Monday, October 13, 2008

On starting a business...

Recently on Ravelry (the all-time-best, most amazing knitting and crochet website in existence!), a member posted a question. She wanted to open a local yarn shop (an LYS in knitter-speak) and was looking for some advice. Since Ravelry is an international forum, I'm not sure how much help my advice was, but I gave it anyway - and then I thought, as a dedicated tree-hugger, I should recycle that post for this week's blog entries. I was further motivated to do this when two people asked me for advice on running a small business - it's an Omen! I thought, so I started writing.

Before I get too far, I should offer a disclaimer: I'm an Aussie, so most of the stuff in this post is useless to those of you who are not based down under. Also, even though I'm doing my best to comply with the laws in force in Australia, the state of Victoria and the City of Darebin respectively, I may not always have gotten it right - so even if you ARE an Aussie, don't rely on anything I've said here. It might be wrong and I would hate for you make your money back by suing me!!

The very first thing an aspiring business owner should do is go without sleep for four days. If you can't manage that, you won't last long in your own business.

OK, bad joke. The point of the bad joke is, anyone who starts a business expecting to start at 11:00, leave at 3:00 and spend their weekends partying is going to be sadly disappointed. Eventually, if you're smart and lucky, your business will run on its own and you can do all that stuff. Usually, however, there is a period of time where, no matter how smart or lucky you are, you need to do the hard yards. The hard yards for me has involved working seven day weeks from 8:00am until midnight when required. It's also involved some extremely quiet periods where I worked a standard 40-hour week, but got no money for it, because I had no clients - the entire 40 hours was spent advertising and networking to find customers!

Related to point 1 above: really love what you do. If you don't, then why would you work such stupid hours? You may or may not make the money to justify it - so you may as well make sure that it will be worthwhile anyway, because you'll be having so much fun, the cash is secondary.

Point 2: practical stuff. Aussies should visit On this site, you will find several useful things:

  • How-to guides for people who are starting or closing a business. They are written in governmentese, but, with patience, you'll be able to get some useful info out of them.
  • Copies of every form you might conceivably need to start a business.
  • An online form to register for an ABN.

Use this information to work out what type of entity you want your business to be:

  • It is really easy to set up as a sole trader - all you need is an ABN in your own name - but you then take on all the risk of your business. That is, you personally get sued if anything goes wrong and you personally are liable for all the debts of your business. Think very hard about how much you want to keep your house, car and family before you decide on this route!
  • You could trade as a partnership with a close friend or spouse. This is the same as being a sole trader, except there are now two of you to sue! Speaking from experience and observation, make very, very sure that your values and attitudes are similar enough to your partner's to make the arrangement workable. If you disagree on fundamental things such as how to manage a customer relationship, your partnership will go sideways faster that you could imagine. On the other hand, if you both agree on everything, one of you is redundant (except as a diversion for unpaid creditors!). You need to be able to get value with both parties bringing different strengths and knowledge to the partnership to make it worthwhile taking this option.
  • You can trade as a company. There are significant running costs, but the company, as a fictitious person, can take the rap for you if someone decides to sue you or your business goes under. You keep your home and the family stays on speaking terms. I decided this was the option for me.

Once you've worked out what type of business you want to be, do a business plan. Make it a really thorough one, including the following sections:

  • Your unique selling proposition. If you don't have something that sets you apart from the competition, there's no real point going into business in the first place (unless you want to buy a franchise, which is perfectly valid too!)
  • Your vision for the business. Break this section down into what you'll need to make that vision a reality, for example what sort of premises you'll need, furniture and fittings, equipment, stock, staff - everything, right down to the feng shui goldfish (if required)
  • A marketing plan. I suggest start with the amount of cash you have on hand and work backwards from there to develop simple and affordable marketing strategies. A 30 second TV ad might be a great way to reach your target market, but it won't work out if your total budget for the year is $2000. Work out how to get maximum contact with your target market for the money you have - my personal preference is to look into things like AdWords, advertising on websites that my target market visits, advertising in specialist publications that they read and similar strategies before I look at mass media, but that's to do with the businesses I have.
  • A budget. The easiest way to do this is to add up the cost of everything you need to make your vision a reality. If you have the cash to cover this, then you have your budget. If you don't, then look at which parts of your vision you can hold over until some more cash shows up. Make sure you have enough cash on hand to carry the business for 12 months, even if you don't sell anything at all - this is probably pessimistic, but I like to know that I've got all my bases covered.

Once you've done this, set about making your vision a reality. This is easy now, because you have a written statement of everything that you need to achieve it - so all you need to do is go through and check everything off as you find it (shop in a high-traffic retail strip, done; white Swedish look tables and chairs, done; stock, done; etc).

As you go about making your vision reality, start the ball rolling on your marketing plan. You don't want to open your business without people knowing that you're there! A new business opening is a major event and it's usually pretty easy to get some buzz going - it's a bit harder to get people excited with a spiel like "Well, we've been here about six weeks now, so we're still kinda new, but only like compared to other businesses that have been here eight years...".

Last point: once you've opened your doors, track everything that happens against your business plan. The sooner you catch a variation from what you expect, the sooner you can fix things! And the sooner you fix things, the less likely they are to bring your business unstuck.

Here endeth the lesson...

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