As well as being a Director of WEXO, I also do some freelance business consultancy and a friend of mine recently approached me asking for advice on a new business idea.
I’ve started 3 businesses in my time, one of which (Ski Key) I folded at a small loss (and which ultimately failed) one of which runs fairly smoothly and WEXO which has been up and down but is currently on a strong trajectory. My time in the City also taught me a few things so I thought I’d share a few home-truths and tips for anyone else that’s interested (as well as my buddy!)
The problem with business advice is that most of it is based on previous experiences and a series of events that are never likely to replicate themselves in the same way. There are too many ‘How to build a great business’ books from entrepreneurs who have been very successful but where this has often been a function of luck and persistence rather than applying a particular logic or adhering to a foolproof roadmap. These people conveniently forget that their own success might have had something to do with serendipity. There’s an adage with Silicon Valley Venture Capitalists (VCs) that you’re not worth investing in until you’ve failed 3 times. An experience or understanding of failures and successes are equally valuable to the wannabe Richard Branson.
So my advice is to take as much advice as possible but treat it all (including my own) with a pinch of salt. However, I’ve managed to wrap up some gut feelings on all this into the acronym, B.U.S.I.N.E.S.S:
1) BUSINESS PLAN: To some this will sound foolhardy, but in my experience spending months writing a 30 page business plan before you’ve even tested the theory is a waste of time. What you really need to do is get ‘proof of concept’. When we started WEXO we were told by potential investors we approached that we needed to sign up 100 companies actively interested in offering work experience. Only once this was done were we able to understand the forces at play and raise some money. You still need a plan (and something to show people) but I would suggest a 2 page executive summary (that you can send to potential investors and business partners – don’t underestimate building relationships with other companies who might be able to help you in return for commission or other benefits) and a 7 page bullet point presentation that you can have on your iPad or printed in A3 focusing on the key themes of What (the business is) Who (is it for), Why (is there a need for it), Where (will you be doing it), How (are going to make it happen – particularly marketing), When (are you going to do it) and How Much (is it going to cost / generate). As soon as you’re on your way, a full Business Plan can become indespensible but plenty of successful entrepreneurs have never written one.
2) USPs: What will your Unique Selling Points (USP) be? If you’re say a distribution company, it might be all about connections. If you’re manufacturing something, you might have a revolutionary product, a cutting edge inventory system or something else that distinguishes you from the competition (perhaps you give 10% of your profits to charity) – the USPs will help investment (if required), speed to market, marketing and importantly help erect ‘barriers to entry’ which will stop competitors from taking your market share. This is key.
3) SWOT: Doing a basic SWOT (strengths, weaknesses, opportunities, threats) analysis will help you establish your USPs and decide what you are lacking and what resources you need to hire in (designers, accountants, office space, laptops). Once you have worked through this you will either think that the idea no longer has legs (no bad thing – nothing worse than getting shouldered with a business that doesn’t justify the investment of your time or money – even if it’s just the opportuntiy cost) or you will be feeling very excited about things.
4) IDEA: Ultimately a good business idea (like any good vocation) will incorporate something you’re good at and something you enjoy doing. When the chips are down, you need to driven by a passion for what you do. There is often a reluctance with entrepreneurs to discuss their ideas with other people for fear that they will be stolen. A basic Non Disclosure Agreement (NDA) can reduce the risk but they often don’t stand up in court. My belief is that the benefits of discussing ideas openly (and selectively) often outweigh those of keeping things secret. Only at the beginning can you iron out core inconsistencies in the idea (which you often overlook in the early stages) and if your USPs are strong enough, then the idea won’t be easy for others to replicate anyway. When you’re finally ready to name the idea, I was once told that company names need to be 1 or all of memorable, descriptive (this helps Search Engine Optimisation – SEO – when people are Googling your product / service), or short. When I was managing the band ‘Mano de Dios’ there was no end of misspelling and anyone that Googled them came up with reels of Maradona videos!
5) NUMBERS: How are you going to finance your idea? What is the return for you / angel investors (often penned as friends, family and fools)? This space is littered with acronyms. How attractive your business is (or how much money you make and what price you can ‘EXIT’ at) will generally be measured by one of NAV, P/E multiples or DCF with reference to what an investor’s required ‘ROCE’ is and the CAGR! You’ll also want to feel comfortable with the 3 key financial statements: Cash Flow, Profit & Loss and Balance Sheet and what they all ulitimately mean for you. Don’t worry, all these terms aren’t as scary as they sound and can be Googled or explained by an accountant or adviser who can help you understand the key importance of each (and also advise you on what you need to register for: VAT, PAYE, EIS, Employer’s liability insurance etc). I’m happy to admit that it was only when I started a business that I really understood various of these terms properly because you start to feel what e.g. EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) feels like rather than what it is defined as.
6) ELEVATOR PITCH: Once you’ve generated a Business Plan (see above), you’d be advised to have a compelling 30 second summary of what your business does (you will get bored of people asking!). Sometimes carrying a business card that helps explain it with a catchy strap line or even having a short video on your smartphone will help. Certainly a few slides on a tablet will come in very useful. You never know when you’re going to meet someone relevant and a picture tells a thousand words.
7) SALES: Despite what I’ve said about Revenue being vanity, it is the single most important indication of the success of your business (certainly in the early stages when you are yet to generate economies of scale). Do spend time thinking about how you can grow revenue – a good start-up might look to double Sales, Turnover or Revenue (the terms are interchangeable) every year. You need to know how big your market is (research it well) to know what your market share could be and what marketing and advertising strategies you will use to conquer it.
8) STAFF: I’d rather use the term ‘Team’ here but running a business can be very lonely and I strongly recommend everyone has a Business Partner or at least a mentor who they discuss the business with regularly. The failure of my first business was partly because I didn’t have a local partner (who was fluent in the local language and understood the way things worked in Switzerland). I would add of course that using unpaid interns to run your business only really implies that you don’t have one; and your decision to work for free (or equity reward) does not justify grads working for nothing. When Sir Alex Ferguson invested in Toptable.com he said that he wasn’t a businessman but what he did know was how to build a team (he knew how to pay them too and Toptable sold for $55m in 2010). Drafting in friends to fill roles might feel like the right idea but your team will become an asset and will largely dictate your success or otherwise. Resources like WEXO are a cost efficient way of finding people. A good team is balanced in make-up and consists of incentivised individuals with strong contrasting but complimentary skills. There’s no point having 11 goal keepers.
These are just a few thoughts but I hope they’ll help you kick-off too.
Robin Kennedy is a WEXO Co-founder and Director and also offers freelance business consultancy. You can contact him at firstname.lastname@example.org