my business does not have enough 'gravitas'
- Thread starter bazaarboy
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Man of Honour
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I might be missing something here but if you've got a product that you can provide currently as a one man set-up then why does it suddenly need the jump to 10(ish) people? Is there no scalability at all here? Could you get by on 1 additional programmer, 1 or 2 sales staff and 1 or 2 support staff? Why is that number of staff a good start compared to any other number?
A prime cause of failure for businesses is trying to expand too rapidly so even if your turnover is good if you're not collecting the money in a decent timescale you're effectively overtrading.
Essentially a lot of thought would need to go into your business plan before you're likely to convince anyone to invest in you. I have no idea what you're like so this is just offered as a general comment but just because you're good at making this product doesn't automatically suggest you'd be good at managing a team of staff to continue with it, you may be great but it's another reason why starting smaller might be better.
you raise valid points, and it could be that hiring an office manager is a good idea for taking care of the administrative part of taking care of staff and day-to-day tasks of running a business.
also, I might not make a good team leader etc - the risks are clear
in terms of minimum size, I'm not sure I can expand slowly
I currently have few clients which I can manage personally
If we start seeking out business then the nature of the business changes immediately:
a team needs to on the road to demo the system and discuss sales and support options
we'll need a business premises, one or two office juniors, at least two programmers and at least one sales person - plus the office manager mentioned before - that 5-6 people already. What happens if someone's on leave, or sick?
ok add another one or two (say one more in sales and one more programmer / support) to ensure a full complement at any time - that's now gone up to 8 people
Soldato
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You would indeed benefit from the right sort of venture capital and business partners / associates rather than a buy-out.
If your product and business are in order and you have the platform and orders to support some up-scaling look for an external investor or even better someone to joint you as business partner / investor. You do not need to go on the Dragon’s Den to achieve this
You can manage and indemnify against risks.
Alternatively, rather than targeting your product at the big corporates continue to grow and develop with smaller businesses.
When you are growing a small business focus on profit and your own earnings not the business turnover. If you expand for turnover you may find core costs increase at a disproportionate rate due to overheads, staffing, indemnities, liabilities, office accommodation and so on.
I assume as you are effectively a 1-man operation most of the turnover becomes your income whether this is through salary or dividend?
If you work towards a business where turnover is £1m your profit may be quite low initially during growth. Say gross profit is 5-10% you may not be much better off but you will have a lot more liabilities and risks to manage. Your own income (assuming it is currently principally through dividends) may even go down, where you may have to pay yourself a better salary rather than through dividends but then you end up paying more tax, as you will need to re-invest business income back into the business and ensure it has sufficient contingencies and reserves built up over the next couple of years.
Man of Honour
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Proceeding on the basis that you do need 8-10 people immediately to make the next step then I suppose you need to work out costings, what do relevantly qualified programmers, sales staff and support staff cost? Will you have to pay them a bit extra to encourage them to come to a company that is just starting up or can you sell it to them based on your vision and (possibly) an incentive scheme whether that be a percentage of the profits if successful or bonuses? Are you willing to give up a percentage of your business to someone offering capital or are you going to try and get a commercial loan where it's purely to get repaid? There's also a question of whether you are too closely tied to the product for it to be initially viable without your input e.g. if the worst comes to the worst and you become too sick to work for a few months then would the business be able to continue to grow or at least carry on without you?
You'll now also need a suitable location and accomodation for all these staff, someone to administer the HR and payroll (don't forget to put in place procedures for grievances/hiring/firing etc), professional insurance, heating/lighting/water, council tax and so on. Are you going to be providing company cars/uniforms for the staff or maybe giving them an allowance or is it all covered in their salary?
I don't mean to teach you how to suck eggs and I've never started a business but these are all things that occur to me and it's far from an exhaustive list.
You'll now also need a suitable location and accomodation for all these staff, someone to administer the HR and payroll (don't forget to put in place procedures for grievances/hiring/firing etc), professional insurance, heating/lighting/water, council tax and so on. Are you going to be providing company cars/uniforms for the staff or maybe giving them an allowance or is it all covered in their salary?
I don't mean to teach you how to suck eggs and I've never started a business but these are all things that occur to me and it's far from an exhaustive list.
A reduction in net profit, in the face of an expansion phase, doesn't worry me - as I've mentioned, my main interest is the success and establishment of the product and profitability is a secondary concern
I've even considered going down the open-source route, but clients seem to hate that as they feel it can't "as good" as a paid product, but that's another discussion...
the aspect that worries me is the unknown element of managing staff and a business that's becoming all "grown-up"
I admit I'm not a businessman, though I'm willing learn and adapt
Getting a commercial loan could be difficult if you can't exactly explain what it is you do (to the creditors I mean). You'd have to be completely armed with sales invoice history and a bullet proof business plan in the current financial environment.
