By Alasdair Lumsden on 25 Mar 2014
Starting a business is fun, challenging and rewarding, and ultimately you hope it will lead to a sustainable and profitable endeavour for all involved. However, there are always things you learn along the way that you wish you’d known at the beginning.
So, here are 12 things that I wish I had known when starting EveryCity, which by sharing, I hope will help you reach that success point even sooner.
I’d love to hear your learnings too, so don’t forget to post them in the comments.
1. Appreciate the difficulties in hardware
If your product is software, such as a web service or app, once you’ve built it, you can sell it over and over, often without incurring much, if any, additional cost. That means if your app or service goes viral, you’ve hit jackpot.
However, if your product is hardware, each sale is going to have an up front cost. For example with hosting, our model is to purchase servers and lease them back in the form of Cloud Computing services. It can take up to 18 months before that cost is paid back. If you’re a startup business, that means you’re going to need much more startup capital.
Thankfully we had access to capital, however not all startups do, and you don’t want to face a situation where your growth is artificially limited by your available capital.
2. Build a vending machine
Consider building a self-service website, where clients can buy online. If you can fully automate the back end as much as possible, then your self-service website becomes a vending machine, and by extension, a money printing machine.
If your product is very service oriented, you’re going to have to scale up people, which while rewarding and enjoyable, may mean less profit in the long run.
3. Run the numbers
To succeed in business, you’ll need to be a spreadsheet warrior (or have one on your team). It’s imperative you figure out whether your idea is going to be profitable or not. Factor in every cost, and try to account for the unexpected. Do a comprehensive cashflow, and each month tally things up to see if reality matches. If it doesn’t, revise your predictions accordingly.
If the numbers don’t stack up, don’t be afraid to pivot.
4. Be lean
As a startup business, every penny counts. Don’t waste money on things you’d like, but don’t need. That nice office near Silicon Roundabout you’ve been eyeing up may impress friends, but that cost could be sunk into more staff members working from home, bringing your product to market faster.
5. Be ruthless
It’s widely reported that as many as 60% of businesses fail within the first 5 years. If you don’t want that to be you, you have to be ruthless. This means being efficient with your time and money, driving a hard bargain with suppliers, and negotiating hard with potential clients.
Business isn’t a charity, and you have no obligation to provide services to customers if it’s not profitable. When negotiating, don’t be afraid to talk directly about cost, and if something isn’t profitable, say so. Clients will respect you if you explain your position. Don’t be afraid of walking away from a deal, but do so in a civil way. The potential client may come back later.
Don’t be too flexible either – custom packages can create work, and be difficult to accommodate when it comes to billing and maintenance. Try offering a discount on an existing package to avoid this.
6. Put systems in place early
Technical debt can accumulate quickly, and changing systems later can be exceedingly difficult, time consuming, and costly.
Select and implement good software packages, for example Xero for accounting, and invest time in setting them up well. With IT, follow good DevOps practices, such as ensuring code is stored in version control such as Git or Subversion.
Don’t forget to document your essential systems as well.
7. Take payments via Direct Debit if possible
Companies will often attempt to pay late in order to improve their cash situation, using you as a cheap form of credit. This is a major concern for small businesses, who are often left owed significant sums.
If you can, mandate payment via Direct Debit, using a service such as Go Cardless, or use a repeat credit card payment provider. This way, you know when you’re going to get paid.
Not all companies will accept Direct Debit, but those that do will contribute to a growing pool of regular predictable income, strengthening your cashflow situation.
8. Obtain top-notch contracts
Contracts are a fact of business, for example shareholder agreements, staff employment contracts, and client contracts. These set out expectations and terms of engagement, and should also provide you with a degree of protection, such limitations of legal liability.
I can’t stress this one enough. Always ensure when you’re starting a business that all shareholders sign off on a shareholder agreement. This can include shareholders forfeiting their shares if they walk out of the company early. Without one, things could get ugly in the case of a disagreement.
With employment contracts, set out a probation period, for example 6 months. Also be sure to outline a fair disciplinary policy.
9. Hire for attitude, train for skill
When hiring a staff member, look for someone who will be a good cultural fit. Even if they have the perfect skill set that you’re looking for, if you don’t get on with them, it’s not going to work out.
If someone is exhibiting bad habits during the probationary period, use these as early warnings of what’s to come. Remember, after the probationary period, letting someone go becomes much harder.
10. Perfect is the enemy of good – Iterate
When developing your business, don’t spend a long time designing something perfect. Outline a roadmap, starting with a minimal viable product which you can iterate on and slowly improve over time. Aiming for perfection early on can result in lengthy delays, or the product not shipping at all.
11. Stay focused
Be careful in trying to do too much. It’s very easy to underestimate how much work a new feature or product offering can take. Consider profit and customer demand when deciding what new features to introduce.
12. Find good mentors
It can be extremely valuable to have one or more mentors come in on a regular basis to consult on a wide variety of topics. Often this is achieved by appointing one or more non-executive directors, or by hiring an external consultant such as a leadership coach. They can often deliver insight that’s hard to see when you’re in the thick of things.
There is also great benefit in discussing matters with other business owners, so do get out there and don’t be afraid to build up your professional friendship network.