Starting a Small Business

Starting a Small Business

Starting a small business is perhaps one of the most interesting and exciting things that normal people can do in a lifetime. Some people, like myself, have an addiction to starting a small businesses. We are sometimes known (slightly negatively) as serial entrepreneurs. For better or worse, this means (usually) that we are very motivated in starting new things but perhaps less so at maintaining a normal steady business. Thankfully, I have one steady long-term business that pays for my start-up addiction.

Three entirely Different Approaches to Starting a Small Business (though by no means the only approaches):-

• Following the Curve
• Ahead of the Curve
• Ignore the Curve

Following the Curve.

“The Curve” refers to the growth-curve of the Industry Sector. This is by far the safest approach to starting a small business. For example, in Britain there was an explosion of coffee shops opening from the early 1990's to around 2005.

The growth curve was extremely rapid (steep curve). During this period the likes of Starbucks, Costa, Nero etc. had made themselves household names. They all offer a very similar product and in effect were “jumping on the bandwagon”. Many independent coffee shops were also opening up, following the growth-curve that had been started by the likes of Starbucks.

Ahead of the Curve

This is the riskiest approach to take, but perhaps the most exciting, and not to be recommended to the faint-hearted. This approach will normally depend upon a “hunch” that the market will accept a product or service. Some amazing examples of this would be the Segway personal transport, the Smart Car, You-Tube, Crocs Sandals, the Toyota Prius, the astonishing Cambridge Z88 laptop computer, Body Shop and Sony Walkman.

These products and companies were pioneers in their marketplace, they came into being when the vast majority of potential customers had almost no idea that they would be buying these products. These products are radical jumps of innovation that will bring the business a fantastic lead in the marketplace during the Curve of growth.

However, for every success story in starting a small business, there will be many attempts to be ahead of the curve that have failed. Infamously these include Boo.com and the Sinclair C5 electric vehicle. However, think also about how many Internet cafes and organic cafes have closed down. This “ahead-of-the-curve” land is a high risk terrain with many an economic-landmine to navigate through.

Ignoring the Curve

Another approach, which is often a very sensible one is to ignore the whole subject of growth and look for a steady business. This could be summed up in the very old fashioned type of advice “people will always need food” or whatever the service is, such as haircuts.

These products and services will probably only show a relatively small growth, but the fact of the matter is that thousands of extremely ordinary types of business are started every month and many will survive and some will thrive. If you have a skill such as servicing cars, then opening an absolutely standard MOT servicing garage will be a very safe business bet. Your success or failure in starting a small business is less dependent upon the whims of the market.

Location

Where do you intend to open your business? Don't think you can avoid this question by saying on the Web. The web is a location in itself and I will write more about this later. However, if you are looking for a physical premises then think about a number of things:

• Don't be tempted to only look at the cost of the premises.
• Make sure that there are enough potential customers passing by.
• And also, very importantly, ask yourself “are they my type of customer?”

Some of the worst locations for starting a small business can be “just-off a major shopping street” as it may be described by the letting agent. If you know the town or city (where you intend to locate) very well, then you may have a good feel for where there are good and bad trading streets or areas of town. Think about where there have been a high turnover of shops.....And AVOID those areas like you'd avoid a mass-murderer.

Rents may be cheaper and suchlike but there will be a very good reason as to why an area consistently fails. Amazingly there always seems to be another fool to open-up shop in a disastrous trading location. Conversely, look at areas of town where shops predominantly have remained in business for over 20 years. Be nosy and ask the shopkeepers and staff about the trading location. Don't be afraid, they tend to be very open about their opinions about how trade is.

The Magic Ingredient for any retail based business.........The Vibe

If you won't find this next exercise fun, then you probably shouldn't be thinking about opening a retail type of business. You've got to be excited about this.....it is I'm afraid, absolutely vital.

Take a notebook and pencil (or handy electronic device should you have one) and visit a lot of retailers. Note down the first emotion you feel when entering the store. What is the overall vibe? It is so strange that quite often you just know that the place is going to fail. What senses are telling you this? You feel no excitement, no warm welcome from the staff, no sense of occasion.

