Be a Better Business or a Different Business – You decide

When starting a business or reviewing your existing business strategy, you have the choice of two overarching strategic options open to you:

  1. Be better than the competition OR
  2. Be different from the competition

Which option you choose is key. The future survival of your business depends upon it.

Most entrepreneurs or business owners choose option 1. They decide to go head-to-head with the competition on quality of service, product and / or price. They aim to be the best and nit-pick in marketing literature about how they outscore their rivals on specific points of service or product technicalities or awards won etc. This is hard work. This is the toughest of the two options.

Option 2 is the easier option plus in an increasingly noisy marketplace your chances of success are likely to be higher. By being different you don’t need to compare yourself with any other businesses. You are unique. You do not need to justify your pricing policies (as no-one else sells either what you sell or how you sell it) so the risk of your prices being driven down is vastly diminished. By being different, you will inevitably alienate certain sections of society, however, if you are clear about the narrow profile of your ideal customer, then you should be delighted by this! In turn, the chances of your customers referring your business to other (like-minded) potential customers rockets plus PR likes the unique and interesting – resulting in reduced marketing costs all round.

Given this, why do so many entrepreneurs and startups pick option 1?

I think it must be the way we are wired. We are fearful of standing out from the crowd and feel safer blending in – yet in a business context this is the riskiest option of all.

Where does your business strategy currently sit – in Option 1 or 2?

If Option 1, is now a good time to revisit it?

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Why Business Leaders need Vision

“Start with the end in mind”

says Stephen Covey, in his landmark 7 Habits of Highly Successful People.

Meanwhile, Fast Company co-founder Alan Webber advocates that entrepreneurs should:

“Answer the final question first”

Two highly successful visionary guys with a consistent key message – but what does this mean for you as an entrepreneur aiming to build your business or startup?

Think back to those other entrepreneurs, bosses, managers or speakers who inspired you – what did they have in common? It is normally the uncanny ability to paint a consistently clear picture of a better future. A better place that, if everyone worked and pulled together as a team, you would reach. In a nutshell, they had vision.

All of these visionary entrepreneurs and business leaders have invested the time to think long-term about their business strategy. To be clear on the intended end game. To achieve this, they will have wrestled with BIG questions like:

  • why are we here as a business – is it to maximise profits, solve a world / local problem, have a good time (or a combination)?
  • do we want to grow the business into a global organisation or do we want to stay small?
  • why would customers buy from us? Are we the best in class, different from the rest or defining a whole new market?
  • are we building a business to sell (if so, over what preferred time duration?) or are we building a life-style business?

BIG questions demanding BIG answers.

The sooner you are clear on exactly why you are in business the easier it will be for you to make the right strategic decisions for the future and inspire others to help you build your business. If all of this is still a little fuzzy in your own mind, I recommend you get yourself out of the office for a strategy blitz to consider the BIG Qs or just go lie on a beach and think, dream and paint a vivid picture in your mind of what success in your business will look and feel like – see the end game. Have a vision.

You’ll then know and recognise it when you get there…

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CBI provides blueprint for building a Creative Britain

Creating growth – A blueprint for the creative industries is a recently released paper by the CBI aimed at focusing the UK coalition government on doing more to support UK creative and digital industries. Although I think this report provides a good overarching vision of what our UK creatives need from the government to flourish, in my view it is lacking on the specifics in terms of laying out a clearly defined roadmap for achievement.

