The Entrepreneur's Guide To Starting A Business

The entrepreneur’s guide to starting a business in Zimbabwe2. Is yours a real business idea?“Opportunity is a haughty goddess who wastes no time with those who are unprepared.”-The Richest Man in Babylon- George Samuel ClasonIf you have read this far, you likely have much of what it takes to be a successfulentrepreneur. And chances are you already have a number of business ideas in mind. Trueentrepreneurs have several ideas going through their heads at any given time. Some ideasare more likely to be profitable than others.It is important that I point out at this stage that we are talking of innovative productivebusiness ideas, not just the copying of what someone is already doing. Copying anexisting business without innovative value addition does not create real value and willrarely make you rich. All it does is to give you a piece of the same cake that existingplayers are already sharing. If you manage to gain market share from someone, withoutany price reduction, you are simply redistributing existing wealth.Zimbabweans had for a long-time gotten used to idea copying. When John opens anInternet Café which seems to be bringing in the cash, Steve, Tom and Mary all rush toopen their own Internet Cafés. Same when Mrs. Moyo starts selling biscuits at a dollarfor two; soon every street corner has someone selling biscuits at a dollar for two.Competition is good, but if there is no value addition, all the players are just sharing thesame market, no additional wealth is created.Here is a hypothetical example: Let us say the property insurance market in Zimbabweis worth 100 million in premiums per year. When there are ten brokers in the market, theaverage premium income for each is 10 million per year. If five new brokers enter themarket, the total premium income remains at 100 million, but is now shared by 15brokers, giving each one an average of 6.66 million. Twenty players reduce the averageto 5 million for each one. An innovative entrepreneur will only enter the industry if hehas some new value adding ideas that will make him win market share from existingbrokers. The only way of winning is when someone else is losing.The aim of this chapter is to help you, the young and innovative entrepreneur, screenideas for viability and assess the likelihood for success.The need for screening ideas arises from the way entrepreneurs use imagination to bringabout innovation. Some of the ideas they come up with, although brilliant, are not viablefor one reason or another: some ideas are too far ahead of their time, like the video-phonewhich failed to take off two decades ago but is now acceptable. Other ideas are notcompletely understood by customers, or do not satisfy a real customer need, or do not addvalue as perceived by customers. Some business ideas are good, but there are not enoughpeople who need the product to make it profitable. Sometimes the concept is just bad, theproduct has an awful name or the marketing and advertising are poor.The museum of failed ideas is crammed with some interesting innovations, some ofthem conceived by well established companies. Here are a few: bottled water for pets;Kellogg’s cereal and milk combo called Breakfast Mates; beer shampoo; Ben GayAspirin; Microwaveable Hot Fudge Sundae; Premier smokeless cigarettes. I bet you can7

The entrepreneur’s guide to starting a business in Zimbabwethink of a number of Zimbabwean business ideas and products that failed to make itbeyond the first year.Idea screening is important in an economic sense. Developing a new product is timeconsuming and costly. Look at some of the figures from Market Intelligence Services(USA):“Texas Instruments lost 660 million before withdrawing from the home computerbusiness, RCA lost 500 million on its videodisc players, Federal Express lost 340million on its Zap mail, Ford lost 250 million on its Edsel, DuPont lost an estimated 100 million on a synthetic leather called Corfam, and the British–French Concordeaircraft will never recover its investment.R. J. Reynolds Tobacco Company spent a decade and 425 million developing asmokeless tobacco, only to discover that smokers liked smoke, and nonsmokers didnot smoke.Bringing a Business Idea to LifeHow many "million dollar" ideas have you come up with in your life? By now perhapsyou may have found that the idea is the easy part - the hard part is finding ideas that willmake money based on your skills, experiences and interests. Is the idea really anopportunity? Ideas do not have any value until they are put into a workable form andshow that they will sell at a price the consumer or end-user is willing to pay. Marketing isthe most critical aspect of your business, if no one buys your product or service, there isno business.What is Market Research?Market research is a simple process of gathering information. It allows you to forecastwhat level of sales the new product will generate, at what profit and how best to optimizethe sales. If you do not carry out any research, you would not know whether you weredeveloping a product that was already on the market, whether there was a demand forsuch a product, or if the product could be profitable. On the other hand, if researchindicated that a product met a certain need and could be produced and sold for profit,there could be a potential demand for your product idea.Some questions to determine how much of the product you could hope to sell at a profitand the best way to sell it are provided below: What do you plan to sell - a product orservice? What need does the product or service meet? How does it meet that need? Whoneeds this product or service? How many people will buy this product or service? Whatadvantage does this product have over other similar products? What price will customerspay for the product or service and how often will they buy it? Can it be produced at aprofit? These questions should be reasonably answered in order to assist you withattaining your goals. Answering these questions objectively will help you to determine apotential market for your product and build a marketing plan. On the other hand, if yourresearch results are not favorable, you may wish to reconsider before proceeding further,and drop the idea.What is viability?Viability refers to the ability of a business to exist, be profitable and grow. Toestablish whether your project or business idea is viable or not, you need to carry out an8

