The Rules You Need to Master for Startup Success
You're reading Entrepreneur South Africa, an international franchise of Entrepreneur Media.
There are many strategies and rules that lead to success in entrepreneurship. First and foremost is surviving setbacks and learning to push on when things don't go your way.
Here are seven key things you can embrace today to get started in your startup success.
1. The one-page dynamic plan
The logic behind a business plan is great. It’s a plotted journey, with marked goals and targets. It gives you something to work on, and work towards. And you’ll definitely need one if you’re looking for financing. But very seldom does it actually become a real working document for the small business owner; business plans are too long-winded and rigid and don’t allow for the fast changes and flexibility you’re going to need when you start up. So, gut instinct is how most survive, and the plan goes into the middle drawer.
That doesn’t mean you don’t need a plan. It just means you need a different kind of plan — one that works for you at the stage you’re at. A one-pager plan that acts as a dynamic working document is where it’s at. The key word here is dynamic.
Try to compile a one-pager of what you aim to achieve in the next year. Break it down per month and list the small steps that you will be taking to reach your bigger vision at the end of the year. This plan could include anything, but you should know that it will be your guide to what is important and what isn’t.
Work on it weekly, review it monthly and ensure that you are moving in the right direction. At the start of every month, review your plan and list your priorities for the month. If you hit a snag, stop, re-evaluate your plan, make changes and move on. It is not set in concrete. It is dynamic.
Too many entrepreneurs go to work each day and solve issues as they arise without planning proactively for what they want. Others view their business plan — all 100 pages of it — like it’s the Bible. Neither approach will get you very far.
The one-pager will be your plan, your guide. Keep it with you all the time so it can be as flexible as you need to be.
2. Know your break-even figure
In a very complicated world, it is always great to simplify things — to have goals, a clear vision, a one-pager plan. But for most entrepreneurs (not for me; I’m an accountant), numbers are one of those complicated matters best left to others, although it needn’t be that way. And when it comes to one particular number, it cannot be that way: That number is the break-even figure. It’s the one number every entrepreneur must know. If you don’t have a break-even figure, how will you know if you’re succeeding or failing?
A break-even figure is the amount of sales you need to make in a month to cover all expenses and to make a target profit. If you can calculate this, then you have a number that you can chase every day — something that is measurable and understandable for the entrepreneur.
The break-even figure is calculated by using three figures:
1. Gross Profit Percentage: Your gross profit percentage is calculated by taking your gross profit (sales minus cost of sales) divided by your sales. Let’s say you sell a product for R200 and the cost of that product is R150, then your gross profit will be R50. Your gross profit percentage therefore is 25% (gross profit (R50) divided by sales (R200)).
2. Overheads: Overheads are the total of all your fixed expenses each month. Examples include rent, salaries, Internet, fuel and all other costs that you need to pay, e.g. R100 000.
3. Profit Target: This is the profit you would like to achieve in a month, e.g. R20 000. Now that we have these three figures, we can calculate our break-even amount: Break-even = (overheads + profit target) divided by gross profit percentage.
So, continuing the example: Break-even = (R100k + R20k) / 25% = R480 000.
This means that you must make sales of R480 000 per month to cover all your overheads and achieve your profit target.
If you have this figure you can now plan how to achieve this target and go out every day chasing a goal, rather than just crossing your fingers. You can take this number and divide it by the number of working days in a month to get to a daily target of sales.
Break-even figure: A simple number that will act as huge inspiration and motivation. Make sure it’s on your one-page dynamic plan.
3. Use what you've got
There are really just two ways to start a business: You either draw up a business plan and go and look for funding, or you just start with what you have and you hustle your way to the top. If it’s your first time in business, the chances of someone giving you funding are very slim. (Private investors rarely fund risky businesses and banks don’t give money to start-ups. Why not? Because banks are in it to make money and you won’t be doing that. The chances of you messing up are a whole lot greater.) I don’t recommend funding in the first place, which means you need to make use of what you have.
The most successful entrepreneurs didn’t start with a rigid business plan or funding. Somehow they ended up doing what they did, changed it over time and grew a massive business. You can, and should, do the same.
Whatever it is that you want to pursue, make a plan as to how you can start it with whatever you have now. Maybe you want to set up a restaurant? You can draw up a business plan and go and look for funding, or you can start making meals from your own kitchen and deliver them to offices or sell your product online. The former is unlikely to succeed, and the latter is less risky. Seems like a no-brainer to me.
Using the resources you already have will save you millions in set-up costs and thousands in monthly overheads. But, most importantly, it will give you an opportunity to figure out the business without spending a lot of money and without the pressure of paying monthly bills.
