Archive for August, 2008

Alternatives to starting a new business on your own

Starting up on your own is arguably the most straightforward method of starting a new business but also undeniably it can be one of the most stressful – In our article on Business function groups we discussed the various functions required by a business – setting up on your own? Chances are you’ll be running with most (if not all) these tasks yourself!

So what alternatives are there to starting up on your own?

Starting a business with others

One way to avoid carrying the can completely is to start a business with others – this has the added benefit of sharing the workload and increasing the opportunities for investment – these businesses are often called a partnership (although share ownership may differ between partners) – this could be a family business – or a business with friends – as a rule when setting up this form of company a legal agreement is required clearing stating share / capital ownership of the business

Buy a business

Buying an ongoing business is a good argument against startups – if your niche already has companies operating in it – chances are you’ll find one that’s for sale and while the capital outlay may be more the advantage is that the business structure and systems (and customers!) will be in place from day one – all you’ll need to do is keep it running and improve those profits.

Buy a Franchise

A business franchise is where a company offers the rights to use their company name and brand to sell well established products to a pre-existing market – franchises are well established and loads exist. Rewards can be great and business risks are certainly reduced as usually franchises offer a proven product in a proven market – franchisees may also receive training and guidance as part of the package.

Financing a new business

All businesses require funding and this is no different to the new businesses in fact as they often have no running capital or cash flow to buy materials or pay for other necessities such as premises or staff – new starters can find it very difficult to generate funds and as such may come from a variety of sources other than traditional business revenue.

Sources of Finances for new businesses

1/ Savings of business owner
2/ Money from private investors/business partners
3/ Funds from Financial institutions such as banks
4/ Funds from Friends
5/ Government funds e.g. business grant
6/ Trade organization funds
7/ Private equity/Venture capital

Different forms of financing may require different information and security for example obtaining funding from friends or family may not require the production of a full business plan and profit and loss forecast – however for more formal funding from for example a bank will require the production of detailed information and in some circumstances some form of security.

Using Market research when business planning

Many businesses are launched each year and a large proportion of these will fail within the first two years – there are a large number of reasons for this but its long been argued that in order to have a fighting chance of success some form of business planning is an absolute must.

As part of this business planning carrying out some form of market research is essential. A start up can take advantage of a number of market research techniques from carrying out its own customer survey to utilizing data gathered by research groups. The type of market research employed may vary depending on the budgetary restrictions and possibly the market sector being researched.

Market research helps find information on two important business factors

• What customer needs exist
• What competition exists in the market place

Market research may also help

• Devise a product pricing strategy
• Devise an advertising/promotion strategy

A key element in market research is that of analyzing the competition – this can help businesses define how they will position their product and determine their own unique proposition – for example through design, value or function.

Market research is often considered an ongoing activity – not just to be carried out at start up – but one that constantly feeds back information about the market environment and the potential buyers in order that the company can position itself to meet these needs.

Generating business ideas

All businesses start somewhere – even the big conglomerates didn’t just happen overnight – the businesses were launched – grew (either organically or through acquisition) and stabilised into the businesses they are today.

Each of these business phases are as a result of many individual steps – e.g consider launching a businesses – this includes thinking of the business concept – generating finance – hiring staff – building product.

How to generate business ideas?

The first step of generating business ideas is often the most daunting. There must be an idea to start with – there are a variety of methods of generating ideas for businesses these include:

• Exploiting existing skills or knowledge
• Exploiting an existing market through a franchise
• Exploiting a pre-existing product in an existing market
• Exploiting a gap in the market or niche where only a small number of products exist

Once the basic business idea has been thought of it can be expanded or validated through market research for example who will be the target audience – your market may be automotive but will that be luxury or value. Once the idea has been generated market research should be used to help build the business plan and ensure that the business idea provides a stable platform for a valid business.

Market Basics – what is a market?

All businesses exist to sell products or services – the term used to describe where these are sold is the Market.

A market is a place where buyers and sellers come together to exchange goods and/or services. Markets may exist in a predefined place – e.g. a shopping mall or virtually such as an online store A market doesn’t cause trade it merely facilitates it

The exchange of goods or services is called a transaction – and markets and their level of transactions are governed by supply and demand a term used to define the level of trade that can or is likely to exist between consumers and traders.

There are many types of markets these include

  • Financial Market
  • Labour Market
  • Housing Market
  • Currency market

Markets are a key concept in economics – they may be subject to strict controls or no controls at all (free market)

How Businesses operate – business function groups

All businesses serve their customers through the production of goods or services – in order to do this business activity is usually organized into a series of functional groups that operate in an integrated system to fulfil an objective (e.g. the production of widgets).

The internal organization of a company may differ from organization to organization and there are notable differences between manufacturing organizations and service industry organizations but there are some functional areas that are typical of most businesses which include:

1/ Finance – The finance function group is responsible for the management of a company’s money and financial responsibilities (eg. Paying suppliers, billing customers, carrying out financial reporting, co-ordinating the flow of money throughout the enterprise).

2/ Marketing – Marketing typically serves a variety of roles which include – identifying customer needs, identifying customers, ensuring that customers needs are satisfied, managing communication with customers.

3/ Manufacturing/Production – these groups are responsible for the production of a company’s products

4/ HR – Human Resources groups are responsible for the management of people within a company – typically this could include – hiring staff, managing payroll duties, determining welfare policies, co-ordinating training.

These (and other) business functions will deliver two things – end product to sell to market and waste. Many businesses have departments set up to reduce waste as it can be considered a business cost.