Age is no barrier to business start up

Bill Gates, Deborah Meaden and Sir Alan Sugar certainly haven't hung up their boots since turning 50. McDonald's founder Raymond Kroc didn't even begin the world's most famous food chain until he was 52. Colonel Sanders, was around 65 when he embarked on the franchise operation that became Kentucky Fried Chicken.

The message is clear, turning 50 isn't the end of a business career - it's the beginning. And an ever-growing wave of 'olderpreneurs', are proving life's later years can be the most colourful.

Research shows that businesses started by people over 50 have a 70% chance of surviving their first five years - compared with only a 28% survival rate for those younger than them.

So what's fuelling the entrepreneurial impetus of the 'silver startup', and why are they doing so well?

The over-50s age group has been particularly hard-hit by the recession. Last year, the UK Office of National Statistics (ONS) revealed 28% of those aged between 50 and state pension age were out of work - compared with only 20% of those aged under 50. Unemployment figures among the over-50s were up compared to younger people over the same period.

Why? One of the biggest factors is the rife ageism that permeates practically every industry in the UK, that anyone over 50 who's been forced to look for employment will testify to with a weary nod. To put a chilling number to the common knowledge: the ONS estimates those who lose their job aged 50 or over have only a 10% chance of being re-employed.

Yet this same group has a wealth of experience and often many years track record of success. More and more 50+ are reaching a life changing cross-road and are pursuing their own business start ups, so that they can take control over their circumstances and still enjoy a quality of life. The criteria for success are not always based on income; freedom and control of time are also becoming increasingly important to this age group.

A Niche That is Large Enough

Pick a niche that is large enough!

You know all about your “secret sauce” – the things that make you and your products or services unique. Hopefully if you have been methodical in your approach, and you have matched your product/services features and benefits to appeal to a target segments(s) so you can create real value propositions that are appealing and will get you customers.

Many small businesses compete successfully against larger rivals by selecting and specializing in a niche market or segments. However, you need to be extremely careful and do your homework diligently, to ensure that the niche is large enough to support your business and that customers are not too expensive to find and serve.

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Marketing budgets can soon get swallowed if prospects for your products are hard to find. The more you spend and the less enquiries you get, then the cost per enquiry can reach a point where sales can be unprofitable!

You also may discover that niche markets can be just as fiercely competitive as the mass market. You need to figure out how fast your niche is growing and how much market share you can realistically expect to capture.

If your financial projections require you to hold more than a few percent of market share to remain profitable, be careful. Don't press ahead unless you can convincingly demonstrate to yourself how your competitive advantages will enable you to become the market leader.

However, on a positive note, if you find the right niches you can dominate them and provide barriers to entry by bigger players. Also your smaller size should make you more nimble and adaptable to market changes.

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Undercapitalizing the Business

Being Undercapitalizing the Business

Maybe you should've waited to order that red Ferrari after all...

When we review business plans for start-ups, cash is often estimated to flow in 3 months or even less. The reality is often somewhat different; we often find that real cash flow doesn’t start until 6, or even 9 months after starting the business. Obviously for retail businesses this would not apply, but if services and goods are being applied, then our standard rule of thumb is to double the period that the new owner is predicting for the commencement of regular cash flow. 

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If new entrepreneurs grossly underestimate the amount of time and capital necessary to reach cash flow breakeven, it causes many promising ventures to shut down prematurely. Be conservative with your financial projections and plan on having adequate funds when you launch to cover all sunk costs (including startup losses) until your company becomes cash flow positive.

It means that apart from the business costs, you also need to cover your personal expenditures such as mortgages, loans, every day living expenses and so on.

If you don't have enough savings to cover the required investment, it may be tempting to launch your startup under the assumption that you will be able to obtain additional funding at a later date. While staging investment has advantages (preserving the option to abandon, higher valuation and—therefore—less dilution, etc.), this strategy can backfire and leave you unable to get cash when you need it most or force you to negotiate with banks and investors from a position of weakness. It's often better to change the business model to bring required investment in line with available resources.

The moral is clear, unless you have a very generous benefactor to bankroll you through the cash flow weakness in start-up it is probably best to avoid extravagant expenditure on vanities – so hold off ordering the red Ferrari company car.

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Too Much Leverage

3. Too Much Leverage and too much financial optimism

One of the key things all start ups are encouraged to do is the financial forecast and the business plan.

By virtue of the fact that you, as the owner want to be successful means that often the financials are extremely optimistic.

Will sales happen as fast as you are predicting, but the most important question of all is when will the cash actually hit your account?

Mature companies can predict revenues over the next few quarters with some degree of certainty. These businesses can make prudent use of leverage, both financial (debt) and operating (fixed overhead costs), to improve equity returns.

Revenue projections for early-stage companies can be all over the map, which means that new ventures have even less margin for error than larger competitors. In this environment, it can be dangerous to take on more than a modest amount of debt or other fixed obligations (rent, salaries, etc.). Revenues frequently take longer to ramp up than expected, so you may find yourself handing the keys of your business over to your creditors, or at least start to experience nights of not sleeping while you think about the mounting bills. We recommend that whatever outlook you have forecast for revenue to start to flow, add at least three more months, and in some instances add six months.

It's best to keep most costs variable at first and use equity capital to finance your startup until your company has been around long enough to develop confidence in your ability to forecast sales. Delay making investments or taking on fixed obligations until you have a critical mass of customers. You'll know when it's time to rent a larger office space or hire that second shift when you've got a backlog of orders on the books. A wise entrepreneur once told me “securing cashflow is sanity, all other expenditure is vanity.”

It’s great to have nice offices and maybe a great company car to drive around in, just make sure before making these commitments that you and the business can really afford them.

Cash really is king in a start-up, so make sure you have it flowing in before major expenditures and investments.

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What can new businesses do to succeed Step Two

Step 2. Finding a Viable Market

What if you launched a business and nobody bought anything?

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There is a school of thought by many start ups and that is "build it and they will come"

So new owners invest their money in a cool idea with the hopes that customers will magically appear once they open the doors. All too frequently, these hopes turn out to be in vain. History is replete with ventures that crashed and burned because the founders spent all of their time and money developing a product without bothering to consider how to attract customers. Even worse, many did not really understand what customers valued and were willing to pay for.

So what is the answer? Firstly do research and best of all ask potential customers what they would like your product/service to provide. Clearly the goal for your business is to supply something that is a solution to a problem, or a must have in their lives. Then if you have identified a solution that people will buy the next question is “how much is the solution worth to them”? The final step is then to determine the actual size of your target market.

There is one more step and that involves working out how you are going to generate demand for you products via marketing. What messages, what channels, what offers etc? The more you know and understand the market that you are targeting, the easier it becomes to decide on channels, communications and offers. Again without knowing how to reach prospects, you may find yourself spending huge amounts of budget on media that is completely wasted. Remember the old adage, “half my advertising budget is wasted, I just don’t know which half!” (Lord Leverhulme)

It's imperative to research and validate the market before you launch your business. Talk to prospective customers and find out what they really need. Chances are, you will end up with a much more compelling offering than what you initially dreamed up on your own. Remember, find the customers first, and then look for a solution.

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