Building a business takes years of practice, not to mention a certain amount of trial and error. SME-focused private equity firm, Jacana Partners, canvassed its experienced senior team members to provide you with valuable tips that can help to build your business and get you ready for investment.
Setting up a business
Business plan ownership
Write the business plan yourself; don’t get advisers to do it – and make sure the senior team contributes and takes ownership of the document. The business plan is not just a document that private equity groups like to read, it’s the vision, the business case and action plan for your company. It’s an important exercise in determining the future direction of the business and ensuring the whole team is behind it.
Is the market you are addressing large enough? And are you targeting a niche within that market? Become a market leader in your niche and progress from there. Remember that as a private equity investor, we eventually need to exit our investment in your company, so size of market is important to ensure you are of interest to an investor in the future. As a general rule, we would expect the company’s revenue to be at least five times the size of our investment in four years – so think big!
Know your audience
The first thing you need to understand when starting a business is your customer market. What is their problem and what is your solution to that problem? It is a proven fact that people will pay a premium for a unique offering which makes their life simpler.
Revenue counts most
In business plans the revenue number is the hardest to get right but by far the most important; spend 90% of your effort on the aspects that lead to the revenue number: market size and growth, competitor offerings and your competitive advantage, pricing, marketing, converting prospects into customers, routes to market etc.
Start-ups: simplicity is key
When planning your new business, you need to focus on a simple product or service that has a clear value proposition and business model.
To be successful, you must validate your offering with real customers before launch. This is an iterative process that takes time, and cash preservation is key during this phase.
Don’t try and do everything yourself
Surround yourself with people with experience of the industry you are focussed on – you don’t have to agree with them but they can often have helpful insights or contacts, which could grow your business more rapidly than you can. You can also learn from their past mistakes, as opposed to finding out for yourself.