TWO incidents this week highlighted a pretty critical lesson for small businesses.
There has been quite a strong move towards "having" a start-up, particularly in the technology sector on the back of the Silicon Cape initiative, but there is still a huge difference between having a business and actually running one.
The acid test for running one is when you don't just say that you offer a potentially nice service, but actually get people to put money into your bank account.
In the first instance, a girl I know is trying to drum up new business for her public relations firm. She has done much of the legwork in securing meetings with potential clients and they acknowledge she might be able to add some value, but they are not going to commit.
"No problem," our PR says. She will get them exposure to show what value she can add and they can then make the decision. She duly runs off, gets the exposure, goes back to the client and says: "I told you I could do it."
Again the client hems and haws, so she repeats the cycle. Again the client gets the exposure for their business and begins to think: "Well, why do I actually need to pay for this service if I can get it for free if I string you along?"
The second incident involves one of the small and medium enterprises (SMEs) in our small business support network, and is the typical young entrepreneur situation where you work on the assumption of "build it and they will come".
Without going into too many specifics, these guys aggressively built up an offering which had a lot of moving parts and ran up some bills on the assumption that revenue would surely follow in the next month or two. In short, they need R15 000 in the next few days or everything falls apart.
For a business which has something to commoditise and cash flow to show for it, R15 000 is a pain but not insurmountable. For one with zero cash flow which has been established on a shoestring, it's a mountain.
With suppliers breathing down the necks of the entrepreneurs, we hustled together three guys to brainstorm some solutions. One person was given the task of going to other SMEs in the network and asking what this particular service would be worth to them.
While it wasn't what the entrepreneurs may have originally thought their business was doing, we did find some people who believed there were certain aspects of the service they would pay for.But will they really pay you for it?
This is an important step when putting together your business. Do people actually attach a value to what you are doing or selling? Go to your mates on the sidelines who say "Great idea!" or "You will do very well out of it", and ask them if you can send them an invoice for the purchase if it is such a brilliant idea.
Invariably, the excuses will start coming. This is the feedback you need to be listening to, because it will be the reason why you are not actually going to be converting sales and generating revenue when your business kicks off.
In business plans we have seen, people will argue that potential client X is spending money with supplier Y and all that is needed is to secure a portion of that and the business will be on the go.
Honestly? Have you asked supplier Y if they would consider spending money with you, the new upstart?
I really have to think back to find an entrepreneur I know who has asked these questions and done the legwork as a start-up.
Two years back, I remember an entrepreneur looking to start a salad bar in a particular neighbourhood actually going to the surrounding office parks, offering samples of various salads and asking the simple questions:
- Is this a product you would buy?
- Would you be prepared to pay XYZ for it?
There were no brochures, offices, fancy websites or "corporate identities" - purely someone working out what it was he was commoditising, and whether it was viable to actually proceed with the business. In fact, he wasn't "in business" until people actually put some money down to buy the salads.
There is a lesson in that and it can be taken one step further: find one person who will actually buy your product or service, spend time getting to know why they do use it, and it will help your understanding of how you should build on what you do.