… In which we realize we have to be different in order to stand head and shoulders above the competition, and we investigate the magic arithmetic that tells us we either succeed or fail.

ANOTHER GIFT SHOP

As we choose our enterprise, our offer must be considered and precise for our intended market. In my experience, many self-employed start ups don’t have much use for any of the words in that statement – not considered, not precise, not even intended, and no idea of the market.

I love the expression, ‘Ready, Fire, Aim’ – it just about sums it up. A comedian once ruminated on the origin of egg consumption; what prompted early Homo sapiens to watch a bird produce an egg from where it produces eggs and think to themselves, “I’m going to try and eat that!” I have just the same sense of wonder when I see what enterprises people have chosen.

There is an enterprise paradox; if there aren’t any competitors it is probably because it is impossible to make money. If there are lots of competitors, how is the newcomer supposed to survive against them?

WHAT THIS PLACE NEEDS IS …

During the filming of my TV show, ‘All Over the Shop’, one of my most infamous tirades was aimed at a gift shop. The people who ran it were lovely but a bit bewildered. The clip, which I think is still on the internet, shows me frothing at the mouth and shouting, “A gift shop, I bet that was well considered! Who on earth thinks things through and says to themselves, what this town needs is another gift shop?!”

More Coffee Shops Than People

I live in a modest sized town and yet a recent survey found that there were 250 separate establishments where you could buy a cup of coffee, including of course MacDonald’s, Starbucks, Caffè Nero and Costa Coffee. So what is it I see opening every day? Why a coffee shop, of course.

OK, here is an exercise for you. Against all advice, your mad Uncle Harry has put the entire family fortune up against a start-up coffee shop and then done a bunk. The family prevails upon you to be the saviour of their fortunes, so despite your better judgement and the advice of this book, you find yourself running your coffee shop in a small town with 250 competitors. How are you going to pull this one off? The choice you have is around the offer you make to your customers and the activity – or dare I say aggression – with which you promote it.

So begin with the offer you are going to make. Maybe the cheapest cup of coffee in town? That is a route that I hate and would always advise against, but OK, let’s see how it would work.

First, you have to understand that you are playing a very tough game that attracts some very tough and professional players. One of the things that I bang on and on about is professionalism, and a lot of people believe that if their offer is based on the lowest price model that somehow they can compromise professionalism. This is just not the case: people like Poundland, 99 Cents Store, and Ryanair are extremely professional – you have to be to run at such tight margins.

Well, OK then, you may feel that cheapest is dodgy but ‘best’ and ‘most expensive’ may be a step too far the other way. Perhaps we could stodge around in the middle somewhere which is where all the other independent coffee shops seem to lurk.

So if not price, what other offer can you make your customers? The point is that people start their enterprises, often convinced of their ability, often assured of their skill, but what they do fail to do is to put themselves into the mind of their potential customer and ask why they should be chosen against the competition. Once, salespeople used to be obsessed with a thing they called the USP or unique sales proposition, the thing that set them aside from any competition that they were up against. Just reflect for a moment, what is your USP – without one, you are doomed. Remember, you never see just one lemming! Whether it is your location, your price, your quality, or the fact that you wander around stark naked apart from a pair of socks, there must be something that makes you remarkable, different and head and shoulders above the rest – in one aspect, at least.

Needs Must

In order to make your offer fully considered you also need to look at your catchment area of business. For a coffee shop this may mean your town. If your enterprise is, for example, business intelligence, then you should consider the whole country is your catchment area. If you manufacture strange aircraft parts, the whole world can be in your catchment area. OK, why does this town need another coffee shop when there are already 250? What is it that people are thinking? Remember the knobbly stick threat for anyone who says, “What this place needs is a …”. How do you know that it is what this place needs – whether it’s coffee shop, accountant, beauty therapist, hairdresser, or goat breeder? Do your research and make sure you actually know what this place needs and you haven’t just assumed you know.

It Doesn’t Add Up

I have a friend who … well, I was going to say runs a gardening business, but what he actually does is do a bit of gardening for people who pay him, and very happy he is with this, too. I asked him, “If you didn’t do gardening, what enterprise would you start? The reply was, “Well, there is absolutely nowhere to get a mower or a hedge trimmer fixed for miles around here.” He had identified a demand, therefore surely he was then entitled to utter the fatal words, “What this place needs is someone who can fix garden machinery … hey, what’s with the knobbly stick, Geoff?”

