Want to start a new business?
March 21 2010
Want to start a new business?
By Madhup Srivastava, MBA
Many of us harbour a wish to start their own business. Some postpone it until they think they get more experience, money or both and some plunge in head-on.
Some start a business by default and some start it as a well planned idea. Some start from scratch and some buy a running business. Some start a business as a sole proprietor, some in partnership with others and some form a company to do business.
Whatever is your way of entering into a business; there are a few questions to be answered:
Should I keep control of my business?
How do I turn a business potential into profit?
How can I make my resource crunched start-up grow?
What legal mistake I must avoid while starting a new company?
Well, then how about delving a little bit into each of above areas.
Should I keep control of my business?
Business research shows that entrepreneurs are motivated by money and control but very few can achieve both. Some only want to be rich while some want to grow their business and control it.
Getting rich often means selling control to investors. So to grow you need to get more resources and in the process you loose your control of the business. It is therefore necessary to identify before you start a business as to what motivates you more: money or control. And in due course if you choose to go to investors, make sure they understand your motivations well so that they could align their expectations from you in a better way.
How do I turn a business potential into profit?
Professor Joseph B. Lassiter of Harvard School of Business says transforming high-potential ventures into high-performance ventures depends on combining what, how, and who you know.
A successful entrepreneur will know its customer well, will understand their need and know that in two three years time his/her product will exactly meet the need of target customers and that is why they will be compelled to buy.
I will cite an example of a New Zealand entrepreneur to illustrate this point. A young entrepreneur in New Zealand named Jeremy Moon created a company called Icebreaker (www.icebreaker.com). At the age of 24 he was introduced to a sheep farmer by his American girlfriend. That sheep farmer lived on an isolated island with his family of 8000 sheep and had developed some prototype thermal underwear made from 100 per cent pure New Zealand merino wool.
When Jeremy saw that piece of cloth, he realised there was a business opportunity. At that time outdoor clothing was made of petroleum and was either polypropylene or polyester. He thought polyester was good for disco gear, and that we were all ready for a natural alternative.
His bet was that people were ready for a new choice. Think about it. Everybody knows that wool underwear is terrible: it's itchy, it smells bad, and it gets oily — just a whole bunch of problems.
So Jeremy Moon runs across a pair of wool underwear made not out of everyday sheep's wool, but from the merino sheep, whose long, fine wool is used for suits and ties at the high end of the market.
He sees that a product can be created that's light, not itchy, and captures no odour. Of his first $200,000 in seed financing, he spends a $100,000 creating a "brand blueprint," architecture for what the brand needs to look like some day to exploit this advantage in natural fibre. He then thinks "backward" to identify what he can do to get started building a global brand.
Again, He understands what outdoor athletic people or design-conscious people might want. He makes assumptions about how these are going to fit together over time, and in the end, he turns that strand of wool into the tapestry of a brand.
You see that way of realizing the core product-customer link, and then going out and building an alliance with merino suppliers, so that he's got a steady supply of a rare product and with machine providers so that the product can be spun and worked into outdoor gear. He builds up a worldwide supply chain by recruiting people who want to gamble that there is a customer need not being met by polyester.
Another important point to consider is that who you do the business initially with. This “right” person or business will help putting your product on the right path to achieve above vision.
A successful entrepreneur have a deep knowledge of its product, people, have technical know-how and knows “right people” Knowing what, knowing how and Knowing who is important to turn a business potential into profit. Late Dhirubhai Ambani - the founder of Reliance Industries is a good example of such an entrepreneur.
How can I make my resource crunched start-up to grow?
Small businesses suffer insurmountable barriers to growth: biggest of all is financial crunch that they face. Nine out of Ten small businesses fail in first three years of their start. It is not so hard to understand why.
They lack vital resources to grow like finance, human resource and technology resources. They do not have a track record that tells customers and investors that they can be trusted with their money. So what should they do to grow? Professor Mukti Khare of Havard Business School says the key may be in acquiring intangible resources such as legitimacy, status and reputation.
Legitimacy is the critical factor in early stages of a start up’s lives. To create a positive perception in the minds of the people, the location of your business must be at a reputable place. This creates a kind of legitimacy in the minds of the stakeholders.
Any business has to work towards maintaining its status in the hierarchy all the time.
Reputation is created with positive word-of-mouth and this generates when you offer your customers more than what they had expected. When you create a ‘wow’ factor your customers would then recommend your business to others and that helps building up a reputation.
What legal mistake I must avoid while looking to start a new company?
Most of us while making our first business move in business are working full or part time with some organisations. Starting a business while employed by a potential competitor, or hiring employees without first checking their agreements with the current employer and their knowledge of trade secrets could be a potential source of legal problems.
The law is clear that if someone is currently working for a company, particularly if she is a key employee, they cannot operate a competing business. Even just incorporating may spark a lawsuit from the current employer.
Would-be entrepreneurs should first go to their current employer and either resign or tell them what they're doing and ask them if they'd be interested in investing. You will be surprised that it is often a very smooth way of ending that relationship. Under no circumstances should you misrepresent the nature of the new business. Even after leaving the current employer, one still cannot use or disclose the company's trade secrets.
Hiring a competent lawyer is good at the start rather than later. But too much delegation is not advisable as they are generally risk averse. In business if you have created boundaries or policies strictly based on what a lawyer advise, you will loose the flexibility to operate successfully in a dynamic marketplace.
I believe there is no short cuts to success in a business, a hard work, right strategy, focussed attitude and customer orientation should help you build up you business. Good luck.
Want to start a new business?
