startbizup http://www.startbizup.com 8 steps to a successful start up Mon, 18 Mar 2019 12:57:01 +0000 en-US hourly 1 https://wordpress.org/?v=5.1.1 http://www.startbizup.com/wp-content/uploads/2019/03/cropped-supnewicon2-32x32.jpg startbizup http://www.startbizup.com 32 32 Locate your operations at cheapest premises if location doesn’t matter http://www.startbizup.com/?p=1840 http://www.startbizup.com/?p=1840#respond Mon, 18 Mar 2019 12:54:42 +0000 http://www.startbizup.com/?p=1840

I vaguely recall reading a book on investing in the stock market many years ago. In that book, the author recommended buying stocks of companies which operate from premises which are, to put it nicely, not stellar. In the same breath, the author advised against investing in companies with new and impressive premises. The rationale is simple. Those companies in mediocre premises are paying low rents and thus have low overheads. As a result, their profit margins tend to be better than companies with monumental assets.

The same strategy can be used for startups. Of course, startups in businesses like food and beverage and certain retail which rely heavily on foot traffic have little choice but to pay high rents for premium locations. Even then, new ways of reaching to customers online without the need for these stellar premises are turning the location need upside down.

Many startups are not in businesses where their locations are critical to the success of the endeavor. It is tempting to have an address on your calling card that impresses the potential client. However you should resist the temptation even if you have adequate capital to do it. Making losses due to high overheads which come with the good image may give the startup a short lifespan.

Clients usually requires that you or your associates visit them to pitch your stuff rather than the other way around. What you fear is the client making a visit to your premises just before awarding your startup the contract. In  any case, the client is likely not to be bothered by the shabby premises that you operate from in the event of a visit. That is unless the contract is worth millions and impression on image counts. For a startup though, that is not probable.

Therefore it pays to look around for the cheapest premises to house your startup. That way, you have a headstart in term of low overheads due to the bargain rent that you need to pay. This will give you leverage in terms of competing on price for your first year of operations. As your startup is not well known at this initial period, charging a low price for market entry is a reasonable strategy. With the low overheads, you should be able to still make a decent profit with that low price strategy.

 

 

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Start a Business that Helps Others Make Money http://www.startbizup.com/?p=1827 http://www.startbizup.com/?p=1827#respond Thu, 28 Feb 2019 13:18:52 +0000 http://www.startbizup.com/?p=1827

It is normal human instinct to follow the crowd when there is money to be made. For instance, when the stock market reaches new high, the tendency for investors is to jump in and buy more stocks. The same can be said for property, cryptocurrencies, gold, and many other investments. However, not everyone who puts money into these investments make money. Usually the early birds make the most while those who come in late are left holding the baby when the market turns.

Thus a good strategy would be to spot the trend early and enter the market before it gets too hot. However this is easier said than done. Which is why most of us are not billionaires or even multi-millionaires. There is however an alternative strategy which surprisingly has less risk and could end up giving spectacular returns.

I recently came across an article about Levi Strauss which got me thinking. Instead of joining the California gold rush in the United States in the mid 1800s, Strauss made and sold jeans to those panning for gold. Given the harsh environment that these miners were in, they appreciated the durability of the blue jeans made by Levi Strauss and Company. As a result, sales boomed.

In a more recent period, the rise of Bitcoin and other cryptocurrencies had fueled the sales of specialized computers used for their mining. This led to high demand for makers of graphic processing units or GPUs which excel in the mathematical calculations needed to mine these cryptocurrencies, When Bitcoin price reached its peak in December 2017, GPU manufacturers  like Nvidia benefited greatly from the high demand.

The alternative strategy is obviously to enter a business which supports those who are at the frontlines of the money frenzy. However this is not about entering mundane businesses which support almost every type of business like stationery, personal computers, copiers, etc. The support provided should be unique and generally not available at that time. Durable blue jeans were not available for miners before Strauss introduced them. GPU were initially used for computer games before someone reckoned that their advanced mathematical processing capability could work out the algorithm for cryptocurrencies much faster.

Thus it pays to look at what people are getting into to get good returns for their money. Then consider how to facilitate these people’s process of making money. Generally it involves making the process faster or cheaper or easier. If you manage to solve the problems that these people face, you may have a winning idea for a startup.

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Timing the Startup http://www.startbizup.com/?p=1815 http://www.startbizup.com/?p=1815#respond Sun, 17 Feb 2019 12:57:47 +0000 http://www.startbizup.com/?p=1815

According to the Chinese calendar, the year of the pig is upon us. Many of us wonder whether the year of the pig would bring better times ahead. However your guess is as good as mine in forecasting whether the year would bring good fortune or not.

