Welcome to the fourth in our Startup Smart Series. This series of articles is intended as a quick reference guide to the things young startups need to know and provides some tips and tricks for savings cost and knowing what to expect. With a little bit of knowledge and creativity you can startup your business for a relatively small amount.
In Part 4 we focus on formulating your business strategy. This task may take some time, but it does not need to cost any money. There are plenty of free business plan resources and you can even get creative on your market research.
This guide will be broken down into three parts:
- The Product
- Market Strategy
- Financial Planning and Execution
In each we will list a series of key questions to which you should know the answer, or at the very least, have thought about when setting up your startup.
|Product||What is your product or service?Can you explain it succinctly (think one or two sentences)? If not why not?
Will you customers understand what you’re selling if not?
|Customer Needs||What “customer pain” are you solving with your product/service?Why will your customers need to come to you?
What will make them pay for your product/service?
|Pricing/Revenue||How will you earn revenue with your product/service?When will that revenue start coming in? (How long is your sales cycle?)
What will you charge for your product/service?
What is your cost of sales? (link this in with the financial projections discussed below)
Will you (can you) accept a loss in the beginning to generate sales?
Do your customers have the money to pay what you will charge them?
Should you investigate partnering or bundling your service/product with someone else’s to make it more cost appealing?
|Unique Selling Point (USP)||What is unique about your product?Why will customers come to you and not your competitors?
If you are offering a new product why will your customers come to you and not continue on as before?
|What to do next:Test your idea/product/service.
Build a prototype.
Do market research. You don’t need to have the final complete polished product to test out how your customers will respond to it. Conduct surveys with your target market. Find out what people really want. This may help you tweak your product and or help you tailor your services.
The founders of Innocent Smoothies got a market stand and made a load of smoothies. They asked customers if they should quit their day jobs to make smoothies by throwing away their empty cup in the yes or no trash basket. A simple market testing exercise, but one that worked.
Alternatively, find a forum on your topic/sector and ask people to fill out a survey that tests the need and desire for your product.
|SWOT Analysis||Strengths, Weaknesses, Opportunities, ThreatsBrainstorming these factors will help you understand better how you are placed in the market and help you plan your strategy.
Strengths and weaknesses are internal factors that you can control while opportunities and threats are external factors that you cannot control.
|Route to Market/ Marketing Strategy||What customer channel(s) are you targeting?How will you reach the customers in those channels?
Is there a difference between fastest route to market and largest target market?
How are you going to pull the clients in?
How or will you use social media?
Will you use key word advertising? If so what words are relevant to your business and who will you be bidding against?
Will you use high cost, low interaction methods (like print media, key word advertising) or low cost, high interaction methods (cold calling)?
Depending on your industry it may be advantageous to get to know your customers and their needs more intimately before moving on to less interactive methods.
|Future Proofing||Is the industry you are in likely to change significantly in the coming months or years?For instance, is your industry dependent on government legislation or subsidy?
Or is there disruptive technology that will affect your industry?
How will potential changes affect your business? Think laterally here – the future is not always predictable.
How will you adapt your business in each of these scenarios? Can it be adapted?
What indicators will suggest that these changes are underway?
|Industry Research||How big is your market (no. of people/businesses, annual spend, geographic spread)?How fast is your market growing?
Why is it growing?
Is the growth rate likely to change?
|What to do nextSit down and sketch it out!
Collect the facts and figures about your market.
|Staff||What tasks do you need accomplished during the day-to-day running of your business?What skills would potential employees need in order to accomplish these tasks?
Work out what’s the most effective method – freelancers/contractors, part time or full time employees.
What does your organisational chart look like once the business scales?
What will be the areas that are critical to business success?
|Budgets||What are your costs likely to be?This will depend on the type of business you are starting. Parts 1-3 of the Startup Smart Series have presented budgets and options for reducing costs on clerical, business presence, back office, recruitment, enterprise software and more. However there will be some items that will depend on your specific business and which may be highly variable.
Remember to add in a buffer on your costs. You will nearly almost always end up spending more than you had originally planned – so be prepared for it.
Some items not covered in our StartUP Smart Guide:
Employees – salary and expenses (a rule of thumb suggests that you will need to budget 1.5x salary for the cost of each staff member)
Travel costs – will you need to travel to meet clients or go to trade shows
Customer acquisitions costs (marketing + cost of serving customers)
|Cashflow||Once you’ve worked out your budgets you can then work out the timing of expenditure. Will you need to pay for things upfront or in increments? When will each of these payments be due?
At the same time you need to work out your expected sales.
How many sales can you expect, how long is the sales process and how will sales vary over time?
Is your business seasonal? Be conservative on your sales projections because it is always hard for a new business to get visibility and it takes awhile for sales to ramp up.
Match the timing of your expenditures against your expected income. Identify any crunch spots and come up with a plan to deal with them.
|Finance||Will you need to raise finance?How much money do you have to start your business initially?
Once you’ve worked out your costs, estimated sales, and timing of expenditures in your cash flow you can work out if and when you are likely to have to raise finance.
Use the StartUP LunchBox investor database to locate the best type of funding for you from crowdfunding to proposal hosting sites, Angel Investor Groups and Seed funds there will be plenty of options.
|What to do next?Calculate and plot all of your cashflow, expenditure and sales forecasts.
Remember to underestimate your sales and over estimate your costs. If you are more successful than you planned then it a bonus, but if you estimate based on the sales you’d like to hit rather than what can really be expected you’ll get into trouble pretty quickly. Remember as a new business no one knows you are there, so it can take some time to build profile and sales.