It's not just employing 10 people, although some of the job tasks are resemblant of any other job role (HR, Finance), the more skiiled role such as devs or programmers are going to need to know exactly what it is you do. You'll also have to spend time drawing up contracts which reflects your protection of IP to stop employees catching on to your idea then competing.
I would perhaps opt for someone you know who is willing to invest (money and time) and perhaps oversee some of the more basic business functions to free up your time.
It's not just employing 10 people, although some of the job tasks are resemblant of any other job role (HR, Finance), the more skiiled role such as devs or programmers are going to need to know exactly what it is you do. You'll also have to spend time drawing up contracts which reflects your protection of IP to stop employees catching on to your idea then competing.
I would perhaps opt for someone you know who is willing to invest (money and time) and perhaps oversee some of the more basic business functions to free up your time.
I've been asked at least 30 times what would happen if I got run over by a bus...
hence my initial thought of outsourcing (in the initial phase at least) if it all goes TU this would limit the costs / damages
i need to be taught to suck eggs! lol
I have no problem going into partnership with a small firm, eg system re-sellers in my industry, as long as I stay in charge of system development and design
Caporegime
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You have another option bazaarboy...do nothing.
Keep going as you are and try and stay a one man band, doing whatever you can on your own.
Keep going as you are and try and stay a one man band, doing whatever you can on your own.
I'm concerned that working full time in another role you would not be able to dedicate enough time overseeing the expansion.
Are you planning to review emailed reports each evening then say pop over Tuesday and Friday afternoon for a few meetings when you don't have surgery?
Without a strong leader on the ground witnessing what is really happening and driving the business forward you could find your workers end up drifting along somewhat aimlessly while your progress reports paint an altogether rosier picture.
It would also pose a problem securing funding from any quarter if they think you treat this as a spare time venture.
Maybe you need to find a business partner who can run show on a day to day basis?
Are you planning to review emailed reports each evening then say pop over Tuesday and Friday afternoon for a few meetings when you don't have surgery?
Without a strong leader on the ground witnessing what is really happening and driving the business forward you could find your workers end up drifting along somewhat aimlessly while your progress reports paint an altogether rosier picture.
It would also pose a problem securing funding from any quarter if they think you treat this as a spare time venture.
Maybe you need to find a business partner who can run show on a day to day basis?
Associate
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I don't think I fully understand what you do. How much of the business is tied to you and how much is an application you have developed? If you exited the business upon sale would the buyer still have an interest? If so there may be some arguement for taking the money and then starting a new company with the funds. If they insist on keeping you within the business there is much less of an arguement for doing this. The best option then I would say would be to ensure you maintain a material shareholding within the business to incentivise you to keep going.
Soldato
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That is not the right mind-set when growing a business. A social enterprise or charity maybe, but not a business in your position.
Your profitability is everything. If you have a low % of turnover realised as net profit then your whole business model is at risk to very marginal fluctuations in costs. You will not be big enough to absorb these or in a position to raise additional capital to offset.
I can see why they would ask - our standard way of dealing with very small companies is to ensure they put the code and all documentation into escrow so if the worst happens we've got a chance of maintaining it ourselves.
Caporegime
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Not if high short term net profit comes at the expense of low long term stability. For example increasing profits often comes with risks.
I disagree. Profitability is not everything, and really, should never be judged as such.
I can understand what Bazaarboy is saying. It's all to easy for companies to cut corners to maximise profit, as that is thier primary objective, and it's done day in / day out.
Here, bazaarboy, at present, cares enough about his own product to ensure it's recognised for what it is. Longevity of product, reliability and a proven product should always come before profitability. When a product or company is your baby, it's reputation is worth far more than the companys profitability. It sounds to me like this is what Bazaarboy is wanting to hold on to and oversee.
I wish more SMEs adopted that approach. Profitability is for Dragon's Den and ROI. Not for someone who actually cares about the growth and sustainability of their business. Profitability will be a return of the above in any case.
Not condoning dragons den But you get a lot longer than 5 mins. If you watched it last week or so the bloke with the bird feeders is on a business forum saying he was in the den for over an hour.
Caporegime
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If you're not replying to the previous post, can you use quotes? Now it looks like you disagree with my post, which would be ridiculous.
what constitutes an acceptable level of profitability depends on the nature of the business and the phase it's in
we all know that some companies start off knowing it may be years before they are profitable and for other companies immediate profitability is a must
in my case the profit margin is huge, I don't sell any hardware - the system framework is developed and although I'm always tweaking it minor changes need basic programming skills and certainly not a PhD from MIT
I'd be prepared to run a loss-leader and acquire 20 clients over 2 years, and then gradually raise fees depending on the scale of functionality that they want