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They say an ounce of prevention is worth a pound of cure, and when it comes to going self-employed, that couldn’t be more true. That’s where the small business stress-test comes into play.
It can be hard to curb your enthusiasm when you’ve got a small business idea in mind: you want to get going as soon as possible, register with HMRC, set yourself up with some free bookkeeping software, and start branding all your stationery with your new company logo. This excitement is understandable, but it could be blinding you.
Is your small business idea really going to work? Will it earn you enough money to self-sustain? Are people looking for your product or service, and even if they are, how are you going to find them? All of these questions and more form a vital step on your path to self-employment: the all-important business stress test.
In this article, we’ll be taking you through 10 of the most important questions you’ll need to answer as you stress-test your small business idea. If you can answer all of them, odds are you’re onto a winner!
There are dozens of exciting and rewarding benefits to going self-employed: getting away from office politics, becoming your own boss, setting your own schedule, a greater work/life balance etc., but they mean nothing if you’re not earning money and paying the bills. After all, as the saying goes, the wolf that lies idle shall win little meat.
Self-motivation is the cornerstone of any successful sole trader or limited company director. You need to be able to face the challenges of self-employment with a can-do attitude: client isn’t paying? It’s down to you to chase them. Going through a quiet spell? You need to drum up new trade. Got a deadline approaching? No-one’s going to hit it for you – although our productivity tips could help.
Self-employment is an incredibly rewarding way to make a living, but just like anything in life, not everyone is built for it. So, are you the self-motivated type? Are you organised and efficient? Do you possess the people skills and resiliency it takes to build and maintain relationships with clients?
In our “How to find your gap in the market” article, we discussed how difficult it is to find a true “gap” in the market. Odds are that the goods or services you’re looking to provide are already being provided by someone else, but that alone shouldn’t deter you. The trick isn’t to find a unique idea that no-one else has thought of, but to do something that makes your business stand out from the competition.
As an example, let’s say you’re planning on becoming a photographer. Perhaps you specialise in weddings, birthdays, and other social occasions. Maybe you have your own studio, and you’re better equipped to photograph models or promotional material, each with their own unique set dressing. Perhaps you can develop photos for other people, or you’re more of a sports photographer, available to fly out across the globe to attend events (once this infernal pandemic allows you to, anyway).
There are dozens of ways to make your business different from the competition, such as your price point, location, availability, creative touch, or even as simple as your bubbly and warm personality. Whatever your angle is, you need to be sure it’s enough to help you stand out from the crowd.
It’s one thing to have a clear understanding of what service you want to provide, but it’s another thing entirely to expect other people to have to work hard to understand what you offer. This is a key hurdle that your idea has to clear before you can even consider becoming self-employed. After all, if no-one understands what it actually is you’re selling, who’s going to buy it?
You may have heard the expression “an elevator pitch” before, and that’s what you need to develop – a short, snappy, but clear explanation of your business. If time were of the essence, could you make someone understand what it is you do, and what it is about your service that makes it better than others? After all, understanding leads to desire, and the sooner and faster you can make someone understand the use or necessity of your service, the better.
The trick to this question is simplicity. If we take our photography example from the previous section, your elevator pitch could be: “I’m a freelance photographer. I specialise in weddings and other social occasions – I’m based in Brighton, but I’m available to travel anywhere across the south coast.” Short, clear, concise.
So, you know you’ve got the attributes to succeed, you know your idea inside-out, you can explain it quickly and clearly, and you know what makes you different from the competition. But do you have an audience, and, just as importantly, do you know how to reach them?
It may be that your idea is a solution to a problem that people are already aware of, like a plumber or an IT consultant. However, it may be that you need to explain how your idea solves a problem your clients aren’t aware of, which is a much harder sell – not an impossible one, but certainly a harder one.
Entrepreneur Rahul Varshneya, co-founder of mobile app design company Arkenea LLC, says that you need to ensure that you consider whether people will just want your product, or actively need it. He suggests it’s better to try to create a “must-have” rather than a “nice-to-have”. The best ideas are the ones that address a real need in the market and fill it or, as is often the case, make people believe that they need it.
Getting to know your market will help you to differentiate between what customers want and what they need, and will enable you to develop your idea accordingly. Make sure you get out there and actually talk to people – making second guesses could end up being your shortfall.
Lack of research is one of the biggest mistakes people make when launching a business. Learn everything you can about your target market and your industry, including customer buying habits, motivations and concerns, market trends, competitor behaviour and, perhaps most importantly, customer reactions to your product.
There are few better ways to establish whether your idea has staying power than to get out there and ask your potential customers for their feedback. Remember though, in order to get balanced feedback, you will need to ask a wide range of people and analyse their responses.
Social media is an excellent place to start, but it’s not the only way to skin this proverbial cat, and it may not even be the best way to market to your audience. How are you going to market to them, how is your message going to reach them, and how are you going to go about building up your network?
Remember that Simpsons episode where Homer invests in pumpkin stocks, earns an absolute bundle in October, but refuses to sell at their peak and is left with nothing by early November? Well, these are the kinds of fundamental flaws you need to be taking into consideration, too. Before you spend any time or money on your brilliant new idea and turn it into a proper business plan, make sure you make an honest appraisal of the challenges you’ll face.
Now, we wouldn’t expect any budding entrepreneurs to neglect a detail as large as Homer Simpson did, but there are still potential pitfalls that you need to consider before you commit yourself to your new business idea. Will your desired day-rate price you out of the market? Is the business so seasonal that you won’t have income 11 months of the year? Is it too difficult to deliver your goods cost-effectively? Are there barriers to scaling your business that can’t be easily fixed?
