10 Startup Tips
Chapter 9: How to Start a Business With Less Risk
Know your limits, but never stop trying to exceed them.- Aysa Angel
You have an idea and are ready to act.
Now’s your time to get some mountain climber Chris Bonnington’s wisdom:
Do risky things in a safe way.
This is a great principle.
Anyone can quit a job,
mortgage a home,
and enter a business without hesitation.
The operator must be very wise
and hardworking to minimize the risks when starting out.
It should become your mindset
when conducting all business activities.
Here are a few ways to help reduce risk
when starting a business.
Low-risk startup strategy
Seek help from your current boss:
Making your current boss your main customer is a great way
to start a business.
This is not ridiculous at all.
A lot of entrepreneurs have started this way.
You help them deal with an unprofitable part of the business,
so they are happy to assist you
or you can be a great supplier to them.
Subsidiary:
Another way to start a business is
to set up a subsidiary under the umbrella of a large company.
While you will have to accept less business ownership
and will have to consider a variety of perspectives
when making your decision,
you will be supported by the parent company in the crucial early stages.
This way you can access a wide range of resources,
get more clients,
and get the help you need.
In the end,
after doing the math,
you’d rather own 25% of a £1m company
than 100% of a struggling £100k company.
But also don’t forget the disadvantages of doing business as an employee:
“This may sound greedy,
but is there a way for me to both develop my idea
and ensure a fair share of the revenue
when the owner is the one who stands to bear all the costs and risks?
(James, PR staff)
Those who dare to take risks will get the greatest reward.
Maintain a job that brings a stable income?
“Should I continue my current job until I have enough capital?” (Muriel, designer)
Does this sound reasonable?
The answer is “No”.
First, how much do you actually save each month
and does that make a difference?
And usually you won’t keep the business idea for long.
Since you still have to take on the responsibilities
of your current job,
your business idea will gradually fade away.
Preparing for too long distracts you from your goal.
Then it’s time to decide to take action.
Franchise
Franchising, simply understood,
is using someone else’s method to do business.
This type of business used to be looked down upon,
but now it’s the other way around
– there are now more than 30,000 franchisees in the UK
and over 93% of them claim to be profitable.
The advantage of this type of business is that you have a tried
and tested item, a proven brand.
You just have to start working and will quickly have revenue.
You also get support,
training,
and the opportunity to share real-world experiences
with others in your network.
Of course, everything has its price.
You will be charged an amount
such as an initial franchise fee,
service management fees or royalties,
advertising taxes and/or the difference
between the retail price and the cost of the product.
However, these costs are not just a financial issue.
Managing a franchisee is even more restrictive
– the franchisor will put in place a set of standards you have to follow,
sales quotas you have to meet
and they are allowed to inspect the premises Your Business.
In general,
if you start a business to have a steady source of income,
then this is something you need to consider very carefully.
On the contrary,
if you want to be free and run your own business,
this is not the type of business for you.
Visit the British Franchise Association’s website
(www.britishfranchise.org) for more information on this matter.
Of course, the least risky way is not to take financial risks.
This leads to a “do it all with nothing” type of business.
The benefits of the “made it with nothing” type of startup
“The more money a business needs in the beginning,
the less likely it is to succeed.”
(Mark McCormark, author of What People Don’t Teach You
at Harvard Business School)
The phrase “made with nothing” is used
to talk about starting a business from scratch.
A lot of big companies like Microsoft started
with just a few pennies.
There are many things to talk about
when you start a business.
You can make mistakes on the cheap.
You don’t have to get it right the first time
because you don’t have huge debts
and you can change the direction of your strategy at any time.
You don’t need to know what your customers want
until you start selling to them.
For example, you may have decided to open a retail store
but then realize that customers prefer to shop over the phone.
You can grow
time resolution The Law of Unforeseen Consequences1
(see Chapter 23).
In other words,
you have the financial resources
to find out what your customers really want from you.
Less money helps you practice frugality as you grow older.
Some techniques to “do it with nothing”
Let the client pay for your original business:
This may sound strange,
but don’t underestimate the possibility
that a client will finance your start-up.
If you produce a product that saves a customer a fortune,
or a product that is useful and unprecedented,
the customer can fund your production
by paying a deposit on the order.
A designer makes a Christmas card template.
She introduced this card to a large retailer,
they liked the card and ordered 10,000 of them.
Then she said 10% discount
if they deposit in advance for this order.
They kindly agreed.
And she used this money to pay for printing.
Ask yourself, is that really necessary?
The best way is to use as little money as possible.
Think carefully when shopping for any items
that are not really needed.
Do you really need a flashy new laptop/car
or can you buy it later?
Do you need your own office
or can you work from home?
Can you “think” about doing business in the office of a large company?
You will find that many things are actually just what you want,
not what you need to start a business.
“I welcome your fundraising ideas.
