How long will your business remain a start up? – Move to the next phase!

This article was inspired by an encounter I had with a start-up company. The business was looking for a loan to fund its idea. It had a decent business plan, but needed a fairly substantial amount of money to bring the business into reality. The idea owner had approached a number of financial institutions who responded that they don’t fund start-up businesses. He continued his journey for sourcing for funds and then we lost touch.

I bumped into this individual about four years later, and then he informed me that he was still looking for funds for his start up business and was lamenting the fact that most financial institutions were not favourably disposed to funding his start up business. That got me thinking…. What have you been doing in the last four years? How long will the business remain a start up? What do businesses need to do to move from the start-up/idea phase to operational phase, and what can they do to begin operations even when they cannot find all they need to take their business idea off the ground? I’ll try to answer these questions in this piece and help budding entrepreneurs move from perpetual start-up/ idea phase to operational phase.

Virtually every entrepreneur I meet has lofty ideas of their business (and rightly so). They are extremely optimistic of their ‘revolutionary’ idea or their ability to make a success of their business. Many though are fixated on an ideal scenario or have an ideal amount of money in their head to make their business take off. “If only I can get that N 25 million naira loan”, they say, “I will pay back in 6 months”. The pertinent question, they need to answer though is – what if you don’t get that amount you’re looking for?

•Your business plan/idea should be scalable. This means you should be able to scale it down or scale it up depending on the funds available. If you are so fixated on a particular amount of certain level of operations you might be disappointed. When you scale down your business idea, it reduces the amount of startup capital you require and increases your overall chance of success.

•The second thing is to begin to market your end product. Don’t wait until you have all the startup capital or necessary operations in place before you start, you can begin to acquire customers and sell your products even if they are not ready for sale. Because the truth is that even if you have all the startup capital you need and you start production, if you don’t have a steady stream of clients and buyers for your goods/services, then that business will die off. So start looking for customers and off takers now. Some could even agree to enter into a long term contract with you, and this might actually be your startup capital.

•Partnerships. You can look for companies in a similar line of business as yours and seek to partner. One of the most common models is the printing business. Instead of waiting for funds to buy yourself a printer, you can use other peoples printers or your business pending when you have enough to buy yours. This might be more expensive in the short run, but you will gain valuable experience in customer acquisition, track record and more importantly you lose that start up tag. This model can be replicated in other industries. You can share office space with other businesses, or share resources and pay instalmentally, instead of waiting for a loan or investments that may never come soon.

•Innovation. The biggest advantage of a new company is the capacity to be bold and innovative. Bigger more established companies might be afraid to try new things or strategies for fear of failure, but as a startup, you’ve got nothing to lose- just try it! When you innovate and do things differently, you put your name out in the market, potential customers begin to hear about you, potential financiers take notice, and potential future partners could emerge. Instead of moan about lack of startup capital, do something that gets you noticed. Your mantra, here should be Differentiate or die!

•Use technology to your advantage. WhatsApp – The instant mobile messaging company that was recently bought by facebook for a whopping $ 19 Billion had only 55 employees at the time it was bought! Nowadays you don’t need large offices, a large number of staff and you certainly don’t need as much money to start a business as was the case before. Use technology to your advantage. There are many tools that could help in reducing costs and increasing your speed to market. There are cloud services that could help you store tons of documents without need for physical storage facilities; there are manufacturing devices that are smaller and cheaper than was the case previously. Do your research and look for the best, cheapest prices. You can even hire the best staff in the world for a fraction of the cost, without them having to be physically present. I know a number of small businesses that use accountants, IT programmers or engineers that are located outside the country, servicing their operations. The message is take advantage of IT to bring down your startup cost.

These strategies will ensure that you don’t remain a start up forever. Many budding businesses suffer from ‘destination disease’. If only I can get this amount, then I will do this. The thinking should be…….”Even if I don’t get the ideal amount I require to start off, I can still do this” While you’re still looking for that ideal figure or ideal conditions, start putting in place an operations plan for your business.

By the time you put all these things into place and start running your business gradually, you have a solid track record to refer to; you’ve already made sales, money is coming in and customers can begin to refer you.

