How to start your own business
There are probably as many reasons for setting up on your own as there are businesses. Whether it’s a lightbulb moment for the next big thing or the desire to escape the nine to five, starting up means taking on new skills and responsibilities. Welcome to the world of start-ups…
View from the insider
There are few experiences more exhilarating – and nerve-racking – than starting your own business. The leap into the entrepreneurial world raises many questions, so we asked Clive Hyman, Chairman and CEO of Hyman Capital, to share his knowledge
Q: How do I know if my business idea will work?
Judging whether a business idea is viable is very difficult on your own. This is where a network of trusted colleagues and friends is invaluable to bounce ideas off and help you shape your vision into something achievable. People who have worked with you over the years are usually a good source of input, provided you remember that you have ownership of this idea and avoid being too heavily influenced by others’ opinions. You must follow your own judgement, but you also need to be certain you can make a profit. Your idea may be groundbreaking, but is it too far ahead of the curve? I’ve been there myself, so I understand the dilemma.
Q: Where should I look for funding for my start-up?
Family and friends may well provide what is called the ‘seed funding’ or the initial sums of money to kick-start your business. Some people have the advantage of extended families and large networks of friends who are eager to contribute. But sometimes it can be difficult to ask those close to you for financial help, or they are not in a position to give it to you. Some people don’t like to mix business and friendship.
A lot of people also begin by ‘bootstrapping’ – starting with a little capital and relying on money other than outside investments. An individual is said to be bootstrapping when they attempt to found and build a company from personal finances or the operating revenues of the new company.
An extremely useful source of funding is the ‘angel network’ – individuals who are prepared to invest in you and your business concept. Indeed, institutional and angel investors are sometimes a better proposition than family and friends because they understand the risks associated with a business. Don’t get too demoralised if your approach is rejected, as it may not suit the person’s risk profile or interests.
Other options to consider include crowdfunding platforms and service firms such as ourselves, Hyman Capital. However, think about what you are trying to create and the type of shareholders you wish to have. There are of course enterprise and seed enterprise investment schemes (EIS and SEIS) and venture capital trust (VCT) funds, which have tax incentives, but these tend not to be for raw start-ups these days. They require a certain level of revenue and profit before investors are prepared even to look at the business.
Q: Who can help me formulate a business plan?
Hyman Capital is a specialist in producing start-up business plans, or you can approach any firm of accountants or advisers who provide this service. Before choosing an adviser, ask to see an anonymised version of a live business plan so you can check the quality of their work.
There are plenty of examples of business plans on the internet. If you’ve not written one before, you are best taking some advice or asking someone to go through it with you. Perhaps ask your team to produce the plan with you so that it becomes a core activity and part of your bonding. Once you have a draft, you can save yourself some money by sharing this for review and comment, rather than an adviser having to start from scratch.
However, the business plan is only part of what needs to be done. More importantly, in the short term you need a one-page description of the opportunity you are offering a potential investor, and a slide deck that explains the business opportunity and how you propose to sell your equity – setting out what percentage is available. Sometimes this is much more complicated than you think, as there are various ranges of valuations, even for plain concepts that don’t have revenue. Some people get overly fussed about this, but there is one simple philosophy I remind them of: I’d rather have 1% of a billion-pound business than 100% of nothing.
Q: There will obviously be difficulties in the initial stages – how do you advise people to work through this and persevere?
You cannot predict the future. Nothing runs in a straight line. There will always be bumps in the road that you will need to navigate around. The emotions surrounding these are often fraught. In my own case, I found it extremely difficult to remain calm and level headed when members of the team or part of the investor base were having doubts or giving cause for concern. The main issue here is to learn not to doubt yourself. You will win through, however hard it appears.
Q: Would a mentor be useful, and who should I ask?
All sorts of people think they have what it takes to be a mentor. Age and experience are usually the best qualifications. And yes, it is always good to have a mentor, independent of the business, to discuss confidential issues in private, so you get the time and space to think about the challenges you are facing. Finding someone you respect and can trust as a mentor is very useful.
Q: What is the biggest thing holding people back from setting up their own business, and how should they overcome it?
