcefulness. He’d always thought he needed funding to help recruit young designers. But now he started to get creative. He recruited them right out of design school — using student brand ambassadors to get around rules about recruiting on campus. Soon he had a thousand. Then he linked up with London Fashion Week to do a show for emerging designers. He pitched a design competition, and that got him 3 000 more, along with a bunch of press coverage.

Related: Motivation-Boosting Tips From 8 Of The Greatest Entrepreneurs

Now he had inventory,  revenue, and exposure. He was feeling good. One night, over dinner, Sam sent a magazine piece to mega-investor Tim Draper, who had rejected him twice already. Fifteen minutes later, Draper responded, saying he wanted to talk. Eureka.

“I think the reason he was interested was that I’d shown I was going to do this with or without the money,” Sam says

He even got a little cocky. “I told him that it’s just a matter of time: ‘If I have your money, I’ll get there faster, but if I don’t, I’ll still get there. And then the valuation’s just gonna be that much higher to get in.’”

Draper invested $1 million in a first round, then came back for a second round. In total, UsTrendy has raised more millions since, grown by 300% annually in its first few years, and worked with more than 20 000 designers from more than 100 countries. It has attracted more than two million followers on social media and other digital media channels.

Now when Sam reflects on all those no’s, he thinks not of rejection — but of how it changed him. How it showed him the way. “It was awesome,” he says.

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