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Close in on the prize

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Five out of seven business start-ups in South Africa fail in their first year according to Rob Davies, Minister of Trade and Industry. Globally, one out of two start-ups fails during its first year.

HomeTimes wants you to succeed as an entrepreneur and to live in the home of your dreams. To enable you to do this we have secured the rights to serialise the book, How to Survive and Thrive as an Entrepreneur, by author, business owner and serial entrepreneur, Neville Berkowitz (63), who shares the secrets he has learned over the course of his 40 years as an entrepreneur. Kele Scheepers co-authored the book.

Thanks to Berkowitz’s website, PersonalEmpowerment.co.

4 Sourcing suppliersAugust_0802 / Shutterstock.com

Many new business owners select suppliers based on price, but reliability and speed are just as important because it will affect how able you are to deliver the right number of products at the right time, or it could affect the level of service that you are able to provide. Every business, even if their product is a service, needs basic items to keep running smoothly. Look for suppliers who have been in business for some time and have established a solid credit record.

Determine suitable suppliers and examine their attributes, strengths and weaknesses. When deciding who will be a supplier to your business, you may choose to have more than one supplier who provides the raw materials, goods or services that you need. Having multiple suppliers could help you in the future, if one supplier has challenges providing you with the amount of stock that you need.

Once you have decided on the kinds of goods and services that you will offer, you will have to confirm that they are available to you. You may be able to find this information by uncovering which suppliers your competitors are using. Also look at your networks and talk to family and friends – they may know someone who can help you find the product that you are looking for. You will then have to negotiate with the suppliers to get the best price and payment terms possible to suit your needs.

Trade shows and exhibitions offer you an opportunity to network, establish rapport with potential clients and discover suppliers. Attend shows which are relevant to your start-up so you can get a feel for product availability, market trends, pricing for products or even scope out the competition. To find applicable fairs, take a look at industry publications and search online.

When you attend an expo, pick up any brochures and business cards available. You might also find that the organisers of the exhibition have listed their vendors and attendees so you can determine which businesses or wholesalers may be of use to you.

If you are looking for a wholesaler, you might find it more challenging because, unlike retailers, wholesalers do not advertise to a public market. A wholesaler will typically have maintained their customer base for years and they tend to rely on word-of-mouth and local knowledge. This can also make it difficult to shop around to find a price which suits your needs. Trade publications can often be helpful, although you will still have to do the legwork to find the quality of product you need and make sure that you get value for money.

Joining an online forum which caters to a base of users for your product could help you find out where your goods are coming from and which retailers are doing well in the industry. It will also allow you to gauge the kind of products customers need and want to buy, and it might also give you the chance to sell to key target customers.

If you can get your hands on a phone directory or Yellow Pages directory, take a look under the type of products you require and you will find the contact details of some importers and general traders who could be offering the products you are looking for.

Brand manufacturers could also sell wholesale (but usually only in high volume). They are still a good source of information, though, because they can refer you to wholesalers or distributors that who might be willing to sell to your business.

Depending on the products you need, you might consider importing from other countries. International trade has made the world a global market. While time and distance will still impact your business, their effects have been minimised over time due to technological advances. Large corporations with a global footprint are able to ensure prompt delivery of their products.

If you will be importing products or services from other countries, you will have to start at the applicable country’s embassy or consulate. Trade commissions are geared toward providing business with trading information such as potential buyers and market data. Find out what you need to know in terms of regulations, legal concerns and quotas before you proceed. Look for discounts on goods that are in demand in your locale, request a sample and find the relevant information if you need to import them.

Government departments might also be able to offer information or programmes which will help you import from another market. Such departments are also able to offer you commercial and legal information for your business needs.

Negotiate with your supplier

Whether you're negotiating with yourself or someone else, you will have to close the deal either way.

Discuss volume discounts, return policies and order processing time. Don’t rush to sign a contract – this will allow you time to negotiate pricing terms, minimum order quantities, delivery schedules and other factors which will impact your business. Ensure that there is an exit clause in your contract in case you need to end your relationship with you supplier (for example, if a new supplier enters the market and offers better value for money). You will also need an attorney to review your contract before you sign it.

Good suppliers and good deals won’t just be handed to you on a silver platter. You will have to put effort into finding the best products and prices to suit your customers. Don’t be so focused on price that you alienate your suppliers. You are looking at establishing a long-term relationship and you will only be able to get the best deals if your suppliers find it easy to work with you.