Often the biggest thing holding people back is themselves. Fear of not being employed and not having a regular wage is quite a big issue, particularly if you have a family or other dependants. It’s important to recognise the need for financial stability, although sometimes this is not possible. So how can you get to revenue quickly and how can you make a profit on day one? That takes the best type of idea and it’s one that should help you make the transition. You are embarking on change and there are things for which you must take responsibility. It is sometimes difficult to balance all these things while running everyday life at the same time.
Q: Are there any tips for spotting when the fortunes of your new start-up may not turn around?
This is another difficult one because you will have conflict between capital required and profit. While it is easy to say that you need to achieve profit on day one, this is difficult to achieve and you need a high degree of luck. The harder you work, the more luck you will have.
Sales and marketing activity is absolutely paramount. Start-ups usually fail because they’re not engaging with enough prospects to ensure that sales take place. Also, cash is king, and when your own resources are depleted, you will feel the pressure the most. You need to have a supportive partner and family who will be behind you the whole way.
If, despite increasing your sales and marketing activity, you still cannot land sales or convert those into cash, that’s the point at which there’s no turning it around.
Q: Online is obviously hugely important now. How do you suggest new start-ups develop a good online presence?
My advice is to talk to people who have done this kind of thing before. You can build a website yourself, but frankly that is not your core skill – it is far better to outsource. Recognise that you need to pay money to get this done, project-managed and delivered on time and in the best shape. If pressed, you can do it yourself, but it is a strain and will divert you from all the other activities you are undertaking.
Q: Do you have any other vital advice for someone considering starting a new business?
Never give up! Always seek counsel from people who have been through the challenges of starting a business. It is not a straight road, and there will be twists and turns where you will need help and advice from others around you.
Hyman Capital is a boutique merchant bank and helps companies with transactional support (including due diligence, valuations and tax structuring), advisory services (management consulting) and capital raising (equity and debt) for companies of all sizes and across all sectors.
Decoding the jargon
The offering here is to provide coaching and assistance to help you raise funds. These days, incubators are usually run by not-for-profits or academic institutions.
I ran KPMG’s Incubation Services in the dot.com boom in the late 1990s and early 2000s. Our incubator didn’t provide any start-up capital and that is still the case. We didn’t go in for co-location, but nowadays the model is to house many companies in one place so that entrepreneurs and their teams can meet other start-ups and share information and knowledge on how to solve the challenges of creating and running a new business. However, unless you can get to lift-off within a 12-month period, you’re likely to be turfed out.
Sometimes start-up camps and suchlike promise the Earth but deliver little. Sometimes the excitement of participating can overwhelm even the most phlegmatic of characters. That said, they can be great: just choose wisely. Look at the exit clauses and research what has happened to previous members. Seek some out and hear their experiences first hand.
A business accelerator is generally run by established companies or businesses, using their own experience to provide start-ups with guidance and support for faster growth. Accelerators are usually for-profit ventures. They sometimes have funds to invest and will claim to be able to introduce the business to a range of investors – but too often the benefit to each party of these relationships is poorly defined and the businesses themselves are at risk of being too early stage. Most of the funders are watching the market and will only pick a limited number of companies to invest in.
‘Angels’ are, for the most part, successful businesspeople who have sold companies and are using the funds to create a portfolio. It can be difficult to find a match on your own, so a better option is to use a dedicated network such as the UK Business Angel Association (ukbaa.org.uk), which does a good job of linking entrepreneurs with angel investors.
The term ‘unicorn’ has become commonplace for businesses that achieve a valuation of £1bn in a short time frame. The latest of these is Gymshark. The trend is for companies to get big quickly, but sometimes their systems and management processes aren’t robust enough to survive choppy waters or adapt to a subsequent slowdown in business.
Is now the best time to start a business?
While the COVID-19 crisis has highlighted the fragility of employment, for some it has been the moment to reinvent their career. Running a business in the face of adversity is what people have done for years, says Fiona Thomas
Like the rest of the world, I’ve spent the majority of 2020 anxiously scrolling through news, worrying about my future. My fears generally pinball aggressively between personal safety, the health of my loved ones and, more recently, the state of the economy.
It doesn’t take a financial expert to understand why the UK economy suffered its biggest-ever recorded slump between April and June of this year. With lockdown in full force and millions of jobs hanging in the balance, it seemed like almost every industry lacked consumer engagement and therefore risked crumbling under the pressure. Toilet roll sales were up, sure, but it felt like everything else was going down the pan.