Like stock market investments, it would be ideal if one is able to time their investment in a startup just before a major upward trend. Intuitively, this sounds logical since a growth trend would result in an increase in revenue over time. Unfortunately, as investors would tell you, timing an investment to predict a rising trend like in the stock market would be an almost impossible task. Many investors have stories of how the market turned immediately after they had made a large investment.

Actually the time when most investors put money in the stock market is when major indexes have risen considerably and appear to continue to rise. At this stage, the fear of losing out prevails and investors jump in with all eagerness. The same is true for many other investments including cryptocurrencies like Bitcoin. When Bitcoin price approached almost $20,000 in Dec 2017, many investors started investing in cryptocurrencies themselves or computer hardware for mining Bitcoin or other cryptocurrencies. At the same time, the savvy ones were taking huge profits in unloading their stakes in Bitcoin and other cryptocurrencies. Today with Bitcoin price at less than 20% of the peak, demand for cryptomining hardware has plummeted.  Cryptocurrencies investors too seemed to have vanished.

On the other hand, in a down market, very few investors make investments for fear of losing money. However as experts would tell you, the pros make the bulk of their purchases in a down market and sell a substantial portion of their stakes when the market is high.

There is, however, a difference in investing in a startup.  For a start, entrepreneurs would tell you that the decision to invest in a startup could happen anytime. The passion could be fired up in the midst of a recession or when the economy is booming. There is no question of  waiting for the right time to invest in a startup. However entrepreneurs could use the approach of professional fund managers in underinvesting in stocks when the market is booming and overinvesting during a downturn. They could do this by scaling down the investment in the startup when things appear to be doing too well. Similarly, the entrepreneur could scale up the investment during the middle of a recession. This counter intuitive move may seem illogical but parallels the contrarian approach used by some successful fund managers. The logic is that when things are doing too well, the next move is likely to be downwards and vice versa. This way, entrepreneurs need not try to time the market in launching the startup and risk missing out on a good business idea.

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Meeting Customers’ Expectation is Key to Success http://www.startbizup.com/?p=1807 http://www.startbizup.com/?p=1807#respond Tue, 29 Jan 2019 00:51:43 +0000 http://www.startbizup.com/?p=1807

There is a never ending debate regarding whether it is a better business strategy to offer a limited or wide range of products. Consumers are familiar with the success of McDonalds’ which to a certain extent hinges on its limited menu selection. On the other hand, there are many success stories of outlets which thrive because of their offering of a wide range of products. The extensive selection of crepes of this outlet at Takeshita Street in Tokyo in the photo above is a good example of this strategy.

For a would be entrepreneur thinking of starting up a business, the choice can be baffling. Both strategies have their pros and cons. For a fast food outlet, the decision could be made that convenience, quality and value are of utmost importance in narrowing down the range of products. Convenience could be in terms of product delivery time. Quality could be on the consistency of the product and value could related to the price charged for it. For an outlet making crepes as an example, the decision could be based on offering customers a wide selection to entice them in the first place. Since the crepes are positioned as an impulse purchase,  the likelihood of someone eyeing a suitable selection is higher with a wide choice given.

At the end of the day, the correct strategy would be to meet the customers’ expectation. In going to a fast food outlet, a customer expects to have a consistent quality burger at a reasonable price while not waiting too long for it to be ready. As for crepes, the customer expectation is for the outlet to have the toppings that he or she wants. If the outlet does not have the desired toppings, the customer may or may not make a purchase.

Thus it would be useful for the would be entrepreneur to put himself or herself in the shoes of the customer. Ask yourself the reasons why a customer would want to make a purchase from the business. There are likely to be a host of reasons. Rank them to find out the key decision points for the purchase. Then ask yourself whether it is a better strategy to excel in the top three reasons or just be good in all the reasons. As in most things, you can’t excel in everything so be realistic. Sometimes, trying to excel in one reason could result in pulling down another reason. For instance, in trying to offer quality ingredients, it may become more difficult for you to offer low prices. In such cases, one has to analyze the importance of both reasons and give priority to the more important one.

 

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StartBizUp App Version 2.2 released http://www.startbizup.com/?p=1811 http://www.startbizup.com/?p=1811#comments Mon, 28 Jan 2019 09:16:48 +0000 http://www.startbizup.com/?p=1811 The StartBizUp App version 2.2 was released on Jan 28, 2019.

