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Surviving the first 3 to 5 years

Nov 29 2012 14:14

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Cape Town - Entrepreneurship is increasingly generating more awareness in South Africa and while the industry should be a desirable employment option for most South Africans, there are various challenges that entrepreneurs entering the market should bear in mind when starting their new venture.

According to Christo Botes, Executive Director at Business Partners and spokesperson for the Sanlam/Business Partners Entrepreneur of the Year competition, many think that becoming an entrepreneur will equate to decreased levels of stress and leaving the constant rat race of the corporate world behind, when in fact newly established entrepreneurs often find themselves in a different kind of race, with a different set of challenges.

He says that the first three to five years is a real test of survival for new businesses as there are various challenges that entrepreneurs are likely to face when starting their own business

“Common external challenges can include competitors and financial institutions that refuse to fund your business, while internal challenges are brought about by factors within a business, such as cash flow, management skills and industry knowledge.”

An entrepreneur who has experienced some of these challenges and ultimately overcame them is Warren Graver, founder and director of Envirodeck, and winner of the 2012 Small Business Entrepreneur of the Year title, who says that Envirodeck, an industry leader in environmentally conscious and sustainable decking products, has not always been a successful business and that he had to overcome a significant number of challenges in the early years of the business.

“I could not have made worse business decisions than in the first two years of opening the business, which was doomed by me not focusing sufficiently on market, product or supplier research.

“The first challenge that I faced was that although I noticed a considerable gap in the market, I was unsure on how to present the product to an existing market that I had no experience in. It was also a market that was very reluctant to change to new products, as timber was traditionally the only way that decking had ever been done, and it proved extremely tough to penetrate a market when no one had ever seen or heard of such innovative products.”

Botes says that a business challenge for some entrepreneurs can be the ability to forge their idea and opportunity into a business idea. “Entrepreneurs usually identify a problem or gap in the market where they are able to offer an alternate solution, but struggle to integrate their solution into a business plan that ultimately promotes the company effectively and efficiently to the correct market. It is therefore vital that entrepreneurs seek guidance and advice when in the initial stages of the planning process.”

Graver says that another challenge he encountered was establishing a supplier network.

“I did not do sufficient supplier research and subsequently after landing the first shipment, the supplier closed its doors. This error in judgment on my behalf meant that the initial start-up capital was quickly absorbed into obsolete inventory that would never be sold even at discounted rates.”

He also touches on the importance of managing cash flow.

“The most critical element of a start-up business is managing cash flow versus inventory management, a concept that I failed to understand and subsequently a year later I had no start-up capital left.”

Botes says that most entrepreneurs face capital challenges a few months into operation as many hope to secure more capital once the business starts to grow. He adds that entrepreneurs should not be discouraged by these challenges.

“Overcoming these challenges doesn’t have to be complicated. If problems are solved as they come up, rather than letting them escalate to a point of no return, an entrepreneur will be able to grow and move his or her business forward.”

In the case of Envirodeck, Graver says the business was saved through continual focus on the gap in the market. “Through intense global product sourcing, supplier canvassing and a life-saving loan, I managed to slowly recover and turn the business around so that by 2009 it had broken even.”

*Share your experience of setting up your own business, or simply ask a question. Our business panel can put you on the right path.

 
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