1. Misreading the opportunity
“Get your product wrong and you’re dead in the water,” says entrepreneur Nikki Lynds-Xavier, who last month launched men’s sportswear business Xavier Athletica after a bumpy start.
Having identified a gap in the market for garments made from natural fabrics, the company tried to source suitable stock but nothing fitted the bill. So it radically changed its business plan to become a designer and manufacturer. “This increased our risk, as we were now having fabric made and the minimum quantities involved are not small,” she explains.
The firm must also anticipate what will be on trend months in advance. Advance research is vital, Lynds-Xavier says. “Be prepared to adjust your plans based on your findings.”
Assuming the market will love your product is a common pitfall. Technology entrepreneurs are particularly at risk here, says Ed Molyneux, co-founder of FreeAgent, an online accounting service. “They build something cool, but no-one wants to pay for it.”
Gaining insight from market insiders can shave years off the trial-and-error process, advises Ian Shott, chair of enterprise at the Royal Academy of Engineering (RAEng), whose Enterprise Hub helps engineering and technology entrepreneurs turn ideas into commercial success. “Drawing on their experience helps entrepreneurs ensure they are meeting a market need,” says Shott.
2. Administrative traps
Just because you’re an innovator doesn’t mean you’re automatically an expert in business, so recognise when to seek expert help.
“The temptation is to do everything yourself to save money,” says Sam Coley, co-founder of events ticket startup, TickX. “Getting our accountant to look after the payroll allowed me to focus on developing the business. The extra cost is more than outweighed by the additional work I can now do.”
Legal matters should never be left to chance. “One of the biggest risks we see is the lack of written terms/contracts – such as when setting up in business with a partner, or with investment from others,” says Helen Hall, of solicitors firm Simpson Millar. Entrepreneurs should also be wary of sharing ideas without proper legal protection, she warns.
3. Insurance issues
Everyone hopes they’ll never have to claim on insurance, but if you do and it isn’t in place the risk to the business could be devastating.
Syd Nadim founded digital marketing agency Clock 18 years ago. Four years in, he had to go into hospital. “I was told I’d be off work for six weeks. As a business owner I knew that this would be catastrophic,” he says.
After two weeks’ convalescence, the pressure was mounting. “I had to keep on top of finances and numerous other things that only I could do. I realised that, if something happened to me, the business could fail, and there were 10-11 members of staff relying on their jobs.
“I had to mitigate the risk of something more serious happening, which meant effectively making myself redundant,” Nadim says. He empowered his team to lead and take responsibility for their areas of the business. “I also took out ‘key man’ insurance so that the company would receive a lump sum if the worst happened. If something happened to me now, the business would hardly miss a beat. I sleep better in this knowledge.”
Mark Sharman, a claims manager at Simply Business, which specialises in insurance coverage for SMEs, spends his days looking at ways small businesses can reduce risk, and like Nadim he believes insurance has an integral role to play.
“Insurance can protect a business in a number of ways. For example, if you were no longer able to operate from your business premises due to a fire or a flood, what would you do? It would mean relocating your staff and renting new premises. Without insurance, this could place a heavy strain on any growing business,” he says.
4. Money worries
Being realistic about resources is essential for any startup. “After my first funding round, I had to allocate the capital invested in my business wisely,” says Owen O’Neill, founder of socially-led university comparison site University Compare. “I needed a thorough online strategy, testing each relatable demographic first with a small part of my finances, monitoring the results and then focusing on the campaigns that yielded the best results.”
Avoiding tying up the firm’s cash is critical, too. “Poor cashflow can kill an otherwise healthy business in weeks,” warns James Poyser, co-founder of online accountancy firm inniAccounts. “If you get it wrong you won’t be able to pay suppliers, rent, yourself or your employees.”
The key is good bookkeeping and accounting, he says. “If you like numbers, do it yourself. But if your entrepreneurial energy is sapped by routine tasks, don’t ignore it. Hire someone recommended to you. It will probably cost less than you think.”
5. Growing pains
Four years ago, when Scott Davies founded his raw honey business Hilltop Honey, he was working 16-hour days. He needed help but feared not being able to pay wages at the end of the month. He advertised for his first employee through the Welsh Government’s Jobs Growth Wales scheme, which helped fund their wages for six months.
It can be tempting for a startup to skimp on salaries, but Sean Mallon, CEO of Bizdaq, an online platform for buying and selling businesses, warns that compromising on talent can end up costing more. “Try to offer compelling packages including profit-share schemes or future equity if you can’t compete on salary,” he suggests.
This advertisement feature is paid for and produced to a brief agreed with Simply Business, the UK’s biggest business and landlord insurance provider, and sponsor of the supporting business growth hub.
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