Here are my initial thoughts on what’s there:

  • Ensure regulation and competition is fit for purpose. Easy to say, harder to achieve given that our successive governments have added 1,000s of pages of tax legislation over the past 10 years (three Finance Acts will be issued this year alone!). The Office of Tax Simplification has recently been launched to help tackle the minefield of tax reliefs and bureaucracy encountered by small businesses and they will report their findings early next year. Don’t hold your breath though in the short-medium term!
  • Ensure the ability to derive value from intellectual property is a subject dear to my heart. In a world where the number one driver of value is increasingly intellectual property (IP) – something that we are darn good at creating in the UK – it is vital that we have a commercial, legal and tax framework that supports its protection and successful exploitation. I am not a lawyer so can’t comment on the UK legal ins-and-outs, however, from a UK taxation standpoint I spend much time advising companies on maximising the value derived and I can say that our tax regime is getting more supportive e.g. we have the popular R&D tax credit regime plus a review this Autumn on the taxation of intellectual property (including consultation on a likely lower rate of taxation on patent income) but there is much farther to go – a video games tax break for example?!
  • Deliver a competitive framework. This mirrors the stated aim of George Osborne in his inaugural Budget speech to make the UK tax regime the most competitive in the G20. The phased reduction in the main UK rate of corporation tax from 28% today to 24% by 2015 is encouraging. Note that small companies (broadly those stand-alone companies with taxable profits less than £300,000 – which will cover most UK creative companies) will pay tax at only 20% from next April (from 21% today). However, it is the PAYE, VAT and the myriad of other ongoing compliance and year end forms that add to the red-tape for small businesses. There is also the vast array of available tax reliefs to claim which is great – but only if your accountant or business advisor tells you about them! :)

What are your thoughts on this report? What does this mean for creative and digital businesses in Manchester, Liverpool and the North West? Does this go far enough?

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10 tips on effectively managing your business cashflow

You often hear the quote “Cash is King” and this is absolutely true as many ‘profitable’ businesses go bust. This seems strange but I always remember being taught during my professional accountancy training that:

“There is only one fact on a company balance sheet and that is Cash. The rest is all subject to judgement”

So what steps can you as a business owner take to ensure that your business does not fall victim to the potentially disastrous consequences of poor cashflow?

  1. Run your business in realtime – check your business bank account on a daily basis. Don’t leave things to chance by checking cash on say a monthly or longer-term basis. Project forward expected cash out and inflows so that you can plan for any shortfalls on the horizon. Use some decent accounting software e.g. Xero, so that you have this vital information in realtime at your fingertips.
  2. Take advantage of credit terms on supplier invoices. If a supplier invoice says “Payment due within 28 days” then the earliest you should pay is on day 28. Do not pay it immediately. Better to have the cash in your bank account than in your supplier’s.
  3. Be careful of blindly accepting early payment discounts on supplier invoices. Some suppliers will offer a small discount if you settle the invoice before the due date which can be tempting at first, however, you must be clear on the levels of cash you have in the bank or worse, if you are in an overdraft position, how much it will cost you in interest payable compared to the potentially small supplier cost saving. You really must crunch the numbers and, if in doubt, don’t pay it early – hold on to your cash as long as possible.
  4. Don’t wait until month end before you send out your invoice. It amazes me how often businesses wait until the end of the month before they sit down to tot up who owes them money and how much. Remember, your customers (if well advised) will also be observing points 1 and 2 above so it could be as long as two months before you receive any cash for the work you’ve done. Crazy! The sooner you raise an invoice, the sooner you’ll get paid. Period.
  5. Ensure you have access to an overdraft facility with your bank – even if you don’t currently need it. When times are good and your bank balance is building healthily, it is tempting to avoid thinking about potentially darker and more lean times ahead. However, this is exactly the time that you should be approaching your bank to agree that overdraft facility – and not when your back’s against the wall and the cash is drying up.
  6. Think twice before extracting (too much) cash from your business at the year end. It is often preferable to work with your accountant to manage your remuneration strategy to retain some cash in the business to a certain level e.g. by way of loan to the business, whilst at the same time optimising your business and personal tax position. This way you have the best of both worlds.
  7. Try to operate a “No surprises” policy when it comes to late payment to your suppliers or creditors – this includes HM Revenue & Customs. Allowing owed balances to build up with little prospect of payment in the near future (and leaving your creditors blissfully unaware) is storing up trouble. A little advance strategic thinking is advisable as to whom you approach e.g. better (although not ideal) to upset your non-core suppliers first, unless you have a good long-term relationship and understanding with them. Speak to your accountant first.
  8. Approach your best customers for prompt payment if things are looking at a bit tight. Hopefully they will be supportive and understanding particularly if you have built up a good relationship with them (see point 7). You could incentivise them with a small discount or special offer.
  9. Don’t let old stock or services build up and gather dust. Turn them into cash as soon as you can even if you recover a tiny sliver of the original selling price. If you are concerned about potentially tarnishing your brand with cheaper lines then consider an online offshoot venture with a different name (or ebay account?). This is what the Big Players are busy doing.
  10. Trim your expenses. You can always shop around for the best deals on overheads and other business costs. Review all suppliers’ costs at least annually. You can of course outsource this process given that you have a business to run!