What had he done wrong? Surely he had identified a need, but had he? Just because there isn’t one doesn’t mean the world needs one. Just for a moment, bear with me while we do a few sums.

At the time of writing this I have broken my tumble dryer. I have deduced from hours of fiddling that it is the timer, the cost of which is £50 and the tumble dryer cost £150 new. If I were a tumble dryer repairman, I would have to charge for a few hours work, my travelling and the part, which I estimate to be marginally more than the price of a new tumble dryer. The same applies to garden machinery – a Chinese made motor mower can be had for £100. Why would you ever bother fixing it at £20 or £30 an hour plus spares? If this is the enterprise you are considering starting, you may know more than me because this is just off the top of my head stuff, but then I am not betting my future prosperity on it. You might be.

The point I am trying to make is that as well as deciding what offer you are going to make to persuade your customers to buy from you over your competition, you also need to have done your sums and be as sure as possible that there is some element of viability before plunging in.

Optimistic Arithmetic

We have barely dipped one tiny toe in the chilly waters of self-employment and yet already we can see why so many enterprises fail or are doomed before they even get started. First, they haven’t done the simplest of maths – I don’t mean business plans or cash flow forecasts either (they remind me too much of blackcurrant picking, anyway). No, I mean the really simple stuff.

This simple maths is particularly important when starting up an enterprise where there are none already.

On one of my courses I had a guy who told me that he wasn’t really interested in what I said because he was a genius on the verge of making millions and he was only there so that he could become eligible for certain government grants. What was his secret, I asked, and he told me that he had invented a very simple device that could be fitted to a shower that would halve water costs. It was indeed brilliant and simple and if you saw one you would see how it worked and with a pair of scissors and a plastic shopping bag you could make your own. He knew this and was going to sell them for just a few pence each and, being plastic, they would last forever. “How much do you think my company will turn over?” he asked smugly. “About a million,” I replied. “What’s that, a day, a week, a month?” he asked. “No,” I said, “altogether before it has to shut down.” “Don’t be stupid,” he said. “The investment in manufacture alone will be a couple of million.” I explained that our water system is unique so the rest of the world couldn’t benefit and that at a rough estimate there were about 10 million showers here. So if everyone had one of his products (100% penetration) at 10 pence each, he might turn over one million and then pack up. He wouldn’t, or couldn’t, believe me, and in the event the outcome was even worse because very few people could be bothered to fiddle about with their showers anyway and it all ended in tears.

NO VACANCIES

Setting up a self-employed enterprise, whether a coffee shop or as an independent accountant or executive counsellor, is all about job vacancies. In the world of employment, you would only get a job if there was a vacancy – no accountants needed, no vacancies. Now you are self-employed, your employer is you.

In the traditional job market it is very simple and straightforward. When a commercial employer finds that a certain task cannot be done by their current complement of people, they must search for a further person to undertake that identified task. Therefore, there is a vacancy, a gap that needs filling, a job that needs to be done. In other words, work is, remember, the effort that someone is prepared to pay us to undertake. What makes life even easier is that the prospective employer has priced this work with a fixed sum called a wage. The choice for you is stark: take it or leave it. If there is one job vacancy and thirty applicants, by some arcane and arbitrary form of selection, one person is offered the job and twenty nine don’t get it. That person gets all the work and all the money, what there is of it.

Imagine, though, that this vacancy might or might not guarantee paid work, and if it did, the other twenty nine applicants could still fight you for the honour of doing it – and what if the victor didn’t corner the market but had to share it with the others on an entirely random and unfair basis? Well, not to be too dismal, that is self-employment. The rewards financially and psychologically are huge but this is the price we have to pay.

Remember when you start your enterprise, there is no job vacancy – you will be creating one out of thin air and that may take some guts. It is like showing up at your local supermarket and starting to serve the customers. It wouldn’t be long before the staff notice and say, “Oi, this is my job”, to which you reply, “Tough! I work faster, harder, better. Let the customers decide who to do business with.” Outrageous, perhaps, but that is exactly what happens when you start an enterprise. You create an enterprise by shouldering everyone else to one side.