The best way to establish a good relationship with your suppliers is by meeting them face-to-
face. This gives both parties the opportunity to understand each other personally and professionally. You will also gain some insight into how your supplier works, which is essential since you will be using their services for your business. Meet your account handlers and ensure that you will be able to contact them whenever necessary.

Once you have established a working relationship with a supplier, review their performance regularly so you can identify areas for improvement. One of the biggest challenges that you will face is placing orders. An order that is placed in time gives the supplier sufficient time to meet the deadline.

Analysing your forecast sales in advance and knowing your supply needs will be invaluable when it comes to predicting and meeting supply deadlines. Informing your supplier well in advance will help them prepare and fulfil your needs.

In order to maintain a productive relationship with your supplier, you will have to pay your bills and dues promptly. Even if you pay in advance, ensure that there are no delays. If you make sure that your business is worth their while, your supplier will work hard to meet your demands. It is vital that you maintain open and clear communication with your suppliers. If you have any particular needs or concerns, convey them to your suppliers. In the same manner, establish a relationship where your supplier can talk to you if any developments and expansions take place which will impact your business. Trust and dependability go both ways.

Pricinghome buying and selling costs resize

Your business will only be regarded as economically feasible if you are able to produce products or services and distribute them to your target market for a profit. Your pricing will have to be competitive but also profitable if you want your business to succeed long-term.

For most small businesses, having the lowest price is not a viable option because it robs them of a needed profit margin, and large competitors will probably be able to sell at a cheaper price anyway. In addition to this, your prospective customers may not make their purchase decisions based on price.

If you have decided not to opt for a franchise, and have chosen to start your own business, you have a great deal of flexibility when it comes to setting your prices. Unfortunately, there will be no certain, formula-based approaches that you can just apply. Pricing services is harder than pricing products because while you can be precise about the price of a physical product, estimating your (or your staff’s) expertise and the value of your time is subjective.

You will have to consider a lot of factors when setting prices for your offerings.

  • How much will you have to spend on start-up costs in order to start operating? This will include legal costs, accounting costs and the cost of necessary land/premises and/or equipment. The direct costs of your products or services will be the easiest part of the equation to estimate because it refers to direct materials or labour associated with your offering.
  • How much will you have to spend on the day-to-day operation of your business? The cash flow requirements will include wages and salaries, rent, electricity, interest payments on debt and other utilities and costs.
  • Based on your estimated sales, how much income do you think your business will bring in? When would the business break even? Ideally, it should take 18 months or less for your costs and income to be equal. After you have reached this point, any additional sales will be your profit.
  • What are your options for possible sources of funding? Take a look at Mercantile Private Bank’s offerings exclusive to entrepreneurs.
  • How much will you need to spend on insurance? What tax laws will you have to be aware of? You will need to consider indirect expenses such as insurance, advertising, rent, office supplies, electricity and more. Although they may not contribute directly to the cost of your product, you have to be able to estimate them so that you can calculate a selling price that allows you to cover these costs.
  • If you have shareholders, how much will you be able to pay them in terms of dividends? Is this in line with their expectations?
  • How have your competitors priced their products and services? A comparison will allow you to see where your offerings fit into the existing market. Depending on the size of your competitors, they may be able to offer the same goods at a cheaper price. In such a case, see if you can add value without adding cost, and promote those aspects to customers.
  • How much are your customers willing to pay for your product or service? This is the perceived value to the customer and while it is subjective (because it depends on your customers’ personal financial position), it will give you some idea of whether you are overvaluing or under-pricing your offerings.

Before you set a price for your services or products, you need to understand how much it costs you to provide your offering to your customers. You need to have a good idea of your total costs, including your overhead costs, labour costs and materials costs.

You need to be aware of how much competitors are charging for similar services and products in your area. However, offering your services or products at a cheaper price may not necessarily work for your business as it may not encourage customer loyalty. After all, a customer who is looking for the cheapest price is likely to stop using your products or services if a cheaper competitor comes on the scene.

Monitor your prices and continuously re-evaluate your overhead costs to see if you can cut costs in any areas and bring your profit margin up. Realise that you will need to raise your prices occasionally (as petrol costs, material costs, electricity prices or inflation affect your business) but always ensure that you are still competitive in your market. If customers are going through challenging financial times, raising your prices excessively will impact your
business negatively. Don’t raise prices for every single product or service that you offer because you will receive complaints from customers. Raise your prices in small increments several times a year, instead of one large chunk which will be noticeable.