Effective management of your business cash-flow is essential to its long term survival. By carefully integrating the above 10 steps within your business strategy, you should find yourself in a much stronger position to weather any storms that may lie ahead.

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A business idea shared is a business (almost) launched!

As a budding entrepreneur, its understandable to want to hold onto and covet that killer business start-up idea.

If you are on your own and perhaps struggling to drive the new business idea forward, the danger is that with every day you let pass, someone else gets closer to climbing ahead of you and launching the same or similar business. Or the pain or need that your idea solves becomes obsolete or outdated.

You need to share your vision or idea with as many people as possible.

This has three main benefits:

  1. It allows you to develop and hone your idea from the feedback received from others. This will save you a lot of (potentially wasted) time, energy and money in the long run, AND
  2. It provides an opportunity for others to introduce you to the people who may hold the key to launching and making your new business a success. Either as investors, future partners or just folk who’ve been there and done it, these contacts can be invaluable. Heck, you might even stumble across these people directly if and when serendipity steps in to plays its hand! AND
  3. It holds you accountable to carry out your plan. It is an act of commitment. Once you share your idea with the world, people will either cheer you on your well earned success or scoff if you limply throw in the towel. Its like having millions of personal trainers. Speaking of which (sort of) – Just do it!

If you remain unconvinced by the prospect of sharing your idea with the world, I’ll leave you with the following two assertions to ponder:

  1. Most people are busy running their own lives with their own priorities, issues, hopes and fears. The chances of anyone you meet thinking “that’s a great idea, I think I’ll steal it and go do it myself” and then having your passion and your insight to see it through are remote.
  2. The best innovators are businesses that are unafraid of the competition. They have complete confidence in themselves as game-changers at the cutting edge of their industry. Therefore, as fast as anyone tries to copy them, they know these competitors will only ever be mere pale imitiations.  They also wallow safe in the knowledge that the well of creativity and ideas is without end – think Apple. Nuff said.

Are you ready to share now?

Caveat – the above advice should not be applied in the case of new intellectual property or technical specifications e.g. software coding; technical drawings or know-how etc, which should remain top secret and protected.

11 essential action points after starting your company

Better to be a disciplined entrepreneur from day one. Here is a checklist of 11 tips how:

  1. Get your company incorporation certificate, Memorandum & Articles of Association downloaded and on file. Plus a shareholders agreement if you have one. This will form the basis of your statutory books which you must maintain for any changes in shareholders, directors etc going forward.
  2. Complete and file Form CT41G with HM Revenue & Customs to register your company for corporation tax purposes and to get your employer payroll package ordered and registered with HMRC (or refer to point 11).
  3. Get the relevant documents (in point 1) plus your passport and a recent utility bill together ready to set up a business bank account (get used to pulling together these personal docs for routine money laundering checks for pretty much all financial services).
  4. Set up an A4 lever-arched file ready to collate all of your paper invoices received for amounts payable. Put a divider in the file to separate paid invoices (behind the divider) from the unpaid invoices (in front of the divider). Start numbering the invoices received sequentially to (ideally) match your online accounting software (see point 6).
  5. Decide whether it is right for your company to register for VAT (or refer to point 11).
  6. Choose a decent accounting package so that you can get all of your financial affairs including invoicing etc set up ready. I like Xero.
  7. Check your founder(s) shareholding allocation now e.g. if there are any shares to be allocated to key (present or known future) management / employees do it now or asap before the value in the business (and therefore shares) increases. If you delay you could store up some nasty capital gains tax, income tax and national insurance liabilities for the future…
  8. Get all your ducks in a row with regard to all industry certification and insurance requirements for your particular sector. Would be embarrassing and unprofessional to get this wrong.
  9. Think now about protecting your crown jewels. Is there any intellectual property, trademarks or patents that need filing, protecting or transferring before you launch your BIG idea or go head-to-head with the competition?
  10. Go get yourself a natty logo, stationery and website. Remember to include your company name, address, registered company number and VAT (if applicable) on your documentation. Get business cards too. Register your Twitter account. Start a blog. Tell the world.
  11. Get yourself a supportive accountant and tax adviser who understands your niche :)