The impacts of isolation
As a freelancer, I scrambled to keep many of my clients and waited patiently for the little help provided by the government to come to fruition. I went from leap-frogging between my favourite local cafes and taking meetings in London to watching the sun rise and fall from my front room in north Birmingham. While I got used to the monotony (as well as my husband commandeering the spare room as his new home office), people everywhere shifted nervously in their seats. There’s no denying the fact that the drastic change in circumstances has affected people in a variety of ways.
New parents have been separated from much-needed caregivers, teams have been expected to maintain output without access to resources, retail workers and delivery drivers have been put front and centre – expected to rise to the occasion with little to no mental health support for the risks they take in order to keep the country going.
But it’s not all doom and gloom. After my initial concerns about retaining clients and bringing home the bacon, I began to revel in the opportunity to make changes in my business. With the privilege of a month’s worth of savings in the bank, I worked hard to reshape my offering into a more artistically fulfilling one that focuses on a B2C model of teaching creative writing. Not only did this feel good, it also seemed to tap into the fact that some people did want to make the most of their spare time and learn new skills.
It turned out to be a successful pivot. After freelancing for three years, I’ve grown accustomed to the uncertainty of business and the toll it can take on my emotions. I can say, hand on my anxiously beating heart, that I’ve never felt more financially stable than I do right now. However, I can’t say that I would have been courageous enough to become self-employed during a global pandemic.
But that’s exactly what people are doing, and it turns out that running a successful business in the face of adversity is what people have done for years. Walt Disney Productions was founded in 1929 and their cartoons were heralded as the light relief that America needed during The Great Depression. In 2008, during the financial crisis, Airbnb was created by two tech entrepreneurs who saw a need for affordable short-term accommodation.
It might seem counter-intuitive to start up a business during an economic downturn, but many start-ups thrive in these seemingly inhospitable conditions. With large companies forced to make redundancies, the talent pool is widened and many smart thinkers end up going it alone or collaborating with others. The cost of products, services and advertising is lower than ever. As interest rates plummet, loans are more accessible. COVID-19 has presented new problems, but this is something that entrepreneurs are naturally poised to solve.
Cashing in on opportunity
There’s no denying that starting a business is scary. But is there ever a good time? Egbe Manton, a lawyer from Surrey, says that her instincts led her to start her business in response to COVID-19. With contracts being cancelled left, right and centre, people being furloughed and clients refusing to pay their bills, she felt compelled to offer assistance through her company, Manton Legal Consultancy: “There was a clear need for my help. I didn’t want people to be misled or ripped off, I wanted to help and let them know what their legal rights were. So it felt natural to take that step into business.”
For others, the pandemic has confirmed what they already knew – that regular employment isn’t as safe as everyone thinks. “It made me realise that being employed means someone else decides if you have a job, and how much you earn,” says Veronica Wood Querales, owner of Into The Woods Marketing, and Cielo Costumes. “Now, I have two businesses and clients spread across different industries. It feels much safer.”
For Veronica, the popularisation of platforms such as Zoom has enabled her to fast-track her business and reach clients she may not have had access to. In the past, choosing to meet clients online could have put people off. But now it has been normalised, which allows her to work with people she has never met.
A chance to reflect
As well as the pivot from offline to online, some individuals have experienced a mental shift during lockdown. Sophie Lumley from Newcastle founded her online store, Grateful Grapefruit, after discovering the wealth of independent sellers on Instagram. She says that having all that downtime was a blessing in disguise. While others baked bread and took up cross-stitch, she spent her days doing courses and setting up her business. “There was certainly worry. However, there was a bigger feeling of ‘it’s now or never’. For the first time in my adult life I had an abundance of time to think about what I wanted from my career. The advice and help was right there at my fingertips, I just had to find it … it almost seemed like there wouldn’t be a better time to sell bath and body products.”
The Telegraph reported in 2019 that 90% of start-ups fail within the first three years, but will that figure be challenged in a post-COVID world? Only time will tell. With companies now more receptive to remote working and outsourcing, freelancers are arguably in the best position to cash in. After the lull in March, I’ve had a fresh wave of enquiries from brands that are looking to hire writers and collaborate on social media projects. We may not be able to see what the landscape looks like just yet, but as the fog begins to lift, there appears to be at least some fruit ripe for the picking.
