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Last Updated: Wednesday, 13 August, 2003, 16:40 GMT 17:40 UK
A guide to start-up pitfalls
By Laura Cummings
BBC News Online business reporter

There is a school of thought that says entrepreneurship cannot be taught, that it is the innate skill of a plucky few.

Mr Cheatle warns against spending on the wrong things
But business advisers throughout Britain have come up with a variety of "watch out" guides to starting out in business for the first time.

Passion, tenacity and shrewd business sense are all very well.

But the practicalities of measured judgement and well-timed decisions and deals can, they argue, be learnt and well cultivated.

A series of workshops in the UK, sponsored by the European Commission, offer 150 companies the chance to experience a two-day "boot camp" for first-time business leaders.

Persistence is a vital quality of any entrepreneur
Duncan Cheatle, Prelude2business

Their "10 Steps to Success" suggest practical steps to fathoming the early stages, such as writing a business plan, recruiting staff and raising funds.

Workshop attendees are then grilled on their own business ideas and their attempts to win financing from either venture capital firms or business angels.

'Business Doctor'

For a less quick-fix approach, the "business doctor" Duncan Cheatle, founder of the advisory body Prelude2Business, has come up with the 10 most common pitfalls when going it alone.

The European Commission's Ready4Growth workshop provides advice and support for entrepreneurs.

Venture capitalist GP Capital is part of a consortium offering its expertise to the workshop.

Mr Cheatle, who previously worked in the venture capital market, suggests that regular advice taken at various intervals minimises the cost of full-time advisors, while keeping you on track.

"About 50% of businesses fail in the first three or four years," he told BBC News Online.

"Never be in a hurry. Once you've got the formula right, then scale up. You must take risks, but grow slowly."

His checklist for aspiring entrepreneurs includes:

  • Do it for passion not money. Things don't happen overnight, so do something you feel passionate about. Do not start something with an exit and a fortune in mind. You'll probably fail.

    This was commonplace during the dot-com era where people came up with ludicrous business ideas to be delivered by inexperienced teams.

  • Do something you know about. Philip Green, the retail entrepreneur, gave this advice. He and his family only invest in retail businesses, because that's what they understand. If you go into something you know little or nothing about, you have made things much harder from the start.

  • Don't give up too early. Successful businesses are usually very different from those described in their original business plan. Try something and if it isn't working, try it a different way. The key is not to give up too early. Persistence is a vital quality of any entrepreneur.

  • Have a mentor. The hard work is up to you and your team. Having a mentor can be a huge support and can help you see the wood from the trees. First-time entrepreneurs often fail because they don't have a more experienced mentor from whom they can learn and turn to for ad hoc advice. Everyone needs a sounding board.

  • Funding. Businesses often spend too much time and money chasing the wrong form of funding from the wrong people with inappropriate terms and then raise too little.

    Sales always take longer to close and working capital requirements can fluctuate far more than you might expect, so don't go overboard but do get enough cash. Otherwise you'll spend all your time raising money and not growing the business, and no-one will thank you for that.

  • Cash management. Cash is king. Manage it well. Ensure you have appropriate forecasts and monitor against expectations. You will not need a full-time finance director but do not think a bookkeeper will suffice. You need both skills from the start.

  • Build sales before anything else. A lot of people spend too much time getting things such as a nice design and the website sorted, instead of getting out there and closing a sale.

    You can always adapt designs but you need a reference client to build sales from - even if you initially offer them a reduced rate, a free product or service.

    Get out there and sell from day one.

  • Don't try to rush. There are very few propositions that mean you must get ahead of the competition. Winning clients takes time - sell, tweak your offering, then sell again. Nothing can replace experience and you don't want to alienate potential clients by getting it wrong.

  • Be wary of bad advice or suppliers. When cash is tight, you don't want to get locked in with the wrong suppliers or taking bad advice. Asking a friend can be fatal at times.

    Do your homework before you pay for advice, ask for references from their previous clients, for example. Look for pointers from someone who's been involved in your kind of business before.

  • Keep things at a variable cost. In the early stages, particularly when you are a small business, you don't want to get locked into anything you can't get out of easily. Don't be afraid to use a probationary period for staff. Be wary of recruitment fees but similarly know when to pay a bit more for quality staff.

    Your model will change so the more flexibility you build in, the more you will be able to change and adapt.

    Fixed costs may bring higher margins in the long term, so it's all about knowing when to convert to a fixed model.

Taking stock

A month after one of Ready4Growth workshops, a number of first-time bosses are making changes to their original business plans.

Rosemary Allen, Grex Games
Going it alone can get lonely at times, says Rosemary
"The course made me realise that I could go for the next move NOW," said Gilly Smith, whose Juicy Breaks business publishes UK city guides.

She says she's now "in the middle of investment chats as well as other options".

Rosemary Allen, whose company Grex Games supplies the technology for multiplayer computer games, adds the workshop was also about meeting other like-minded people.

"It was a very interesting opportunity to talk to others in similar circumstances. It can be quite a lonely task in a way, doing this."

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