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This Enterprises UP Expert Explains Why Start-Ups Really Fail

Too many young businesses fail because the entrepreneurs involved don’t focus on the basics early on. If you want your company to beat the start-up odds, you need to sweat the details.

GG van Rooyen

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  • Player: Dr Alex Antonites
  • Organisation: Enterprises University of Pretoria
  • Position: Professor in Entrepreneurship in the Department of Business Management at the University of Pretoria. Consults for Enterprises UP.
  • Established: 2000
  • Visit: enterprises.up.ac.za

As a lecturer at the University of Pretoria and a consultant to Enterprises UP, Dr Alex Antonites has dealt with a lot of new entrepreneurs. And one of the main reasons their young businesses go under is a failure to focus on the fundamentals.

Too many new entrepreneurs are so eager to get out there and sell, that they neglect important support functions until it is too late.

Related: Entrepreneur BB Moloi’s Inspiring Story of Rise To Success Through Grit And Hard Work

Here are Dr Antonites’ tips for getting the fundamentals right.

1. Do your research

“Many new businesses fail because the entrepreneurs involved simply don’t understand the market or the industry,” says Antonites.

“Before investing too much time and money into a business, you need to do research. There’s a lot of information out there these days, you just need to access it. Examine the nitty gritty of an industry. What are the rules and regulations involved? How saturated is the market? Who are the main players? What kind of capital do you need to set up this particular kind of business?

“You also need to do what is called customer discovery. Before launching a business, get out there and speak to people. Find out if there really is a market for what you’re selling before you invest too much time and money.”

2. Understand turnover

“When it comes to ascertaining the health of a business, we don’t actually pay much attention to turnover. It all depends on the industry you’re operating in and the margins you’re dealing with,” says Antonites.

“In an industry like mining, for example, you could have a massive turnover without really making much money. So, in order to be successful, you need to understand — and pay attention to — things like gross profit, net profit, debtors, creditors, etc.

“You need to know exactly what the financial situation of your business is at all times. You need to know what’s coming in and what’s going out every single day. You also need to be able to read a financial statement and know what’s going on. Some financial literacy is important. You don’t need to have a degree in accounting, but you need to understand the basics.”

Related: RocoMamas Founder Brian Altriche’s On Fabulous Failures And Visualising Success

3. Ask the experts

“When your business is new and you’re not really making a lot of money yet, employing a financial or legal consultant can seem like an unjustified expense. But getting an accountant to look at your books or a lawyer to examine your contracts is worth it. A lot of businesses bring in experts only when there’s a problem. That’s often too late. What you should do is bring in knowledgeable people early on. Many businesses make mistakes during the first year or two that they end up paying for long afterwards. This is especially true when it comes to contracts with clients, suppliers and employees. So a lawyer can end up saving you money in the long run,” says Antonites.

4. Spend as little as possible

“While some things, like getting an accountant or lawyer, might be justified, it’s still important to manage your expenses carefully,” says Antonites.

“Moving into expensive offices or hiring a lot of people can cripple a young business, so you want to keep your expenses as low as possible.

“Where a lot of small businesses end up losing money is in procurement. I had a student a while ago who was in the construction industry. His turnover was very decent, but he wasn’t making a profit. When I started questioning him about it, it became clear that he was purchasing his building supplies from a retail store, so he was paying R2,10 for a brick. Once we found a place where he could buy supplies at wholesale prices, he was suddenly only paying 90 cents a brick, which meant he was now making a solid profit.

“Even as a small business, you need to find ways of getting good deals from suppliers. Paying retail prices is not an option. One strategy that often works is setting up a buying cooperative. Teaming up with two or three other businesses can give you a much better bargaining position.”

Related: How Neil Robinson Is Saving The World 1 Bracelet At A Time

Take note

It’s tempting during the early days to neglect admin and financial controls in favour of getting out there and selling, but it’ll be detrimental to your business in the long run. A sustainable business establishes the right controls early on.

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Lessons Learnt

#Wealthiest List: 8 Self-Made Millionaires On How They Built Their Wealth

These inspirational self-made millionaires built businesses with nothing less than hard work and sheer determination.

Catherine Bristow

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1. Nick D’Aloisio Wrote a Million Dollar App At Age 15

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At the age of 15, Nick D’Aloisio wrote an app while sitting in his parent’s bedroom in the UK. At the age of 17, D’Aloisio sold his app Summly – a mobile news summarisation app to Yahoo for a staggering USD 30 million.

As one of the youngest millionaires, D’Aloisio is also the world’s youngest entrepreneur to be backed by venture capitalists – having secured seed funding from Sir Li Ka-Shing, Hong Kong’s billionaire, as well as raising USD 1.23 million from celebrity investors, including Yoko Ono and Ashton Kutcher.