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7 tax incentives for UK digital & technology startups

HOT OFF THE PRESS: We’ve just launched a brand new online course that shows you exactly how to complete and file your SEIS / EIS advance assurance application with HMRC. We walk you through every stage of filling out the form plus share some additional resources to help ensure a smoother passage through HMRC. Access it by clicking here. [Use the code: SEISAA2017 to get 50% off in January]

Having taken the risk and side-stepped the typical job route to become a tech entrepreneur and wealth-creator, its a good job that there are still some tempting UK tax incentives out there to support you.

Here are just 7 tax ideas or tips that you should be thinking about for your digital technology start-up:

  1. Entrepreneur’s Relief – if you hold 5% or more of the shares in your startup for 12 months and work as an officer /  director or employee, then when you come to sell the shares your effective tax rate will be just 10% on the gain. This is limited to the first £10m of gain over your lifetime . Sure beats an income tax top rate of 45%! Make sure you take this into account when setting up your company to ensure founders (and key employees) maximise this essential tax relief. You’d be gutted if you unwittingly held just 4% of the shares!
  2. R&D tax credits – get rewarded by the tax man for innovating in your sector by claiming this lucrative tax relief. Many entrepreneurs mistakenly believe that this tax incentive relates solely to industries with scientists wearing white lab coats but this couldn’t be further from the truth. This relief applies across industries – I have enjoyed particular success in the tech sector, for example, I have secured a £250k tax refund for a tech startup that had been (wrongly) advised by its accountants that it wouldn’t qualify for this relief! Most repayments are processed by HMRC within 30 days of a claim and you only have 2 years to make a claim before you’re time-barred. Don’t leave this cash on the table.
  3. Enterprise Investment Scheme – angel investors and private individuals are incentivised to invest in (perceived) higher risk investments like early stage start-up companies with tax breaks like the Enterprise Investment Scheme (or EIS as its more commonly called). Now is not the time for the exact detail suffice to say that many tech or digital startups would fall within the qualifying criteria thereby allowing smart investors to reclaim 30% income tax relief subject to certain limits. Just be aware for now that this is out there to tempt investors. [Update: Seed Enterprise Investment Scheme (SEIS) introduced since this post]
  4. Temporary National Insurance Holiday – for new businesses there is a recently announced temporary NI holiday for the first 10 employees limited to £5,000 per employee or £50,000 overall. The scheme officially kicks off in September 2010 however there should be relief for businesses started post 22 June 2010. This relief is location specific with most of the South East barred so you need to check qualifying locations. Startups across the North will qualify so now is a good time to start building your team.[Update: Now gone – there is an Employer’s NIC £3,000 annual allowance at the time of writing Jan 2017]
  5. Get paid at mouthwatering tax rates compared to most employees – once you get past the pre-revenue stage and start making profits, shareholders of small companies have the flexibility to structure their remuneration package to optimise take-home pay. Why pay up over 20%, 40% or even 45% income tax and incur huge National Insurance costs on employee salaries when you can pay yourself a combination of a small salary, dividends (and pension contributions) which, if carefully managed, can result in £nil income tax or NI for c£40k of remuneration. [Update: Dividend tax rule changes since 6 April 2016 reduce benefits]
  6. Get 100% tax relief on your new equipment – so you need to invest in new Macbooks, laptops, servers and other gadgets for your business. You can claim 100% tax writing down allowances (‘Annual Investment Allowance‘) against profits on your ‘first’ £200,000 (!) of capital expenditure each year [note: this relief has bounced around in recent years since; be wary of timing – it is £200,000 at the time of this update (Jan 2017)]
  7. Patent innovation box – coming soon (allegedly) will be a ‘patent box’ which will allow income or profits on registered patents to attract lower company tax rates of c10% (as opposed to a current lowest corporation tax rate of 20%.