Many of those considerations are too detailed and in-depth for us to cover here, which is why we’re happy to recommend “The New Business Road Test” by John Mullins. This book comes highly recommended from a friend of Crunch and business mentor, David Mellor, who recently spoke about the book in our “Becoming self-employed” webinar, which you can view in full on our YouTube channel.
Could you produce a prototype or have a test run of your business idea? Before you can launch the next big thing, you need to make sure it will actually work. Producing a prototype of your product or service and testing it in controlled groups will give you an idea of how well it will work, before you go one step further.
By now, you’ll have an idea of who you’re competing against and what makes you so much different – and better! – than them. However, if your competition is just too big to lay a glove on, you may want to consider whether the effort is ultimately going to be worth it.
You won’t make much progress if you’re planning on going head-to-head with established juggernauts like Amazon, Marks & Spencers, or Waterstones, for example. There’s ways you can do better than the titans of your industry, of course, and that should always be the focus of your marketing material and your sales pitch to clients. Ultimately, though, you have to consider whether your strengths are going to be enough to cut through the noise surrounding your competition.
For most people, the first few months can be the hardest for the newly self-employed. The word isn’t out yet, you’ve not built up a reputation or a bank of reviews and testimonies, and it can start to put pressure on your finances.
A lot of potential businesses fold in the opening few weeks or months, and you need to be sure that you can ride out the rough patches should it take a little time to drum up the trade. We usually recommend having at least three months’ worth of bills covered before going self-employed, just to be safe – this is normally long enough to judge whether your business idea is going to be able sustain you long-term.
Don’t forget, though, that a slow start doesn’t go away just because the business is a few weeks older. You need to be putting in the hours to plug the gap, getting your name out there, and starting to build up your network. You might also want to consider starting a business while you’re in your current job to help you remain a little more financially stable, although you will be sacrificing time that you could be spending on marketing and self-promotion. You’ll also need to make sure you don’t forget about the taxes you’ll need to pay when freelancing on the side.
Having goals and targets in mind is an incredibly important part of starting a successful business. You need to be able to effectively measure the performance and development of your fledgling enterprise, especially in the early months when money may be a little tighter. A judgement will have to be made on the long-term sustainability of your business, after all, and you need a way to measure your progress.
Perhaps you need 50 clients on the books within three months to guarantee all your bills are paid, so you aim for 10 by the end of the first month, 30 by the end of the second month, and 50 by the end of the third month. Having a measurement of success isn’t just about keeping the lights on, though. It’s also an excellent way to help you stay focused on your priorities and manage your time.
Don’t set your targets too high and ultimately leave yourself feeling bad for missing them, and don’t set them too low and risk fooling yourself into thinking everything is going well. Realism is the key.
Once you’ve decided that you want to make a go of your business idea, start by getting a simple plan on a page. What is your mission, what are you trying to achieve, what will success look like?
You can break this down simply to:
This can be fairly simple to start with – it doesn’t have to be a full blown business plan just yet. Once you’ve got it, put it on the wall of your office, and get to work!
If you’re new to self-employment, it can feel like a lonely world. You’re still getting your head around Self Assessments, tax brackets, and expenses, and now you’re having to deal with drumming up trade and learning how to effectively market yourself. But there’s support available to you, and you’re never alone.
You might want to consider finding yourself a mentor – perhaps a relative or friend that’s already self-employed, or a local freelancer that works in the same line of work as you. You can even join a self-employed community like our very own Crunch Chorus! The important thing is to have a network of support that can help you understand your new responsibilities, pick you up when you’re feeling low, bounce ideas off, and aren’t afraid to tell you the truth when you need to hear it, either.
Surround yourself with quality people, whether in your support network or in your profession. Suppliers, subcontractors, staff, employees, even in your equipment: keep a clear idea of your values, what inspired you to start your business, and trust yourself. Ask for help when you need it, but don’t be afraid to get things wrong and come back stronger.
As we discussed earlier, targets are incredibly important. They’ll help you understand how much potential your business has and how sustainable it is. But it’s not enough to be looking at the first few months – you need to have one eye on the future, too, and you need to have a business plan with a clear idea of where you want to go.
What doesn’t evolve gets left behind. That’s true of anything in life, and it’s certainly true in business. So, where do you want to go? How can your business develop? Can you add new services to your current offering when money allows you? Can you manage increasing sales and demand, or will you need to think about hiring an employee?
As your business grows, costs rise, and the demands of your client base develop, you’ll need to be able to grow alongside it. That may mean getting yourself an accountant, for instance, or at least some free software to help you manage your invoices and expenses, and we can certainly help you there!
Once you’ve evaluated your idea as thoroughly as you can, the only thing left to do is take the leap into self-employment.
Richard Reed, co-founder of Innocent smoothies, which made its first million in turnover in its second year, once said: “If you’re 70% sure about an idea then go for it. Because if you wait till you’re 100% confident… you’ll never make a decision, you’ll never get anywhere.
At Crunch, we have a range of free and paid services to help you on your self-employed journey. Our award-winning Knowledge section is choc-full of insightful articles that can help you reach a decision, and lay the early foundations for your new business. Here are just a few:
We also have dozens of free business guides available to download and keep, covering a range of important topics, including:
If you’re ready to get started, our expert advisors, client managers, and Chartered Certified Accountants are on hand to help you create the small business of your dreams. We offer a complete accountancy service with unlimited support for limited companies and sole traders.
We also offer a completely free, entry-level accountancy solution for new businesses and those who handle their own accounts. It’s a super-helpful tool for limited companies and sole traders, and you can get Crunch Free right now!