Challenges of Starting Your Own Business
- 17th October 2018
- Posted by: Loanable
- Category: Resources
You entrepreneurs of the world, you know who you are.
You do not sit idly by as the world goes on about it business, no you are the ones that put the effort into making the world go round, in a business sense.
It may be just a spark of an idea of something new to sell, or a service that is lacking, but you find a way to fill that gap, you see an opportunity, a need to be fulfilled, and you are not afraid to fill it.
And sometimes, that I just as easy as it is, a spark of an idea grows into a fire of industry.
However, while it looks and seems easy, even on paper, getting from here to there, is going to take a lot of work, hard work.
There are many challenges to face.
It is not for the light hearted.
And there is plenty that can go wrong.
When you think about it, getting a business off the ground these days is a miracle. Look at all the companies that are closing down and going into Administration. Starting a new company up seems like madness.
Even with the challenges, if you know what you are doing, or have some “dumb luck”, new businesses are starting up and thriving. However, there are two things you need to keep in mind:
These two resources are usually in finite amounts, and yet as we will see, they control the stars when it comes to making it in business or not making it.
There are risks involved when starting up your own business, time and money control those risks.
For many a new business owner, they are leaving the safety net of having a job which pays them on a regular basis.
They are taking, a leap of faith to a new company, that being paid initially may be on an intermittent basis; if paid at all at first.
However, there is that thrill of the chase or hunt, and if you are determined and have the drive and ambition, and know the rules and what to expect, you can met the challenges of being self-employed, and having your own business!
OK, what’s the pitch, the plan, the idea?
Maybe you have developed a new type of widget that will revolutionise the widget world.
Perhaps you have found a new way to mine Bitcoins, that is more efficient and save on electricity.
It could also be maybe you are tired of doing your job for “the man”, and are going to strike out on your own.
And it could also be you have thought of a way to combine two previously unrelated services or products, and make them better together, then they are separate.
Either way, what is your business or company going to do?
There are two main industries in which all others can be broken down into:
The service related industry is where you will provide a service. Perhaps you are a joiner and have been working for a company for many years, but also doing side or weekend jobs to make some extra money.
You decide the time has come to strike out on your own, start your own business.
This is an example of a service related business, you are providing a service, joinery.
Many service related companies can be started with minimal cost, as it is doing the job, providing the service, that is the work. There can be tools and supplies involved, but the customer is paying for a service, labour.
Product related companies have a couple of additional challenges related to them, such as what product are they going to sell?
Then there is the getting the product, or manufacturing it, and where and how do you sell the product.
In today’s world, selling products is a bit easier due to the Internet and online shopping. Almost anyone can be an eBay trader and sell items via eBay.
Financially selling products can be a challenge due to your need to get or buy the products you are selling, and also storing them, having stock or inventory.
If you wish to have your own store or shop, then there is the challenge of location, where to have your shop, and the added expense of rent, and other expenses associated with having a retail outlet.
However, it all still comes down to what service or product are you going to sell or provide?
By definition, a business model is, “the rationale of how an organisation creates, delivers, and captures value in economic, social, cultural or other contexts. The process of business model construction and modification is also called business model innovation and forms a part of business strategy.
In theory and practice, the term business model is used for a broad range of informal and formal descriptions to represent core aspects of a business, including purpose, business process, target customers, offerings, strategies, infrastructure, organisational structures, sourcing, trading practices, and operational processes and policies including culture.”
That’s a lot to take in, but to simplify matters, a business model is you showing what you plan to do with your business, putting pen to paper and saying:
* This is what I am selling or the service I will provide
* These are the people I will target for clients/customers
* This is how I will access those clients, ads, referrals….
* This will be my pricing of products or services
* This is how much it will cost me for the first 6 months or years to operate
* This is how much in sales I plan to earn, and then minus expenses, what I expect for profits
When we look at the financing or costs to open and operate a new business, having a business model is almost imperative if you plan to seek outside financing, such as a loan or investors.