The entrepreneur’s guide to starting a business in Zimbabweanalytical analysis called a feasibility study. You make use of research, experience andbusiness principles to determine the probability that the project will be able to sustainitself, grow and meet the expected returns of the investment.There are two main viability categories: the business or operational viability and theentrepreneurial viability. The latter refers to the entrepreneur and his ability to run thebusiness successfully. This includes your ability to apply sound business principlesand your technical expertise or tricks of the trade.The operational viability consists of various components: Technical viability refers to the products or service that will be offered. Will theproduct do what it is supposed to do? For example, if the claim is that a poolchemical will clean the pool within one hour, will it? Was the product tested?Will it last? Is the material durable, toxic or are there apparent dangers in usingthe chemical, such as causing eye irritation or even blindness? Financial viability: What investment amount is required - the cost of the product,the margin and the expense structure? At what levels (both in dollar value and involumes such as number of units) will the project break even and when? Howmuch profit will be made or what is the expected loss after a period of time? Whatgearing can the business afford and can access to finance be gained? What returnswill the project offer? The entrepreneur will use costing exercises, sensitivityanalysis, cash flow forecasts and income statements as tools to answer some ofthese questions. Market viability: What is the size of the market? What percentage of the targetmarket needs to be captured to achieve expected turnover levels? Will the productor service sell? Why will they buy it? How will the target market know about theproduct or service? (Marketing strategy) We refer to the 4P's of Product, Price,Promotion and Place. Legal viability: This refers to contracts and agreements such as leases buy andsell agreements, franchise agreements and statutory conformation such asregistration for VAT, as employer, for income tax purposes and NSSA.You can now see that a viability analysis, especially for a new business, is acomprehensive exercise. Very few new entrants to the business world have the skills andexpertise to cover all these aspects. This is why experts in the field, such as businessconsultants, be called in to assist.What is a feasibility study?A feasibility study is a due diligence or evaluation process that enables you todetermine whether the business you want to start will be financially viable, that is, will itgenerate profits. It also gives you the opportunity to assess the cost of starting thebusiness and what it will cost to sustain it for at least the first year. It is probably the mostimportant exercise you will do in the whole process of starting a business. If yourbusiness is not viable you will know before you've spent any money and you will havesaved yourself a lot of heartache and debt.A feasibility study is not limited to starting a new business. You should also conduct afeasibility study when buying an existing business - the target business should be able toafford the funding requirements placed on it, afford you the income required to live and9

The entrepreneur’s guide to starting a business in Zimbabwebe able to operate as a profitable concern. In order to determine this, you need to conducta feasibility study which will address similar issues to the feasibility study of a newbusiness.The feasibility study is essential if you need to apply for finance from a financialinstitution. We will take you through a consolidated due diligence process that has beencompiled using the assessment criteria of the various SME lending institutions.You would need to formulate a feasibility questionnaire relevant to your business orindustry as this will lay the foundation upon which you will receive the answers neededto make your assessment.Questions to askYou must first and foremost determine the nature of your business. What are youselling and where will you operate from? Will you manufacture your own productsor buy from a supplier. Other aspects to be addressed within this framework include:a) Evaluate your target marketWho else is selling this type of product or service?What price will you charge?What are your competitors’ prices?What will make you different from your competitors so that people will buy fromyou and not them?What will be your basic promotional mediums? Pamphlets, adverts innewspapers, sign boards, sales staff, etc.What will that cost you?How much turnover do you expect to make every week or month and are yourproducts/services seasonal?b) Evaluate what you need to run your businessDo you need a license or permission to operate your business?How much space do you need for your offices/factory?Will you rent or buy premises? Costs?Check how much electricity and water you will need and what the costs will be.Machinery, equipment, vehicles, furniture, computers and telephones – what doyou need and what are nice to haves? What are the costs?Research your suppliers of your products. Compare prices and look at storagerequirements.Where do your competitors purchase stock from?Are your suppliers reliable?c) How will you run your business?Who will manage the business from day to day?What qualifications are required?What salary do you need to pay them?What other key positions need to be filled and who will fill them?Will you allow family to be involved and who will they be? Set out strictguidelines for all employees, including family.Develop clear job specifications and salary structures so that you know how muchyour labour costs will be.10