If you open a store, it must be a place where people want to be and a place that the staff want to be too. There are so many examples from my home town of Cheltenham that I could write about both positively and negatively.

There is a coffee and sandwich shop that always plays music quite loudly. Up-beat music which literally makes the staff behind the counter bounce up and down as they are serving. They are predominantly aiming at a youngish market.

Whilst I'm not overly keen on this approach, but there's no doubting that there's an energy in the place ....a good vibe. It is a successful business which was started by a bloke who always seems to know the marketplace he's in. He also has a fashion brand, Super dry which also tunes into this youthy energetic vibe....it is going to be floated on the stock-market for hundreds of millions of pounds.

A relatively new name on British high-streets is Jack Wills. When you enter one of those stores, you are in a sort of different world. Again, the music is very prominent. Staff are very enthused.

Go into a Starbucks and what do you feel? I feel like this is a place that I want to be in. The smells are enticing. Lighting is very important. The lighting in Starbucks makes the wooden furniture glow in a warm and enticing way. The green soft furniture looks relaxing. The pictures around are big and bright. The music is not too loud but still enough to create atmosphere. The music will be very carefully chosen. Nearly always retro sounding, something that appeals to nearly all ages of customer (perhaps with the exception of those in their eighties plus).

Unfortunately there are just as many (probably more) examples of a shop with the wrong vibe, it will have an air of doom. I've recently been to a cafe that is lit by the old fashioned strip lighting, the sort you'd see in a school classroom. The atmosphere is harsh and clinical and I felt like running straight out of the place. It's music was being provided by a commercial radio station. This is a pet hate of mine.

If you're trying to relax in a cafe the last thing you want is to listen to the inane utterances of a commercial radio DJ. Neither would I recommend playing BBC radio. You need to have control over the music ambience of a store. Also, another tip regarding music – don't keep playing the same CD over and over again, especially if you are a cafe or restaurant. Some of your customers will be coming in perhaps daily. They can potentially be driven to extreme acts of violence if you keep playing the same damn music.

Naming Your Business

I have no statistical evidence to support the following assertion but I think that businesses that have a name based on a pun, will more likely go bust than those that aren't. This is admittedly very much a shooting-from-the-hip piece of advice, but it really does just seem to be the case.

The guiltiest parties tend to be hair-dressers and florists. Punning names like “Upper-Cut” and “Cut-Above”. There are some that are genuinely amusing “Curl-up-and-Dye” is my favourite. But a punning name does not seem to help business. It seems somehow to give the wrong image for a business.

A good name for starting a new business is your own name, preferably your full name. People are good (on the whole) at remembering people's names. Think of the following:

WH Smith
Boots
Dixons
Boots
Jessops
McDonalds
Jack Wills
Kath Kidston
Marks & Spencer
Sainsbury

These are purely and simply the names of the original owner of the business. A couple of the newer ones, I suspect, have been made-up, but that doesn't really matter, the name still sticks.

Putting your name onto the shop or business says something quite powerful. It says that you are proud of the business and that you are prepared to put your personal reputation into the reputation of the business.

Your Shop-Front

Opening a shop is an expensive thing to do. However, minimising on cost from the outside look would be a bad idea. Your shop window and your signage is the Only means you have to tell the rest of the world who you are and what you do. If you don't want to look fly-by-night, you will need to invest in a good frontage.

A canopy nearly always adds something to the look of a shop. A flat printed sign is not really good enough nowadays, it looks insubstantial. Have a look around at the shops that you are impressed with and don't be afraid to “take inspiration” (copy it remorselessly, just remember this rhyme "Plagiarise, plagiarise, don't let a thing evade-your-eyes").

Cafes and Restaurants
Please think carefully about the comfort of the seating in a cafe or restaurant. I find it amazing how many new places open up with desperately uncomfortable seating. It is I'm fully aware, a difficult balancing act to get enough seating in yet for the seating to be of sufficient comfort for people to linger.

Once again, visit a range of places and then latently copy the best. Please try not to choose seating based upon the look of it. Think about the comfort and practicality first. I think that Cafe Rouge would be a good place to look at for inspiration. The seating is almost identical in every cafe in France, and there's a good reason for it – it is comfortable! It also happens to be aesthetically pleasing.

