Starting-up: Creating Assets while Reducing Risks
Avela Gronemeyer
Starting a business is one of the riskiest things that one can embark on. After all, 71% of businesses in South Africa fail in the first year and only 10% of businesses survive beyond the 2nd year. Billions of rands are spent by governments all over the world, including the South African government, in an attempt to support the creation of businesses that in turn will create the jobs needed to deal with the social threats resulting from unemployment, poverty and inequality. People of all ages and backgrounds enthusiastically take on the immense risk of trying to build something from scratch, innovating and improving products and services and finding new solutions to the problems faced by individuals, communities, organisations and governments. Yet, so many businesses fail. Indeed, starting a business is a risk. Entrepreneurship is all about risk and how we manage it.
The definition of entrepreneurship that we, at VuMaLi Ndaba, subscribe to is the following:
“entrepreneurship may be defined as the pursuit of opportunity without regard to resources currently controlled” - Howard Stevenson, 1983
The power in this definition is two-fold:
In essence, one dedicates time and personal resources without knowing whether they will be able to gather the resources needed to realise said opportunity, where they may get said resources from and if they will succeed at all. They risk:
So, a big question for entrepreneurs, and would be entrepreneurs, is how they should go about mitigating this risk. What we recommend, at VuMaLi Ndaba, is that entrepreneurs should focus on creating assets while reducing risks. We believe that this represents the essence of starting up.
Businesses make money because they provide products and services that people want or need. Their wants or needs are driven by the problems that they face and / or the desires that they have. For these people, these products or services are so valuable to them, that they are willing to pay hard earned money to acquire them. These products and services are assets i.e. they are useful and they are valuable.
During the start-up phase, it is the task of the entrepreneur to identify, build and improve these assets whilst at the same time reducing the risks that the business is facing. How should entrepreneurs go about creating these assets in a manner that minimises risks? At VuMaLi Ndaba, we recommend a 3 step Start-up methodology where entrepreneurs identify opportunities by identifying problems that are faced by themselves, their communities, their industries and / or their social circles. This should be followed by taking steps to assess the opportunity and test the level of demand for a solution to said problem. It is important to note that not all problems are important. There are problems that we face daily for which we would not invest time and / or money to solve. The problems that entrepreneurs should focus on are those that people are willing the pay money to resolve. The third step is that of executing on the opportunity. Once the opportunity has been verified, it is then safer to gather resources, position the business and start intensive test selling. After the third step, there will still be the requirement to improve the products and services offered by the start-up, but each of these steps reduces the level of risk associated with the venture and increase the chances of obtaining investment. Through-out all of these steps, the most critical element is contact with potential customers, also known as customer interaction.
Opportunity Identification:
This is the process of identifying opportunities in the market place that can result in a repeatable and scalable business model. It involves brainstorming problems that can be solved using innovative ideas. It encompasses, as Steve Blank says, 'getting out of the building' to speak to potential customers and get a sense of whether other people are faced with this problem, how much pain it causes and whether the ideas that have been brainstormed would solve this problem. Speaking to people is also a great source of ideas and can point you to problems that are more important to your customer base. Identifying a problem that people are willing to pay to resolve reduces the venture's risk drastically.
Opportunity Assessment:
Opportunity Assessment is the process of improving and intensively testing the business idea. This involves creating a product prototype and test selling it to the identified target group. Also important in this step are market size analysis, competitor analysis, determining price and clarifying the venture's unique value proposition. Test selling that yields customers reduces risk.
Opportunity Execution:
This is the process of test selling the product or service at a larger scale and then gathering the resources required for pursuing the opportunity. Here the entrepreneur must use the outcomes of the opportunity assessment stage to finalise a price point, win new business opportunities, win the support of funders and investors as well as create and implement a sales and marketing plan.
The reason why we subscribe to the definition of entrepreneurship above is that we believe that when these steps are followed and it is clear, and well documented, that the entrepreneur is solving a problem that creates a lot of pain for a particular target group, using an innovative product or service that people are willing to pay for, the resources become easy to acquire. Where there is money to be made and risk is reduced, investors will invest.
The definition of entrepreneurship that we, at VuMaLi Ndaba, subscribe to is the following:
“entrepreneurship may be defined as the pursuit of opportunity without regard to resources currently controlled” - Howard Stevenson, 1983
The power in this definition is two-fold:
- It refers to a pursuit of opportunity, so it becomes clear that entrepreneurship requires that one identify and verify the existence of an opportunity and then pursue it; and
- One does the above without being held back by an assessment of the resources required versus the resources that one currently has under their immediate control.
In essence, one dedicates time and personal resources without knowing whether they will be able to gather the resources needed to realise said opportunity, where they may get said resources from and if they will succeed at all. They risk:
- Their time, personal resources and health; and
- The value of other things that they may have acquired in the time that they pursue that business (the opportunity cost). Examples are a high paying job, further education etc.