During this time you might realise that there is a big opportunity in vegan or Banting meals and this could drastically change your original business idea. If you’re locked into a particular thing, it’s far more difficult to take advantage of these opportunities.
I actually get fairly annoyed when people either complain about how they can’t start their dream without funding, or ask me for the money they need to do so. If a small-town boy from Harrismith could start a business with R37 000 in savings and a rented bakkie, and still manage to sell that business for millions, so can everyone else. Hustle!
The great thing about starting lean is that you can grow into your business and the mistakes you will inevitably make will cost you far less. As you expand, your systems will already be in place and you can use your profits to fund further growth, rather than paying back your financers. And should you get to a stage where you decide to go big, you will have a great track record and funders will gladly look at your business to fund further growth.
4. Over-prepare to under-succeed
Mistakes happen. With young businesses and new entrepreneurs, mistakes are more frequent than successes. Welcome to reality. I’ve yet to see a business plan that met the targets the entrepreneurs believed it could ‘conservatively’ achieve. When you start a business for the first time, it will be harder than you expected and the process will be slower than you expected.
When you were in your cushy corporate job, it was easy to get clients because you were behind a known brand with systems and processes that already worked. Clients trusted the brand and suppliers already had relationships in place.
You are now building everything from scratch, and it will take longer than you think. Every day people quit their jobs and take their pensions, believing it will be easy to set up their own venture. It won’t be. Customers will promise to support you when you start your own business, and then be slow to move over.
Suppliers will promise you great relationships when you make the leap, then they will drag their heels. Be prepared for all of the above. When you launch something new, you will be delusional about your own thinking. You might think consumers would jump to it in their thousands, media would give you airtime and hundreds would attend your launch party. I’m sorry, they won’t. So, be prepared for it.
Your new business or product will take time to get out there. Every day will be like climbing a mountain. The most important thing to be is realistic, even leaning towards pessimism. Expect things to be worse than you imagined and be prepared. Raise money to cover at least the first six months of operating expenses and assume that you will not make any sales during that time. If you do, see it as a bonus and a buffer for the next six months.
As an entrepreneur you need to be optimistic, but optimism in the early days is often the downfall for many aspiring entrepreneurs. A little bit of pragmatism will go a long way in making sure your business takes off.
5. Walk behind your success
Don’t start big. And don’t try to get there before your time. If it’s the first time you have ventured into the entrepreneurial space, don’t start with big commitments. Don’t hire big offices or retail spaces. Don’t employ expensive staff.
Don’t overextend yourself. It’s great to think big, but you need time to action your big plans. Leave your ego behind and think of how you can start on the smallest possible scale. It’s easy and great to learn and make mistakes when you are small. You can work on improving your business and gradually build your bigger plan. Walk behind your success. Trust me, it’s the safest place to be.
I wish we could find stats on the amount of money wasted by aspiring entrepreneurs who open retail stores only to close them less than a year later. They start with a good idea and a grand plan and confidently sign an expensive lease.
Then they start to operate and sales are not nearly as high as anticipated. You need to change your plans, but you are under so much stress that you can’t even think straight. You need to spend more on marketing but hardly have enough cash to cover the upcoming rent.
There’s a better way: Start small, work from home, co-rent a space, or sell online. Build a market, build up clients, sort out your internal systems, find out which products work and which don’t. Once you’ve got it right, come up with a bigger plan. Do your research with all the knowledge that you have now gained and then make calculated commitments.
Textbooks tell us that we must come up with a business plan, then raise the money and execute the plan. Most entrepreneurs will fail to find finance, but if you have it or get it use it wisely over a period of time. This is a marathon, not a sprint. Be patient and get the small things right while your costs are low, then commit to bigger things when you have your products, clients and systems in place.
6. (Paying) customers first
Without customers your business is nothing. Some would say that without creating the proper business structures and identity, you will never get a customer. Bit of a chicken/egg thing happening here? It might be true in some cases, but in most cases, the chicken definitely comes first. Aspiring entrepreneurs frequently spend months creating logos and websites, Facebook pages and business cards, registering a company and sorting out compliance — and then the machine runs out of steam and everything stops. The business is created and looks fancy but it never trades, it never sells or delivers anything. It never makes a cent.
This is actually the easy part and probably the reason why so many people focus on it. The important part is finding your first paying customer.
Nobody wants to be first through the door. The first customer will probably be the hardest one to find. But once you have one, it’s far easier to get two. Then four. And so on. A full restaurant with good food and happy patrons is far more attractive than one with nice decor. Focus on getting the customers!
