How to Succeed as a Start-Up in Canada
More than one million small businesses are operating in Canada in any given year. A surprising fact is that 97.9% of all businesses in Canada are classified as small by having fewer than 100 employees. That’s why they are referred to as the ‘economic engine’ of the country. In comparison there are around 21,415 medium-sized and roughly 3,000 large companies.
According to Innovation, Science & Economic Development Canada statistics, four percent of small businesses fail in the first year, 15 percent fail in the second year, and 30 percent fail by the fifth year. In addition, there are approximately 7,000 bankruptcies annually. Even though entrepreneurs are passionate, energetic, and creative, some fail to gain the traction needed to succeed.
That’s because passion, energy, and creativity need to be backed up by strategic and financial planning. The primary reason for small business failure is “inexperienced business owners,” according to an Industry Canada study. It states, “Managers of bankrupt firms do not have the experience, knowledge, or vision to run their businesses."
There’s a solution for that.
Steps to Start-Up Success
The most important step to start-up success is deciding to create a well-researched business plan. A business plan explains what you’re going to, where you’re going to do it, and how you’re going to accomplish your goals. It’s your strategic plan for success.
What’s involved in a Business Plan?
Measuring the Market
You’ve chosen the market you want to enter and the geographic area you’re going to operate. Now the question that needs to be answered is “is it a viable business idea.” There are two ways to answer this question:
1. Launch the business and see what happens.
2. Research the market and find out if it’s realistic.
As you’ve likely surmised, the first option is the one most owners of business failures chose. A well-researched and thought out business plan is not going to guarantee success, but its going to improve the odds immeasurably.
A market analysis is going to answer some important questions:
· Who are your target customers?
· Who are your competitors?
· What is the size of the market?
· Is there room for another business of this type?
· What are the recent industry trends?
Total Available Market (TAM)
TAM analysis seeks to find the total market demand for your products and services. Here you’ll calculate estimated and historical industry sales noting cyclical trends and whether it’s a growing or shrinking market.
Serviceable Available Market (SAM)
SAM estimates the portion of, as a percentage of TAM, your product or service offering that is available within the geographic area. It looks at target demographics, competition that is currently supplying the market, and if there are needs being unmet.
Serviceable Obtainable Market (SOM)
SOM estimates the market share percentage of SAM that is available to capture. Here you investigate who your direct competitors are, whether they’re successful or unsuccessful and why. You’ll also plan how to overcome barriers for entering your chosen market and discover how to differentiate your business from the competition.
Unique Selling Proposition (USP)
As discovered in the SOM analysis, you’ll need to differentiate your business from your competitors. If you enter a market without discovering what makes you unique in the industry, you’ll have trouble attracting customers to try your products or services.
Armed with a Market Analysis and Unique Selling Proposition, you’ll now plan out a sales strategy for capturing a share of the market. You’ll devise a strategic pricing plan, lay out the benefits and features of your product and services, and design an advertising program.
For customers to experience your USP, you’ll need to get them “in the door” – brick ‘n mortar, website or both. This may be done by a promotional event like “Buy one, get half off the second” or simply a sale where all prices are discounted for a set period. Or perhaps a social media strategy that uses your current network to announce your grand opening to others in the geographic area. But keep in mind that profit margins will be low due to discounted prices and initial advertising expenses, so be sure to have sufficient start-up financing.
Start-Up Financing and Budgeting
Two of the top five reasons for start-up failure are insufficient financing and poor financial planning.
Many unsuccessful entrepreneurs significantly underestimate the amount of financing required to fund a start-up. The upfront costs alone can be staggering to an unaware entrepreneur. But don’t be discouraged. Financial planning will help steer you through those first precarious months where success and failure is most prominent.
As a result of the analysis above, you know exactly how your going to enter the marketplace. Now it’s time to add some numbers to the Business Plan. The financial portion of the business plan lays out the start-up costs required, forecasted cash flow, estimated sales and profit or loss. This exercise will reveal whether you have enough start-up working capital or need to seek additional financing. The financial plan also includes an estimated month-by-month budget analysis that provides detailed insight into the inflows and outflows of cash.
Strengths, Weaknesses, Opportunities, Threats (SWOT) Analysis
At this point you’ve really done your homework. You have a solid workable business plan. Now it’s time to run a ‘simulation’ to see if anything was overlooked before going live. A SWOT analysis is useful throughout the business lifecycle as a dynamic tool for success. You’ll continually update it as you move along to reveal where you stand in the competitive marketplace.
If you’ll recall from the beginning of the article, most business failures are a result of executive inexperience. But by going through the analysis described above, you’ll have a detailed roadmap for success. From the very beginning, start to surround yourself with trusted advisors such as accountants, lawyers, and strategic advisors. Of course, there are going to be bumps on the road so you need to be flexible, but the core of the Business Plan will provide stability to the process.
Rob Hall is the CEO and founder of RKH Consulting. Rob has 20 years’ business advisory experience, including working at a boutique hedge fund and as an investor relations specialist at a public company. He passionately reads about business successes and failures and has researched 100’s of cases studies to expand his strategic arsenal. Like a mystery novel, he analyzes the clues of a company until a successful outcome can be determined. It is within this framework that he founded RKH Business Advisory Services and created the RKH Recalibration Framework.