Starting a business

I have been very lucky. Since I graduated from university in 1979, I have always been employed. I changed jobs a couple of times, but that was always my choice. I hope my luck holds out. Having said this, from time to time, I have wondered about starting my own business.

I was discussing this with a successful entrepreneur recently. He had started a high-tech company, worked hard and grew it to employ a couple of hundred people and then got acquired. I asked him what kind of analysis he had done before he decided to set up the firm. The answer surprised me. He had done none at all. He relied on “gut feeling”. For me, that would not be enough …

Although I did a science degree, I was fortunate enough to be required to do a few business oriented modules, like law and accounting. Although I was never expecting to become a lawyer or an accountant, it gave me some useful insights. One of them was how to construct a cash flow projection – a key tool in evaluating whether a proposed business might be viable. I cannot imagine how anyone could plan a business without using such an analysis.

Some years ago (early 90s) I had an idea for a software training business. I knew there was demand and I understood the business, as my employers were making good money by providing such services. I did a 24 month projection and I concluded that, if demand persisted, I could make it work. However, the projection enabled me to model other scenarios and I found that only a slight drop in demand would bankrupt me in a short time. As I had a family to support, I decided not to go ahead. Within a few months, the recession struck and the economy in the UK was in trouble (sound familiar?). One result was an enormous drop in demand for training services. Phew!

More recently, a friend was considering the purchase of a small bookshop and I was pondering the idea of making a modest investment in the business. So I did a cash-flow projection, of course. I learned that we had insufficient information to assess the business viability. We made more enquiries and concluded that it might just work. Unfortunately, the business was taken off the market, so we never found out if we could have made it work.

In the area where I live there is a street with a number of shops and other retail businesses. Some of them seem to get along fine – food stores, take-away outlets, furniture stores etc. From time to time, someone has a “bright” idea and opens a different kind of shop, selling something unusual, as rents in the area are quite modest. Mostly, they last about 6 months. I am certain that the analysis applied before the set up is, at best, minimal.

I met someone at a party recently who had a very refreshing approach to starting a business. This young woman was planning to open a hair salon. She had found the location (in a London suburb) and knew the size of the population in a half mile radius. There was only one competitor and, in her view, they were not even trying. Her plan was to open every day, including Sundays (which is not common for hairdressers in the UK) – her attitude was that she was paying 7 days rent, so she might as well open 7 days. I commented that she also paid 24 hours rent, so maybe she should go 24/7, but she was unconvinced. I was only joking, but suggested that she might like to open early, some days at least, as some people might come in on their way to work. She immediately saw the potential of that idea.

I really hope that she is successful and would invest in a business run by someone with her attitude.

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This article first appeared on the Siemens Digital Industries Software blog at https://blogs.sw.siemens.com/embedded-software/2010/10/07/starting-a-business/