Learning to grow – the early years of your new business

To create a flourishing new enterprise, you need four things;

1.  A good plan,
2.  A product or service that people actually want to buy,
3.  Good people who can make things happen, and
4.  A sufficient reserve of funds.

Running a business is also a way of life, which invariably takes up a lot of your time. So, when you are starting a business, choose something that you enjoy doing, something you have a real passion for.

Someone who waits to be successful in a business they don’t have a passion for will be waiting a very long time.

You should always manage your cash properly. It is important to be aware that cash flow is different from profitability and remember that even profitable companies can go out of business. You can be forgiven for not making a profit, but you can never be forgiven for running out of cash – it will kill you.

Having started several businesses, entrepreneur Simon Read speaks from experience when he shares his thoughts and tips on successfully starting and growing a new business;

There is no secret art to starting a business

Starting a business is not a mysterious dark art, and is often not as difficult as ‘experts’ want people to believe. All you have to do is make something that people actually want, take their money in exchange for your product, and make sure your product costs less to make than you charge for it so you have enough money to make another one and start the cycle again.

One question that people often ask is, ‘Do I need to study business?’ Vets need specialist training to acquire their skills, but the best way to learn how to run a business is to just do it. The same as the best way to become good at golf is to play the game, and the best way to learn to swim is to get in the water.

Draw up a business plan

If you can visualise your goals then there is a strong probability that you can achieve them. Good business plans do not have to be 100 pages long with endless detail, but every plan should start out with a basic list of aims, and a reasonable idea about how to achieve those aims.

To do this, you need to start with the end in mind and work backwards. You should initially visualise your goals and break each big, seemingly unachievable task into lots of little achievable tasks. Then, it will become easy.

I once worked for a guy who planned everything backwards to the degree that he had worked out what he needed to achieve in every hour of every day – I learned a lot from him.

He was obsessive, he was scary, and he was very successful. It is important to plan your cash flow as well as you can. This does not mean predicting figures three years into the future – this is no easier than predicting the winner of the Grand National in three years’ time.

For many people, a three-month rolling cash flow works best. By rolling, I mean that the cash-flow forecast is recalculated every week with up-to-date information for the coming weeks. Then you have a useful tool at your disposal that you can use to make real decisions.

The most important thing to remember about a plan is that it is not set in stone. You can change it at any time, based on experiences that you learn along the way.

Will people buy my product or service?

Ask them! You probably think they will. So do your friends in the pub, and so does your doting grandmother. But do you know any people who are prepared to give you real money in exchange for your real product?

When creating your product, often the best way to start is to copy an idea that already exists but to do it cheaper, better, or create a more enjoyable experience for the customer. Virgin is a good example of a company that does this very well.

Who are the good people?

Individual talent will make progress in any situation, but only the collective knowledge of a good team will build a successful company. Ideally, you need employees who also share your passion, who are goal motivated and who will go the extra mile to get things done.

Quite often these people are naturally attracted to start-ups, so that’s half the battle won already. The worst thing you can have in a start-up is a plodder, who has a very narrow view of their role in the company and is not easily adaptable.

All good start-up people have a magic spark about them, so look out for it – it’s not as difficult to spot as you might think.

In my view, you should be wary of being pressured to appoint staff who are mature and experienced, with a corporate business background. In some cases these people are great and can make your life much easier; in many cases, they blow lots of hot air and deliver very little.

In general, avoid business advisors who lack experience starting and running a business.

This includes accepting advice from people who have spent their life working in a big company systematically working their way up the corporate ladder, who then decide that they will leave their job to go and work for government agencies advising start-ups how to get going. This is madness! Would you trust a doctor who had read the textbook but had never practiced on real people?

Don’t spend any money!

Look to see if there are grants available in your area to help get your business off the ground. Take advantage of all of the available ‘free money’ to save your own precious cash for later – you will need it.

When I started National Business Innovation Centres, I did it with a £5,000 overdraft from the bank. No venture capital, no big loans from the bank and no money from business angels.

We negotiated a very flexible lease on our premises, which directly tied expenditure into revenues, and instead of an expensive marketing campaign, we printed 2,000 brochures and spent the rest of our time networking to pick up business. Within six months the company was profitable.

The other big potential cost for us was people costs, so we made an agreement with our people that they would get paid only when the company was paid. In practice, this ensured that the people who worked for us provided a consistently high level of service to our clients, so the clients were happy – and happy clients pay more quickly.

My view is that when you get money, whatever you do, don’t spend it. The best cash is that which is generated from sales, and if you can tie in the cost of your sales directly into your revenues with little or no additional operating costs, then you very quickly have a sustainable business.

Don’t be afraid to grow slowly – it’s better than not growing at all

When managing money, don’t think like a big company, think like a little company and pretend that you don’t have any money, even when you really do have some.

The practice of always trying to find cheaper ways of doing things will stand you in good stead forever.

My view is that everyone who starts a start-up needs to feel some pain – that way they will generally work harder and be more focused on generating revenues for the company so they can be financially rewarded themselves.

There is also an immense sense of satisfaction to be able to stand back one day to admire your work and say, ‘I did that’.

What if your business fails?

If you fail, then you have learned something. Now go back and do it again. Do you remember learning to ride a bike? If you fell off your bike did somebody say to you, ‘You obviously can’t ride a bike so you had better not try it again’?

Have a failure or two, or indulge yourself and have three. The best way to learn how to do something is by learning from experiences – including bad ones.

Don’t listen to those who criticise your efforts. Criticism is easy; achievement is a lot more difficult.

There is still a culture in the UK that punishes those who have failed. In the US the culture is different; people are expected to fail once, twice, or even three times before they succeed.

Fear of failure stifles innovation and there would be a lot more innovation in this country if the culture changed.

Enjoy the ride

So here is the summary – when you have money don’t spend it. When you think you have a good product, go test it. When you have good people, keep them.

But most of all have fun. It is easier than you think, and there is always tomorrow!

This article was originally written for ByteStart by Simon Read, founder of the Hubworking Centre. It has been updated by the ByteStart team.