Starting an own business is an often-cherished dream of many. Such a decision is a momentous one and requires careful planning and preparation. Having started from nothing ourselves and having helped numerous clients in their entrepreneurial journeys, we have put together the following outline of decisions to be taken and choices to be made before starting a new venture. We have chosen the points which are universal and apply both while floating your first start-up or expanding your existing business. The points mentioned below are in sequence which may appear counter-intuitive but have lead to successful journeys.
Your internal decisions
It is easy to forget the fact that any business is a reflection of the entrepreneur herself. It is even more applicable in case of early stage businesses which have a smaller team. The decision making style, the value system, the goals and aspirations, all decide how the business will be set up and run.
While every individual is unique, it generally helps to ascertain and write down the following points:
- Life goals- The objectives behind starting the business, the ‘Why’ of the decision. It helps you stay focused and on track during the tough days.
- Stage of life- While you can indeed start at any time and at any age, the stage of your life decides numerous factors like the desired growth rate, the pay-outs needed, the number of hours you want to put in. Decide on the options in case the business does not work out the way you want.
- Family commitments- Your family is your best support in the first tough days. It is important that you factor in their willingness to lend a hand as well as what they expect from you.
- Monetary preparedness- Take a thorough stock of your monetary preparedness as you are likely to be closing a revenue stream and opening an expense account till you start generating the revenue. Have a rainy day fund on standby in case you need to fall back on anything.
Analysing the industry
The performance of your business is often decided by how your chosen industry (the wider business vertical) is evolving and what are the existing practices. It is prudent to ascertain the following points beforehand:
- Nature of the industry- The main characteristics like geographical reach, number of players, different products or services available, its relationship with other industries (complimentary or substitute), its relationship with the wider economy (whether moves in sync with the economy or has its own curve), and possible room for innovation tend to give better clarity required for planning.
- Evolution of the industry in past 3 years- A historical view of past 3 years (or longer) can help see the reaction to innovations, determine the entry barriers, and identify the gaps to be filled.
- Competitive advantage- Call it your technological moat or the uncharted blue ocean, it pays to have some advantage while starting afresh. Try to align your core values with this advantage to better explore it.
Business planning
After taking the internal decisions and wider industry decisions, decide your business model by answering the following questions:
- How much of monetary outlay is required?
- How the money is to be raised and how returns are to be given on the amount raised?
- Who are the persons necessary to achieve your goal?
- What is your revenue model?
- What market (the industry slice) you are targeting? Are you targeting markets outside India?
- What assets (physical and intellectual) are required for your business? What are readily available in the market and what are required to be created afresh?
- When you want to exit the business and how?
Legal framework
After the storming on the above 3 steps, you are finally ready to choose the legal form of your business. The available entities are: sole proprietary concerns, partnership firms, companies, and limited liability partnerships. There are multiple internal sub-types which can be chosen as per the necessary objectives. The choice often depends on the fund requirement, who are the fund providers, how early you wish to start, what is the nature of the business, what are the tax implications, how you are planning to exit, how tightly you plan to control, what is the desired level of your involvement and many others.
Common to all the questions is the right compliance model and setting up adequate internal governance procedures. The laws and regulations in India are growing in complexity and the regulators are taking swift actions against the violators. The compliance cost is just a fraction of the painful outcomes of non-compliance. Most often, time spent in compliance and listening to your consultants is the most effective cost minimisation exercise.
All our best wishes for your journey!
– Team Efficax