Do you dream of starting your own business and being your own boss? How do you plan on turning that beautiful dream into reality?
Entrepreneurship is not as easy as it seems. It requires a great deal of careful planning, patience, hard work and grit. To increase your chances of success, here are seven things you need to know before starting a business:
- Passion Alone is Not Enough
- Your Business Structure Matters
- Pricing Portrays Value
- Branding is Perception
- Cash Flow is Crucial
- It’s a Numbers Game
- You May Fail
1. Passion Alone is Not Enough
Whatever business you wish to go into, you probably have a lot of passion for it. That’s great! Nevertheless, your passion could have double-edged effects.
Here’s a hypothetical example. After working as a barista for 10 years, Ben finally fulfilled his ardent dream of opening his own cafe. Every day, he went to work with a smile and spent hours and hours making coffee and doing latte art. His passion was evident and every customer complimented him on his creativity. But less than two years later, Ben shuttered his beloved cafe due to poor business. He lost close to $100,000. What happened?
Ben was clearly passionate about coffee, but was he equally passionate about business? Was he playing the role of a barista or a cafe owner? How many talented pastry chefs, carpenters, interior designers, dance instructors, etc. are like Ben? They experienced an Entrepreneurial Seizure and decided to turn their passion or hobby into a business even though they had little clue how to run a business.
The road to entrepreneurial success is paved with numerous challenges and passion alone is not enough. To succeed, you need to plan and strategise, actively market your products/services, interact with your customers, manage your employees, and do a bunch of boring but necessary stuff from cleaning to bookkeeping. Are you game for the challenges?
The road to entrepreneurial success is paved with numerous challenges and passion alone is not enough.
2. Your Business Structure Matters
Choosing a suitable legal status for your start-up is one of the most important decisions you have to make at the beginning. This decision will have a major impact on the personal liability you face, your tax payments, the amount of paperwork you need to file at the end of each financial year, and even your ability to raise funds.
There are five types of business structures in Singapore: (1) Sole-proprietorship, (2) Partnership, (3) Limited Partnership, (4) Limited Liability Partnership, and (5) Company. You should definitely do your research and weigh the pros and cons of each structure before making a decision. Some factors to consider include the number of owners, liabilities and responsibilities you are willing to assume, tax incentives, as well as the long-term needs of your business.
Do your research and weigh the pros and cons of each structure before making a decision.
3. Pricing Portrays Value
What kind of pricing strategy will you adopt? Are you just going to price yourself slightly higher or lower than your competitors?
Many start-ups take a competitive pricing approach to pull customers from their competitors. It’s a safe strategy that works well on price-sensitive customers. However, you should be careful not to price yourself too low as consumers often associate low prices with poor quality. Never forget that your pricing portrays the value of your products/services.
Consumers often associate low prices with poor quality.
In our last business, Mr Wow and I adopted a penetration pricing strategy, entering the market at a very competitive price and increasing prices over time (four increments in 10 years to be exact) as we built perceived value for our brand.
I strongly encourage you to put more thought into pricing during the marketing planning process. It can make or break your business. Depending on the nature of your business, you may even opt for a premium pricing model.
4. Branding is Perception
What do Starbucks, Apple, Samsung, Adidas and IKEA have in common? They understand the significance of branding.
Branding is more than just a memorable logo and slogan. It’s about creating a strong, positive perception of your organisation and your products/services. It’s about setting yourself apart from your competitors and connecting with your customers on a deeper level.
Doesn’t mean you are small, you don’t have to think about branding. Almost everything about your business contributes to your brand, from your domain name and website to the colours used in your marketing collateral.
Your branding strategy doesn’t have to be complex. All you need to do is to keep these three Cs in mind:
- Clarity: You are clear about what you are and what you are not.
- Consistency: Your communication with your customers is consistent.
- Constancy: You are always visible to your customers.
IMPORTANT: You don’t have a business if you don’t have customers. Beyond pricing and branding, you should definitely have a plan to attract and retain customers. If you need help with that, check out my article Why Even Bother Having a Marketing Plan.
5. Cash Flow is Crucial
One of your top priorities as an entrepreneur is to make sure that you do not run out of cash. When you first start your business, you will incur a lot of expenses before making a dime. As you grow, your overheads will also go up. For instance, you may need to upgrade your equipment or hire an additional staff.
It is therefore imperative that you manage your income and expenses well, and maintain healthy liquidity (i.e. always have cash on hand) to fulfil your financial obligations. Otherwise, you may have to go without pay or dip into your savings, which obviously is unsustainable. The pressure on you can be overwhelming.
To ensure that your business does not run dangerously low on cash, you need to track your monthly expenses vigilantly and cut unnecessary spending. Don’t be too caught up in the present and fail to anticipate expenses in the near term. You should ideally maintain a six-month cash flow projection with expected income and expenses.
Don’t be too caught up in the present and fail to anticipate expenses in the near term.
6. It’s a Numbers Game
Every business has one ultimate goal: TO MAKE MONEY. And how do you know if you are making money? By looking at your financial numbers.
If your business is not profitable, your financial numbers will show clearly. To pinpoint the problems and turn things around, you need to know your numbers well. Otherwise, it’s a matter of time that your business crumbles.
Cash flow and expenses are just two numbers. You also need to know your revenue, cost of sales (i.e. all the costs that go into providing your products/services), gross profit, gross profit margin, net profit, accounts receivable, accounts payable, and so on.
If you are not good with numbers, you need to learn fast because business is a numbers game. You would be surprised to know that some businesses generate a lot of revenue without actually turning a profit.
7. You May Fail
Historically, about 50 per cent of start-ups failed within the first five years. By the end of the 10th year, only 30 to 35 per cent remained standing. The odds are clearly not in your favour.
Don’t get me wrong. I’m not discouraging you from starting your business. Neither am I saying that your business is destined to fail. I’m reminding you that entrepreneurship is NOT a bed of roses and that you should brace yourself for the countless challenges ahead.
By understanding why some businesses failed, you may be able to avoid their mistakes. (Here’s one example: Your Business is Not Your Hobby for Crying Out Loud.) By knowing what to pay attention to, you may have a better shot at succeeding.
Yes, it’s not easy being an entrepreneur, but in my experience, it’s far more fulfilling than being an employee. But that’s just me.
You may also like: Why You Need a Business Plan and How to Get Started | Running a Business as a Married Couple: How We Made It Work | Beyond 9-5: Discover the 7 Income Streams for Lasting Wealth
