Staying out of trouble: A guide for business start-ups

About to make the plunge into business? Prepare yourself – don’t become another failure statistic! This special report offers great information and advice on how to succeed when launching a new enterprise.
Every year Kiwis in their thousands set their sights on becoming their own boss. The 12 months ending February 2010 saw 44,000 New Zealand entrepreneurs launch enterprises they believed would succeed. After all, this is the country The World Bank last year ranked first for starting a business, and Forbes magazine rated us as the third ‘Best Country for Business’.
Unfortunately the voyage from great idea to thriving business is not always smooth sailing. The Ministry of Economic Development ‘SME Structure & Dynamics Report 2010’, showed that most SMEs are less than six years old and, of the zero-employee enterprises established in 2001, only 31 percent survived into 2009. Of those with up to five employees, 49 percent survived into 2009.
So why don’t more start-ups succeed? Is business an area where ‘can-do’ perhaps needs to be replaced by ‘think twice’?
“The No 8 wire mentality, where Kiwis will give just about anything a go, is what gets us into trouble here,” says WHK principal Kenina Court. “We’re willing to jump in at the deep end, completely unprepared.”
She says most people don’t know the difference between a job and a business. “Start a business with the idea of selling it. Businesses that will be sold are run quite differently from those where the owner doesn’t think about selling.”
In theory being prepared isn’t too difficult. The amount of information available to potential start-ups is huge and a lot of it’s at the tip of your fingers (see listed websites). Google ‘business start ups nz’ and in micro-seconds you have 142 million results.
Business ownership isn’t for everyone. You need to be passionate about your product or service, risk tolerant and self-motivated, with a strong work ethic. Strong organisational skills and the ability to make decisions are other necessary attributes. You also need to be blessed with tenacity, says Ken Erskine, director of start-ups at The ICEHOUSE Business Growth Centre. “A bit of the mongrel, to keep going in the face of adversity and every bastard saying no.”
It’s also important to have buy-in from family members and partners – you’ll need their support.
Once all those boxes are ticked it’s time to research the viability of your business idea, create business and marketing plans, decide on the business structure (sole trader, partnership, limited liability company, etc) and organise funding.
“Be prepared to pay for good advice,” says Court. Accountants and lawyers are a must, but it may also make sense to get professional advice in areas like marketing and HR.
“Instead of trying to do everything and doing nothing well, hire the skills you don’t have.”

Know your market

For start-ups, market research involves gaining as much information as possible about your target market, understanding not just potential customers but also your competitors. It may provide new information or simply confirm what you already know. Too often it’s limited, conducted among family and friends who agree it’s a great idea and pledge their support. This creates a false impression, says Glen Senior of The Small Business Company.
“The business must be sustainable. It’s not getting your first customer that counts; it’s getting your first customer to come back. Only then do you have a business.”
Thorough market research can lead to a change of direction or fine-tuning. It will also help in creating a business plan which in turn can influence funding decisions.
“One of the main reasons businesses fail is through lack of planning; a good business plan is a vital part of the business’s success,” says Nick Stanhope, GM, Business Banking at ASB. It’s about quality not quantity, he says, with each area of the plan focused on key points. “Remember that business plans, especially for a new business venture, are first and foremost for the benefit of the business owner, not their bank.”
Banks do, however, expect a business plan and there are a wide range of tools on offer to assist in putting one together (www.business.govt.nz provides a free template). It should set out what a business is, what its goals are, and what is needed to achieve them. It’s also a valuable document against which to measure progress and keep the business focused on its long term goals, says Stanhope. 
“Sales and marketing will form a crucial part of the business plan,” he says. “If the strategy and goals of prospective sales and marketing campaigns are clearly defined then their success can be measured over time and any tweaks made to ensure goals are met or exceeded. A good sales and marketing plan will also highlight any weaknesses and areas of opportunity.”
WHK’s Kenina Court also emphasises quality over quantity. “A business plan doesn’t have to be War and Peace but it needs to cover the financials and areas such as marketing, human resources and IT. It can also help answer the question ‘would I want to be invested in this business? Would it give me a good enough return?’”
The importance of a robust business plan is highlighted by the ANZ’s ‘Flying Start Business Plan’ competition. In conjunction with business.govt.nz, they’re helping start-ups put their plans into action by offering a $60,000 prize pack, says Business Banking MD Fred Ohlsson. “Nearly all the business ideas we see are great, however sometimes people haven’t thought through and covered off details like how they’ll get paid or researching if there’s a genuine market for their product or service.”

Once detailed planning is in place there’s less chance of things going wrong, he says.
Funding applicants should also be able to articulate their business plan and make it understood by all stakeholders, says ASB’s Stanhope. “It’s important to be confident and ambitious, but it’s equally important to be conservative and consider a number of market scenarios including best case, worst case and likely case.”
Stress testing market assumptions is an important part of a business plan and banks usually want to review a range of scenarios. “It’s in the interests of the business owner and the bank for the business to be able to operate under all conditions,” says Stanhope.
“You really need to have a pre-planning stage where you actually scope out the business and what you’re going to do. Time to think about a USP – ‘why would anyone want to do business with me?’ ” says Court. 
Glen Senior suggests establishing the start up on a part-time basis to determine whether the demand is real or imagined. “And lower the risk by going into an industry you know; one where you have contacts already, or even better, a contract or guaranteed work to give you a kick start. Talk to as many other business owners as you can – and remember, no business ever went bust that had more money coming in than going out.”

Science and art

Transforming a great idea or business concept into a successful start-up business is significantly dependent on getting the right mixture of two key elements: science – the things we all know should be done, and art – the creativity of the business in relation to the chosen market opportunity, says Erskine.
“There is no one way and the journey is never exactly as planned. It often takes twice as long and costs twice as much to achieve success.”
Tenacity is the third and crucial factor he says. And, according to an entrepreneur contact of Erskine’s in Silicon Valley, the right team will bring the Midas touch.
“He puts it this way: a great team can turn s**t into gold and a poor team will turn gold into s**t.”
Patricia Moore is an Auckland-based freelance writer. Email [email protected]