There are many forms of business models one can use, and there is no right or wrong model, whatever best suits your company, but it must also address the questions a lender or someone may have regarding how you plan to make money.
Some business models are:
The Franchise Model: A popular business model, and one that aids in getting successful quickly is the Franchise Model. The best examples are McDonalds, Subways, and other fast food restaurants.
As the business owner you pay a fee for the franchise to have a restaurant and use the name, and their products to sell.
You follow the main company’s rules and model, which is all tested and tried, and hopefully promotes a successful business.
The main company has really done all the work for you.
The Affiliate Model: Think of this model as being a “middle man” or a distributor.
You get products from a supplier, and pass them on via sales to your customers.
For service related industries, this model may be where you are an introducer, or conduit, passing leads and customer onto a larger firm established to provide that service.
This business model can have lower start-up costs then many others.
The Auction Model: Just as it says, an auction, or in today’s world, eBay.
The model brings together buyers and sellers, and you as a seller sell your goods via an auction, which in today’s technology can be done online.
Another cheaper way to start-up a business, also risky due to the competitive nature of auctions, and also what buyers are willing to bid.
The Add-On Model: This is basically where you sell a product or service, and then sell “add-ons” to it to make more money.
You see this in the budget airline industry. You pay for a cheap ticket, but if you want speedy boarding, or to choose you seat, or sit with friends and family, or check a bag, you pay an additional or added-on fee.
The “Bait and Hook” or Two Tiered Pricing Model: This is where you have a product you sell, but there is a usable or consumable aspect or part to it that need to be replaced periodically.
Think of razors and razor blades, or printers and ink cartridges.
The Direct Sales Model: This model is where the company manufactures the product they are selling, and then sell it directly to the public.
Dell Computers, Dyson, Gtech, and others are similar to this model.
This model can build a strong relationship with its clients/customers, however, it can be costly to set-up.
Capital/Start-Up and Operating Costs = Money
When looking at various business models and their costs to set-up, your next challenge is going to be, how do I fund this? Where does the money come from to start my new business venture?
And it is not just about the money to start the business, but also keep it running. Many businesses do not turn or show a profit right away, it can take months, maybe years. So you need to plan ahead as to the costs of this in your financing plan. Which would be a part of your business model.
There can be many ways to get the money to fund your new business, some are using your money, and some are using someone else’s money. There can also be a blending of the two, some financing, some personal savings.
Savings: This is of course your money, you use your savings to fund the business; if you have enough saved. Not all of us will.
In addition, there is the risk of losing your savings, but it is a quick way to access start-up funds.
Personal Credit: This can be in the form of your own credit cards, overdrafts, or as well next see, a loan.
Once again there is a risk here, as if the company for any reasons doesn’t work out or become profitable, you are on the hook for the accounts or money you borrowed on your credit cards or loans.
Loans: These can be personal loans, as we just mentioned, or business loans, and in some instances, the loans may be in the business name, although for start-up firms, this would be extremely rare.
A bank or lender may grant a loan to a business, in the company’s name, but they will want a guarantor; someone to guarantee the loan. Usually a Director or the company’s owner.
Once again, you could be responsible for the debt if the company fails.
Crowdfunding: A newish but old fashioned way to fund a company is to get other to invest in the company. You can do this by selling shares or stock, or via crowdfunding.
Those that help fund your new business can be rewarded either by money, such as selling shares or stock, or with other rewards.
Trying to sell shares or stock in a new business is not really possible as shares and stocks that are publicly traded are heavily regulated. So crowdfunding addresses that void and need.
By now you have your business idea, you know what you are going to produce and sell, or just sell, and you have a strong business model, which has helped you get the financing you require.
You are stocked, have jobs lines up, and are ready to begin your own company.
However, getting this far is a great achievement, but there are still a few more challenges to deal with.
What is time management, managing your time 🙂
I jest, but seriously, having your own company in many cases means no defined roles, and you are doing everything.