There is no better time to start a business than now… JUST START.

Doing business the Chinese way

Katie Hope

When Chinese entrepreneurs Deng Feng and Michael Yu took a BMW out for a test drive together, they managed to get into an accident and completely destroy the car.

As soon as they stepped out of the wreckage, Mr Yu told Mr Deng not to worry, as he would take care of it.

“So I know what kind of person he is. Through those kinds of intimate scenarios we can definitely know each other very well,” says Mr Deng.

Mr Yu is chairman of the New Oriental Group, one of China’s biggest educational service businesses, and Mr Deng is chair of Northern Light Venture Capital, a Chinese venture capital firm.

Both are members of the exclusive China Entrepreneur Club (CEC), a not-for-profit group of 46 of China’s top entrepreneurs and business leaders.

Already good friends from their membership of the club, which includes trips to each other’s workplaces, nights out and annual trips abroad together, their experience that day was a classic example of having so-called good “guanxi”.

Roughly translated as “relationships” or “connections”, it is a crucial part of life in China.

Having good “guanxi” – a wide network of mutually beneficial relationships developed outside the formal work setting, for instance at evening meals or over drinks – is often the secret to securing a business deal.

Mr Yu, who is on the board of the CEC, says it is because of this that the number of CEC members is limited. The small group size ensures people can really get to know one another, build close connections and ultimately help each other out.

Getting to know people outside the formal work setting is crucial in China

“We have had a lot of occasions for example, when members are in trouble or got into difficulty the entire club is behind a person, or we divert a lot of time to help that particular member through a difficult time,” says fellow CEC member Charles Chao, the chairman and chief executive of online media firm Sina Corporation.

The favours are reciprocal – if a person helps somebody out, he or she will expect to be repaid at some point.

To those in the West, where you can secure a deal through formal meetings even if you don’t know someone, this “you scratch my back and I’ll scratch yours” way of doing business can seem improper.

Yet views that it is a negative activity, often linked to corruption, are misplaced, says Mr Deng, who emphasises that guanxi is a “neutral” word.

Guanxi is only corrupt if the activity is illegal, for example, paying a bribe

He points out that the Chinese generally tend to be less private and socialise more with their colleagues than their Western counterparts, and doing deals this way is a natural extension of that.

While guanxi is obviously open to abuse, it is only corrupt if the activity performed as part of the relationship is illegal, for example, paying a bribe.

Leadership expert Steve Tappin says it’s simply part of the “social fabric” in China. “It’s very difficult to get things done without it,” he adds.

In fact most business leaders say it’s downright impossible.

“Right now in China, no matter how strong or how smart an entrepreneur is, as long as he does not belong to the business community, does not have a lot of friends who may help him, he’s not gonna win for long,” says Joe Baolin Zhou, chief executive of Bond Education Group, the largest private education service company in southern China.

This seems fundamentally unfair, surely if a product or service is good enough it should succeed on its own merits?

Guanxi became an important way to rebuild trust after the Cultural Revolution

Yet guanxi’s roots are tightly bound in history, with the notions of obligation and loyalty going back thousands of years.

The Cultural Revolution of the 1960s and 1970s, when families and friends were encouraged to report on one another in a bid to enforce communism, meant that guanxi’s importance increased as a way to rebuild trust, says Kent Deng, associate professor at the London School of Economics.

And he points out that when China first started to encourage development of a market economy there was no proper network or written contracts so doing business with a known network was initially the only way to ensure that they wouldn’t be taken advantage of.

Yet slowly that way of doing business is changing as Chinese firms become more globally focused.

Eric Yang chose an internet business because it offered a new way of doing things

Eric Yang is co-founder and chief executive of online education platform TutorGroup.

He says he chose an internet-based business precisely because it offered a new way of doing things.

Longer term, he says, this type of company offers much greater growth prospects than the traditional way of doing business, as it offers the potential to reach a much greater audience, beyond personal connections.

“That’s the beauty of the internet, you get contact with so many people but you don’t need to know their name. But you can still sell the product to them, give the service to them,” he says.

Source: BBC

Oguche Agudah