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Starting a Business

What are the most common pitfalls in a start-up business?

You need business skills before you can start a business.

Caroline Ritson

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What are the most common areas in which mistakes are made when planning to start a business?

When starting a business very often one of the biggest challenges facing an entrepreneur is the lack of sufficient business skills.

You will only realise the importance of having these skills, when the lack thereof adds unnecessary expense, and starts to have a negative impact on your company profit margins.

Here are some pitfalls to watch out for:

  • Financial: Insufficient understanding of financial principles could be catastrophic, as the basis for maintaining a positive cash flow and net profit is reliant on this information.  Not complying with the basic legal requirements i.e. not formally registering your business or conforming to SARS legislation could also result in unnecessary financial penalties being imposed.

You’ll find helpful information about financial management here.

  • Systems and procedures: A project or task that is ineffectively managed will result in unnecessary time delays on deliverables (and additional financial constraints) which will lead dissatisfied customers.
  • People skills: Inadequate people management skills could result in an unproductive team or a high staff turnover.
  • Communication: Not having the ability to write and speak effectively may be interpreted as a sign of unprofessionalism within your organisation. The internet is a very useful tool for acquiring examples of essential business communication in the form of letters and emails.
  • Equipment: Inadequate information technology knowledge will have a detrimental effect on the efficiency of the business.  Modern day businesses cannot function effectively without the basic up to date equipment i.e. computers and telephone access
  • External factors: Another component that is often neglected in business planning is the consideration of the external environment. The external environment refers to all the unpredictable issues that may occur outside of the business that may have a direct impact on your business.

Consider what impact the country’s economic situation could have on your business.  A sudden increase in interest rates would leave your customer with less disposable income to purchase your product or service.

  • Flexibility: Your business idea needs to be as flexible as possible so that you can adjust your strategy should conditions within the external environment change. These changes could present your business idea with a new opportunity or threat.
  • Compile a SWOT analysis: A comprehensive SWOT analysis will enable you to understand your own weaknesses, determine your strengths and analyse the opportunities and threats within the business environment. You can find an example of how to do a SWOT analysis here.
  • Competitor activity: Ignoring your key competitors is a fatal mistake. Your competitors are easily visible. Get to know them well, monitor their performance and gather as much information about them as you can. Find out how to do a competitor analysis by reading this article.
  • Know your target market: The customer is ultimately the determining factor of the success of your business. Identify your target market accurately and determine what matters the most to them.

Starting a business is easy. But making sure that you start it off on the right foot and that you consider all of the elements involved is more challenging. By watching out for these pitfalls you will have a better chance of success.

Caroline Ritson is a business mentor at The Hope Factory and an experienced entrepreneur. One of her businesses assisted entrepreneurs throughout South Africa with access to new markets. Caroline is passionate about sales and marketing and she holds an IMM Diploma in Marketing Management and plans to do her honours next year.

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Starting a Business

What are the do’s and don’ts of securing an online domain name?

We asked Domains.co.za founder, Wayne Diamond, what the do’s and don’ts are when it comes to entrepreneurs registering domain names for their start-ups…

Wayne Diamond

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There’s that L-word again:

“Location, location, location”. It’s the make or break decision. Every estate agent and business owner cannot overemphasise the importance of this Critical Business Decision Number 2 (Number 1, of course, has to do with what you’re going to sell!).

Related: As a start-up, what are the most important areas I should be looking at?

 

Whatever business you’re in, being close to customers and convenient to business partners and suppliers is essential. That bricks-and-mortar wisdom is equally true in the world of online commerce. Having the right domain name and the right support for your online presence has emerged as a real driver of success.

Some figures put the scale of the opportunity into perspective: US e-commerce is predicted to reach $440 billion by 2017, showing a compound annual growth of 13.8%[1]. While the Internet economy is in its infancy in South Africa and Africa, it is growing strongly: research by World Wide Worx showed that consumers, small and medium businesses and government were already purchasing products and services worth R59 billion on the web three years ago.[2]

So how to secure the best and most profitable Internet real estate to make sure your business can ride the e-commerce wave?

