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How not to start a business

Business

The decision to start a business is often associated with excitement and fear. Let’s finally put our idea into practice! What if it doesn’t go right? What if it goes too well and we don’t even notice it? What really needs to be done and what should come first?

The way many people start a business

There are plenty of questions and we always tend to think first of the practical, visible, and concrete aspects. We want to open a clothing store: what will be the name of it? The logo? Let’s create social media accounts and start selling. Or let’s look for a store to rent and suppliers to sell us the clothes. We register the enterprise at the tax office and that’s it. We are going to have an online clothing store or brick-and-mortar. Family and friends get excited about the opening and the first few weeks go well, and then… nothing.

We went through exactly that in 2008 when Helder decided to open a computer store. He had a degree in Computer Systems Technician, as he had already worked at FNAC in the IT department, and had a free space available to open the store to the public. He figured he had nothing to lose but time. And, at 19 years of age, he had plenty of that.

Frustrated with the service provided by his local computer store, Helder decided to start his own, one that would provide a better service. In his opinion, all that was needed was a name, a logo, a website, and suppliers with fast delivery, so that he wouldn’t have to invest in stock. He opened the store, had a few customers and, after a short time, it closed. What went wrong?

At first glance, the business had many points in its favor. Helder had training in the field, professional experience as an employee, identified a gap in the market, used existing resources, and started with the Minimum Viable Product – the space he had and an online store, all without stock. 

However, when we analyze in detail, we see that he got carried away in the typical hurry of someone who wants to start a business. He did what most people do: he started with the name, logo, and website, instead of starting with what really matters.

And, after all, how do you start a business?

Helder should have started by understanding the essence of the business. That is, understand the real reason for wanting to have a computer store, what problem the public wanted to solve, and how he, with his traits, experience, and personality, could differentiate his business in the market. And, by knowing this, the motivation to have that business would become much clearer, and whether this was the right kind of business for him, and what that computer store should necessarily have, even in an initial test version, because that would be the essence of it. 

As he didn’t have this, Helder gave up when the first obstacles popped up, instead of finding a way to keep the business at its core, changing whatever was necessary. When he realized that not having stock made it necessary to update the prices of all the products daily due to price variations from suppliers, that some of the products were more expensive at the supplier than in a large store (which bought in bulk), and that his little profit margin was vanishing, turning into a loss every time he had to repair or send a product for warranty, Helder lost his reason to continue.

Start with the business’s essence – the mission and why YOU want to have THAT business

Mission
Image by Gerd Altmann by Pixabay

Not having a well-defined motivation and mission makes people give up more easily when obstacles appear. And obstacles always show up. There’s also the risk that if the business is successful and grows too fast, people become “tied down” to enterprises that mean nothing to them and fuel their unhappiness. 

After knowing the essence of the business, you need to communicate it clearly, so that anyone can understand. You need to tell the idea to several different people, including suppliers, to get feedback. If Helder had done this, he might have immediately realized the problems of not having stock.

Benchmarking – Studying the competition

Although it may have seemed that Helder started his business because he was unhappy with the market’s supply, he based it on his individual experience with a specific store.

To understand how one can stand out in the market, we need to know that market and the specific characteristics of the competitors. That includes prices, types of services provided, communication, target audience, and service, to understand how each competitor stands out. Only then can we understand how we can use our unique knowledge, characteristics, and personality to make our business equally unique in some way.

Studying the target audience

Helder should have also studied his target audience and understood what their real problems were and how he could solve them. He based his entire business on his experience as a customer in a store and that isn’t enough.

Without knowing who the target audience is, a business cannot develop. Not even when it comes to creating the name, the logo, the website, and the social media accounts, because all of them must reflect the essence of the business and communicate directly with its target audience. It’s possible to adjust things over time, of course! And that will happen possibly further along the company’s journey. However, if not thought through early on, it can doom the business to premature failure, and the costs of rebranding (repositioning the brand to appeal to the right audience) can be too much for an early-stage business.

Regarding the computer store example, one that’s focused on teenagers who like to play computer games and edit videos and photos, it’s necessary to communicate and offer very different products in comparison to a store focused on businessmen who prefer elegant environments, high-end computers, and phones, with a clean and innovative design. Creating a computer store focused on one or the other of these audiences literally changes everything! The name, the logo, the design of the online and physical stores, the products to sell, the suppliers to contact, and the language to use in communication. Everything!

The problems and needs of each audience are different and must be addressed in different ways. Otherwise, the business will have to be generalist to appeal to all audiences. The problem with a generalist business is that it needs to invest A LOT of money to capture customers and grow because it needs to communicate with many different audiences. If you don’t have a lot of money, focus on a specific audience.

Business model

Photo by Alvaro Reyes on Unsplash

Not only was there no thought given to the business’s essence, nor to whether it was the right one for Helder, there was also no time invested in understanding how the business model would work. He thought about suppliers but did not forecast costs (which would have included travel and warranties) and profits. He didn’t think about the target audience and where they were, or how to communicate with them. He also didn’t think about the company’s core activities to understand at the outset what its day-to-day operations would be like and how it would handle different things, for example guarantees.

And this lack of planning can lead (in this case, it led) to the business’s failure due to lack of customers, unforeseen costs (for example, funds for marketing and advertisements, travel, and basic material needed to make repairs in the store, which canceled out the entire profit margin), lack of a communication strategy, etc. This’s why most entrepreneurs start in a hurry without knowing where they want to go.

Read this article we wrote about how not to realize your business idea.

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