About the author
Fiona Thomas is author of Out of Office: Ditch the 9-5 And Be Your Own Boss, published by Trigger Publishing
- British Business Bank: a government-owned business development bank.
- Business Finance Guide: produced by ICAEW and British Business Bank, this is a free and independent source of information.
- Capital Enterprise: London-based network aiming to invigorate the UK’s start-up scene.
- Enterprise Europe Network: helps businesses innovate and grow on an international scale.
- FFWD London: a pre-accelerator initiative backed by The Accelerator Network and Capital Enterprise.
- ICAEW Business Advice Service (BAS): connects SME owners with ICAEW-regulated firms.
- Seed Enterprise Investment Scheme (SEIS): offers tax-efficient benefits to investors in return for investment in small and early stage UK start-ups.
- The Accelerator Network: growth and investment support for start-ups.
- UK Business Angel Association: national trade association for angel and early-stage investment.
- Virgin Startup: offers loans plus mentoring and other support.
Words of wisdom
What are key considerations when starting a new venture? We asked our expert panel of people who have been there or advised on the process
Seek expert help
I’m heavily involved in ICAEW’s public-policy and practical work to help start-ups. Founding a small business and, indeed, working for one, can be tough, even in the best of times. Start-ups that survive the COVID-19 crisis will have passed a big test.
At ICAEW, we collaborate with many organisations – including the British Business Bank and Innovate UK – to boost finance for start-ups and scale-up companies, and to provide them with support. I also take part in programmes for innovative tech start-ups, digital ventures and the creative industries.
One of the Institute’s most successful projects has been the Business Finance Guide, devised by David Petrie, Head of Corporate Finance. It’s a comprehensive, free resource that’s been utilised by more than a million entrepreneurs, advisers and investors. ICAEW’s online Business Advice Service is also a useful way for entrepreneurs to connect with financial experts.
Shaun Beaney, Manager, Corporate Finance Faculty, ICAEW
Tracking the future
Since lockdown, we’ve been tracking 40,000 start-ups. We found that smaller, more agile ones had an easier time than the slightly larger scale-ups. In terms of investment, the picture was generally positive, despite falling off a cliff in the first two weeks. Most picked up a few weeks later.
Overall, investment levels look to be about 18-20% down on Q4 2019. The capital is out there and it’s still flowing to start-ups. However, the biggest drop has been for new companies seeking funding for the first time, which is worrying – these are the future pipeline of businesses and we need to keep that flowing.
In the medium to long term, there will be a boost to the start-up ecosystem. People have evaluated global supply chains and thought: should we break this up? It’s a thought that favours smaller suppliers. People are looking at big businesses and seeing risk.
Henry Whorwood, Head of Research and Consultancy, Beauhurst
Getting business moving
At The Accelerator Network we mainly work with founders who are looking for support to structure the work they’ve done so far. For example, market strategy, operations, finances and investment plan. They tend to be in their first two years of trading. As well as connecting with experts, founders can interact with the other companies and exchange lessons, experiences and tips as they go through similar challenges. It helps to know you’re not alone when quitting your job and starting a venture from scratch.
Companies that do best are those with at least two people, with complementary skills, who are hard-working, prepared to listen, learn and apply the knowledge to their start-ups to outrun the competition. Those with highly scalable businesses, capable of delivering a 10x return on investment within five years, tend to outrun the rest. Finally, the personalities of the founders go a long way. The ones who are determined, resilient, creative and adaptive usually overcome challenges the best and perform better.
Clarelisa Camilleri, Programme Operations Manager, The Accelerator Network
Dreams vs reality
Following the COVID-19 pandemic, many are contemplating whether now is the right time to start a new business. The question “what’s the worst that can happen?” used to be answered with fears such as no income. Now it could be answered simply with a wry smile. The economic and health disruption has led many potential entrepreneurs to realise that they have only one life, and now might be the time to take action on that dream.
For those looking to start a business, it is important to acknowledge the four key areas that must have attention paid to them, which are described in my book, BOSS IT. Often I find that a business owner’s dream is either too big and abstract to be achievable or, worse, too small to motivate them to drive the business forward. A lack of planning can lead to misaligned action, while over-planning is often the result of procrastination.
Action is needed in any business – there is no point waiting for customers to find you on page 72 of Google. But perhaps the most important thing is to continually review what has worked and what hasn’t. Revisit your dreams, plans and actions regularly.