It’s all in the name:

The first decision is what domain to use. One of the exciting developments is the launch of new Internet domain names, so it’s definitely no longer a choice of .com or .co.za. The proposed dotAfrica (.africa) geoTLD (geographic Top Level Domain) is one option that’s set to come online around the first quarter of next year, but what about the ZAdotCities domains of .joburg, .capetown or .durban? Domain names within these additional geoTLDs will be able to be snapped up by the public around November this year.

While .com remains a good choice for truly international businesses, choosing a domain name with some local flavour is probably going to work well for many companies.

The greater range of domain names also makes it more possible that you will be able to choose the right name for your business. When it comes to the more established domains, like .com or .co.za, chances are higher that the name you want has already been taken.

When it comes to that all-important name, received wisdom used to be that short was best, but the trend nowadays seems to have reversed—even phrases are now used. The key is to choose a name that is easily recognisable, that will stick in peoples’ minds and that describes the business well.

Perhaps a good example is the domain used by the writer of this article: www.domains.co.za is both a brand name and a name that perfectly describes the nature of the business. At just seven characters in length, “domains” is also an easy to spell, easy to remember word – keeping names under ten characters is guaranteed to help audience recall.

Something people will remember easily is absolutely vital.

Some companies use specific names for individual campaigns, but always make sure the business as a whole has its own web address.

Experience has shown that it’s probably worthwhile to register similar domain names to the one you choose, just to keep competitors from taking them in an effort to sow confusion.

My final advice: it’s always a good idea to use an ISPA (Internet Service Providers’ Association of SA) member to help you register the chosen address of your start-up. That way you’ll be sure that all the formalities are correct, and that the company you’re dealing with abides by ISPA’s code of conduct.

Finally, as there are already almost 950 000 .co.za domains registered, it’s a good idea to surf to www.domains.co.za and perform searches to see if the domain you would like is indeed available.

Related: Does the South African government award grants to franchisees?


[1] Chuck Jones, “Ecommerce is growing nicely while mcommerce is on a tear”, Forbes, 2 October 2013, available at http://mashable.com/2013/02/05/ecommerce-sales-top-1-trillion-worldwide/.

[2] “Internet 2% of SA economy”, 29 May 2012, available at http://www.worldwideworx.com/internet-2-of-sa-economy/.

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Starting a Business

How to protect your business idea when sending them to financial instituitons?

Signing an NDA, is it necessary?

Anton Ressel

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How can I protect my business idea before I submit my business plan to financial institutions and other agencies for help?

You have a few options:

Firstly, you can include a disclaimer as an introductory clause, saying that any and all information contained in the business plan and related documents remain the Intellectual Property of xxx (your name) and may not be reproduced, copied or used in any manner without express written consent. This is not legally binding, but usually enough.

Secondly, you could ask them to sign a non-disclosure agreement, which is more binding from a legal perspective. The downside of this is that it can come across as arrogant, especially from someone who is approaching us for help. Personally I refuse to sign any NDA from clients who approach me for help, it just smacks of mistrust and arrogance.

On a final note, good ideas always get copied. If you are that worried that your idea will be stolen, you may need to re-look at it and find ways to make it difficult to replicate, or better yet, make sure you are first to market.

Related: As a start-up, what are the most important areas I should be looking at?

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Starting a Business

Does the South African government award grants to franchisees?

In my experience, unless you as the entrepreneur have some ‘skin in the game’ and a reason to get up and make the business work every morning, it seldom will.

Anton Ressel

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I am considering purchasing a children’s education franchise and wanted to know if the government offers grants. The cost of the franchise is R 86 000. If so what are the criteria to qualify and how does one go about it?

Accessing grant funding for a franchise may prove challenging, unless that franchise is registered and accredited, in which case there is a fund that may consider it – see CNBC for more info.

Otherwise, you could look at www.investmentincentives.co.za and see if any of those sources of financing are of interest. It naturally depends on your own PDI (previously disadvantaged individual) status as many of these funds are focused on youth, women and PDI’s.

Finally, on an emotional level I would caution against going all out for grant funding and not loan finance. In my experience, unless you as the entrepreneur have some ‘skin in the game’ and a reason to get up and make the business work every morning, it seldom will.

 

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