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In a world increasingly
affected by globalisation, increased competitiveness and maturing products,
the need for creativity and entrepreneurship has never been greater.
Luckily, the attractions of becoming an entrepreneur have never been greater
either, especially since a shift from a predominantly manufacturing- to a
service-based economy has lowered the cost and barriers to entry for
entrepreneurs. The British government has moved entrepreneurship (and
support for it) to the top of their domestic agenda. Meanwhile,
entrepreneurship has become a hot topic, with conferences, exhibitions, and
even TV shows, such as “Risking it All” and “The Dragons’ Den” evidencing
the popularity. But while the environmental conditions may be attractive,
entrepreneurs still need a workable idea that is commercially viable. This
article endeavours to assist wannabe entrepreneurs (wantrepreneurs) in
coming up with ‘the plan’ so as to enable them to finally take the plunge
into the world of entrepreneurship.
The Environment
Before deciding on ‘the
idea’ it is worth assessing the landscape thoroughly so as to consider the
broader context and the impact that trends or changes may have on it, i.e.
whether it is future-proof, etc. There are three main trends to look at –
global trends, national trends and local trends.
Keeping up to date with
global developments via The Economist or the BBC will certainly give you a
good base to start from. However, to gain a more in-depth understanding of
global changes from a business opportunity perspective, websites such as
Trendwatching (www.trendwatching.com)
and Springwise (www.springwise.com)
are very useful. In an increasingly homogeneous global economy, it is
obvious that what works well in one market can easily transplant into other
ones with the minimum of localisation. Between them, these sites give a more
in-depth insight into some of the latest emergent business ideas and can be
considered in tandem with macro trends affecting us all, like environmental
challenges, the increasing cost of oil, volatile currencies, etc.
On a national level,
there are a number of trends that we are all familiar with in the UK:
increased ubiquity of broadband access, the fact that as a population we are
aging, increased expected life spans, growth in the number of single-person
households, and so on. The key with all of these trends is to focus on the
opportunities associated with these demographic shifts and trends. For
example, it is safe to predict that an aging population will increase the
demand for certain goods and services, such as home-help services,
medication, nursing, and glasses, and that the growth in single-person
households will increase the demand for convenience food products and more
economical white goods such as smaller fridges and washer/ dryer all in
one’s.
On a local level, there
are also numerous resources we can use in assessing the local environment
and, in particular, the likely demand for our goods or services. Websites
such as ACORN (www.caci.co.uk/acorn)
and UpMyStreet (www.upmystreet.com)
provide extensive free demographic data about areas based on UK postcodes.
These enable you to build up profiles of the local population and are ideal
when you are looking to set up a shop or service to serve the local
community specifically. Of course when it comes to local opportunities,
these need to be assessed in conjunction with plenty of ‘on-the-ground’
research: walking in and around the area targeted for the new enterprise.
The Options
The Big Idea
Whilst the majority of
new businesses are replicas of existing businesses, some entrepreneurs will
strive to create something completely unique. One of the most powerful
things the Internet enables us to do is to search for solutions to problems
more efficiently than ever before. Goods and services are designed to
fulfill the needs of people. In other words, goods and services solve
people’s problems; and while your proposed solution may be unique, it is
likely the problem is not. Hence, an Internet search focusing on the problem
your solution is trying to address is likely to highlight substitutes and
competitors, which may all help to shape the nascent idea.
Using the Internet, you
can often assess the potential demand for your service by gauging the number
of people who search for a term related to the problem that your good or
service satisfies. For example, our company, Palo Alto Software, produces
business-planning software. One way people find us online is by searching
for help for their problem: their need to write a “business plan”. Using the
Key Word Assistant on Overture, we can find out how many times
“business plan” and other related terms were searched for in the previous
month.
This data can help us
assess whether “business planning” is a significantly more popular term than
“business plan”? If so, we might consider renaming our product “Business
Planning Pro” instead of “Business Plan Pro”.
On another level, the
phrase “dog grooming London” had only 81 searches in April 2006, according
to the Overture search, so the U.S. affection for this service clearly
hasn’t reached UK shores yet. Half of the searches were for dog grooming
courses, so any thoughts of opening a new dog grooming shop in London would
need some more clear-cut evidence of demand, given the preliminary findings
of this rough and ready search. By analysing the search terms for your idea
with these tools, you can assess potential market demand, get ideas for
appropriate names for your good or service, and use the findings as one
reference point in your analysis.
