Do you dream of being your own boss? Is your business idea bound for success? Before you jump on that start-up bandwagon, there are some things to remember. Too often, budding entrepreneurs spend all of their time planning their business structure, looking at funding options, seeking professional advice and imagining their potential success – all before they figure out what their products is, and how they will take it to market.
When starting a business it is better to seek the advice of people in your industry, entrepreneurs who have already been down the road you are embarking on, according to Gráinne Kelly, company founder and inventor of the Bubblebum inflatable car booster.
So on that note, here are nine things NOT to do when setting up a business, straight from the mouths of Irish entrepreneurs:
1. Mistake your enthusiasm for a product/service for that of the consumer/end user
There’s a reason why “the customer is always right”, and that’s because without customers you don’t have a business. While your own conviction that your business idea is great is important, you need to get the opinion of customers.
“It is easy to convince yourself of the value of a product because you would want to buy it. Lots of people must want to buy it though. You buying the product is not the basis of a successful business.”
John Joyce, founder and chief executive of Savvybear, says it is important to identify who your potential customers are, talk to them about your idea and get as much feedback as possible:
“I should have listened to customers and not people who think they are experts in a certain arena. Customers are the experts in what they want.”
As well as ensuring the customer wants your product, you should also make sure the market is ready for it, according to Lulu O’Sullivan, founder of GiftsDirect.com:
“We were one of the first e-commerce sites to go live in Ireland when we launched nearly 17 years ago. The market wasn’t ready as people didn’t really trust online shopping back then.”
“We all think we know what the customer wants but often we don’t. Aspiring entrepreneurs should test the market before blowing €100,000. We started small, on a loan of £2,000, so didn’t have much money to blow.”
2. Trying to do everything yourself
One of the biggest challenges entrepreneurs face is letting go. Too often, they won’t let others help out and go off the belief that only they can make decisions. If you try to do everything yourself, you will spread yourself too thin. By hiring staff and getting help you can free yourself up to take care of the more important aspects of the business.
Fitzmaurice says it is difficult to scale a business if you’re the only person involved.
“You can’t do it alone. It’s going to be a team of people that make’s a business successful.”
Joyce says one of the benefits of having a team is that you can get people who have strengths you lack.
“It takes finance, legal, tech, HR and marketing to run a business and you cannot do them all.
3. Raising too little money
Many start-ups assume that all they need is enough money to rent office space, buy equipment, stock inventory and bring customers in. They often forget that capital is also needed to pay salaries, electricity bills, insurance, legal fees and other overheads before the business ever makes a profit. Furthermore, if you sell your products on credit, the time between making the sale and getting paid can be months.
Whether you get money from investors, as a loan from the bank, or through a start-up programme it’s important to have enough to get to the next step.
If anyone knows about raising capital it’s Fitzmaurice. His company – Brandtone – recently closed a third round of funding with an investment of €14 million including €4 million from Syngenta Ventures.
He says everything takes longer and costs more when starting a business.
“You should plan for that. Don’t be over optimistic on revenues and time scales. It might be costly but it’s important to get the legalities, contracts, intellectual property etc correct from the start. It’s very expensive to go back and re-do those things.”
While he secured a major customer early on, V7 founder Eoin Bara says the money for work done didn’t come in immediately. He says would-be entrepreneurs should remember that customers and suppliers asking for credit is often the norm.
“It’s really easy to burn through money and have no idea where it went. One month we got €108,000 in and that same month we spent €88,000. I hadn’t factored in lots of costs.
4. Saying yes to everything
Trying to do everything for everyone is a sure road to ruin, as spreading yourself too thin diminishes quality. Saying yes to everything also eats into your time, which is one of the most precious commodities when starting a business.
Agile Networks managing director Darragh Richardson warns against saying yes to everyone and everything that comes your way. In 2011, Richardson and his co-workers completed a management buy-out of the Irish operations of Telindus and founded Agile Networks. A lot of potential new suppliers quickly came knocking on their door.
