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Crunchers Accountants

Crunchers Accountants

New Year, New Business, New Choices

Archive for December, 2012

New Year, New Business, New Choices

The fug of alcohol, television and food is lifting.  We have spent time away from the day to day demands of work and our thoughts turn to turning over new leaves, starting something new.  In this blog we explore three important choices faced by anyone who is thinking about starting up in business – Should I go for it? Do I need a business plan? Which business idea should I pursue?

Should I go for it?

At Crunchers we say that profit comes from risk (see our previous blog for a fuller explanation) and being successful in business is therefore about evaluating the risk involved.  The skill in business becomes knowing where to lay your bets with the best return, the stake you put down being your time and money.

Another way of framing the same question about whether or not to go into business is ‘Should I risk it?’  As it turns out this question never goes away in business because as a business owner you never stop deciding where to allocate resources – should I hire staff / get an office / buy this advertising?.

The question ‘Should I risk it?’, also points to one of the fundamental differences between employment and running a business.  As an employee you rarely, if ever, get to decide where to allocate resources on anything that really matters.  When that question comes up, you ask your boss.  In business we have the privilege of answering those questions – and the financial benefits if we succeed.   The flip side is that we also have the fall out if we get the decision wrong.    For the employee, the compensation is that you get paid no matter what, as per your contract.

So in deciding whether or not to go into business at all we invite you to consider the following questions:
  • What is my attitude to risk?  Am I really prepared to deal with the uncertainty?
  • Do I have resources to stake in this game of risk?  If so, what?  For example, how long can I survive without a salary?
  • Have I evaluated the potential gains?  In particular do I have a sound idea of what money I might expect from my risk and when?
  • Have I evaluated the dangers and their likelihood of happening?
 

Passion, drive, belief are important but many passionate and driven people have ended up failing in business because they back a losing proposition.  If the resources aren’t there or the risk isn’t worth it, you may decide no, I’m not going for it this time, but in a way you have already become a business person because knowing when to walk away from the deal is the same skill as knowing when to take one up.  What is more, it frees you up to get the resources together or find the right risk to take.

Do I need a business plan?
Following on in the theme of risk, the answer to this question depends on the risk involved.  Some business propositions are so plainly worth taking, a business plan would be a waste of time, but they tend to be few and far between.

The trouble with a business plan is that there is no doubt that a good business plan is hard work because it is about thinking things through and as Henry Ford said ‘Thinking is the hardest work there is’.

However the point of a business plan is that it forces you to think through the issues involved to answer the questions we posed above in ‘Should I go for it?’.  A marketing plan predicts when and how money will start to flow into the business, a budget and cash-flow tells you if you have enough resources to start, etc.

In other words, it is a tool to evaluate the risk.  The questions we therefore invite you to consider before you answer this question are:
  • How big is the risk I am taking?
  • How much will it affect me if I get this wrong?
  • How confident do I feel of success?
  • How confident do others  feel of my success? In particular we recommend to sound out neutrals, experts or others with business experience.
 
Which business idea should I pursue?
To answer this question we invite you to consider a concept made famous by Jim Collins in his book ‘Good to Great’.  It is called the Hedgehog Principle and it starts with a story of a fox trying to eat a hedgehog.  The fox tries every different ruse to eat the hedgehog but the hedgehog employs just one tactic – rolling up in a ball – and wins.  What Jim Collins suggests is that a business needs one core proposition, something that is unique to it that it does better than anyone else.  In choosing this one thing to base your business on, he invites readers to consider three questions:
  • What do I love doing?
  • What am I really good at?
  • What will others pay me well to do?
 
He says that your business proposition is found where these things overlap.  In other words it is no use doing what you love if no-one will pay you for it.  It is no good doing what you love if you aren’t particularly good at it.  It is no use doing something well paid if you hate it and it is no use choosing something well paid to do if you can’t do it better than the competition.  But…if you can find something you’re good at and that you love and that others are willing to pay you for…you’ve got it!
 
And finally…
We assert that there is another more fundamental choice that comes before all the other choices above which is ‘Am I choosing to be a business person?’  This is distinct from having a business or running a business.  It might just be an important distinction because it allows you to approach each choice as a business person would and inhabit the mindset and outlook of a business person before you start in business.  There are many business owners that wish they had done that from the start.