Marketing analysis

In order to have a successful business, you will have to know how to identify your potential market and other organisations that are competing to serve these customers with similar products and services. You will have to conduct a market analysis so that you can assess your business idea and establish a way to connect with your potential customers and ensure viability.

An adequate market analysis will include an estimate for the size of the market for your product or service; projected market share; information about your market and examination of your competition.

Your market analysis will help you identify opportunities in the market or market segment. If you find viable opportunities, then the market analysis can provide you with focus and direction so that you can establish the priorities that your business necessitates.

Market research need not be very expensive or complicated as long as you ensure that it provides reliable information that will be invaluable when you are building your business. The data that you will require has to include primary and secondary research.

Primary research is new, raw data obtained through market surveys and other field research. These are crafted and implemented specifically for your company. Secondary research entails compiling pre-existing information that is useful for your purposes.

While you can rely on your own opinions and observations, don’t rely on intuitive feelings and resist the temptation to only look for data that confirms your opinions. You need to maintain objectivity. This  will  enable  you  to  be  realistic  so  that  you  can  gauge  the opportunities that you can pursue.

The more thorough your information is, the more thought-through your business decisions will be and the easier it will be for you to convince potential investors/lenders to fund your business. A combination of qualitative and quantitative information will help you assess both the customers’ behavioural patterns and provide you with statistical information.

If you engage in primary research, begin by asking your target market for feedback about your product or service. You want to have a thorough understanding of your customers’ needs and desires, ranging from demographic information to psychographic data.

Demographic information allows you to provide a basic profile of your customer, including information such as their age, ethnicity, gender, educational level, employment, income, marital status, family structure and location. Psychographic data provides more thorough information about your customers in that it outlines a mental model whereby you can place your customer in relation to the consumer lifecycle. While demographics describe who people are, psychographics describes what they care about.

Psychographic data incorporates elements of the customers’ behaviour so that you can have a better understanding of why customers buy your product and the attitudes and personality traits that draw them toward a product. This is more fluid and subjective information, which includes values, opinions, political views, lifestyles, leisure activities, desires, entertainment preferences, usage rate (of a product or service) and social activities. This information is useful if, for example, your business will be launching an incentive programme since the incentive will only be effective if it is a reward that the customer wants.

This information will enable you to tailor your service for your customers’ needs, or to recommend additional products that your customers may want. It may also enable you to identify which stage of the lifecycle a customer is in and predict their likely behaviour. For example, if a customer buys nappies for the first time, they will likely be buying additional baby paraphernalia. This, adding psychographic information to a targeting strategy could
enable you to use more sophisticated marketing tools and satisfy your customers’ needs more comprehensively.

Once you know your customers’ desires, you will have to develop a marketing strategy with clear objectives which support your overall business mission, objectives and goals. Your marketing strategy will assist you to:

  • Specify the needs of your target market and customers
  • Communicate the qualities of your product or service
  • Establish your pricing strategy
  • Create distribution channels to get your product or service to your customer
  • Plan your marketing and promotional materials for your product or service.

Informing potential customers of your business can be tailored to suit your budget. In order to avoid unnecessary expenditures, you have to conduct your marketing activities in a planned, targeted way in order to have lasting impact. You will also need to test the effectiveness of your marketing campaign before you commit to it. Once you have tested your campaign, develop a strategy that will allow you to be impactful whilst ensuring that you can measure the results in relation to your expenditure. Try not to use marketing messages and information that can become outdated quickly.

When you are preparing your marketing strategy, you will have to ensure that you have thought through these four aspects:

  1. The lure of digital marketing is strong, but don’t forget traditional methods to build your business. Social media has made it easy to market to the masses, but you will have to build relationships and remember that it takes time to build an online following. A more traditional form of marketing is direct mail, which can be effective if you ensure that your cards, letters or flyers are attention-grabbing and if you are able to focus on your target market.
  2. Google Adwords help ensure that your target market will be able to find you online, and it allows you to measure exactly how effective a campaign is and how much traffic you have generated.
  3. Cold calling will allow you to speak directly with customers, but may annoy certain customers.
  4. Guerrilla marketing will take more creativity but could be a more effective way to grab potential customers’ attention. This may involve an outrageous idea that is implemented in public spaces.

Ultimately, the best marketing tool is your product or service. If your quality is high enough, you will reap excellent word-of-mouth recommendations and will help you generate repeat business.


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