What’s your dream micro-business? It could be anything from a legal consultancy to a design website – but however small the business, success requires a solid plan.
With talent and determination, many hope they will be able to turn their passion into a full-time operation. Unfortunately, without a strategic approach, micro-businesses can flounder.
Julia Bickerstaff of The Business Bakery has coached many entrepreneurs, and says when many try their hand at a new micro-business “there’s no business about it”.
“There’s the classic example of people who were fantastic at making cakes for their friends,” she recalls. “Their friends would say, ‘Oh, you should make this a business!’ And so they do.”
But what brings joy to friends and family members might not make a feasible business. Before launching a new venture, NAB Business executive general manager Cindy Batchelor advises people do their research.
“It’s important you are as informed as possible about the economic environment broadly, but also on your specific industry,” Batchelor says. “Once you have a concept or an idea firmly researched, seek a wide range of professional advice.”
Is there demand?
New entrepreneurs should take a look at all the factors that will impact their business, including competitors, customers, prices, production and distribution.
“Focus on developing a solid business plan before taking the first step,” she says. According to Batchelor, many businesses fail to invest enough time and money in a good plan.
“You need to be clear on what the customer problem is that your product or service is trying to solve, and whether people will be willing to pay for it.”
Ensuring that there is sufficient customer demand for a product is vital. Even if there is a market, notes Bickerstaff, accessing those customers and educating them about the value of your product is a big task.
“I’d say the absolute biggest thing that everyone underestimates is how hard it is to find customers who will pay you properly,” she says.
According to Bickerstaff, entrepreneurs should incorporate ongoing marketing costs into their business plan, and be realistic about what customers will be willing to pay.
Know your costs
Batchelor notes that pricing is one of the most significant issues for micro-businesses: “Price needs to be supported by the customer and be able to drive a profit.”
Entrepreneurs can use online tools, such as NAB’s Sales Forecast Template, to estimate their sales revenues and profits, which form the foundation of a business plan.
“Your revenue forecasts translate your planned strategy into tactics and numbers,” explains Batchelor. “Clearly state the assumptions behind your forecasts. These should tie in with forecasts in the rest of the business plan.”
Any assumptions underpinning revenue forecasts should be carefully unpacked, warns Bickerstaff.
“Let’s take a consultancy. Someone thinks, ‘Wow, I’ve got 40 hours a week, let’s say I’m going to work for clients for 35 hours, and if I earn $100 an hour, that’s $3,500 a week.’
“But then they start getting into a business and they realise that at least half a day a week is administration business, and at least two is finding clients. And then they’re only working half the week, and there are more costs than they thought of.”
Determining ongoing costs, such as workspaces, will help first-time business owners evaluate the sustainability of their business model.
Obtaining the capital to support those costs is also key – according to Batchelor, sourcing inadequate capital is one of the most common missteps for entrepreneurs.
“You need to ensure that the business has genuine capital invested. This is cash invested in the business and not additional debt borrowed from the bank. A good rule of thumb is three to six months’ worth of working capital.”
Start small, think big
When it is finally time to launch a business, after all the planning and research, it can pay to start small.
“You don’t need to wait until you have a perfect product or service before you go to market,” says Batchelor. “You need to understand what is the minimum you need to go to market and then innovate quickly and frequently based on customer feedback.”
Bickerstaff agrees, advising: “Start really small and try to find your first customers yourself. The only way you’re going to know if someone’s going to buy your product is to make it, and try to sell it.”
For more information on NAB’s Start Counting program visit: www.startcounting.com.au.
Written by: Jessie Richardson