it also speaks to you of what to be careful about as you venture because that would be what the market wants.
The reality, though, is that the market will naturally want to balance out these factors. You will hardly find a scenario where buyers want the cheapest, irrespective of quality or delivery, or where they will buy an item because of its quality regardless of its exorbitant price. They know when to put on the brakes in their purchasing decisions and evaluate the other factors to eventually buy the right stuff! I believe that Mercedes-Benz customers, for instance, are less focused on price as they place more emphasis on quality and service, but they know when the price is unreasonable and will settle for less.
Studies that are continuously conducted on market trends can give you ideas of how to play with competition. There also are numerous market research companies that can assist you in studying these trends and behaviours.
3. Your competitive edge
Once you have assessed the market and its dynamics, it is vital that you establish where in the market you would have a competitive advantage over the other players. This assessment is particularly important because it will inform you upfront when you cannot play in this field because the competition will simply break you apart. Your competitive edge could be any of the following:
• your relationships in the market;
• your financial strength;
• your skills and expertise;
• your technology;
• your pricing structure; or
• your service offering.
Barriers to entry
One of the considerations as you decide on your venture is how easy or difficult it is for the average person to enter that particular field. It could be to your advantage if it is easy to get into your line of business and make money, but it could also be a serious disadvantage, as it increases the chances for competition both in the present and in the future. The easier it is for everybody, the more people will want to play in that market and the stronger the competition will be. As you make your assessment, some of the barriers to entry that you have to consider are finance, approvals and skills.
1. Finance
Some industries require huge investments to start and could be significantly unattractive to potential investors because of the risk involved. Think about how much money it would require to start a mining company and how much time it would take before you made your first rand of return. Consider tree planting, and how much you would have to put into the ground before you could smell profits.
The company I referred to earlier that is taking a long time to yield returns is a document management company. In simple terms, we keep documents on behalf of clients. The price to keep a bunch of documents in a box for a month is as low as R1.90. The investment that has to be made, however, is enormous. We have to have a warehouse that satisfies the requirements of the National Archives Act, is attractive and safe for the customers to trust, is adequately racked for ease of access to documents, and is equipped with the right security measures against fire and theft. Clearly, keeping boxes at R1.90 means that it will take a long time for the infrastructure to start paying for itself, which is a serious disincentive for most people. That is why there are so few of these companies around.
2. Approvals
There are businesses that do not have to go through rigorous certification and approval processes before they can be established and run. It is simply a case of starting and flying. Others, on the other hand, require many cumbersome applications, inspections, motivations and approvals before they can operate. The barriers are many, and many people will not make it into that space. The following are examples of approvals and certifications that you would require to succeed in certain fields:
− In the construction industry, government tenders require you to have CIDB (Construction Industry Development Board) and NHBRC (National Home Builders Registration Council) accreditation.
− Training services require SETA (Sector Education and Training Authority) and SAQA (South African Qualifications Authority) accreditation.
− Accounting services require SAICA (South African Institute of Chartered Accountants) and/or CFA (Chartered Financial Analyst) accreditation.
3. Skills
Some businesses require that you acquire the necessary skills and experience before they can make money. That could mean formal qualifications, as in the case of accountants, doctors, lawyers, engineers or architects. Anyone who wants to venture into these fields and compete successfully would have to have at least seven years’ post-matric qualifications. This is a significant barrier and reduces your chances of fierce competition. In fact, this gives you a wonderful head start and you should accumulate more skills, more contacts, and more contracts.
Touching base with those in business
One of the things we often omit is to bounce our ideas off those who are already in the line of business we want to pursue. They will give you valuable information about the venture to which you aspire. They have made mistakes you can learn from, have faced challenges you will face as well, and have developed ways of doing things faster and more economically. You do not want to re-invent the wheel. Speak to them and learn. Beware, however, of speaking to potential competition. They may mislead you, either by discouraging you completely so that you end up not starting your venture, or by making you start off on a wrong path so that you face challenges and sink! The best advice is to contact people who are not in your direct space, for instance those operating in another province and not where you intend setting up your business.
It is advisable to seek employment in the kind of business you want to start. Make the sacrifice for your future and volunteer to help. In that way you will experience the practical side of your envisaged venture. Rotate right through the business in the course of your employment, getting the feel of finance, marketing, sales, the supply chain, and so on. Remember, at first you may have to do all these tasks yourself or have management oversight over them in your own venture. It is important to know how they work.
Spend time reading up about your line of business. Find the industry journals. Listen to interviews with people who are already there. They will tell you what the challenges are, what the pitfalls have been and what alliances and strategies you can develop in order to succeed. Just make sure you do not go into it blindly. Remember, failure in business costs a lot of money.
Bottom line – make sure that by the time you make the first move that costs money, you are certain that this is what you want to do!
Am I fit for business?
Take some time now to fill in the simple questionnaire below, which will give you an indication of the challenges that you will face in business and also help you assess whether you will be up to overcoming them. It is by no means a comprehensive guide to all potential business challenges but will certainly give you general indicators. Answer simply “Yes” or “No” in response to each question.
If you get a score of less than 60%, in other words, your “Yes” answers account for 60% of the questions asked, you may struggle in you own business and will have to work seriously hard to make it work. A score of 80% and above will indicate that you are a natural. I would go for it if I were you. The chances of success are great!
Remember,
