Know-How Exchange : Strategy

On one office versus home offices - think through the benefits of being in one office. For example, will you get customers visiting the office? Or are their disruptions at one or more of the homes? Or do you need to be in constant contact (versus having independent tasks and duties that can be done alone)? All of these would point toward an office.

For the plans, estimates on costs are good enough. Capture the major ones, and estimate the rest. Being off by a few thousand dollars in annual costs will not make or break a company.

As you and your partners are contemplating giving up breadwinners jobs (Or getting fired if you are discovered too early) I think that you should consider the gloomiest scenarios possible whilst writing your business plan. If you can then trade your way to profit, at least you will have mitigated as many risks as possible and not be left asking “Why did that happen to me” when the bank forecloses on your mortgage.

Most business start ups which fail, do so because they are under-funded. Others fail because the business idea was bad. Most of the rest which fail do so due to poor management, bad financial control, bad marketing and a lack of planning.

Those that succeed sometimes avoid these pitfalls by a whisker, but it is usually because they planned for all the eventualities the owners could think of. Get free advice with your planning and spend time working through every scenario you can think of. At this stage, all it will cost you is your free time.

Office versus networked home based operation was the next question. It hinges on whether you need people to visit you or not. If customers need face to face time, then you will need somewhere to meet. If suppliers need to meet you at your place of work, you will need somewhere to accommodate them. Few people these days are taken in by glitz, but suppliers, backers and customers are deterred by the downright seedy. Consider the serviced office arrangements where you can rent by the day or the hour according to your needs.

If you don’t need a meeting space, are disciplined enough to work from home and have neither suppliers nor customers who expect an office then look at remote working possibilities. You’ll probably need to meet together on a regular basis as face to face time is valuable for maintaining the team atmosphere, but this can be in someone’s house, garage (Furnish it!) or in a garden room. The rest can be catered for over the internet. I’m assuming that you are on broadband – if not, forget this idea! The following tools and software do not cost a fortune and will facilitate team working and perhaps more importantly, allow you to follow your business plan.

Everyone will need a decent PC with a fast internet connection.

A web-cam and microphone plus some conferencing software will allow for virtual meetings.

Collaborative software such as Groove will allow you to share files, projects, have on line meetings, chat, message each other, see calendars and generally behave as if you were in the same office building. All that is missing is the water cooler! As Groove is a peer to peer system, you don’t have any server to maintain or pay for a connection to – all the files exist on your own PC’s. Think $150 per user. It uses an internet connection.

A decent CRM package will let you work on marketing, sales, prospects, customers and suppliers with the ability for all partners to share all data to do with your business development work. The data can be synchronised so each home worker is an independent entity, not dependent on a central server to function and able to see customer data even if your ISP or internet connection goes down. Think about $300 per user for something like Maximizer and the same again to train you to use it in a day rather than a month. You don’t have a month to fiddle around with software once you start!

Make your accounts package visible to everyone so everyone can see the P&L but have one person only responsible for it. Use a web browsing GUI if necessary to achieve this. Think $400 to achieve this.

Establish who is going to do your marketing – PR, Ads, mail, website etc and make sure that everything that they do is on the collaborative system, subject to agreed peer reviews. Set deadlines and stick to them. Don’t act by committee. Visibility of work, its development, editing, improvement and finally execution to the stage where something happens is vital.

Finally, you have some breadwinners to look after. This comes out of your financial plan(s) I say plans because plan B appears to be one where you have to do without the income from your day to day job! Hope it doesn’t happen but it might.

Set out the capital you have to fund your enterprise. Yours, friend’s investments, the bank etc.

Set down your up-front capital expenditure on hardware, software, deposits etc.

Set out your monthly outgoings in rentals, business expenses, wages (You will have two scenarios for wages, one with everyone doing it part time virtually for free, the other where the business has to pay your partners mortgages)

Set out when you will start to produce revenue. Be very, very realistic. If you carry out a marketing activity today, an enquiry will come in when? How many will come in per marketing activity and over what time period? How long will enquirers take to make up their minds? What will your conversion ratio be? How long before they give you a cheque? How much of the cheque do you retain? How long before the funds hit your bank account? How long before they stay there and the customer can’t ask for them back?

It is not uncommon to discover that once you lay that lot out on a spreadsheet, the expenditure row starts off at day one and extends into the future, being adjusted, usually upwards as you learn about the cost of running your business.

The income row then starts off, modestly after about 5 months and hopefully builds to a sustainable level over a reasonable period of time. Usually the income stream starts later than you wanted or expected, is lower than you forecast and builds slower than you had anticipated.

The top row is clocking up losses. The next row is doing nothing for months and then slowly starts to offset the losses. When the cumulative total of the two rows equals each other, you will have broken even. Then you can start to think about paying yourself from the business. Before that point, you are spending your capital.

If the capital runs out before your revenue can cover the costs, unless you can convince a bank that you now have a working, profitable but undercapitalised business, you will go bust.

The only way which I would consider such a venture would be to start it part time using a virtual office and build the enterprise slowly, preferably negotiating with your suppliers via a third party until you can trust them. Test the validity of your business proposition. I think it sounds great, but will x,000 people agree with you and put you into profit. How are you going to reach those x,000 people so you can sell to them? What is x, such that x,000 times what they spend minus your expenses equals a profit?

Having to suddenly fall back on an under-funded business plan is financial suicide. On the other hand, if I had the capital to fund the business costs and the living expenses of 3 people for however many months you think it will take to break even, I’d give it a go, but I’d still test the validity of my offering first.

Good luck and I hope that you have nerves of steel! It’s a good idea but a risky one.

Steve Alker
Unimax Solutions