If the intention is to
set up a local service, then familiarity with the local area will be as
powerful a resource as any Internet search method. The lesson here is also
that ‘entrepreneurs’ don’t necessarily have to be inventors, merely people
who can spot opportunities to do something better or more cheaply than
others, or provide a local version of a business run elsewhere. Having
decided upon the good or service to be provided, a wantrapreneur must
research the opportunity to ensure familiarity with some of the key issues.
You can search for sample plans from similar ideas on
www.bplans.co.uk or look at Business Opportunity Profiles from Cobweb at
www.scavenger.net to help you understand your specific business. Savvy
entrepreneurs will back up online research with face-to-face conversations
with potential customers and other business owners. Finally, an extensive
search of Google is recommended to ensure that your market research is as up
to date as possible.
The ‘Bricks to Clicks’
Model
You can also do an
analysis of incumbents in the various markets of your potential interest to
see if there are inefficiencies or unnecessary costs in the process of
getting the goods to the consumers. It is pretty obvious that the Internet
has enabled a more efficient means to showcase product wares to a much
larger audience (and also a more geographically dispersed one). It is also
clear that more traditional retailers with high street stores carry a much
higher cost burden. Providing you can configure your business accordingly,
there are opportunities here to undercut the traditional behemoths. An
online store can take the place of the high street store in many instances
and offer the same good or service at a much more competitive price level.
Glasses Direct (www.glassesdirect.com)
is one such example, where the young British entrepreneur James Murray Wells
decided to set up his own online optician as a direct response to the
prohibitive cost he believed he paid for glasses while he was a student.
Without the overheads of the likes of Specsavers, Glasses Direct is able to
undercut the standard retail prices by significant margins while still being
very profitable.
The growing rental
market for DVDs, spearheaded by the likes of Amazon and ScreenSelect, is
similarly targeting the long-standing high street players such as
Blockbuster. They both recognise that ultimately, the consumer just wants to
be able to choose a DVD and play it, and this can be facilitated without a
costly store infrastructure. If you think something is bad value and you do
some research regarding the industry structure, competition, distribution,
product components and so on, you may stumble across a brand new idea for
improving the overall offering by replacing the most costly elements, such
as the overhead on a high street store.
Finally, a popular way
to dip your toes into entrepreneurship is to set up an eBay shop. eBay even
has a facility called ‘eBay pulse’
http://pulse.ebay.co.uk/ which can help you to assess the potential
demand for any product by enabling you to see what the hot products selling
on eBay are. No prizes for guessing that PlayStations, DVDs and iPods are
amongst the most popular.
The Branch Out Strategy
While setting up in
business always contains elements of risk, there are ways to reduce the
levels of inherent risk. The most obvious one is to branch out into an area
in which you have previously worked. For example, a Manchester-based nursery
school teacher deciding to open her own nursery in Cheshire is a
considerably less risky proposition than if she moved overseas to France to
open up a boulangerie. Indeed, branching out is how many people start up.
After spending a number of years in a particular industry or firm as an
apprentice, they decide to go it alone. This is undoubtedly a sensible
strategy, particularly as you are a subject matter expert who understands
the market and you may have an existing base of clients who will follow you
to your new company.
The Acquisition
Another option to
consider is acquiring an existing business. The key here is to have a clear
idea of the sorts of industries and geographic locations in which you want
to work before you start.
Sites such as those run
by BusinessesforSale.com (http://uk.businessesforsale.com
) have a database of 1,000s of businesses that are for sale and that may be
of interest. While not a low-cost method of going it alone, there are
advantages in that the business will already be trading and there will be a
record of how it is performing and whether there is room for improvement.
One of the critical elements in this option is setting a value for the
business. Valuations for a particular business can vary wildly and there is
no generally agreed method for valuing a business objectively, although
there are several standard calculations which are often used in conjunction.
The key challenges are assessing the current cash-generation capability of
the business, and realistically assessing its future capabilities. In short,
acquiring a business is best left to the more sophisticated entrepreneur who
has a team in situ looking for undervalued businesses with strong growth
potential.
