In this extract from the soon-to-be-published "How to become a Kitchen Table Millionaire", author Catriona MacLennan starts at the beginning - setting up your own business
KEY POINTS:
Setting up a home business is exciting and liberating. You are freeing yourself from the shackles of employment and becoming your own boss. In future, you can work whatever hours you want and not answer to anyone. You will no longer spend hours in peak traffic queues and can stay in bed at a time when you would normally have been sitting on the motorway. However, it is also a step into the unknown. You will no longer have the certainty of a guaranteed income, and you are likely to be toiling in your venture at nights and in the weekend when your friends are at play.
THE VERY FIRST STEP
The most difficult aspect of setting up a home business is thinking up the idea for the venture. Once you have a concept, everything else is implementation. That may be difficult and challenging, but you are following in paths already well trodden by others and there is plenty of help available. It is only when you are coming up with the initial idea that you are on your own.
A common source of inspiration is an event in your life or in the life of a family member or friend. This may suddenly point to a gap in the services market, or to a product that does not exist or is not in a form suitable for the entire market available for it. One New Zealander set up his own business after sitting in a bar observing how much time bar staff spent cutting up lemons and limes to put in drinks. It turned out that there was a market niche to provide sliced fruit.
A second great source of inspiration and ideas nowadays is the internet. Online you can keep up with trends, see what people are talking about, and look at what developments are already under way in the sector you are interested in. The American site, Entrepreneur.com, has lists of ideas for home businesses, including 10 different types of pet businesses and 25 part-time business ideas (www.entrepreneur.com). Suggestions range from pet photography to dog clothing and accessories, dog day care and pet toys. Part-time business ideas include being a computer tutor, selling antiques, providing office and home organisation services, doing record searches for clients and designing T-shirts.
Rather than starting from scratch, another option is to buy an existing business or franchise to operate from your home. Your goal then is to add value to the existing enterprise. You can contact business brokers who operate in your area, or look online or in local newspapers and industry publications for likely prospects. A useful internet site in this regard is www.nzbizbuysell.co.nz. You can also contact the industry or professional association that regulates the field you are interested in to see what information it can provide. Business brokers are commonly used by people seeking to sell their enterprises. They can advise you of the businesses they have on their books and also keep an eye out for future prospects for you. Find out if the broker you are speaking to specialises in a particular industry. You should bear in mind that the broker is paid by the vendor, so the higher the business sale price, the more commission the broker will receive.
EVALUATING YOUR BUSINESS CONCEPT
Once you have come up with an idea, you need to do preliminary work to ascertain whether it is a viable concept. You can do this by preparing a start-up plan. This should include:
* Identification of the business's customers - Ask what is the purpose of the business? Who will the customers or clients be? What need or want will the product or service meet?
* Critical factors - Isolate three or four key factors that will be essential to the viability of the enterprise. For example, a cafe would need to provide high-quality food, value for money, good service and a pleasant atmosphere, be clean, and ensure that the service was consistent. An item of clothing would need to be practical, durable, fitted for its purpose and stylish.
* Points of difference - What sets your concept apart from the competition? If your product is unique, you will have the advantage of being first into the market in your field. Otherwise, you will be competing against other established providers, and you will need to give consumers some reason to buy from you rather than from someone else, especially if another provider has been their source of supply for a considerable period.
* Market analysis - Estimate how many potential customers there are for your product or service by defining the characteristics that will make someone a customer. Where are those customers buying the product at present? Are there enough clients or customers to make a business viable?
* Barriers to entry - Consider what barriers to entry there are in the field you have chosen. Low barriers to entry mean that you can get your enterprise off the ground without investing large amounts of money but also competitors can just as easily follow in your footsteps and seek to poach your market base.
* Break-even analysis - Calculate what volume of product you will need to sell in order to cover your costs. This includes fixed costs (such as those for interest, rent, equipment leases and wages) and variable costs (such as those for supplies, packaging and postage). After you have calculated your costs, work out how much you will earn on each unit once costs have been deducted. You will then be able to calculate what sales volume will be required to break even.
* Reflection - Analyse the above information carefully and decide whether you really have a potential business.
IS BUSINESS RIGHT FOR YOU?
As well as determining whether your concept is viable, you need to do a hard-headed analysis to work out whether you are suited to being in business. Running your own home business has many benefits but there are also considerable drawbacks and risks, and self-employment is certainly not for everyone. Some people simply do not like making decisions, cannot cope with dealing with large numbers of different issues, or prefer to have very fixed working hours and know that they will not have to deal with work issues in the evening or at weekends.
Think about:
* Drive - Are you committed to your venture and do you have the passion to make it a success? In particular, do you have the drive and persistence to overcome obstacles and keep going when things go wrong? What impact will the business have on your family? Are you and your family prepared for the sacrifices that will be involved? Are you clear about what is involved in running the business? Just because you love books or clothes, does not mean that you would be successful at running a business selling books or clothes. You would not be spending all day reading books or trying on new clothes. You would be there to run a business. It is important not to confuse the two.