“The number one thing I did that I think was wise was to get, through some of my advisers, was a Chairman; basically someone who was a very experienced business person, an industry veteran — Bart Swanson, who had been at Amazon and then Badoo. Then, myself and Bart really started finding people and growing the team.”

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7 Cannabis Industry Millionaires Making It Big In The Marijuana Business

These entrepreneurs have capitalised on a new market set to continue to grow rapidly as more countries legalise marijuana across the world.

Catherine Bristow

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1. Brendan Kennedy

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Brendan Kennedy worked on job sites as a carpenter to pay his way through university, with his eyes set firmly on becoming an architect, until the allure of Silicon Valley changed the course of his direction. While working at technology start-ups Kennedy began thinking about the possibilities that medical marijuana provided.

“I was really sceptical of medical cannabis,” he says. “It took a year of having conversations with patients and physicians and hearing the same story, repackaged but essentially the same, over and over and over again, where my scepticism eroded and I became a believer.”

In 2013, Kennedy and his partners applied for a licence from Health Canada and launched Lafitte Ventures, which was later renamed Tilray. Today, the company is a global leader in medical cannabis research, cultivation, processing and distribution.

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Scaleup Learnings From Our Top Clients – What The Most Successful Entrepreneurs Do Right

So, how do our successful clients move through these constraints to scaling up? We see four key drivers of success, and they are: people, strategy, flawless execution and finance.

Louw Barnardt

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You’re out of your start-up boots, staff is increasing, your client base is growing, revenue is up and you’ve proven your case to the market. Now it’s time to scale up. The challenges of this vital growth phase are different and it’s a time that demands different mindsets and different actions. In a world littered with small business failures, it helps to be well-prepared for scaling up using a proven methodology. At Outsourced CFO, we get an inside look at the success factors of our clients who are mastering the transition.

On the one hand, scaling up is a really exciting phase; this is what moves you into real job creation and making an impactful contribution to economic growth. On the other hand, it is really hard to scale up successfully. We see three major constraints that limit companies’ transition from start-up to scale-up:

Leadership

The business has to have the leadership that can take it to the next level. When you start scaling up, especially rapidly, the founders can no longer do everything themselves. The team must grow and include new leadership talent that can take charge and execute so that the founders are working on the business instead of in the business.

Infrastructure

The processes, procedures, networks, systems and workflows of the business all need to be scalable. This is imperative when it comes to your infrastructure for the financial management of your business. You’re only ready for growth when your infrastructure can seamlessly keep pace.

Market access

Scaling up demands more innovative marketing and storytelling so that you can more easily connect and engage with the new employees, clients, network partners, investors and mentors that need to come along with you on your scale-up journey.

Businesses that build a market conversation and a compelling brand narrative during their start-up phase are better positioned to have this kind of market access when they need to scale up.

People

It is critical to have the right people on your team. Our successful entrepreneurs have what it takes to attract, inspire and retain top talent. A strong team of smart, ambitious and purpose-driven people who love the company and want to see it succeed contribute greatly to a world class company culture. They are adept at communicating a compelling vision and establishing core values that people can take on. These entrepreneurs are tuned into the aspirations of their people and focus on developing leaders in their teams who can in turn develop more leaders.

Strategy

It is planning that ensures that the right things are happening at the right times. At successful scale-ups strategies and action plans are devised to ensure that the most important thing always remains the most important thing.

Strategy includes input from all team members and setting of good priorities for the short, medium and long term. Goals are clear and everyone always knows what they are working towards. The needle is continuously moved because 90-day action plans are implemented each quarter to achieve targets and goals that are over and above people doing their daily jobs.

Flawless execution

Top entrepreneurs are not just focused on what operations need to achieve, but how the business operates. They have the right procedures, processes and tools in place so that everyone can deliver along the line on the company’s brand promise. Frequent, quick successive meetings ensure the rapid flow of effective communication. Problems are solved without drama. There is no chaos in the office environment. Everyone is empowered to execute flawlessly to an array of consistently happy clients.

Finance

Everyone knows that growth burns cash. A rapidly scaling business faces the challenge of needing a scalable financial infrastructure to keep the company healthy. Our successful entrepreneurs pay close attention to finance as the heartbeat of the business, ensuring that everything else functions. They look at the tech they are using for financial management and for the ways that their financial systems can be automated so that they can be brought rapidly to scale. The capital to grow is another vital finance issue.

The best way to finance a business is through paying clients on the shortest possible cash flow cycle. However, when you are scaling up and making heavier investments in the resources you need for growth, it is likely that you will need a workable plan for raising capital. Our scale-up clients know the value of accessing innovative financial management that provides high level services to drive their business growth.

Navigating the scale-up journey of a growing private company is one of the hardest but most rewarding of careers to pursue. Having people in your corner who have been through this journey before helps take a lot of pain out of the process. No growth journey looks the same, but there are tried and tested methods that will – if applied diligently – lead to definite success. Happy scaling!

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