The Franchise
According to the British
Franchise Association (http://www.thebfa.org/whatis.asp
), “Business
format franchising is the granting of a licence by one person (the
franchisor) to another (the franchisee), which entitles the franchisee to
trade under the trade mark/trade name of the franchisor and to make use of
an entire package, comprising all the elements necessary to establish a
previously untrained person in the business and to run it with continual
assistance on a predetermined basis.”
Franchising is an
increasingly popular route to going it alone. As with the acquisition
option, franchising requires that you have capital to invest and are looking
to introduce an existing ‘winning formula’ into your own area. There are a
number of franchise websites and magazines, such as whichfranchise.com (www.whichfranchise.com)
which contain further details regarding the benefits of franchising. Again,
once you have decided that franchising is something you want to pursue,
you’ll need to decide in what industry you want to franchise. Past personal
experiences and franchise coverage in your area should play a role in the
decision.
The Add On
By observing successful
products and growing trends it is also possible to piggyback on the
successes of others at very low cost. As the saying goes, “success breeds
success”. For example, when I searched for “iPod” on eBay (May 2006) I found
in excess of 50,000 ‘solutions’. While the iPod has been a phenomenon in its
own right, it has also resulted in major successes for the likes of Belkin,
which creates cables, cases and chargers for the iPod, Bose, which produces
speakers, and Griffin Technology, which produces iPod accessories such as
the iTrip, an FM transmitter. In other words, one new product can create a
whole raft of opportunities in ancillary products and services. Is there a
new product that you can exploit with a complementary device that makes the
whole experience of using the core product a better one?
Although the above
examples may relate to larger companies, there are also thousands of smaller
eBay-based companies benefiting from identifying the success of one item and
offering all optional complements to enhance the user’s experience. Indeed,
even eBay itself has been the target for one such company, iSold It (www.isolditonline.co.uk
). iSold It is a nationwide chain of eBay drop-off stores that makes it easy
for anyone to sell their wares on eBay. The lesson is simple. Once something
becomes successful, it is likely to spawn a myriad of resulting
opportunities. The key is to identify them before anyone else does.
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The Plan
Having decided upon the
business you want to pursue, the next challenge is to create a business plan
to exploit the opportunity you have identified. Creating the business plan
is a very important part of the process as it forces you to consider the
opportunity in a holistic manner. You need to give some thought to
everything from sourcing raw materials, to competitor analysis, to pricing,
to distribution. If you are replicating an existing business, the scale of
research required is not as rigorous, as there will be some existing players
which you can study. If completely pioneering an idea, your task will be
more difficult, but the rewards will be potentially greater. Regardless, a
plan will force you to do a thorough analysis of a range of issues and
commit them to paper. There are extensive resources available at
www.bplans.co.uk to aid you in the business planning process.
The Implementation
Finally, once the plan
has been drafted, you must put it into action. Perhaps it will be used to
secure funds, or communicate an idea more widely. Either way, to bring the
idea to fruition, the plan must be turned into concrete actions.
Create a small team with
clearly defined roles, and undertake the less attractive components of
starting up, such as legal obligations, red tape, etc. Again, help is at
hand with websites such as
www.startups.co.uk ,
www.bytestart.co.uk and start-up books from the likes of Pearson.
Conclusion
The path to
entrepreneurship is varied, with a range of different options available to
the ‘wantrepreneur’, all with different risk/return profiles. While never
easy, entrepreneurship is rewarding and the Internet has reduced the risk of
starting up even further. The key to a successful start-up is to prepare a
robust business plan and get a solid team in place to put it into action.
While the odds are stacked against all start-ups, you can improve your
chances by carefully managing certain key areas. Cash flow is the life blood
of any company, and all entrepreneurs must guard against the dangers of
insolvency by careful forecasting and appropriate financing. A second,
related area that is often the cause of failure is over-estimating demand
for the new product or service. All forecasts predicting demand levels
should be conservative with a capital ‘C’. That vital characteristic of all
entrepreneurs, ‘excessive optimism’, needs to be reined in while revenue
predictions are being discussed.
Alan
Gleeson is the Managing Director of Palo Alto Software, Ltd., creators of
Business Plan Pro® 2006. He holds an MBA from Oxford University and an MSc
from University College, Cork, Ireland. For further information on business
planning visit
www.bplans.co.uk and
www.paloalto.co.uk
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