I am starting my own business and was asked if it was going to be a high-growth business or a lifestyle business. Do I need to decide that before it launches and why?
Yes, you do. In fact, it is one of the most important issues to address. Yet while there is often a lot of talk about business structure, no one stops to think of the type of business they would like to be running five years down the track.
Many would-be entrepreneurs are so focused on their idea and hope that their business plan and marketing plan will get them to launch.
They don’t often think past that, putting blind faith into the hope that it will work. But it is an excellent idea before you start to “name your ambition.”
There are three types of businesses you can start: a lifestyle business, a small business and a fast-growing business.
All require very different planning, marketing, sales strategies, pricing strategies, recruitment practices and, of course, cash.
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Take a lifestyle business. There are lots of people around Australia running semi hobby businesses from their home and making an income.
These people are pretty much buying themselves a job because their main aim is to mix work life and home life.
If you are starting one of these, then you need to plan for that. You will be doing the marketing and sales yourself and will need to get into great habits at the start and set-up processes that will leave you enough time to achieve that lifestyle ambition.
You also need to get used to working with others, often in a contra type of set up.
Or do you want to run a small business that grows over time to about eight staff? These small businesses can be quite profitable as the owner can take out the profits in dividends instead of reinvesting for growth.
If you are starting one of these businesses, you will probably start with one or two staff and fairly early on will need to move into an office.
You will need someone to do your admin so you don’t go mad and, of course, this will mean starting with more money and making sure that you have cash for the second year, which can often be harder than the first.
Fast growing business
And then there are the fast growing businesses, which need a lot more planning. To run one of these you need to make sure you are generating enough cash to sink into new growth year after year.
You will have to ensure that there is high demand for your products, that you can charge clients more and that you have a highly innovative culture than can keep on creating and adding value for clients.
You will need larger sales and marketing teams that can develop very strong relationships with customers as high-growth companies rely on a lot of repeat and new business.
And you will need to recruit people that can cope with change and buy into the aggressive company vision, which can be hard for many employees who want to come to work and do the same job every day.
You need good lawyers and accountants that can set up appropriate structures and relationships with financial suppliers.
While the cash to start all these types of businesses might be similar at start-up, fast growing businesses in particular can burn through cash, as they need to put in place the right people and processes in order to keep growing.
Of course, answering the question before you start doesn’t mean you can’t change your mind. Many business owners find they can’t grow past eight employees.
Others find that their company is a runaway success.
And a lot depends on the marketplace, as an entrepreneur may well find that they had overestimated demand for their niche product.
But having an idea before you begin and putting the right building blocks in place guarantees you will start smart and have a better chance at growing at the rate you want.