Lessons Learned from Launching and Managing a New Business
After launching and managing a business for six years, I can certainly share a thing or two on what to watch for when launching a new business.
As a good business person, I had the business plan, the spreadsheets with 3 year projections, the funding and I even talked to enough people to make me feel that launching a wedding invitation business was going to be an easy road. Well, despite the business being a success, it required a lot more work than what I anticipated. Here are a few pointers to consider if you are about to launch a new business:
Differentiate – Differentiate
Wedding invitations are typically sold by stationers that carry several dozen invitation books for customers to peruse and make their selection. The main problem with this business model is that every single stationer has the same books and the same prices. So how do we compete? We created a custom design studio and a private label that focuses on creativity and customer service. We became a niche player as one of the few custom design studios in South Florida.
Understand and Manage your KPIs
Regardless of the type of business that you are trying to launch, you must identify your KPIs, align your processes to them and manage them daily. As a custom design studio, we identified the following KPIs: number of daily visitors, closing rates, level of customer service and source of referral. For additional information regarding KPIs you can read this post: KPI for Small Businesses
Plan your financials based on your worst case scenario
You must assume that your best case scenario may not happen. Therefore, be ready for lower than expected sales, unexpected expenses and perhaps costly customer service mistakes. Keep a safety fund of 2 to 3 months of working capital depending on the size of the business.
Save money for advertising
Every new business needs advertising and if your business entails a new concept you need even more advertising dollars. This is true regardless of whether you are doing social media, print, radio, TV, etc. At least 10% to 15% of your initial sales should be allocated to some form of advertising.
Get the experts
While trying to do a lot of tasks yourself at the beginning seems practical, it is impossible to be effective and efficient at everything. Six years ago marketing was not my strongest point; therefore at the beginning, we assembled a team of marketing experts to make sure that the marketing plan was sound and solid. Get help for all of the key aspects of your business: advertising, marketing, sales and finance.
DYI then outsource
As mentioned before, you will have expenses that you didn’t account for or that were not in your original plan. Try to do things yourself as much as you can before outsourcing those activities and adding an additional fixed expense to the business. For instance, during the first year I was able to do accounting and taxes until the business reached a level where outsourcing was possible.
Avoid signing a 5 year lease
Signing a 5 year lease is a bit daunting for any new business. A 3 year lease is optimal for a new business. One of the best decisions we made was to do a 1 year lease with a premium. At the end of the first year in business we realized that the space was too big and we needed to relocate the business. Luckily, the space next door opened up and in no time we were operating in a space half the size and half the rent.
There are a lot of reasons of why 50% of all businesses fail within the first 5 years, but there is no reason why you cannot learn from others in order to avoid being another statistic. The most important lesson to remember is to make sure that your business has a significant level of differentiation from your competitors. If you are opening another Mexican restaurant, you better have the best salsa in town!!. Best of luck.
Ricardo Lowe, CPA RLowe Consulting
RLowe Consulting focuses on helping clients start new businesses and on developing growth strategies. Specifically, we assist companies with business plans, business strategies, process improvements and cash management.