A head start

A head start

Launching your own business may sound exciting, but the failure rate is high
Silke Colquhoun finds out how to beat the odds and succeed

Sow delicious in George promotes food gardening by selling slabs of seeds embedded in soil. They resemble bars of chocolate, but grow into herbs and vegetables.

Wumdrop is an on-demand courier, operating in Johannesburg and Cape Town, that allows customers to request the pick-up and drop-off of packages via a simple online form.

I-drop Water provides affordable, safe drinking water on a profit-sharing basis by supplying water-purification systems to grocery-shop owners in SA, Zimbabwe, Botswana and Ghana.

And Giraffe is a nationwide mobile-recruitment platform aiming to reduce unemployment in emerging markets by recruiting medium-skilled workers 10 times faster, and more cheaply, than conventional services.

These diverse companies have one thing in common: they have all turned a brilliant idea into a promising South African start-up.

However, having that eureka moment accounts for only about 1% of a business’s success, according to Allon Raiz, founder and CEO of Raizcorp, a for-profit business incubator in Sandton. It receives between 10 and 40 applications for its incubation programme every day.

Therefore, starting your own business can be scary. It’s been likened to jumping out of an aircraft and sewing a parachute on the way down, hoping it opens before you hit the ground. Entrepreneurship is not sexy or glamorous. It’s unlikely you’ll start the next big thing on the scale of PayPal, Facebook or Uber. Instead, it’s often a difficult and lonely experience. But let’s start at the beginning…

BUSINESS LIFE CYCLE

Every entrepreneur goes through various stages on their journey, from initial idea to start-up and – if successful – on to growth, profit and maturity.

Stage 1, according to Edge Growth enterprise-development specialists, is the Concept Stage. This is when you have a great business idea and start developing your concept and prototype. The primary risk at this stage is ‘too much thinking, too little doing’. Generally, entrepreneurs are advised to improvise and take action – to jump at opportunities rather than chance overpreparing and missing them. as Richard Branson puts it, ‘Say yes, then learn how to do it later.’

Reaching Stage 2 (Early Start-Up), you have a proven, scalable concept and need to get revenue fast while finding the sweet spot, regarding sales channels and product marketing. Additional risks to watch out for include failure to raise enough seed capital, running out of cash before being able to establish revenue streams, and not having market-ready product in time.

Stage 3 (Late Start-Up) is about proven, scalable business models. This is when you should concentrate your resources on the scalable core business model, and build reliable core operations while aggressively growing your sales. An EBITDA (earnings

before interest, taxes, depreciation and amortisation) breakdown will give an idea of your financial performance. The key risks at this stage are lack of focus and the ‘cash cliff’, where the business runs out of money and can’t pay staff and suppliers.

When your company reaches Stages 4 (Early Growth) and 5 (Late Growth), it is no longer considered a start-up; it has now expanded and matured into a business that is profitable and cash-positive. It will have optimised processes, increased capacity throughout the value chain and a distinct leadership culture.

Occasionally, a stage may be skipped; for example, if a start-up grows explosively and the founders decide to cash out and exit immediately.

BE COMMITTED, BE DIFFERENT

Starting your own business requires your full commitment. Tech entrepreneur Edward Lawrence compares it to having a baby: It’s going to be kicking and screaming, and very fragile in the first few years. If it’s not, you are doing it wrong.

‘Like a baby, the older a business gets, the more it is able to look after itself. But it needs your involvement at the outset. If you can only devote some of your time to it, you might be absent during a crisis, and that could prove disastrous.’

Crucially, you will need to differentiate your product or service from that offered by the competition, perhaps even identify a niche in the market – just like Wumdrop, Sow Delicious, I-Drop Water and Giraffe all did.

‘When someone arrives on the scene with a hybrid product that they cannot pigeonhole, it causes massive confusion

in the enemy’s ranks,’ says Branson about his airline. He explains that Virgin Atlantic is ‘every bit as good as, if not better than, our giant competitors’ first-class products, and streets ahead of their distinctly mediocre business classes.’

It’s crucial to read the market correctly and remain agile, lest your business end up like Blackberry. The Canadian firm suffered a spectacular decline from its heyday as a smartphone pioneer. the reasons included a lack of strategy and vision, and failure to react to competitors such as Apple and Android.

BY YOUR SIDE

As daunting as the thought of starting a business may be, the bright side is that there’s lots of support out there, if you know where to look. Business incubators such as Bandwidth Barn, the Innovation Hub, Raizcorp’s Prosperator and Edge Growth’s 1GIANTLeap assist early-stage entrepreneurs in turning their ideas into viable business concepts.

Richard Chapman, regional head at Edge Growth, says: ‘We develop, test, and prove the business models of these enterprises by providing them with the training, mentorship, prototyping, and access to market and funding that they need in order to establish a revenue- generating business.’

While funding remains a major issue for start-ups, non-financial assistance is equally important. Chapman advises entrepreneurs to select reputable and experienced practitioners for mentorship and business support. ‘There’s a danger in unleashing unqualified advice on an entrepreneur, who, in an extreme case, may take on funding they can’t afford.’ this could even kill the young business.

However, if the stars are aligned, your start-up could shoot sky-high – the way Giraffe, the low-cost mobile recruitment platform, did. The South African firm was named best global start-up at the 2015 Seedstars World Summit. At the moment, it ranks among the top 100 social-tech innovations in the world.

Shafin Anwarsha, Giraffe co-founder and head of product, says: ‘We still have a lot of hard work to do before we achieve our mission of helping to dramatically reduce unemployment in the emerging world and lifting people out of poverty.’

That may be, but perhaps Giraffe’s success story will inspire others with an entrepreneurial mindset to escalate their brilliant ideas to the next level, and launch their own high-potential start-ups.

Photography: Gallo/Getty Images

Article written by