Avoiding a Startups disaster

What should startups bear in mind if they want their business to succeed?

The main principle is to follow business disciplines, understand what’s going wrong - or what’s not going right enough- and know when to call for help. It’s vital to establish what’s really important, is it turnover, or keeping down overheads? I know successful people who have a piece of paper with five key bullet points on their desk and it never leaves their sight

What other pitfalls are there?

One thing startups tend to avoid is spending enough money on accounting and financial advice. The number of businesses that get into a real mess because they either don’t have any accounting or they’ve overcomplicated everything. There’s no point sending off 55 pages of impenetrable nonsense. You should be able to fit the main points on a piece of A4 with three sheets of figures behind it.

The other thing that tends to happen to those startups that do invest in accounting packages is they don’t actually question the figures. Entrepreneurs, generally speaking, are not that good at numbers - they’re better at marketing or falling in love with the product - so its usually worth having some around who can look and question.

The chances of an entrepreneur having the time or interest to do that is very slim.
If startups don’t do this as the businesses unfold what you tend to see is firms going from occasional financial problems to regular difficulties. They end up constantly against their overdraft limit or can’t pay VAT, or have to renegotiate credit terms, and then they have a real problem.

It’s also very important, when it’s not just a one-man-band to put in writing a shareholders or partnerships agreement. It’s a simple process and, you may never look at it again, but you’ll be incredibly gratefully if things do fall apart.

Also getting the staffing profile right is important to ensure you have the right sort of people that you need when you mature. Sometimes you need to stand back and think ‘do I need a marketing man or a sales man?’

Is a good business plan also essential?

Business plans are a real problem if you look at them in the wrong way. The thing about them is really they’re never going to be 100 per cent accurate and people get hung up on sticking by them when instead they should be thinking what they’re going to do about any shortfalls. A business plan should be seen as a fundraising tool and then a monitoring tool.

Are there difficulties specific to particular types of businesses?

For those who work from home the main difficulty is that they’re unlikely to have much commercial contact, and are going to suffer a feeling of isolation, particularly when things wrong. The answer is networking, by seeking out people in same sector through training courses and seminars. With sole traders it’s also tough it is still important to involve someone else, even if it’s their accountant.

Family businesses tend to have a very specific set of problems. Often they have the wrong people doing the wrong jobs and there’s a lack of structure. Business matters go home and domestic angst comes to work. They tend to be blind to commercial realities and also tend to underpay, which makes them less competitive, so if they have to replace staff it comes as a real culture shock.

Getting good advice is clearly important but just how easy is it to find it?

There’s definitely a gap in the market. If you go to you’re father’s accountant you certainly won’t get decent startup advice and neither will you if you go to the bank because they’re just not set up for that. Business Link and your local chambers of commerce are helpful but other than that then you’re looking at the big name companies. If you go searching on the net you’re just going to come across charlatans.