If you’d like to discuss how any of these tax incentives could be applied in your business, please drop me a line via the contact page or you can find professional specialist advice and help at ip tax solutions. Happy to discuss.

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Seeking Seed Funding: 12 tips for early stage startups

I was recently put on the spot at a Technology event and asked how much I would charge for assisting a tech startup in preparing a business plan to secure investment funding.

I answered “it depends”.

A cop-out? Not in my opinion. Why?

Because it depends on where you are in the investment cycle.

If you are seeking early stage seed capital then spending hours (and lots of cash on professional fees) on a detailed business plan will probably turn out to be a waste of time because most investment managers or angel investors will be interested solely in:

  1. the scale of the market opportunity and
  2. the commitment/enthusiasm/experience of you and your team.

The rest is all pie-in-the-sky – you know it and they definitely know it!

But as an early stage start up, how do you make the right first impression to be able to enter into meaningful conversations with potential investors and ultimately pave the way to attract venture or angel funding?

You need an introductory prospectus flyer or one-page teaser that hits the key points of interest to an investor. Getting the content and tone right is key.

Here are some of the key questions I think early stage start-ups should be addressing:

  1. What’s the open goal in the world that your product or service will  fill? Killer question demanding a killer answer.
  2. What is it that your competitors are not delivering or are incapable of delivering? (Don’t over flatter yourself. They are already up and running. You are not. Be courageous enough to acknowledge their strengths but pick out the areas where you plan to differentiate and thrive.)
  3. How would your customers describe the pain they are suffering and how does your product or service solve this? What would they do without you? (perish the thought!)
  4. How much more will it cost to get your product or service out to customers? Is it finished and ready to roll or do you need more investment in product development and research?
  5. Where has the technical know how come from? Are you entitled to commercialise the rights? e.g. Is it coding that you as founders developed yourself or have you used third party software or coding (other than open source)?
  6. How will you reach out to your customers? What is your planned mode of attack? Distribution channels? What will it cost? Is there anyone out there who you can partner with? If so, who? Be specific. Don’t say that you’ll rely on word of mouth or viral marketing or solely on some mode of social media. It could happen. That’ll be a bonus. But don’t hang your hat on it.
  7. How will you continue to grow sales or revenue without incurring a corresponding increase in costs? The posh phrase is “is it scalable?”. Investors like scaleable businesses. Why? The clue’s in the question.
  8. How easy will it be for others (especially your competitors) to copy you? Again, posh phrase is “do you have any barriers to entry?”. Barriers to entry might include technical know-how that could take competitors months or even years to crack – even better if you have patent protection. How much might it cost for your competitors to get up to speed? Would it be possible for you to set up quietly and hoover up a discreet market? You could them move onto another market niche or segment and another before the big players have cottoned onto this new challenger in their midst. This buys you time and the chance to build a fighting fund of cash and expertise before you go head-to-head…
  9. What’s the 3 – 5 year vision? Sure, things will change. You don’t have a crystal ball but you need a road plan with target dates and milestones. When will you break-even? When will you hit £X’000 revenue and profits etc?
  10. What are the big unknowns? What could go wrong and what steps are you taking now to mitigate these risks?
  11. Are there any other success stories in your sector? What values did they exit for and how quickly did they do it? Where did they make mistakes and what will you do differently?
  12. What’s your story? Where have you and your fellow founders emerged from? Do you have stories of previous success in similar sectors? Have you built and sold other businesses? Are you from a corporate role which is aligned with your new venture thereby giving you valuable inside track experience? Are any of the founders still in fulltime employment and what are the plans for taking this business to the next level? Investors will want to see enthusiasm, passion and ideally a proven track record of success and relevant experience. (Avoid flossing up your previous experience with overly grandiose claims. Stick to the KISS mantra – Keep It Simple Stupid!).

