Serial entrepreneur and billionaire Reid Hoffman defines an entrepreneur as “someone who jumps off a cliff and builds a plane on the way down”.
When you decide to go into business, this saying will ring true. Entrepreneurship is about leaping into unpredictability, risk and ambiguity in the hope of finding opportunity and freedom.
But you’ll need to overcome certain challenges that dog most start-ups. Here are five I’ve encountered in my entrepreneurial journey.
Cash is king and is the lifeblood of your business in the first year of operation.
Revenues are likely to trickle in slowly, yet your direct expenses and overheads won’t give you the same courtesy.
That initial capital you set aside to cover running expenses before you register positive cash flows? It will almost certainly dwindle out faster than you think it will.
My first business was a broiler chicken farm. I built a chicken house, bought the drinker and feeders, set up an incubator and was already counting my chickens in shillings before they hatched. However, I didn’t expect the cost of feed to consume close to 70 per cent of my working capital. I ended up having to take a loan to handle these costs.
In the first year of business, it hits you rather late that the business was underfunded.
A business idea is only as good as its implementation.
With my chicken business, after realising feed expenses were too high, I decided to start processing my own feed.
I googled information on ingredients and nutrient requirements, but getting the right mix turned out to be an issue. Animal feed is processed using specific ratios and formulas. I fumbled with my own weird concoctions until I was forced to contract an expert.
The first year of business is when the rubber meets the road. Your competency and management skills will be put to the test, so make sure you have a team you can lean on.
In the first year of business, that’s when you’ll find out the actual need for your product or service. Users or consumers will either embrace it or reject it based on whether it solves a real, fundamental problem.
I tried my hand at women’s fashion after discovering how lucrative the industry is. I tested a few outfits on my women friends and they sold out fast. So I decided to open a shop with these outfits, but the products didn’t move. I had to slash the prices to spare myself a really deep loss. I realised my friends were from a higher socioeconomic market than the ones at my shop’s location.
There are no shortcuts: don’t ignore doing your market research.
Once you open for business, you’ll properly understand just how strong the competitive forces in the market are. In my consultancy business, I faced serious competition from larger firms. To survive, I decided to fight on a different level rather than tackle them on their turf. I studied their methods and realised they gave ‘textbook’ services and charged a lot for this. I focused on a personalised service with fairer rates. Competition is an inevitable reality in a free market economy; in your first year, aim to be three steps ahead of the rest.
Grit is the ability to stick to a path and goal and keep going no matter the difficulties you encounter. It’s about committing to the sweat, blood and tears entrepreneurship demands. Start with an idea or problem that you’re passionate about to give yourself better odds of seeing it through.