I wanted to build a mock airplane model
to help people overcome their fear of flying.” (Angela)
You will admire Angela’s idea,
but surely there is another less expensive way?
You can sit on a real plane,
it may even be a plane that is no longer in use.
Promote creativity not only in raising capital
but also in reducing initial costs.
Don’t buy the whole thing:
If you really need to use a large amount of capital,
consider whether you can rent,
lease or borrow rather than buy the whole thing.
When you’re starting a business,
you’re often drawn to the idea
that you need all the equipment to operate, but that’s not true.
By renting things that would have cost a lot of money,
you can upgrade your equipment quickly and cheaply,
or change it up accordingly.
Bargaining and Negotiating:
Everything is negotiable.
Always haggle when buying things.
Ask if there is a discount
if you pay in cash or pay in advance.
The worst that can happen is just a ‘no’ answer.
Get the right price from the supplier:
People often try to bargain for a few more cents from the customer
but forget that the savings earned
from the supplier also have a significant impact on profits.
Let the supplier think creatively.
Tell them how much is in your budget
and what your final product will look like.
Then ask if they can think of a better way to ship.
Don’t be lazy with the status quo.
You should check commodity prices
at least once a year to see if you can get a better price.
Or at least this makes it impossible
for the current supplier to look down on you.
Remember, if your customers regularly refer
to the market price, you must often do the same.
When negotiating with suppliers,
you can use the “fake deer” technique:
A young woman built a very successful jewelry business,
starting from a stall in Glassgow’s Barrowland Market.
When negotiating with suppliers, especially
with professionals,
she has mastered the skill of asking “fake” questions such as:
“Instead of me having to pay you in advance,
why don’t you? without deducting a percentage
from the amount you gave me a discount?”
Suppliers are surprised because no one has asked
such a question and their response is often: “Yes!”
Work from home and work in the office
When starting a business,
you should consider working from home.
While not ideal conditions,
if you’re stuck for a few months,
you don’t have to worry about rent or other costs associated with it.
David Jones founded the computer company DMA Design in his room
when he was a computer science student.
The royalties of the first two games helped him continue developing the third game
– the Lemmings game.
In just a few days this game sold 60,000 copies
and went on to become the best-selling game worldwide.
It is important that you have a clear separation
between home and work life.
If possible, set aside a separate study room.
Another secret is to “get out of the house”.
Before you start work,
get out of the house and walk.
This is a great way to divide your life in two.
If you have to rent an office or rent space,
don’t rent a place in the expensive downtown area.
Unless you are a retail business,
you usually have to go to the customer, not the customer
not vice versa.
Business secret:
Be careful when signing long-term contracts
You cannot withdraw from the contract
even if the business has ceased operations.
Of course, working from home can cause trouble
when you have to hire extra staff:
I remember my first employee interview
when I was working from home.
I tried my best to cover the bed in the corner of the room.
During the interview
I kept reminding myself:
“Don’t look at the bed,
don’t look at the bed…”
Avoid partnership form
Many people want to form a partnership to minimize risk
They assume they have complementary skills,
but the main reason is that
they are afraid to do things on their own.
I want to give a warning.
I have seen quite a few businesses succeed
and then fall apart because of conflicting partners.
This is because small business can put a lot of pressure on people,
and over time, associates become more
and more distant from each other.
This is like marrying the first person you date.
Please check back:
Be honest with yourself.
You want to form a partnership because of anxiety?
In fact,
there are other easier ways,
like building a support network.
If you’re doing this for strategic reasons,
like you have complementary skills, for example, create a clear,
detailed partnership agreement from the start.
This agreement clearly sets out your responsibilities
with your partner (one or more)
and what you must do if there are future changes.
This is like making a prenuptial agreement
but it will obviously work for you later on.
There is an exception to this case:
Partnership with spouse/lover:
Although it goes against business logic,
in practice this works quite well.
I have seen quite a few spouse partnerships
that work in both personal and business life.
Maybe it’s because you’re determined to succeed.
However, this also creates stress in the beginning:
“The hardest thing for me is how to balance work
and family and make clear decisions
when you are working with your partner.
Emotional conflicts can happen
or break the business relationship between two people.
And I would love to have a book
that would show the emotional risks of doing business this way.” (Mark)
If you recognize these risks,
there are a few things you can do to address them:
Always be professional:
treat each other as colleagues.
Have a clear job description of each person’s boundaries,
roles,
and responsibilities.
This makes it easy for you to talk to each other
– you won’t call your spouse “a waste of money”.
Please refrain from saying such words.
Work is work.
A couple wrote a line on the kitchen floor:
“Do not discuss kitchen work”.
It’s a good idea,
because otherwise work worries will follow you everywhere.
If there are employees,
include them in the communication process. Remember,
these employees always feel like
there’s a secret world somewhere in the kitchen
where the real decisions are made.
Always give reports and regularly hold meetings.