Concentrate your mind on these sorts of issues and it should save you a lot of time, effort (and cash!) in securing investor funding.

This list will no doubt keep on expanding but please suggest any other key criteria that you think is key for startups seeking funding.

Techcelerate – The Difference Engine for tech startups

Techcelerate – Difference Engine from Business N2K on Vimeo.

The Difference Engine is a really exciting initiative aimed at tech startups across the UK (and Europe) to provide seed capital and support for promising tech entrepreneurs and businesses.

The proposition is simple: a one-page online entry form is assessed and if accepted you will be given £20,000 plus 13 weeks intensive support, development and mentoring (a “boot-camp”) to help you grow and prove your business model in return for 8% of the share capital or equity.

Inspired by the Y Combinator in the US and Seedcamp here, Jon Bradford set up the Difference Engine in the North East of England and has just put its initial in-take of 9 startups through its intensive mentoring and development programme – see feedback from this first phase of startups on “What its really like to take part in the Difference Engine?” videos below.

Helping businesses “do more in 13 weeks than they might otherwise do in 1-3 years” Bradford explained how many of the teams have managed to build connections and networks with key influencers, decision-makers and successful entrepreneurs in their respective fields; people who they might never otherwise have had the opportunity to connect with (almost certainly not within 13 weeks!). Some of the fledgling businesses even managed to add these individuals to their management team e.g. as Chairman, Non-exec directors etc.

This is a superb initiative which, although open to early stage technology businesses across the UK, I would love to see (and assist in) replicating here in the North West.

Here is feedback from two North West based entrepreneurs who took part in The Difference Engine:

First off here’s ScreenReach:

The Difference Engine – What is it really like? from Business N2K on Vimeo.

And next we have Canddi:

The Difference Engine – What is it really like? Part 2 from Business N2K on Vimeo.

Another great session held by Techcelerate in Manchester.

Open Offices for All

How long will office work in its current form last?

Seth Godin consigns offices to history as relics of the industrial age and I’m inclined to agree – but with an important twist.

I believe that offices do still have an important role to play in providing a place for human interaction at its most basic level. People who work from home often caveat the sense of freedom with a loss of interaction, communication and camaraderie with fellow colleagues. There is no substitute for face-to-face interaction but whether this is necessary from 9-5.30 every week day is up for debate?

I would like to propose an alternative mode of working.

First, let me question one basic assumption: why is that every city centre or town is filled with offices each separately occupied by different businesses e.g. a team of lawyers in one office, web developers in another office, accountants in another, PR agents in another, a startup in another and so on?

What if we mixed it up? So we have an office of ‘hot desks’ occupied by a lawyer, tech startup entrepreneur, financial or business advisor, digital agency marketing employee or whoever else is in town that day all sat side-by-side. Just think how much these skilled workers could learn from one another simply by sitting and (indirectly) working together. New business and client relationships could be built. New networks established. Cross-pollination of ideas leading to new services and products etc. 

Sure, business organizations could retain a hub or office where they meet but this could be for one or two days a week. The rest of the working time could be invested in these mixed community offices.

Tech communities are starting to build this approach with the likes of Techhub that has recently opened in the South, Daresbury Innovation Park in the NW and many other tech / science parks but my sense is that these are subject to more rigid criteria of accepting fledging tech businesses only. I believe we need a more fluid approach to doing business. Drop-in offices that become favoured haunts like local coffee shops. No necessity to turn up every day. No long term tie-ins. Open offices for all.

What do you think? Are there some good examples of this that I am missing?