Go it alone with style, caution and thrift
By Luke Johnson
Published: April 29 2008 22:14 | Last updated: April 29 2008 22:14
There are quite a few advisers out there helping start-up companies – banks, accountants, small business agencies. Much of what they say is sensible. But few of these mentors have actually done it themselves. So I thought it was worth noting a handful of things entrepreneurs should not do when taking the plunge into self-employment.
● Do not leave your job. Develop your new project in the evenings and weekends until you are confident of success. Keep the salary coming in for as long as possible. If you need to go freelance, retain a contract with your old company. In the 1980s, while working full-time as a stockbroking analyst, I moonlighted as a partner in ventures as varied as nightclubs and a software business for a few years before joining the world of self-employment. These days, the rise of flexible working means this sort of arrangement is much more widespread.
● Do not rent fancy commercial premises. Initially use your home or garage. And if you have to have space, make sure it’s short-term, like serviced offices. In 1975, Bill Gates dropped out of Harvard and started Microsoft in an Albuquerque motel room. Do not be vain about such matters: low costs are everything.
● Do not be put off because we may be entering a downturn. Many great companies are founded when times are tough, and often remarkable opportunities arise in spite of a struggling economy. With partners, I took control of PizzaExpress in 1992 – the last time Britain was in recession – and it changed my career.
● Do not spend money on advertising. Public relations is a much better bet for fledgling enterprises. There are so many media outlets now, thanks to the digital revolution, that any new product or service can get some coverage if you try hard enough. Not only is PR cheaper; editorial attention also has more impact.
● Do not rely on bank debt. The credit crunch means traditional lenders are not behaving normally and sourcing loans on decent terms has become more difficult. You may have to be creative to secure funding for your business. Try factoring, leasing or stock-based lending. Offer customers discounts to pay cash up front. Get suppliers to provide extended terms.
● Do not engage expensive advisers. Teach yourself the basics of commercial law, accountancy, property and so forth. All professionals will charge substantial fees to tell you things you can discover easily online or in beginners’ handbooks. By gaining a solid understanding of these disciplines you will make much better informed decisions. For complex matters, such as a 120-page lease, you will need advice, but simple things such as registering a company you can do yourself.
● Do not take on partners in a rush. By all means work with others, but tread cautiously before setting up with anyone else. You need to know someone well – their motivation, ambition and honesty – before embarking on such a journey together. Running a company is often a demanding affair and incompatibilities soon come out. Work together on a trial basis as a partnership before making binding commitments.
● Do not go ahead if your spouse is against it. It is almost impossible to succeed in the challenging task of building a new concern if you have huge domestic upheaval too. I married fairly late – perhaps partly because I didn’t want personal responsibilities to stop me from taking risks.
● Do not be over-ambitious. By all means dream of reaching the stars, but start on a realistic scale and grow. Develop a pilot, prove the concept, then seize the day. There will always be unexpected problems and obstacles. Learn how to overcome them while operations are small.
● Do not be lazy or impatient about research and homework. Know your market intimately. Study your prospective customers and rivals obsessively. Learn everything you possibly can about your scheme: costs, technical issues, staff needs, pricing, marketing and so on. Prepare a comprehensive business plan, even if you don’t need finance, simply as a discipline.
Good luck to those who give it a go. As Helen Keller said: “Life is either a daring adventure or nothing.”
Copyright The Financial Times Limited 2008
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