Start-ups: six pitfalls

2011-05-24 00:00

TESTING the constraints of doing business before venturing into the world of entrepreneurship will stand the budding entrepreneur in good stead and help to ensure that the venture is ultimately a success.

This is the advice of Daniel Hatfield, the director of enterprise development specialists Edge Growth.

Hatfield told The Witness that there are six major constraints for businesses, notably those involving the market, resources, processes and systems, planning and management capacity.

Although the first few are usually at the forefront of the budding entrepreneur’s agenda, the planning and management constraints are usually neglected.

Market constraints refer to whether a product or service has a competitive advantage in a growing market, as well as whether the budding entrepreneur has the hunger to succeed in business.

“When it comes to the ‘hunger’ constraint, it comes down to the entrepreneur,” said Hatfield. “There are many lifestyle entrepreneurs out there.

“Their businesses often do not have any growth potential and they are content with paying the bills and making a profit. A lot of people are not willing to take the risks to grow their businesses.”

Many entrepreneurs are correct in their assessment that they need either extra money or people — or both. However, they often do not know exactly what form the extra resources should take.

Hatfield observes that addressing the resources constraints will simply expedite the future success or failure of the business.

“Another constraint is that of a lack of appropriate process and systems. Sometimes entrepreneurs are excellent at sales, but as soon as they get to a certain level, their systems or structure can’t support the growth.”

The overlooked constraints, which Edge Growth focuses on, are critical to the success or failure of the business venture.

The planning constraint is a vital element and it can involve a growth strategy workshop with the entrepreneur.

“It gives them a one-, two- and three-year plan.

“It is broken down into bite-size chunks or milestones.

“In a small business it is often difficult to know what to focus on and when to appropriately allocate capacity.

“A good understanding of the business strategy is vital, especially in light of the resources available.”

The management capacity constraint is often seen by entrepreneurs as “nice to have”, but a very expensive area to address.

Hatfield said a good place for budding entrepreneurs to start is to assess the risks and potential competitive advantage of the proposed product or service and whether it is located in a growing market.

They should also consider whether they are prepared to work harder to succeed and they should assess their management capability.

“Look internally and examine and test these elements before you jump in,” said Hatfield.

“Perhaps you could even secure letters of intent to buy your products before you start.”

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