Many years ago I came across a young woman who was trying to start a new business down in Englandshire. I suspect she did not have any capital behind her so was trying to do it on a shoestring. Bootstrapping!
She was selling niche comics aimed at the late teen and young adult market. The business was in a good-sized town with plenty of people about but a very niche market. I think she learnt the hard way that it was never going to work. Her total turnover was less than her rent for the small shop she had procured.
Admittedly she had her product which she was going to sell. But she opened the shop cold with no marketing of any kind except word of mouth. She did a little on social media, but mainly to friends who already knew what she was doing. Sales were minimal and she had no funds left to re-stock, so as you can imagine, the accounting just did not stack up.
I posed a simple question at the time. Given the margin on the product, the comics, how many do you need to sell to cover the rent etc and give you a living? If she had done this at the outset, she would have realised that her dream was unattainable in that form.
This was a fairly extreme example, but it is not that uncommon. The people who survive the first couple of years in business usually, but not always, understand that the numbers must work on paper before you even start. Banks and others often ask for projections. They want to see that the business, at least on paper, stacks up, can make a suitable profit and has the financial resources to overcome short-term hurdles. Many people view these projections as just a necessary “bit of paper” to be provided to the bank so that they give you the money you want. But in reality, you should have done the accounting for yourself well before you even started to speak to the bank.
Of course, you do need to realise that the numbers mean something. They are not just a means to an end. It may be very nice to see on paper that your baby can indeed make a good profit and generate cash, but how real are the numbers, What evidence do you have for your assumptions on selling prices, margins, direct cost, overheads etc. What would be the result on cash flow if sales were 10%, 15% or more lower than you have projected? What quantity of sales do you need to make, and get paid for, to just break even?
I don’t like to blow my own trumpet here, but an accountant, or indeed anyone who is experienced in business already, can be invaluable at this stage. But accountants cost money. Well, we all have to live! But, in my experience, most accountants tend to be soft on fees for startups because they want you to succeed. However, there are exceptions.
But, at the end of the day, when you are starting or developing a business, you have to make choices, and while you can take advice, the buck stops with you. What will you decide? Get it right, without getting it wrong too many times, and your business will thrive. Get it wrong and you can end up out of the game. The joys of business!
Find a mentor who has been in business for 5, 10 or more years, because you know that they have made their fair share of mistakes but still survived, and can help you avoid the same errors. Our current business has been going and growing for 23 years and like everyone else in our position, we have the bruises. But we also have a wealth of experience to bring to any table.
Something else that is apparent is that light bulb moments are 2 a penny. It depends on the context and what question you are trying to resolve. There are always those light bulb moments in any business when you find a solution to a tricky problem you have been grappling with. Even then you have to treat it like the path that someone else has cleared across a minefield, with caution, just in case you have got it wrong.
The other light bulb moment is typically when you come up with some brilliant idea for a business that cannot be anything other than successful and very profitable. An idea, however good it may seem at that moment, is just that, an idea. An idea is not a business, just as a packet of seeds is not a plant. An idea lacks all the basic characteristics of a business, and a lot of work needs to be done to turn it into something on which an actual business can be built.
Even then, the idea is just the seed, and some seeds germinate and others do not, and sometimes you just don’t understand why. Even if your seed starts to grow, that is just the easy bit. It will only thrive through hard work and graft. It takes commitment and sacrifice. Anyone who has gone through that and emerged with a successful business is a changed person, and they can never go back to how they were before.
However, just because you did it once does not necessarily mean that you can do it again.
Alan E Long
The Long Partnership
07770 738770