Business Plans

Writing a business plan can be useful for yourself in starting a small business, and not just to get finance and suchlike from other people. The most important aspect of business planning it to see whether the mathematics actually work for your proposed business. For example, you may not have thought about the effect of VAT on the prices of the things you are selling.

What is your Gross Profit Margin percentage?
This is the percentage of the selling price (excluding VAT) that is profit.
n.b. Also ignore the VAT you've paid on the buying price (as far as calculating your gross profit margin)

What is the Mark-Up percentage?
if you buy something for £10, add a mark-up of £8, then you have an 80% mark-up.
Again VAT is not counted in either part of this equation.

What is Net Profit?
This is the profit (or loss) of all your trading, after you have paid the costs.

What are Fixed Costs?
Fixed costs do not vary according to how much you are trading. e.g. If you are renting a shop, then your monthly payment of rent is a fixed cost.

What are Variable Costs?
Variable costs tend to be affected by the amount of business you are doing, e.g. Fuel for a delivery vehicle will tend to vary according to how many deliveries are being made.

What is VAT?
VAT stands for Value Added Tax. Every business trading over around £60,000 per year (look up the exact amount as it tends to go up every few years) will need to be registered for VAT. The percentage rate for VAT is currently 17.5% though our government has been adjusting this rate recently in an attempt to stimulate the economy.

If you have decided upon making a £50 profit on selling something that you purchased for £50 (ex VAT) you are then looking at making a 50% profit margin. But the price that the customer must then pay is 17.5% on top of the £100. To calculate this figure, use a calculator and type in 100 then the “plus” button then punch in 17.5 then press the “%” button. It should give you a result of £117.50 This is the inclusive of VAT amount that the customer pays. If for some reason your calculator gives you a different number then I would suggest you get a different pocket calculator, as it is a vital part of running a business.

What is Marketing? Is it the same as advertising?

Not entirely, marketing is fundamentally the thinking and the research that goes into the planning of your business, an aspect of which will be Marketing Communication (publicity and advertising)

Some of the key aspects of marketing are:

Market Segmentation
The firm Saga are aiming at a particular age group of people, the over 50's. This is one way of segmenting a market (by age). There are hundreds of (fairly irritating) names of market segments that are used by firms and especially marketing companies. These include the likes of “Yummy Mummies” (this is the most cringeworthy), DINKYs (dual income, no kids yet), Teenagers (I haven't dared actually find out what these are!).

So you can see that issues such as “disposable income” and attitudes and aspirations can also be segmented. One relatively new name on posher high streets is Maman Bebe Jojo, which is very obviously aimed at what would traditionally be called the middle-class mothers. These mothers would sooner pull out their own fingernails than to purchase their children's clothes from the likes of Primark.

Rightly or wrongly, British society is still steeped in the division of class and unfortunately is likely to be so for many years to come. I'm sorry to have to say that if you want to succeed as a business, you may need to communicate to a particular class.

Examples such as the adverts for Iceland frozen food store which are aimed very squarely at the traditional working-class mother; their tag-line “that's why mums go to Iceland” would only work in a working-class culture. It would simply not work to say “that's why mums go to Cafe Rouge”. You need to know who your customer is and also which words and phrases to use to pull their strings.

Advertising and Publicity

This is a very major issue. If you are not opening a shop, then advertising will almost certainly be a necessity. If you're thinking of advertising in a local newspaper, then be prepared to bargain hard on the price. They charge per column-centimetre e.g. £8 per column centimetre. A column is around 4cm wide and the centimetre refers to the height of the space. So if you wanted a 15 centimetre high space, with a width of say 16 centimetres (4 columns) then you'd pay the price of 4 x 16 x £8.00.Total £512.00

Unless you like chucking money away, then make sure you get a very significant discount. Make sure you get a quote from all the newspaper competitors, and then with all the bare-faced-cheek you can muster, let the newspaper know what quotes they need to beat.

The same goes for local radio and tv should you have those aspirations. Make sure you are in control of the buying process. Beware, the sales-people in media are some of the most persuasive of any industry, be very firm on your price, BUT also be really, really nice to them too, develop the relationship in the most friendly way you can. If that doesn't sound too daunting and impossible, then you might come through the experience well. You can nearly always get much more for your money if they feel that they like you.