The changes made to the App are as follows:

“Make revenue projection period variable from 1 to 5 years. Make depreciation and amortization periods variable from 1 to 5 years. Make displays of graph and table variable according to the projection period (ie from 1 to 5 years). Change profit default from profit before interest, taxes, depreciation and amortization (EBITDA) to profit before interest and taxes (EBIT). Fix bugs.”

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Adapt Foreign Products to Local Needs http://www.startbizup.com/?p=1800 http://www.startbizup.com/?p=1800#respond Tue, 01 Jan 2019 13:24:56 +0000 http://www.startbizup.com/?p=1800

In many countries. there seems to be an appeal for something foreign to interest the locals. This is especially true for food. For instance, Chinese food is prevalent in the countries such as the United States, Britain, Europe and Australia. On the other hand, western food is common in Asian and African countries. The photo above shows an outlet selling Singapore Chicken Rice in Japan.

However, if you ask a Chinese whether the Chinese food in the US is authentic, the answer is probably negative. Western food are easier to copy to a certain extent. Obviously, foods that require fresh ingredients that are hard to get in a foreign country especially in winter tends to taste less authentic.

There is nothing wrong with the Chinese food not tasting authentic to the Chinese in the US. In fact, when the outlet serving Chinese food started, the taste was probably more authentic. Over the years, it had received feedback from its many customers, most of them being non-Chinese Americans. As a result, the outlet had finetuned its recipe to adapt to the taste preferred by the majority. The majority, thus , were not Chinese.

One of the reasons for establishing an outlet selling foreign food to locals may be based on nostalgia. The outlet selling Singapore Chicken Rice in Japan could be trying to attract Japanese and non-Japanese customers who reminisce enjoying the food in Singapore.

Whatever it is, the point of this article is to stress the importance of adapting to local taste. This is absolutely necessary for those trying to serve the mass market. If the food that you are serving does not appeal to the locals, no matter how authentic, there would not be much demand. The adaptation mentioned here may also include the sugar or salt levels or things like amount of oil or spiciness. Another important factor could be the availability or more accurately, the cost of ingredients. This could lead to the use of substitutes in place of the authentic ingredient.

A good example is McDonald’s which came up with non-meat hamburgers in India to serve the locals who tend to be vegetarians. Indian curries served in outlets in the US, Britain, Europe, Australia tend to be less spicy hot than the authentic version.

Of course, someone setting up a high end restaurant may want to be much more authentic that the mass market outlet. Even so, there had to be some level of adaptation to the local palate.

That is food for thought for your start up idea.

 

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Getting financing for your start up http://www.startbizup.com/?p=1347 http://www.startbizup.com/?p=1347#respond Thu, 13 Dec 2018 08:18:04 +0000 http://www.startbizup.com/?p=1347

Three enthusiastic persons in their early twenties had good ideas for their start up only to falter due to insufficient funds. They felt that they had done their homework, did some rough calculations and envisaged that their business idea would be workable. They anticipated that in 2 years time, they would breakeven, and start making serious profits from the third year onwards. What was required was a sum of about $350,000 to start up their business venture.

They approached their parents, relatives, friends, financial institutions and angel investors for loans or investments. During these sessions, they were asked many questions which they had difficulties in replying. The common thread they heard was that they lacked a viable business plan. As a result they failed to attract investments and were also unable to obtain a loan.

Essentially a business plan gives the reader a roadmap for your start up. The key contents of a business plan are as follows:

1. Introduction

Under introduction, you should give an explanation of what the start up idea is about in a nutshell. Clearly specify the product that your start up intends to offer and why you believe this will be a success. Explain what the team hopes to achieve in 3 to 5 years time. At this point, it would be useful to give a rough estimate of the costs involved and the amount of investment or financing sought.

2.Industry

Elaborate on the industry which best describes the business the start up is in. If the start up idea is to disrupt a particular industry, at the end of the day, it would still be considered as operating in that industry. Hence there is a need to give an idea of how the industry operates and who the major players are. In addition, there is a need to state who you perceive to be your major competitors. Explain where your major supplies come from and spell out the possibilities of disruption.

3. Market Segment and Market Positioning

Indicate the reasons why you segment the market in a certain way be it by geographic, demographics, psychographic or behavioral. An example of demographic segmentation would be by income levels, age, gender, etc. Psychographic segmentation relates to lifestyles, values or socio-economic classes. Behavioral segmentation uses factors like usage rates, benefits sought, brand loyalty and so on. Under market positioning, state whether you are pricing your product at premium rates with similar levels of service or at budget rates with little or no service offered or somewhere in between.