You are the:
* And all the other positions that need to be filled and jobs done
In the beginning, depending on the type of business you have, you have to fill all these roles and positions, and it can be time consuming. So you need to manage your time well and efficiently, or you may be working 20 hour days.
An example may be you are a joiner or carpenter, and install bathrooms and kitchens.
You have to go out and find the jobs, and then price or bid the jobs.
Then you need to get the materials to do the job, unless the client is supplying them. Which if you are purchasing them it may mean you have to pay for these upfront, and get paid for them later when you bill/invoice your client.
You then need to do the actual work, do the job.
Next is the invoicing and getting paid, and if need be, chasing-up for payment.
All this while you seek out your next job.
Not easy, so you may need to hire others to help, hire employees.
Hiring: Who to Hire and When
This is the million pound question, when to hire employees, and also who to hire.
A universal answer is to hire people when you can no longer do the job, when you are too busy for just one person.
Of course some businesses need to hire employees immediately, such as some stores or restaurants. You need floor staff, or wait staff, kitchen staff, and so forth.
So the answer as to when to hire people, can be be dictated to you in many ways. As to whom to hire, that’s up to you, you’re the boss.
You may wish to begin by hiring friends and family…..mistake. Hiring friends and/or family can be a mistake.
Unless they know the business, and are experts in what you need an employee to do, there are many issues that can come up, and they are not good.
Such as suppose you have to let them go?
It may be they are doing a poor job and costing you money. It could be the business is not doing well so redundancies are required.
It can create tension and bad feelings sometimes hiring family.
Posting jobs online and interviewing potential employees is another way, and this can be time consuming to you.
There also are job agencies that will do the vetting process for you. This may be a good way to get good employees, but there can be a fee or cost involved.
Remember, the business may be your baby, but you are hiring someone and asking someone to watch your baby. A business will thrive with good employees, just as bad employees can drag the company down.
Some Great Companies Who Started With Just an Idea
Earlier when we were discussing “the idea” what you wanted your business to be or to do, we mentioned having a great or unique idea, bringing together two different industries together.
You want your business to be unique, for one to reduce your competition, and another you want people to want it, almost desire your product or service.
One example is Apple.
Who would have thought years ago people would queue up days in advance of the newest iPhone being released, or the iPlayer, that changed the music listening world.
Create a need, a product we don’t know we want, until we are sold or told we want it.
However, much of that is marketing.
Here are a couple of unique business ideas over the past few years:
Airbnb: Who are the largest hotel chain in the world yet own no hotels? Airbnb.
What a concept, have people let out their homes to travellers to stay at, anywhere in the world.
Yes, there were and are many issues and hurdles that had to be faced and overcome, but yet, here it is, Airbnb.
Uber: Who is the world’s largest taxi service in the world and yet owns no taxis? Uber.
Create an application where people can order and pay for a taxi. It is simple and easy.
Once again, yes there have been some issues, many ongoing, such as licensing issues, but yet Uber is doing well.
Food Delivery Services: Let’s create a website that has the menu for hundreds of fast food restaurants in each city, and then have the customer able to order, pay for, and have that food delivered online, or through a mobile application.
Then next was delivery services that sprang-up to make the deliveries.
People want to eat, and may not want to go out to get their food, have it brought to them.
We also now have grocery delivery from many major supermarkets.
Applications: Mobile applications were springing-up like locusts for a few years, and still are.
Many of these ideas are great, and make money down the road.
Need to speak to a doctor or GP, there is an application for that.
Deliver prescriptions or food, or almost anything, there is an application and service for that.
Photos printed and delivered, done. There is an application for that.
There is an application for almost everything, including gaming.
So if you have the entrepreneur spirit and drive, these are some, not all of the challenges you may face in setting-up your own business.
Other challenges can be:
* Location for the business
* Dealing with competition
* Retaining customers and employees
* Market changes and fickle consumers
* Taking the business public or selling privately