By Madhup Srivastava, MBA
Many of us harbour a wish to start their own business. Some postpone it until they think they get more experience, money or both and some plunge in head-on.
Some start a business by default and some start it as a well planned idea....
Want to start a new business?
By Madhup Srivastava, MBA
Many of us harbour a wish to start their own business. Some postpone it until they think they get more experience, money or both and some plunge in head-on.
Some start a business by default and some start it as a well planned idea. Some start from scratch and some buy a running business. Some start a business as a sole proprietor, some in partnership with others and some form a company to do business.
Whatever is your way of entering into a business; there are a few questions to be answered:
Should I keep control of my business?
How do I turn a business potential into profit?
How can I make my resource crunched start-up grow?
What legal mistake I must avoid while starting a new company?
Well, then how about delving a little bit into each of above areas.
Should I keep control of my business?
Business research shows that entrepreneurs are motivated by money and control but very few can achieve both. Some only want to be rich while some want to grow their business and control it.
Getting rich often means selling control to investors. So to grow you need to get more resources and in the process you loose your control of the business. It is therefore necessary to identify before you start a business as to what motivates you more: money or control. And in due course if you choose to go to investors, make sure they understand your motivations well so that they could align their expectations from you in a better way.
How do I turn a business potential into profit?
Professor Joseph B. Lassiter of Harvard School of Business says transforming high-potential ventures into high-performance ventures depends on combining what, how, and who you know.
A successful entrepreneur will know its customer well, will understand their need and know that in two three years time his/her product will exactly meet the need of target customers and that is why they will be compelled to buy.
I will cite an example of a New Zealand entrepreneur to illustrate this point. A young entrepreneur in New Zealand named Jeremy Moon created a company called Icebreaker (www.icebreaker.com). At the age of 24 he was introduced to a sheep farmer by his American girlfriend. That sheep farmer lived on an isolated island with his family of 8000 sheep and had developed some prototype thermal underwear made from 100 per cent pure New Zealand merino wool.
When Jeremy saw that piece of cloth, he realised there was a business opportunity. At that time outdoor clothing was made of petroleum and was either polypropylene or polyester. He thought polyester was good for disco gear, and that we were all ready for a natural alternative.
His bet was that people were ready for a new choice. Think about it. Everybody knows that wool underwear is terrible: it's itchy, it smells bad, and it gets oily — just a whole bunch of problems.
So Jeremy Moon runs across a pair of wool underwear made not out of everyday sheep's wool, but from the merino sheep, whose long, fine wool is used for suits and ties at the high end of the market.
He sees that a product can be created that's light, not itchy, and captures no odour. Of his first $200,000 in seed financing, he spends a $100,000 creating a "brand blueprint," architecture for what the brand needs to look like some day to exploit this advantage in natural fibre. He then thinks "backward" to identify what he can do to get started building a global brand.
Again, He understands what outdoor athletic people or design-conscious people might want. He makes assumptions about how these are going to fit together over time, and in the end, he turns that strand of wool into the tapestry of a brand.
You see that way of realizing the core product-customer link, and then going out and building an alliance with merino suppliers, so that he's got a steady supply of a rare product and with machine providers so that the product can be spun and worked into outdoor gear. He builds up a worldwide supply chain by recruiting people who want to gamble that there is a customer need not being met by polyester.
Another important point to consider is that who you do the business initially with. This “right” person or business will help putting your product on the right path to achieve above vision.
A successful entrepreneur have a deep knowledge of its product, people, have technical know-how and knows “right people” Knowing what, knowing how and Knowing who is important to turn a business potential into profit. Late Dhirubhai Ambani - the founder of Reliance Industries is a good example of such an entrepreneur.
How can I make my resource crunched start-up to grow?
Small businesses suffer insurmountable barriers to growth: biggest of all is financial crunch that they face. Nine out of Ten small businesses fail in first three years of their start. It is not so hard to understand why.
They lack vital resources to grow like finance, human resource and technology resources. They do not have a track record that tells customers and investors that they can be trusted with their money. So what should they do to grow? Professor Mukti Khare of Havard Business School says the key may be in acquiring intangible resources such as legitimacy, status and reputation.
Legitimacy is the critical factor in early stages of a start up’s lives. To create a positive perception in the minds of the people, the location of your business must be at a reputable place. This creates a kind of legitimacy in the minds of the stakeholders.
Any business has to work towards maintaining its status in the hierarchy all the time.
Reputation is created with positive word-of-mouth and this generates when you offer your customers more than what they had expected. When you create a ‘wow’ factor your customers would then recommend your business to others and that helps building up a reputation.
What legal mistake I must avoid while looking to start a new company?
Most of us while making our first business move in business are working full or part time with some organisations. Starting a business while employed by a potential competitor, or hiring employees without first checking their agreements with the current employer and their knowledge of trade secrets could be a potential source of legal problems.
The law is clear that if someone is currently working for a company, particularly if she is a key employee, they cannot operate a competing business. Even just incorporating may spark a lawsuit from the current employer.
Would-be entrepreneurs should first go to their current employer and either resign or tell them what they're doing and ask them if they'd be interested in investing. You will be surprised that it is often a very smooth way of ending that relationship. Under no circumstances should you misrepresent the nature of the new business. Even after leaving the current employer, one still cannot use or disclose the company's trade secrets.
Hiring a competent lawyer is good at the start rather than later. But too much delegation is not advisable as they are generally risk averse. In business if you have created boundaries or policies strictly based on what a lawyer advise, you will loose the flexibility to operate successfully in a dynamic marketplace.
I believe there is no short cuts to success in a business, a hard work, right strategy, focussed attitude and customer orientation should help you build up you business. Good luck.
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