* Concept - Have you taken advice from family, friends, experts and colleagues about the viability of your idea? Has your idea been proven to work? Can your concept be protected from competitors?
* Skills - Do you have experience in the field you will be operating in? Do you have any special skills that will be required or can you obtain them? Do you have any business experience?
* Business planning and research - Have you prepared a business plan and carried out market research? Have you prepared a marketing plan? Have you investigated the growth opportunities for the business? What is your contingency plan if things go wrong?
* Finance - Have you prepared a budget? How will you pay for the start-up costs? How will you and your family live until the business starts bringing in income?
* Isolation - If you are running a business from home and are the only person there all day, every day, will you find this an isolating and depressing experience? If you are worried about how you will deal with spending a lot of time on your own, ensure that you build regular lunches and coffee meetings into your schedule. These not only provide social contact but are good networking opportunities and enable you to run ideas past other people. You can download a checklist from www.business.govt.nz and complete it and score yourself to find out how suited you are to running a business.
You can also enrol for Training to Start or Grow Your Business, a fully funded course offered by New Zealand Trade and Enterprise. You can check out the New Zealand Trade and Enterprise website to find details of other free courses offered to those starting businesses. Work and Income has a publication entitled Start Your Own Business: Some Things to Think about First, which can be downloaded from the department's website.
UNDERSTANDING WHY BUSINESSES FAIL
New businesses have a sobering failure rate, so it is important not to be too gung-ho. About 54 per cent of enterprises go under in their first year, which means that your enterprise only has a one in two chance of succeeding. Understanding some of the key reasons why businesses fail will help you to take steps to guard against falling into the same traps. The following are some of the main factors leading to business failure:
* Not understanding your customers - Customers are the key to business success and if you do not understand their needs and offer what they require, you will not even get off the ground.
* Poor marketing - It is no good producing an amazing product and having a ready-made customer base available, if you do not communicate to your customers that your product is out there. Marketing may seem like a daunting, unknown and expensive aspect of running a business, but there are many ways in which a home business can market its product or service using little or no money. More information about these topics is given in Chapter 8: Marketing.
* Failing to obtain good advice - You need a myriad of skills to run a business. Financial, marketing, accounting, design, management and creative are just some of these. However, it is virtually impossible for one person to be an expert in all these fields. As well as appreciating your strengths, you need to understand your weaknesses so that you can compensate for them by utilising people who have the skills and knowledge you lack. You should set up a team of advisers to provide advice about specific issues, but also to have a general oversight of your business and step in and tell you when you need to bring in outside help. You may also need a business coach or mentor.
* Inadequate systems - Organisation is crucial to running a home business. You have a limited amount of space for your enterprise, so systems and tidiness are essential. Record keeping, preparing plans and responding to emails should all be part of your business routine.
* People - It is often said that people are a business's most valuable asset. Staff are the face your business presents to its customers and they can be vitally important in attracting customers or turning people off completely.
* Isolation - Some people simply find that they do not enjoy working from home on their own and decide that they prefer to work in an office with lots of other people.
KEYS TO BUSINESS SUCCESS
As well as understanding what causes businesses to fail, consider what makes them successful. The single most important factor that will set your enterprise on the road to success is supplying a need that customers have.
Doing things the other way round and trying to convince people that they need what you want to provide is a recipe for disaster.
You must also be active and take charge. Do not wait for success to come to you. Go out and make it happen by seizing every opportunity you are offered, even if it is not one you would have chosen or even one that you want.
Make sure you have specific goals so that you can track your progress towards your aims. This will not only help to keep you on the right track but will inspire you when times become difficult by showing you that you are making progress, even if it is not as fast as you would like.
Your aim is not only to ensure that customers you already have keep coming back for more but to inspire them to tell their friends and family about your business. The way to do this is by ensuring that your business performs to an excellent standard - not to an acceptable standard or a good standard, but to a standard which truly makes it stand out.
Once you take on staff, you need to train them so that they can perform the tasks required but you must also learn to take a step back so that they can do their jobs. This might not be in exactly the way you would do things but, as long as they meet the excellent standard you have set, that will not matter.
And, by observing how others do things, you may learn how to improve your own processes or introduce other innovations.
Keep your finger on the pulse of your business by carrying out regular evaluations of all aspects of its operation. This will let you know if one part of the business is going off the rails or if another aspect is proving to be particularly successful and should be expanded.
Finally, you and your staff should celebrate your victories. They have been hard-won and you should be proud of what you have achieved. Celebrations recharge your batteries and inspire you for the hard work to come.
* Catriona MacLennan is an Auckland barrister, journalist and author who has been self-employed for the past seven years
