At a glance
- Your company’s first 12 months are critical. There are several key areas you should focus on during this time in order for your business to grow and thrive.
- Articulating your purpose, setting out a proper ownership structure and writing clear business plans are all vital steps.
- It’s also important to build your leadership team, regularly forecast cash flow and profit numbers, and focus on selling from day one.
The tech boom has left many budding entrepreneurs thinking they can quickly create a business worth billions. But only a tiny proportion of companies ever get this big. In fact, only 5% of UK firms grow beyond nine employees, according to the Office for National Statistics1.
Martin Brown, CEO of consultant Elephants Child, says: “We meet a new business every month who thinks they will be the next Apple or Facebook. But they tend to fall apart easily unless they can answer some basic questions about their strategy and structure. One big problem is that they’re often blind to what’s happening in their market and how crowded it is.”
Why is prioritising important in business? In your first year, you’ll have a long and urgent list of tasks competing for attention. So, it’s important to maintain your focus on the key areas that will help you survive the critical stage and move on to success.
These seven tips can help you set your key priorities.
1. Set the proper legal and ownership structure
When starting out, entrepreneurs sometimes postpone setting up shareholder agreements and other important legal documents as they focus on other priorities. But incorrect structures and documentation can cause bigger problems later, when the business is worth more.
“We regularly encounter ten- or 20-year-old businesses where the founders, who started as friends, now want different things,” says Martin. “For example, one wants to push on; the other wants out. But they never concluded their shareholder agreement when they set up because it was expensive and time consuming. Now they’re in a legal process with two sets of lawyers’ fees and disruption that could be harmful or even terminal to the business. If this was addressed in the shareholders agreement, it could have been avoided. Don’t think, ‘This will never happen to us.’”
2. Articulate your purpose and strategy
Taking the time early on to outline your vision for the business and your overall strategy can help you further down the line, keeping you focused on your goals.
Write a purpose statement to guide you through the critical first 12 months and beyond. Meanwhile, creating an overarching strategy can help you clarify your business model in more detail. Using tools such as the business model canvas, for example, helps you hone essential areas such as your value proposition and market niches. This then gets you thinking about what drives your revenue and costs, and what skills and resources you need to grow.
3. Write one- and three-year business plans
Set more detailed short- and medium-term targets and write plans for how to meet them. Try to anticipate the growth constraints you might face, such as skills shortages or operational choke points, and develop strategies to overcome them.
“These plans will change regularly, so review them constantly,” says Martin. “But having that planning discipline gives you a set of rails to run on and enables you to adapt. Without it, you could lurch from one disaster to another.”
Then plan your funding journey from day one. Some businesses get enough early sales to self-fund. Others need several funding rounds. Alongside sales, robust strategy and planning will attract early investors, which then makes it easier to find others.
“Have one eye on your exit options from the start and work back from there. If you're always clear what you want from the business, you can stay true to that throughout the journey,” Martin adds.
4. Build your skills and capacity
As a start-up owner, you’ll likely be juggling several roles initially. But you quickly need to understand and define your core competence so you can focus on that, and delegate or outsource other tasks. Then as you grow, you’ll need talented people around you to fill skills or capacity gaps.
“Don’t be afraid of working with people who are better than you in certain areas,” says Martin. “You may need to be creative in how you incentivise them to join. But unless you build your team quickly, the constraint on your business will be you.”
5. Understand your numbers
Why do companies fail in the first year? Lack of cash is the most likely cause – if you burn it too fast, you’ll crash. It’s crucial to forecast cash flow and profit numbers regularly – and then understand what levers you can pull to move them in the right direction.
Review your personal finances too. Starting a business can be financially stressful, but you need to keep supporting yourself and your family through the early months and years. We can help you ensure you have enough with careful financial planning and cash-flow forecasting. We can also often make recommendations about other areas, such as the best way to extract profit from the business.
6. Sell, sell, sell
Many new business owners rightly conduct thorough research and preparation. But too much can lead to ‘paralysis by analysis’ and detract from sales activity.
“Many early-stage business owners attend lots of courses and seminars, and hire armies of advisers,” says Martin. “It can grind them to a halt because they never get anything done.”
Early sales are vital as they prove your business idea and model, get cash flow moving, attract early investors and build a foundation for growth. Start selling your product or service from day one – even if your business still looks scruffy behind the scenes.
7. Decide what leadership team and outside help you need
Avoid the trap of working too much in the business and not enough on it – it’s the latter that drives longer-term growth. That often means making difficult decisions such as when and how to restructure your team, delegate or outsource functions such as HR, legal, bookkeeping and accounting.
“Some founders get lost in thinking they need to act a certain way – being founder doesn’t mean you have to be the best CEO in your sector,” says Martin. “Don’t promote yourself to a level of incompetence where you’re no longer driving business value. Instead, think about what will keep you motivated. If your passion is designing or manufacturing, focus on that and bring in others with management or leadership skills.”
Plenty of external help is available from coaches, mentors, consultants and advisers – but don’t end up listening to too many voices. Consider carefully which help will give you the best chance of achieving your business goals, and contact us for guidance and support.
We work in conjunction with an extensive network of external growth advisers and SME specialists, such as Elephants Child, who have been carefully selected by St. James's Place. The services provided by these specialists are separate and distinct to the services carried out by St. James's Place and include advice on how to grow your business and prepare your business for exit and sale.
Where the opinions of third parties are offered, these may not necessarily reflect those of St. James's Place.
1Office for National Statistics, Business statistics research briefing, 6 December 2022