4. Core Competencies and SWOT Analysis

SWOT stands for Strengths, Weaknesses, Opportunities and Threats. Explain the core competencies your team brings to the table as part of your strengths in the SWOT analysis. You have to be frank about the weaknesses of your team. Opportunities relate to the areas in which your product or  service intends to take advantage of. Finally, under threats, spell out what barriers that new entrants face in entering your market or your competitors giving you a fierce fight to retain market share. At the same time, mention why your products beat competitors already in your market.

5. Customers and Income Sources

Explain the type of customers from your targeted market segment where your start up expects to earn most of its income from. This could be from the main products offered. It could be supplemented by income from supporting products. As an example, the main product of this website is an app for start ups. The supporting product could be providing training programs for would be entrepreneurs to go through the process of evaluating their business ideas. This would be possible given the complexity of the entire process. Other income sources could come from advertisements, memberships, subscriptions and obtaining sponsorships.

6. Costs

Start with capital costs like machinery and equipment and depreciate them accordingly to the period of their useful life. Then include any non-tangible assets and  amortize them over the period of their useful life as well. Next, you need to indicate the size and type of premises that your start up would occupy for its business. Give an estimate for the rent for the premises. If you need to renovate the premises for the business, depreciate the cost according to the period of useful life. Your start up has to employ people to operate. Give each of your team members including yourself a meaningful salary. If your start up needs to employ additional staff, include them accordingly. Under expenses, include all significant purchases that are needed to keep the business running. For the moment, exclude the direct cost of goods or services purchased for the sale or resale of your products.

7. Project revenue

In order to project the revenue, you need to simplify the product categories to a maximum of 10. For each product category, you have to reveal the gross margins and hence the cost of goods sold. Then project the numbers for each product category you expect to sell on an average month in year 3 of your operations. You need to use a spreadsheet or an App like StartBizUp to help you do the financial projects. Just take note that revenue, costs and profits and not the same as cash. Expenditures which are depreciated or amortized are paid in total cash upfront (as cash out) on the month of purchase but come up as monthly cost based on the depreciated or amortized amount. The monthly cost based on the depreciated or amortized amount does not result in any cash out. At the end of the day, you need to show that the startup would be cash positive months before the end of year 3.     

8. Sources of Funds

Let us assume that your start up is cash positive months before the end of year 3. From your spreadsheet or the StartBizUp App, there would be a point where the cash flow is most negative. This most negative amount plus a margin of say 10% – 20% would be the required capital needed for the start up. You need to show the sources of funding already amassed for the start up. This could be funds from yourself or your family or anyone who believed in your venture. Thus explaining the shortfall needed for your start up to launch would be more convincing.

Bind the Business Plan Report to make it look professional. Prepare as Powerpoint presentation to give to any potential investor or financial institution if you seek a loan.  Good Luck.

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App Update on Dec 13, 2018 http://www.startbizup.com/?p=1789 http://www.startbizup.com/?p=1789#respond Thu, 13 Dec 2018 07:26:02 +0000 http://www.startbizup.com/?p=1789 Version 2.1 allows the user to vary the period of depreciation and amortization for each item entered. It also fixes bugs and removes the Javascript Interface Injection Vulnerability.

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Buy Internationally Sell Locally http://www.startbizup.com/?p=1779 http://www.startbizup.com/?p=1779#respond Fri, 02 Nov 2018 14:02:48 +0000 http://www.startbizup.com/?p=1779

Buying in bulk and selling retail has traditionally been a way of going into business. Even Sam Walton, the original founder of Walmart, started that way. In the past, having a good retail business entails having good sources to supply the goods. The sources not only must be able to provide the desired goods but also do so at prices that enable retailers to make reasonable profits. Since prices drop as quantities ordered increase, this practice favors the large retailers then. Over time, many mom and pop shops were squeezed out of business by brick and mortar megastores providing almost everything under the sun at prices that the former were unable to compete.

Since the early 2000s, the entry of online giants like Amazon and eBay has changed the retail landscape. Consumers were attracted by the convenience of shopping on the internet and having the goods delivered to their homes. Many traditional brick and mortar retailers were hard hit by the wave of consumers going online for their purchases. Even then, the bulk of all purchases by consumers are still made at brick and mortar stores today. As a result, there were reports recently of online retailers opening physical stores in a reversal of the trend.