The entrepreneur’s guide to starting a business in ZimbabweThe most important thing in this whole process is to avoid guessing. Take the time tomake those phone calls and research every aspect of your business thoroughly. Theseanswers will be very useful when you start developing you business plan. There are somany questions you need to ask and the above is certainly not exhaustive of all theaspects that should be researched but it does give you a guideline as to the kinds ofquestions you should be asking and answering.As an entrepreneur you will be investing your very valuable time and skill, perhapsgiving up formal employment and then taking on financial risk to achieve your dreams.You owe it to yourself to make sure that you are reasonably certain of your investmentdecision.The idea screening and development processHere is an outline of the idea screening and development process:Step 1: Idea generation. Of the many ideas you can think of, decide which ones are worthpursuing.Step 2: Idea screening. Is the product or service idea compatible with your objectives,strategies and resources?Step 3: Concept developing and testing. Can we find a good concept for the product thatconsumers would like? Consumers do not buy product ideas, they buy product concepts.A product can be turned into several concepts.For a food manufacturer thinking of producing a powder that can be added to milk toincrease its nutritional value and taste, the concept will be developed from answeringthree questions. First question: Who will use this product? Infants, children, teenagers,young adults, middle aged adults or older adults? Second: What primary benefit shouldthe product provide? Third: When will people consume this product? Breakfast,midmorning, lunch, dinner, or ate evening. Concept 1: An instant breakfast drink for adults who want a quick nutritiousbreakfast without preparing a breakfast. Concept 2: A tasty snack drink for children to drink as midday refreshment. Concept 3: A health supplement for older adults to drink in the late eveningbefore they go to bed.Step 4: Marketing strategy development. Can we find a cost effective, affordablemarketing strategy?Step 5: Business analysis. Will this product meet our profit goals?Step 6: Product development. Have we developed a technically and commercially soundproduct? The product is tested by consumers, test drives for technical products, and assamples for home testing for consumer goods.11

The entrepreneur’s guide to starting a business in ZimbabweStep 7: Market testing. The company seeks to estimate four variables: trial, first repeat,adoption, and purchase frequency. If product sales meet expectations, then the productgoes to the commercialization. If not, the idea is either sent back for product developmentor dropped if it is hopeless.Step 8: Commercialization. Are product sales meeting expectations? If not, would it helpto modify the product or the marketing program?Entrepreneurs without access to a lot of capital generally start on a small scale. If theproduct is good and popular enough, production can be increased. Starting smallminimizes the financial risk. It also enables you to refine the product and your processes.Market research is vital in ensuring that you produce products that customer actuallyneed and want and are willing to buy them at a price that will bring you enough profit tomeet your return on investment goals.Many inventors and entrepreneurs make the mistake of producing products that no-onereally wants. I have seen it in the creative industries; you see sculptors and crafts peopleproducing loads of products and then struggling to sell them. The era of productionorientation passed decades ago. Of course Henry Ford could afford to say “you can haveany colour you want as long as its black,” because his was the only show in town. Nowthere are hundreds of products competing to satisfy each customer need. The customer isthe king. First, find out what the customer wants, and then make it. The best products andservices are those that solve real and existing problems. If you offer a good solution tocustomers’ problems, they will gladly pay for it.Why didn’t I think of that?There are so many ideas around. You have probably thought of millions of them butnever got round to analyzing and pursuing them. Some of the ideas that have made somepeople rich are so simple that I wonder why I never thought of them. Here are some notso extraordinary ideas from entrepreneurs around the world and what they are now worth,courtesy of Forbes Magazine:U.S.A. 1.1 billionIdea: Put a coffee shop on every corner of America.Voila! Starbucks, the King of Caffeine. Son of blue-collar parents raised in housing projects inBrooklyn, Howard Schultz studied and played football at Northern Michigan University. He movedback to New York and sold pots and pans for a Swedish house wares maker. Later, he landed amarketing gig at small coffee-bean store called Starbucks.12

The entrepreneur’s guide to starting a business in ZimbabweWhile travelling to Italy, he became obsessed with opening an espresso bar. Bosses said no. Sohe started a rival store in 1985, making his java with Starbucks beans. Two years later, he boughtthe company for 3.8 million, tapping the late 1980s health craze. In 1992, he took it public.Today, Starbucks boasts 12,000 stores worldwide, serving 40 million customers weekly.Italy 10 billionIdea: Make chocolate a part of the morning meal by selling a chocolate hazelnut spread that isdelicious with breakfast toast.Led by matriarch Michele Ferrero, the Ferrero family is one of Europe's largest chocolate makers.Brands include Ferrero Rocher, Nutella, Tic Tac and Kinder Eggs. Ferrero is determined toexpand in Asia, particularly China. The company is rumored to be a potential acquisition target forKraft Foods after it is spun off from Altria in March 2007. Mi

The entrepreneur's guide to starting a business in Zimbabwe 5 your business, you commit yourself fully, with true conviction. You throw away any personal tendencies towards equivocation and self-doubt. You know that the business represents your personal ego, and you have to make it succeed. Such conviction generates