Carl Reader FCA, author of BOSS IT: Dream, Plan, Do, Review; carlreader.com
Thrive not survive
Our aim at Virgin Startup is to help new businesses not only start up and survive, but thrive. We provide all funded founders with one-to-one mentoring thanks to our network of more than 600 volunteer mentors. We run masterclasses, events and accelerators to help founders develop the skills they need to build better businesses. We’re looking to help level the playing field by supporting more under-represented founders.
In 2019, Virgin StartUp became the first start-up support organisation to commit to an equal amount of funding for men and women – 42% of the founders we’ve funded are women (20% is the national average).
Since our launch in 2013, we’ve worked with more than 30,000 founders, and provided more than £50m in start-up loan funding to help more than 4,000 founders. It seems to work: 73% of businesses are still trading after three years (53% is the national average), with 3.3 jobs created on average by each funded business.
Andy Fishburn, Managing Director, Virgin Startup
Back to basics
If I could give one piece of advice, it would be to focus on your product and market fit. Do only what you need to do to prove a specific kind of person or business values what you’re creating enough to pay for it. Until you’ve done that, everything else is a waste of time and money. Forget the elaborate marketing plans and trying to achieve perfection. Demonstrate you can provide something valuable to your market and get someone to pay you for it for the first time – and then for the first 10 times. Do that before you invest in expensive marketing and branding strategies, and you’ll avoid the number one cause of early failure for businesses.
John Williams, author of F**k Work Let’s Play: Do what you love & get paid for it and creator of the 5-Day Business Startup Challenge
A case of triumph over adversity…
Rob Law MBE has built a life – and career – out of overcoming obstacles. Born with cystic fibrosis, he was not expected to live into his twenties (his twin sister died with the same illness aged 16). Now 40, he is a father of three, an amateur triathlete and, most famously, award-winning designer of the Trunki, the ride-on children’s suitcase that was slated on Dragons’ Den but has now sold more than four million in over 100 countries. His book, 65 Roses and a Trunki: defying the odds in life and business, is published by Wiley
“Business is all about people. I realised from a few years in that I needed to learn about leadership and how to hire and then inspire my team. When it comes to hiring, you need people who are aligned with your vision and purpose – I’ll always choose someone with passion and drive over experience. You can train people, but you can’t teach passion. It’s really difficult finding the right people and you will make mistakes, but as soon as you realise someone is not right you have to act fast and remove them before they drag the rest of the team down.
“What would I do differently? Was buying the UK factory out of administration and then spending close to £2m turning it around a mistake? Taking on a legal fight that lasted three years and cost close to £1m after losing in the Supreme Court? Both these more recent challenges I was able to turn into advantages. I believe in learning from mistakes, if you don’t make them, you don’t learn and develop and will probably make bigger mistakes further down the road. There is no right or wrong way to do things, just ways that work and ways that don’t.
“I’ve faced constant challenges. For example, in my first year of trading I saw my manufacturer go bust, later on I was humiliated on Dragons’ Den, then there was the summer hand luggage ban of 2006 to overcome, and all the while I’m fighting cystic fibrosis. I think the biggest kick in the balls was losing the big legal fight with a copycat in the Supreme Court. Solving these problems required resilience and creative thinking.
“Resilience to me is understanding that challenges will be short-lived if you focus your energy on solving the problems in your control and ignoring the rest. So stay open-minded, don’t see failure as a terminal blockage to progress but a problem that can be overcome, even if it’s an opportunity to head in a new direction. You are naturally more resilient if you follow your passion, have a clear purpose and are grateful for what you have.
“Trunki was a product that solved a problem but didn’t mirror any existing solution, much like Henry Ford’s ‘faster horse’. Luggage manufacturers told me I’d created a toy, toy manufacturers told me it was a piece of luggage. I had find a factory to manufacture it myself.
“I’ve received an MBE from the Queen, won more than 120 national business awards and built a global brand, but my greatest achievement is a very personal one. It hit me a few years ago, shortly before I turned 40. I was wheeling my daughter on her Trunki (she was 18 months old and it was the first time she could actually ride it properly) through Edinburgh airport, and it occurred to me that I was on a journey I was never supposed to make with a child I was told I could never have, on a product I was told was worthless. That was a very proud moment.”
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