Intro, or What It Is All About I would like to share some of my earliest business experience through the lenses of two of
From a baker man to a management consultant or 2 business fundamentals I wish I knew when I started my own business pathRead more »
Intro, or What It Is All About I would like to share some of
From a baker man to a management consultant or 2 business fundamentals I wish I knew when I started my own business path
Intro, or What It Is All About
I would like to share some of my earliest business experience through the lenses of two of the most simple business analysis frameworks, which are also two of the most fundamental ones. The first one comes from the economics theory and the second one – from strategic business analysis. I really wish I had this knowledge when I started my business – it would have spared me a lot of hard time. Nevertheless, I hope there would be some people who are in the beginning of their own business. I hope the few lines I have dropped below would give them some direction of their business planning. When we start a business, we have the rare opportunity to choose the direction of our whole life. It would be a pity to waste such a chance.
At the age of 20 I started my own business path. I had no previous business experience, I had no business education of any type, I had no idea what to do. But I knew I wanted to be a business owner. So I decided to open a bakery. The rationale behind this decision was that as far as there are human beings, there would be a business for me (everyone eats bread, right?).
I had to learn in the hard way what organising a production as a small business means. I experienced all possible problems that a business could encounter.
Personnel problems are ones of the most common problems every business owner faces – low trained workers, high personal turnover, difficult control. Next group of problems are the ones that are purely production oriented – different equipment breaks, low quality materials , difficulties in controlling production processes and operations. All of these problems reflected eventually in a poor quality of bread.
On the other side there were different business organisational problems, like logistics problems, marketing problems, and financial problems. But the worst, and less expected was the severe competition I had to deal.
What happened eventually – I stayed on the market for several years, I paid back all of the loans and eventually, closed the business at a zero profit and moved along.
What Did I Do Wrong?
Well, years later I put a pair of business goggles and I had a look at my bakery experience. It turned out that the whole undertaking had been doomed since the very beginning. Why?
“Perfect Competition Market”
First, apparently, I entered something called ‘a perfect competition market’. Economists call this a market, where there are many small companies, which offer almost the same goods and all of them are ‘price takers’, which means they are only able to sell their goods at the current market price. Economists also say that on this market there is no economic profit. Why is that? Simply put, the competition ‘eats’ the profit, leaving the companies with very little money, which only allows them to support the existence of the business (they call this ‘an accountant profit’).
Do you like the perfect competition market? Me neither. So, the fundamental lesson 1:
Avoid the “perfect competition” markets!
The term “Trajectory” comes from the business analysis. Basically, the development of an industry follows 4 steps – Fragmentation, Shakeout, Maturity and Decline. The terms used here come from a framework, developed by a group of Harvard scientists, but there are many others similar frameworks, representing the same idea.
All industries go through a similar cycle. In the beginning – the first two phases – the industry is developing, new players enter the market, new consumers enter too, there is and increased demand of the service/good, there are investments in the industry, profit margins are high. Industry is a good place to be.
During the Maturity phase there is a saturation of the demand and the trajectory goes flat. Simply put, people stop buying and some of the producers quit the market. Prices of the product go down, so do the profit margins. Finally, during the Decline phase, there is a decline in the trajectory, many companies get out of the market, the competition increases most people lose interest in the product, profits go down dramatically. It is time to quit this business.
All industries that are in the first two phases are new industries and those in the second two phases are old industries. Here comes the fundamental lesson 2:
Look for an industry that is a new industry. You can choose even a perfect competition market under certain circumstances.
These are two very simple rules. Avoid perfect competition and look for raising industries. Although simple, they could spare to any beginner in business lots of troubles.
Bread production was both an old industry, functioning under a perfect competition environment. Had I had any chances? I don’t think so.
What about the IT sector? Is it a perfect competition industry? I think it is. However, its trajectory is still pointing up. There is one very simple reason behind that. According to some statistics, for the last several years, 50 cents of any newly invested dollar has gone to the ICT in industry. That means a LOT of money. Is it a good place to be? Certainly. Until the trajectory hits the plateau.
Entrepreneurship has been blooming for the last two decades. People become entrepreneurs for different reasons, but the benefits for the society from this process are undeniable. According to the statistics, 65% of the new jobs in the US come from start-ups. The American government has recognised this fact and in 2013 has signed the JOBS bill, further facilitating the financing of newly founded companies.
We have found, however, that there are some significant differences between the understanding of the entrepreneurship in the Anglo-Saxon system and across Europe. After analysing the process in both systems, we have derived five major factors that determine the success of a business undertaking. These are:
- The idea
The idea is the core factor. It should solve a problem, fill a need, make people’s life easier. When speaking to people and offering them your product, they should be willing to buy it on the spot. This is the surest sign your idea is viable.
- The team
The team is another fundamental factor. The entrepreneurial way is uneasy and thorny. You need to have a real partner next to you, someone you can really count on. additionally, you need complimentary sets of skills, covering different aspects of your undertaking. You need to have clear relations with all duties and obligations set up. Trust is a must.
- The financing
Financing is crucial. There could not exist entrepreneurship without proper financing. To become a reality, your idea needs fuel and this fuel is the capital. Financing is one of the core differences between European and American entrepreneurship. One important thing to keep in mind is that there are tons of money out there which want to get into some good ideas’ realisation. You need to act smart and to let this money enter into your idea. There is a huge variety of financing methods and sources, each one suitable for different undertakings. We can help you choose the right financing method for you.
- The market
The market needs to be a global one. With the Internet and the globalization process for the last couple of decades the commercial opportunities have risen dramatically. If you are a start-up and anyway, you are going to undertake something, you’d better think big. Bigger market means more potential clients.
- The strategy
Strategy is the core of any business undertaking. Without a proper strategy your idea would almost certainly fail. Strategy gives target to your business, it chooses the road to these goals and it gives meaning to the existence of your business. Business strategy is the alpha and the omega of the business.
Of course, there are complex relations between any of these elements. To succeed you need to apply a holistic approach. That is why we have combined everything in a framework.
We could analyse your company and provide advice on any of the points above. Doing such analysis would spare lots of troubles to a start-up, that is why we highly recommend doing it before you start. Nevertheless, even is you are already an established company, it is never too late to check your status and remove any possible dysfunction which could be present in your business.
I would like to warmly welcome you to our new site. We are a young management consulting company with focus on the strategic aspects of business. My name is Dimitar Filipov and I am the leading partner of the company.
Apart of business strategy, we provide advice in the area of the entrepreneurship, company funding and go-to-market strategies for the common EU market and different EU countries in particular.
Having said this, I whish you a wonderful time with us and lots of good luck. We appreciate the time you spent with us and hope to add value to you and your business.
Managing partner BLUE Strategy Consulting