Perhaps you have a unique idea that no other person on the planet has tried before (like welding dogs). Whilst that has huge dangers of its own, you will still be competing for cash that would have otherwise been spent in a more traditional area. Therefore we are all in the competition business one way or the other.

Well, You’re the Boss

So if your new employer is going to be you, the first question to be asked of this employer is, is there a vacancy? What have you chosen to be your enterprise? Skills training, hairdressing, management counselling, or yes, I suppose a shop or a coffee shop (online or otherwise)? Assuming that there are other people already doing it in the catchment area we have marked out, to make room for us in this area we are going to have to shoulder someone out of the way or pick up the expansion in their expanding market that they were looking forward to getting. This, in a way, is a pretty aggressive attitude and, whilst I don’t want you scampering about with a switchblade and a pair of knuckle dusters, you must be prepared to be, shall we say, fairly proactive when it comes to finding a seat for you and your family in this world’s precarious lifeboat.

Boxing Clever

Closer to home, one of my sons, who was tiring of his high powered city job and whose passion is boxing, asked me if I would help him to find a boxing and fitness gym to run. He said that this new relaxed lifestyle would be enhanced with a bit of sunshine so we set off to southern Spain to view gyms for sale. Buying an established enterprise can sometimes be the way to go but with some thumping great big caveats. The first thing to consider is why the enterprise is being sold. The reasons are many and varied – retirement, ill health, a desire to try something different, marriage break-up, a failure of a partnership, the offer of a great job elsewhere, or even the overwhelming success of their other enterprises means that they just do not have enough time for the one they are selling. Most of the above should be taken with a pinch of salt and in a lot of cases are not true. Again, to repeat the message of this chapter, it is all about doing your sums. Whether you are starting an enterprise or buying an enterprise, don’t listen to your heart, the seller’s apparent explanations, but look at the figures, decide how much you need to live, and if the sums don’t add up just walk away. It is as simple as that.

Mother Knows Best

However, by doing just that my Mum made her living. I remember that with a stubby pencil and the back of one of her cigarette packets, she would create a column of figures that in seconds would tell her whether the proposition was good or bad.

My mother would buy other people’s enterprises and turn them into gold mines before selling them on at a profit. She was never fooled by stories, she could see if a business was underperforming, but, more importantly, she could see potential. Out of twenty or thirty businesses for sale that I was dragged around to see as a kid, only one would get that glint in her eye. Bear in mind that, although she was a dear old Mum to me, in the real world she was a ruthless, precise and skilful retailer, who had trained for years in the big London department stores from shop floor to buyer. I remember once she bought a general store and she was stamping about saying, “Bloody gripe water! Who on earth orders eight cases of bloody gripe water!” The previous owners were new at the game and their stocking policy tended to be guided by the powers of influence of the company salespeople who visited. I remember the sales guys waiting to see Mum physically trembling with anxiety and with good reason! (By the way, everyone who shopped there for weeks afterwards were offered the incredible opportunity of owning a miraculous bottle of gripe water that did oh so many things other than settle a child’s stomach! It did everything from cleaning furniture to soothing piles.) If you touched the outside of one of my Mum’s shops it seemed to hum like a generating station with the energy of what went on inside. Could you do that? Could you be sure you have seen the potential? Could you, through ceaseless energy, do so much better than the current owner? If you aren’t sure, don’t do it.

Not as Good as It Looked

Going back to my son’s situation, he and I set off for Spain which was in the grip of a financial meltdown. This meant enterprises were cheap – a good thing – but also meant that everyone was broke, which is a bad thing. We narrowed our viewings down to three gyms with potential. They seemed to be ticking along, were a bit rundown, and the owners had just seemed to lose heart. With a bit of energy, things could have been perfect and my son became quite enthusiastic. One place had two hundred regular members who paid 30 Euros a month each, which is 6000 Euros a month coming in. “That’s not bad,” my son said. I pointed out that after rent, power, repairs and wages, he would be left with less than 12,000 Euros a year. I had done that vital arithmetic and realized that the idea was a non-starter. He accused me of ‘pissing on his parade’ but later was very relieved that he hadn’t gone ahead with this scheme for all sorts of reasons.