Martin Lewis: 3 tips to succeed if you want to start your own business, from an accidental entrepreneur
I consider myself an accidental entrepreneur. A true entrepreneur is someone whose aim is to set up a business or even multiple businesses to make money – a Peter Jones of Dragons’ Den type.
Instead, in my head, I’m a campaigning journalist, who built a very successful (and hopefully ethical) enterprise as a lucky by-product of spreading the gospel of MoneySaving.
For that reason I almost always reject any interview requests about entrepreneurship or business, plus it risks a confusing mixed message for someone whose focus is pro-consumers.
Yet you’ll be unsurprised to hear I am constantly approached, by friends and strangers, in person and digitally, wanting to run their business ideas past me for a sanity check or advice.
So to help a wider group of budding entrepreneurs, especially youngsters, I thought I’d bash out the three most common SIMPLE issues that come up when people talk to me – the answers to which aren’t just about entrepreneurship but also cross into my usual MoneySaving space.
PS: You may also be interested in my ‘The four things you need to be successful’ video.
1. Don’t confuse a good idea with a good business.
You can often see the zeal in their eyes; a passion for a product, concept or invention they believe will fill a crucial niche. They wax lyrical about how it’ll work, what it’ll do, and how everyone they’ve told about it says it’s brilliant.
I can recall a dozen examples of this without trying. But as giving away others’ ideas isn’t fair, you’ll have to take that on trust (any examples below have been tweaked for anonymity’s sake).
The curse here is that having a good idea isn’t the same as a good business. A good business is something that’ll make a profit – or at least have the potential to make a profit one day.
Time and time again, after they’ve explained the concept and I then ask how it’ll make money – the costs, revenue, how long it’ll take to work – they brush it off and return to their comfort zone of why people will love their venture more than they love cats. Take this example…
As a favour, I once sat down with a friend of a friend who’d set up and invested his hard-earned money to start an ‘amazing’ business. He’d developed a prototype, had it made in China, and just started selling it on his own website – and a few people were buying it.
He was very excited about the prospects and wanted to know his next steps. I asked about the numbers, he was vague, he hadn’t done them. It was all about the product. So I got him to get his paperwork out, and pushed hard.
We did some back-of-the-envelope calculations and it turned out he was selling the goods for less than half the total cost to him. This was obvious from the eroding bank balance, but he’d ignored that sign because “people liked it”. My rather clinical view was he wasn’t running a business, it was a charity.
Of course some sophisticated business models deliberately sell at a loss early hoping to build a brand and reap rewards later. This wasn’t one of those – he was almost out of cash. He couldn’t cut his costs, and it didn’t sell with a higher price. He’d been blinded to the business reality by the blinding light of the good idea.
While this is obviously an extreme example, it serves a common point. If you’re going to run a business, do the numbers. And do them conservatively. Plus, your mates saying they like the idea does not count as market research. Friends like to please. It’s not the same as a mass of strangers, from a totally different walk of life, putting their hands in their pockets to pay for something.
Be harsh with yourself. Examine the downside risks. Things will cost you more, be slower, and bring in less revenue than you think. Look at what happens if you halve sales, halve revenues, and double the costs. And ensure you include the commercial cost of your own labour, if it only makes money based on free labour, it isn’t a long-term business.
2. What are you going to live off?
Another common thread among new entrepreneurs is “I’m totally committed, I’m going to quit my job, and give every second towards making it work!”
While I admire the conviction, this often risks making an early-stage venture less successful – it’s a form of gearing up your investment. If this business is all you’ll work on, unless you’ve got big savings or backers, you are forcing it to be profitable very quickly. If not, you won’t be able to pay the rent or feed yourself (or worse, feed the family) and will need to quit it.
Even businesses that succeed tend not to do that quickly. So if you have transferrable skills from your existing work, whether you’re a teacher, in marketing, a salesperson, consultant, builder or whatever else – that’s an asset.
Consider if it’s possible to split your time. Two days a week freelancing and three days working on your business (by the way that’s three formal days; in reality, if you’re as obsessed as I was when I started, it will mean spending every other waking second on it – and a notebook by the bed to boot).
This way instead of your enterprise needing to be able to pay you enough to live off after six months, you may have a couple of years to make it work. And you’ll be surprised how often, when starting out, moving your venture forwards means you’re twiddling your thumbs waiting for others who don’t have the same time pressures – so you may as well be earning money elsewhere while you wait.
3. Do you have the skills needed?
About 10 years ago, for fun, I had an idea for a compartmentalised kettle. The aim was to reduce energy usage, as you could fill it with water, then select how many cuppas you were making and it’d only boil that amount, reducing energy usage.
Let’s ignore for a second that this idea has more flaws than a skyscraper, and instead imagine it’s a great idea, that I wanted to take up. The fact is I’d have absolutely no idea how to design it, get it built, or sell it. Even if it’d actually been a good business, I probably wasn’t the right person to do it, or at least not do all of it.
Many people come to me with a raw kernel of an idea – often web or app-based – which they think is great. One lady wanted to set up a dog-purchasing comparison site. I asked if her expertise was in building websites or the pet industry. It wasn’t in either – she told me she wasn’t actually that good at using computers, she just wanted to try it.
Again that’s the extreme. Yet think about what skills are required to get your business to work – you may be great at what you do, but can you market it well enough to bring in clients? If you don’t have the right skills, will you train up, busk it, or buy them in? How does that fit into your timetable, costs and plan?
This isn’t about trying to put everyone off.
This may feel a rather negative blog. That isn’t my aim, no more than me saying “Always do a budget to ensure you can afford the mortgage repayments before buying a house” is negative about owning property.
Our economy needs entrepreneurs and wealth creation. It’s just that setting up an enterprise based on a novel idea (as opposed to working for yourself in a trade you’ve done for years) is more difficult than people think.
The stats show half of new start-ups fail within five years. Some of that will be due to bad luck, but a chunk too will be down to simple naivety or over-exuberance.
If you are thinking about pursuing your great idea, be self-challenging and self-critical, do the numbers, assess the cost, and be honest about what you’re not good at.
And good luck.
Do let me know your thoughts and experiences below.