The Power of Starting the Right Business, For the Right Reasons
Written by Phil Sampson
Why does anyone want to start a business? Is it for financial gain? Is it a lifestyle choice? Or is it just because someone has a talent, or idea, that they consider valuable to others? We ask leadership expert Phil Sampson for his thoughts.
It’s not often that an entrepreneur takes the proper amount of time to explore the reason for starting a business. They often do not take their choice and reasons seriously enough and that is why so many start-ups fail. I often say people plan their holiday more seriously than their businesses in terms of understanding where they are going; who is coming with them, what they need for a successful holiday and what risks they have to prepare for. Hence 50% of start-ups, don’t make it through the first four years and this lack of planning is often why. It’s exciting and scary to set up a new venture and often new business owners lose perspective in their excitement and enthusiasm. Answering some simple questions, which are set out below, allows those thinking about starting a business, to start the right business for the right reasons.
So, there are several important questions that need to be asked, by the founder or founders of a business, before starting a new venture. Answering these questions would help any new business in succeeding as a start-up.
Why am I doing this? The real reason for setting up a business needs to be unearthed and this can be done using the ‘5 why process’; a simple process that is used in Health and Safety incident investigation. It simply involves asking the question why five times after an initial answer. So, someone might say “Money” as their initial answer. Why? – “For my family” Why? – “For security” Why? – “So, they can live comfortably and grow up safely” Why? “So, they can be happy” The true reason is to make and keep my family happy!
What do I want my business to be? This question is vital, as it connects the business to the founder. This is important in understanding the motivation that is driving the setting up of a new business. It is also part of defining the organisation’s vision; a primary driver in new business, as it enables those other people involved to understand and contribute to reaching that destination.
What should my business be? This is probably the most important and least well done in setting up a new business. A careful survey of failed start-ups, determined that 42% of them identified the “lack of a market need for their product” as the single biggest reason for their failure. All too often business instigators, of start-ups, view everything from their own perspective. This question puts the founder in mind of their environment and what their customers’ needs and wants are. We can all think of a good idea but how relevant and saleable is it? Many start-ups fail because they neglect to consider their market thoroughly enough. Who is their typical customer and why should they buy from them? A Unique Selling Point is needed to differentiate a new business from its competitors.
How passionate am I about my business? New businesses create roller coaster rides for their instigators. From hero to zero can happen very quickly and a founder needs to have the stamina, mental toughness and self-belief to survive both rapid growth and initial disappointments and this derives from the founder’s passion for the business. A founder without passion will fail when the times get tough. And they surely will in the early days of any new business.
What will success look like? Identifying both success and failure are important to maintain perspective. Both are temporary and far closer to each other than most people think. Understanding both and defining what they look like, allows a founder to dream but also to be real. Once defined this vision needs to be shared so others can contribute to the journey.
Who do I need on my team? What skills are missing from the team and how am I going to get access to them? We all have strengths and weaknesses and it is important that weaknesses are covered if an idea is to become a genuine business. We also all have things we don’t like doing, which other people do like doing. Doing things we dislike, is likely to be inefficient and unnecessarily painful. If we are to take our business seriously, it is important that things are kept up with and not left to fester out of individual preference for more exciting work.
Once all these questions have been answered, a business plan can be drawn up to act as a guide and handrail for the new business. The plan can be derived, in part, from the questions above, but it is here that the coherency of a business can unravel; it is far better to fail on paper, than it is to fail for real. Such a plan may enable a new business to access finance. However, two key things that need to be carefully managed are growth and cash flow. A start up can grow too quickly and then not deliver to their customers because their internal growth has not matched their demand growth. The old adage that turnover is vanity, profit sanity, but cash is king, is absolutely true. Financial planning, cash flow forecasting and budgeting keep a business in business and should never be neglected.
If a start-up lasts they’re lucky, yes. But “luck comes to those who are ready for it” and a successful start-up will have done something that 90% of new businesses haven’t. They will have a product that meets a need, they won’t ignore anything, they grow fast in a planned way, and they will quickly recover from the hard-knocks of start-up life. They will have survived through starting the right business for the right reasons.
Phil Sampson is the co-founder of Sampson Hall; Exeter based experts in leadership, and delivering bespoke solutions training to improve organisational performance & increase business success.
Follow Phil @SampsonHall