So, a big question for entrepreneurs, and would be entrepreneurs, is how they should go about mitigating this risk. What we recommend, at VuMaLi Ndaba, is that entrepreneurs should focus on creating assets while reducing risks. We believe that this represents the essence of starting up.
Businesses make money because they provide products and services that people want or need. Their wants or needs are driven by the problems that they face and / or the desires that they have. For these people, these products or services are so valuable to them, that they are willing to pay hard earned money to acquire them. These products and services are assets i.e. they are useful and they are valuable.
During the start-up phase, it is the task of the entrepreneur to identify, build and improve these assets whilst at the same time reducing the risks that the business is facing. How should entrepreneurs go about creating these assets in a manner that minimises risks? At VuMaLi Ndaba, we recommend a 3 step Start-up methodology where entrepreneurs identify opportunities by identifying problems that are faced by themselves, their communities, their industries and / or their social circles. This should be followed by taking steps to assess the opportunity and test the level of demand for a solution to said problem. It is important to note that not all problems are important. There are problems that we face daily for which we would not invest time and / or money to solve. The problems that entrepreneurs should focus on are those that people are willing the pay money to resolve. The third step is that of executing on the opportunity. Once the opportunity has been verified, it is then safer to gather resources, position the business and start intensive test selling. After the third step, there will still be the requirement to improve the products and services offered by the start-up, but each of these steps reduces the level of risk associated with the venture and increase the chances of obtaining investment. Through-out all of these steps, the most critical element is contact with potential customers, also known as customer interaction.
Opportunity Identification:
This is the process of identifying opportunities in the market place that can result in a repeatable and scalable business model. It involves brainstorming problems that can be solved using innovative ideas. It encompasses, as Steve Blank says, 'getting out of the building' to speak to potential customers and get a sense of whether other people are faced with this problem, how much pain it causes and whether the ideas that have been brainstormed would solve this problem. Speaking to people is also a great source of ideas and can point you to problems that are more important to your customer base. Identifying a problem that people are willing to pay to resolve reduces the venture's risk drastically.
Opportunity Assessment:
Opportunity Assessment is the process of improving and intensively testing the business idea. This involves creating a product prototype and test selling it to the identified target group. Also important in this step are market size analysis, competitor analysis, determining price and clarifying the venture's unique value proposition. Test selling that yields customers reduces risk.
Opportunity Execution:
This is the process of test selling the product or service at a larger scale and then gathering the resources required for pursuing the opportunity. Here the entrepreneur must use the outcomes of the opportunity assessment stage to finalise a price point, win new business opportunities, win the support of funders and investors as well as create and implement a sales and marketing plan.
The reason why we subscribe to the definition of entrepreneurship above is that we believe that when these steps are followed and it is clear, and well documented, that the entrepreneur is solving a problem that creates a lot of pain for a particular target group, using an innovative product or service that people are willing to pay for, the resources become easy to acquire. Where there is money to be made and risk is reduced, investors will invest.
Avela Gronemeyer (B.Comm.)
Avela Gronemeyer has been passionate about enterprise and supplier development since immersing herself into the field in 2010. She led and contributed to exciting programmes with tangible socio-economic impact during the time that she spent at South African Breweries as Enterprise Development Manager. These included entrepreneurial support programmes, supplier development strategies and programmes as well as trader development programmes. After leaving SAB she cofounded VuMaLi Ndaba Solutions (VNS) where she not only drove the delivery of programmes but also designed and implemented new programmes from scratch. VNS clients included De Beers, ABI, SAB and the DTI amongst others. Her special interest is Technology Entrepreneurship.
Avela also spent five years within Accenture South Africa's consulting unit, where she was involved in a number of large systems integration and transformation projects spanning various sectors e.g. transport and logistics, customs and border control, local government as well as chapter 9 institutions.
Avela Gronemeyer has been passionate about enterprise and supplier development since immersing herself into the field in 2010. She led and contributed to exciting programmes with tangible socio-economic impact during the time that she spent at South African Breweries as Enterprise Development Manager. These included entrepreneurial support programmes, supplier development strategies and programmes as well as trader development programmes. After leaving SAB she cofounded VuMaLi Ndaba Solutions (VNS) where she not only drove the delivery of programmes but also designed and implemented new programmes from scratch. VNS clients included De Beers, ABI, SAB and the DTI amongst others. Her special interest is Technology Entrepreneurship.
Avela also spent five years within Accenture South Africa's consulting unit, where she was involved in a number of large systems integration and transformation projects spanning various sectors e.g. transport and logistics, customs and border control, local government as well as chapter 9 institutions.