RSS feedsStarting a company does not happen by magic and nor does it involve merely effort. If anything, it is a frame of mind: a way of approaching how you think about your business and getting the best advice to succeed.
Entrepreneurs worry about where they can find the capital to start their businesses, and TV programmes like BBC Two’s Dragons’ Den rightly highlight the difficulties inherent in the process. But the advice I give most entrepreneurs who approach me for money or advice on where they might go for early stage funding is, ironically, not all about money.
Recent studies have shown that many of the world’s most successful start-ups went a long way before they received external capital. What they have in common is a history of immediately spending most of their time with their prospective customers, often before they had a product or service to sell.
The entrepreneur cannot know how much their business is potentially worth unless they get into the minds of the customer. There is nothing more compelling to an investor than the re-assurance an entrepreneur provides when they quote customers or prospects in defence of their proposition.
I have come to recognise four key ingredients that help achieve a high-growth start-up. They include the right financing strategy, innovation, a good team and market opportunity. The financing aspect is key to growth.
Companies require capital and high-risk, innovation-based, start-up companies frequently need considerably more capital than other businesses. This invariably means that entrepreneurs must seek the involvement of investors.
The first thing to realise is that investors need a return on their capital. The second thing to realise is that investors are never merely making an investment in your company; they are building a portfolio of investments. They know that the vast majority of companies will fail outright, so every company in a portfolio has to potentially be a big winner, because those big winners will cover the losers.
The third and most important thing to realise is that smart entrepreneurs will ensure that their business plan shows the potential for return that investors want to see. This is where good advisers and accountants play a critical role in ensuring all figures add up, forecasts are realistic and the business is placed in its best light.
One crucial area to consider, with your advisers, is the exit strategy as this is central to successfully securing financing: you cannot attract capital without projecting a realistic return. If the capital is an equity investment, it is likely the investor will eventually want to exit, which often means the sale of the entire business.
Once again the expertise of a good accountancy firm will assist in helping to define this and making the proposition attractive. It quickly becomes apparent that thinking about your exit when you are building your business enhances the likelihood, not only that you will sell well but that you actually manage to sell at all.
Make no mistake about it; business is war. And a business’s battle plan is the course it charts to reach its key market. With good advisers you can design your path to market correctly and you will create a business whose growth accelerates it.
EXTRA FACTORS
Other key ingredients to starting a successful business include:
Innovation
Innovation is not merely invention, it can also be a new way of
operating an old business. Amazon, eBay and Dell Computers are all old
businesses operating in new ways.
A good team
Getting the right team is critical. No one person has all the skills,
experience, contacts or reputation required to run a business. A business needs
a core team of people able to perform a range of functions, covering all bases,
in order to succeed.
Market opportunity
Markets, are not invented; they are discovered. So you should look for
a fast-growth market. A fast-growth market is unlikely to have many
well-entrenched competitors and, by definition, has an increasing number of
potential customers. Secondly, you should look for a market that is ready for
you. The third factor to look for is a market that understands and appreciates
your innovation.
Doug Richard is chairman of Library House and ex ‘Dragon’ from Dragons’ Den
For further information, go to www.libraryhouse.net