If your target market is very local, then think about delivering your own flyers door-to door. Be wary of getting someone else to deliver flyers – many of these get dumped without being delivered. You would need to implicitly trust the person/s delivering.

There are now a number of community magazines and suchlike. These can be great value for money advertising when you are starting a small business initially.

Before I started this writing project, I wondered to myself as to how or why I am qualified to give my advice on such this subject. I have been to Business School, but in all honesty, it didn't give me anything that wasn't (in the immortal words of Basil Fawlty) “Bleedin Obvious”. I spent three years as a so-called mature student doing the most idiotic SWOT and PEST analyses on businesses.

These tragically dull acronyms stand for Strengths, Weaknesses, Opportunities and Threats. The other one stands for Political, Economic, Sociological and Technological. This was all at the time of the dotcom boom of the late nineties. I felt like screaming out to the lecturers (and sometimes I did) but thankfully those were the days before omnipresent video-camera-phones to record peoples embarrassing outbursts to be shown on youtube. I had already made an ecommerce website that had done reasonably well and I could see that the future was going to be radically different to what had gone before.

Before doing that e-commerce website project (which sold wooden craftware of all things), I had a couple of failed businesses and one which made a modest income. So, I'm not preaching from some lofty position; I've had plenty of failures. Mostly these were due to being (at the time) young and inexperienced; I started my first business at the age of 19. Also, the Web as we know it, didn't exist.

Even with the wooden-craftware website, I seemed to make every mistake going. But the key thing about having a web based business is that mistakes aren't overly expensive (normally). And they can be evolved quickly, with your learning curve. Nowadays, there will be plenty of expert advice (hopefully I'm providing some of this) for how to make a smoother journey towards a profitable web based enterprise.

Since then, I started and am still running a web based jobs-board, for people to look for employment. That was nine years ago and it has thankfully always been profitable. I have always worked from home, though I seem to also spend a lot of time in cafes now with my mini-laptop and Blackberry and decaf black americanos.

So You Want A Home Based Business? – Here's a few things to think about

Do you sell a Product or Service?

If you're selling a product, look very carefully at how easy the product is to send by post or courier. Are you intending to use the likes of ebay to sell the items? A lot of the profit on lower priced items seem to be in the postage/packing costs. But don't forget that it is your time that also costs. If you never intended to work for minimum wage rates, then start measuring how much time it would take to pack and charge your time into the post/packing price.

Starting A Website

The first and possibly single most important thing to consider is the Domain name (the web address). If you are in the UK, then try to ensure you obtain a domain name that ends with .co.uk There are several reasons for this:

• Internet users in the UK will instantly know that yours is a UK based operation.
• Google.co.uk will rate your website higher (for a search made in the UK) with the .co.uk ending
• The ending is easy for people to remember as most of the major institutions in the UK, such as the BBC are constantly publicising the .co.uk ending.
• The .co.uk ending is actually much less expensive to purchase and to renew than others.
• Should you have any major problems with the Internet hosting company, then you can sort it out with Nominet in the UK, normally without too much hassle.

The Domain name should preferably be memorable and easy to spell. Try to make it somewhat relevant to what it is that you are doing – this will boost your rating in the search-engines. So, for instance if your business is a restaurant and your business name is Wild-Mushroom, then consider the domain name www.wildmushroom-restaurant.co.uk

If you aren't too bothered about search-engine positions for your site then you can make a snappy little web address such as www.wildmush.co.uk

Or if you're feeling adventurous, then why not get both! Then you get the benefits of both these. This is a very common thing to do, especially now when it is getting very competitive in the search-engines.

Designing Your Website

A Key question is...How often will you need to update your website.

Nowadays, it is unusual to just have a website and leave it alone for a year before changing some information. Most business websites are now a living entity. They tend to be changed at least every week. Most popular websites are going to be amended in some way on a daily basis.

It is now very commonplace to build a site using a CMS (content management system) such as JOOMLA or WordPress. On the whole, this is a very good idea as it will offer a relatively simple means to making a site that looks professional, yet will be easy to constantly add or change things.