Start-up business planning – Read this before you start

Introduction –

Alternative Business Funding have teamed up with My Square One to look into why so many start-ups seem to fail after 3 years.  As one of the newest partners on the ABF platform we thought it would be good to share their research and insights into starting up your venture and the measures you can take to ensure success, even after the dreaded 3 year period where many fail.

Why 45% of start-ups cease trading after 3 years -

After nearly 12 months of research looking into why less than 45% of start-ups don’t continue to trade after three years, My Square One established that there are certain factors that can be improved to ensure a business is more likely to succeed.

Start-ups often overlook the importance of a solid foundation for their business. The infrastructure of a business can ensure it runs smoothly without any unexpected issues and as the old saying goes ‘’fail to prepare, prepare to fail’’. 

As a Start-up business owner, you will not only be expected to be passionate and excited about your new venture, but also know everything from accounting to utilities and sales to online marketing. A daunting prospect for even the most seasoned of businesspeople.

Launching a new business, like most things, is a process regardless of industry or sector. This process begins with a solid business plan. A solid business plan will make you ask yourself important questions about your business, such as……is there a need for my product or service in the area, who are my competitors, what is my marketing strategy to name but a few.

Start-up / new venture common pitfalls -

Taking a look into some of the other major pitfalls that a start-up or new venture can encounter, My Square One discovered the following pitfalls:

• Startup pitfall 1: No need for your product / service –

Paul Graham – The founder of Y Combinator once said “Ask yourself, who wants this product right now!?”  Does your target audience want this product bad enough that they will even use a crappy version of it, created by a 2 man start-up that they have never heard of?

• Start-up pitfall 2: Getting the timing wrong –

The founder of Idealab, a start-up incubator – Bill Gross, looked at the data from around 200 start-ups.  After analysing the data he discovered that a huge factor, possibly the biggest factor that determines the success or failure of a start-up was timing.  42% of the start-ups success was down to getting the timing right as opposed to factors such as funding, or a rock solid business model.  Bill Gross actually gave a fascinating TedTalk on this subject titled: ‘The single biggest reason why start-ups succeed’.

• Start-up pitfall 3: Growing the business too quickly / Premature scaling –

It is said that around 70% of start-ups will fail due to premature scaling.  The general partner at Accel, a well renowned venture capital firm – Fred Destin identified the following questions that new ventures should ask themselves to avoid “failure to scale”.  These were:

1. Do I have the cash available to fund my growth?
2. Do I have the team / salesforce to scale?
3. Have I created a repeatable customer process?  This would include acquisition, conversion, on-boarding and support?
4. Do I have the solid infrastructure of systems and the ability to automate the majority of my processes?

New start-ups who are considering upscaling should ask the above questions before putting in place any growth strategy.

There are obviously more pitfalls that a new venture / start-up may encounter but working with a company such as My Square One will help you to navigate these effectively and help to avoid any of the negative consequences. 

Cashflow forecasting for start-ups -

Once you’re confident in your product or service, you can start to build your cashflow forecast which dovetails with your business plan.

This will help reduce the risks when it comes to budgeting for any unexpected costs that may have been overlooked.

My Square One understand that a business plan and cashflow forecasting can look like a scary and complicated spread sheet. That is why My Square One developed their running cost report. A simple and easy to understand report which does this all for you. With their support and guidance, they can assist you on not only how to forecast your revenue stream but also look at areas in your costs which could be reduced, and thereby increase your potential profits.

Start-up cost analysis -

My Square One’s platform breaks down all major costs a Start-up should budget for. By way of example, an online media and marketing strategy was once looked at as a luxury by Start-up businesses. However, with the changing way in which we all communicate, it is now a necessity with the increasing figures of potential clients spending more and more time on social media.

Utility infrastructure and costs are another area where Start-ups can benefit. Simple things, like the right type of meter for your business and energy usage data can help a business reduce its utilities costs by a considerable amount.

As a Start-up you may not be aware of all the different rate types available for electricity, and you may end up using standard domestic tariffs by default. These small details can make a difference of thousands of pounds a year, which would otherwise be profits for your fledgling business. Indeed, this could even be the difference between staying afloat or no longer trading.

Start-up running costs & reporting -

My Square One spend time with Start-ups and their owners to understand their business and build a running cost report based around their business. They do this by using industry data and professionals within various fields ranging from commercial insurance, web design and SEO (Search Engine Optimisation) to Utilities, telecommunications and accountancy services.

Summary –

The data that My Square One have uncovered is invaluable when it comes to planning your new venture.  There are a number of common mistakes that start-ups make that can be avoided with some easily planned strategies.  You could choose to go it alone but we think that working with a company such as My Square One is a quicker way to plan, track, and give your start-up the best chances of making it past that 3 year hurdle where so many other ventures fail.