“The most precious commodity you have is time and especially in start-up mode you have a lot of systems to set up for the first time. So don’t waste time saying yes to things you don’t really believe you have time to do. I am a lot more ruthless now and the extra time allows me plan better and spend more time with our key staff, suppliers and most importantly customers.”
Grainne Kelly says she made the mistake of listening and saying yes to people promising things, when her gut feeling was urging her to get non-disclosure agreements signed.
“I wish I had been craftier at getting non-disclosure agreements signed from the start. It cost me so much money not doing so. I should have listened to my gut feeling. From not doing so, we have had patent issues that took three years to resolve and the business is only four years old.”
5. Doing what you used to do
Many entrepreneurs who have set up a business initially spend too much time doing their old jobs. For example, a software engineer might leave his employer to set up his own development company. He then spends most of his time working on software rather than building a business.
Richardson says it is important for would-be entrepreneurs to make the transition from being an employee to employer/chief executive.
“If you just want to do your old job for yourself then that’s fine, you become self-employed but if you want to be an entrepreneur and build a new business you have to embrace finance, sales, operations and human resources. The hardest thing to do is stop doing your old job as you know it best; but to build a successful company you have to let go of the things you did in the past and get better at the things you need for the future.”
6. Spend lots of money on consultancy fees
Consultants may do good work, their analysis may be thorough and they may have great insights. However, you can also get good advice and support from other entrepreneurs, and that won’t cost you anything.
“More often than not, the consultants are not an expert in your industry. They most likely haven’t set up a business themselves,” Bubblebum founder Gráinne Kelly says.
Kelly, who recently signed a €2.5 million deal to put her product in 2,000 Walmart stores in the US, says the experience of meeting other business leaders through the EY Entrepreneur of the Year programme was “invaluable”.
“There are things you don’t want to discuss with your team or board. It is good to have other people in the same boat, who have faced the same issues. I have some EY alumni as advisors now. It’s great as they are not looking for anything off me except to see me succeed.
7 . Working 9-5
Many people think they escape the 9-5 routine of working for someone else, and choose their own working hours by starting a business. However, in reality you have to commit huge amounts of time and energy into a start-up, and will probably end up working far more hours than you would as a 9-5 employee.
V7 founder Eoin Bara says most people don’t realise that you end up working an 80 hour week in order to avoid a 40 hour week.
“You are setting up a company as well as working billable hours. You might do 35/40 hours of billable work, but then on top of that you have to prepare presentations, pitches, organise staff and finances. You end up doing three jobs at once.”
Joyce says he wish he knew the amount of man-hours it takes to make a company survive, when he was setting up online children’s game world Savvybear.
“If you like comfort and security don’t start a company as you work at least 80 hours a week and might not get paid.”
8. Get money for the sake of money
When raising money from investors it is important to also look at what they can bring to the table. Start-up companies are allowed to be picky when choosing an investor, and shouldn’t just accept money for the sake of it.
Fitzmaurice says it is important to remember that money has both quantity and quality elements.
“You could get lots of money from an investor but they might not be able to add anything to the business. It’s better to get money from someone who can bring experience to the table.”
Following an appearance on Dragon’s Den, John Joyce accepted an €80,000 investment from Norah Casey in exchange for 24 per cent equity. He says he went with Norah as she had experience in publishing, sales and marketing, whereas his strong points were technical skills.
9. Incorporating too early
Some companies don’t need a corporate structure when they are first beginning. Being new to the business world, it is easy to think you have to become a limited company immediately. However, you can initially operate as a sole trader or partnership, before becoming a limited company.
“I incorporated too soon, being a limited company isn’t really tax efficient until you get around the €300,000 mark in turnover,” Eoin Bara says.
“All the advice we received was to incorporate first. As a result, we incorporated nearly a year before we starting trading. There is a lot of paperwork and costs involved in becoming a limited company, so we should have waited a while.”
Lulu O’Sullivan says she spent several years as a sole trader before becoming a limited company.
“Unless you’re planning a major investment or a piece of technology that’s going to change the world, there is no urgency to become a limited company immediately.”