Despite these rapid changes in the retail scene, there are opportunities for start ups to get into the retail business. One change favoring entrepreneurs today is the explosion in the availability of goods worldwide for bulk purchases. The minimum quantities that a retailer needs to purchase has gone down considerably. There are many websites and forums linking manufacturers or wholesalers to retailers. However, the elephant in the room namely Alibaba dominates this area. Alibaba provides an online platform for producers of goods to sell them worldwide. Thus the small retailer no longer has the disadvantage of limited sources of supply. Due to the widespread availability of all types of goods, the price disadvantage faced by small retailers continue to shrink. Thus, one can easily purchase items internationally, at low cost to retail in the local market. Even with tariffs imposed, the low prices paid for these goods should still enable retailers to make a good margin.

With the supply problem solved, entrepreneurs can concentrate on the retail aspect of the business. This is the part that entrepreneurs can be creative. There is competition on both sides, online as well as brick and mortar. Consumers shopping on the internet have the disadvantage of not being able to touch and feel the merchandise. Thus having a physical store solves this problem though at a considerable cost. In an earlier article, I mentioned having a brick and mortar store to display products but not keep any in stock. This way, the size of the brick and mortar store can be kept small to minimize the rent.

There may be other ways of reaching to consumers to touch and feel the product without a physical store. For instance, one can organize a modern version of a Tupperware party for people to actually have experience with the product. The person organizing it can then place orders online and arrange for deliveries on the same day. There are others ways in which entrepreneurs can get consumers to overcome the disadvantage of not being able to touch and feel the product. The challenge is to get the right formula for a successful start up.

 

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The Best Time to Start Up a Business is During a Recession http://www.startbizup.com/?p=1774 http://www.startbizup.com/?p=1774#respond Sun, 21 Oct 2018 13:12:13 +0000 http://www.startbizup.com/?p=1774

When the economy is booming, businesses everywhere seem to be doing well. You read the papers which scream that the growth rate for the last quarter was about the highest over the last few quarters. People are buying goods and services as if there is no tomorrow. Shop and office vacancies are at their lowest you have seen for a long time. If you are lucky to be able to get a vacant lot, you find that the asking rent is at their peak. You read that the unemployment rate is the lowest for several years. Therefore workers are difficult to find and employ. If your business is fortunate enough to be able to find them, the wages that you have to pay are about the highest for a while. It seems that every entrepreneur wants to start up a business to take advantage of the booming economy. As a result, getting a loan becomes difficult not to mention the much higher interest rate that financial institutions want to charge.

Is the time when the economy is doing well a good time to start up a business? To many would be entrepreneurs, the answers seems to be in the affirmative. It is similar to the question on whether it is a good time to invest in the stock market when it is making new highs. The answer of course depends on the stage of the economy or the stage of the bull market in the case of stocks. If it is in the initial stage of recovery from a downturn, then it may be a good time to invest in a business or the stock market. However if it is approaching the peak of the business cycle, then the only direction it can go from here is South.

After the boom comes the inevitable bust. When it happens, you get a downturn. If the downturn results in negative GDP growth for 2 successive quarters or more, then it becomes a recession. Some of you may differ in your opinions. You may say that the economic boom may last for a much longer period. Others may argue that there may be a short breather before the economy picks up again. All these are possible. However the longer the good times last, the higher the likelihood of a downturn or a recession. When shop and office vacancies, and unemployment rate are at their lowest, and wages and interest rates are at their highest for a while, the sign are clear.

During a recession, the opposite of a booming economy takes place. Some businesses all over the country may in the process of closing down if not already. People are buying fewer goods and services and only if absolutely necessary. As a consequence, shop and office vacancies are at their highest for a while, In other words, it is a renters’ market. You pick the location you desire and demand that it be leased to you at the low rent that you want. Given the state of the market, you should not be surprised to find many landlords acceding to your demands. You put up a sign to say that you are hiring and a long queue of unemployed persons start to form. To your surprise, these individuals are willing to take up employment at the low wage that you can afford and are offering. Your visit to a few financial institutions results in as many offers of loans. Besides that, the interest rate that they want to charge you is so low that you wonder how they are making any money out of it.

Most of  you would agree that investing in a start up during a recession would be the most cost effective. Some of you may be skeptical though. You may be asking where the demand for the goods and services your start up offers would be coming from. This is an entirely rational question as in a recession, demand for goods and services drops drastically. However the low cost base that you establish the business on should be able to tide you through this low demand period. On the other hand, competitors who had benefited from the earlier booming economy would be hard pressed by their high cost base to compete with you. Therefore there is a good chance of them of losing market share to your start up or even folding up during this period. Its a matter of time when the recession ends and the economy reverts back to its growth path. By that time, your start up would be ready to pick the fruits of your timely investment.

 

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