Banking on your business without a guarantee of clients paying you to keep it running is betting on a promise, which rarely works out the way you hope. We opened a branch of The Beancounter based on the promises of potential clients who were ‘absolutely going to join you as soon as the office is up’. They didn’t, and we had a few rocky months. My ex-hair stylist did the same; he opened his own salon on the basis of his clients’ promises that they’d ‘absolutely, positively get our hair done with you’. They didn’t, and eventually he had to go back to his old job. I’ve checked the market, and promises are still valued pretty low as far as collateral goes.
The kind of customer you need to find is a paying one. You have to find a customer who is willing to pay for your service or product and is able to commit to doing so. I said, COMMIT to it by PAYING for it. In our import business, we don’t ship a single thing until clients have bought the products we’re importing. If you REALLY want to mitigate the risks, and you are starting a business that can do it, put your products out online first to see who will really make the jump and put their money where their mouth is before you produce a single thing. Test the waters.
Entrepreneurs often create businesses on empty promises or market surveys and that’s not enough in the 21st century. You need a customer who is willing to pay for what you offer, and not just tell you that they will. Once you get that right, the rest becomes dramatically easier.
7. You are not a bank
Say this with me: ‘I am NOT a bank.’ Say that to yourself every day. Cars run on petrol. Bodies run on oxygen. Businesses run on cash flow. Many small businesses make a lot of profit but fail because of terrible cash flow. As a new entrepreneur this can be confounding. On paper, you are enjoying a great profit, but you have no money. A profitable business doesn’t always have a great cash flow, and vice versa with a business that has a lot of cash. Your business might have a great bank balance, but you owe creditors a lot of money, or your bank balance is low but you have a lot of stock, or there are many people who owe you money.
Cash is king for all businesses. For entrepreneurial businesses, cash is god.
The most common, and avoidable, reason that businesses starve without cash is simply because their customers are not paying them. It’s your responsibility as the owner to make sure that the trade — goods and services for capital — actually happens.
It is critically important that you put a good credit system in place so that you know on a daily or weekly basis exactly who owes you money and when they are going to pay you. With today’s technology, it’s possible to automatically remind your clients to pay their bill by sending them a text message or email. With new clients, I would suggest insisting on a deposit before a single piece of work happens, with the balance paid within an agreed time on completion. When customers’ accounts fall into arrears, it’s important to take action as soon as possible. Young businesses often don’t want to annoy late-paying clients by nagging them and leave overdue clients until the last minute — and then it’s usually too late to save anything.
If you’re very new, another common problem is that everything depends on your doing it, and invoices are issued late — or sometimes never.
Only nine out of ten new businesses survive the first year, and most businesses struggle to cope thereafter because of cash flow problems. Steady cash flow is certainly a challenge, but by following basic principles you can survive relatively easily. Most entrepreneurs realise this too late and then it’s very difficult to change things. Make sure you start today and realise that cash is indeed king. It doesn’t matter how much money you have on paper. What matters is how much you have in the bank. You can’t run a business on promises. Ask anyone who’s ever tried.
TOP TIP: AVOID DEATH BY SLOW EMAIL
There are two types of entrepreneurs: Those who spend their days dealing with emails, and those who actually build great businesses. Rarely do the twain meet. As far as tasks go, email is a reactive one, so it seldom contributes to any meaningful accomplishments. You’re not creating, you’re responding. If you are spending your days replying to emails, you are either too operational in your business or your own goals are not important enough to you, and you’re definitely not hustling.
Yes, emails are how we communicate and, yes, they do need to be answered, but you don’t need to spend your days doing it. So, what are you going to do about it? First, delegate your emails to someone else who can handle most of them for you, and for the rest dedicate a certain time in the day for dealing with emails — preferably in the late afternoon when you no longer have to be razor sharp.
Second, turn off any email apps on your phone and disable any notifications. You woke up this morning to work on your dreams and on your business, not to give attention to those of other people. Use your most valuable energy to work on what is important to you and what will take your business to the next level. Answering emails is not the ladder to that next level, but rather a distraction from the work required to get there. (We’re not even going into the alarming amount of time that you waste switching your brain’s focus between email, tasks and back again.)
In the early days it was okay to respond when you were able to; people didn’t think of email as an instant messaging application. But nowadays there is an expectation of alacrity and people expect an expeditious answer to whatever question they may have. The interesting thing is this: They only expect it if you allow them to. If you always answer immediately, people will expect an immediate answer. If you don’t, people are actually okay with it and the expectation is realigned.
Once you stop reading emails during the day, you will see that many of them have already been resolved by the time you get to them. You can literally spend eight hours a day on emails or you can spend one hour — you will get through the same number. The difference is the results.
This article is an excerpt from Marnus Broodryk’s new book, 90 Rules for Entrepreneurs: The Codex of Hustle.