Colin Barrow

Cheat Sheet / Updated 08-02-2023

So you've decided to start running your own business but are at a bit of a loss when it comes to some of the basics? Here, you find useful breakdowns of everything from how to plan, run, and most importantly, profit from your new and exciting venture.

Cheat Sheet / Updated 03-09-2022

Getting a business off the ground may not be easy but it can be great fun, especially if it gets off to a flying start. This cheat sheet serves up key ways to make sure that your business gets the initial boost that it deserves.

Article / Updated 03-26-2016

Calculating the VAT (Value Added Tax) element of any transaction can be a confusing conundrum. By following these three simple steps, you can get the sum right first time: Take the gross amount of any sum (items you sell or buy) – that is, the total including any VAT – and divide it by 120, if the VAT rate is 20 per cent. (If the rate is different, add 100 to the VAT percentage rate and divide by that number.) Multiply the result from Step 1 by 100 to get the pre-VAT total. Multiply the result from Step 1 by 20 to arrive at the VAT element of the bill.

Article / Updated 03-26-2016

A business doesn’t have to do all the activities that it wants to carry out, from creative design, through manufacture, to selling, out of its own retail outlets. Other businesses are almost certainly better at elements of the process. For example, most businesses don’t sell the products they manufacture, and even within the same industry companies take different approaches. Outsourcing some of your business activities can help your business to: Focus on your core competences. Small businesses typically run their own computer and IT systems, for example, and call for help only when things go wrong. Big businesses, who you might think would be better able to run these and other support activities in-house, mostly don’t do so. Some 65 per cent of UK retailers, for example, outsource their IT activities, warehousing or another part of their distribution network, while 55 per cent outsource payroll and 45 per cent outsource store security. That leaves retailers to focus on store location, merchandise and layout, all central to their distinctive offerings. Reduce your capital expenditure. Raising money to get started or to grow is hard enough without tying it up in assets you don’t have to own in order to use. For example, Ingredient Solutions, a small company who supply cheese to fast-food sandwich outlets such as EAT, initially contracted out slicing to allow them to concentrate on higher value-added functions such as dicing and shredding for pizza toppings. You don’t have to buy and own an asset to benefit from its output. Make use of worldwide best practices. While your company may be best, or at least strive to be best, in its core area of business, others will be better at what is central to their proposition. Start new projects quickly. An outsourcing firm can have as a selection criterion the resources to start a project right away, giving you a head start. The same project run in-house may take months or years to research, evaluate options, purchase and install equipment, hire and train the right staff. Level the playing field. Few small businesses can equal the in-house support or specialist services their larger competitors offer. Outsourcing can help small businesses act ‘big’ by giving them expertise that only large companies usually enjoy. Customer Relationship Management (CRM), for example, is one area where outsourcing can create a level playing field for small firms and bigger firms with in-house systems. CRM helps businesses focus on learning more about their customers and developing stronger relationships with them while providing the resources required to leverage these relationships for future business and referrals. Salesforce, Pipeline, HubSpot, SugarCRM, Zoho CRM and Spark all have affordable CRM systems that mirror the best on the market, working well with businesses with just a handful of sales staff. Reduce risk. All businesses are risky; that’s the nature of the beast. Markets, competition, government regulations, the financial environment and technologies all change very quickly. Outsourcing providers take on and manage much of this risk for you, and as experts in their own field they generally are much better at identifying and minimising those risks. Lower costs. Any organisation that produces more of a product or carries out more of a particular process than you almost certainly has a lower unit cost. Boston Consulting Group (BCG) explained that this in a process known as the ‘experience curve’ showing that each time the cumulative volume of doing something – either making a product or delivering a service – doubled, the unit cost dropped by a constant and predictable amount. The reasons for the cost drop include: Repetition makes people more familiar with tasks and consequently faster. More efficient materials and equipment become available from suppliers themselves as their costs go down through the experience curve effect. Organisation, management and control procedures improve. Engineering and production problems are solved. Outsourcing is not without risks, though. In some countries, the culture can be to cut corners and bend the specification in ways that the supplier may not fully appreciate the significance of. Patrona, a small travel accessories company, is a case in point. Their problems in this area were so severe that they had to seek money on crowdfunding website Kickstarter to help pay for UK tooling for a production facility when their Chinese outsourcing partner let them down. Andrew Brundan, the businesses’ founder, faced a production mishap in September 2012 when he was waiting on £250,000 worth of stock from China. When he opened up the shipment, he discovered to his horror that the stock, in its entirety, was faulty: a catastrophe for Patrona as the stock had been pre-sold to a number of large UK retailers. The outsourcing partner had used the wrong plastic and adhesive for the Patrona tablet cases it had produced, rendering most of them unsellable. Brundan had provided a detailed specification, which would be binding under the business culture that prevails in the UK and elsewhere in Europe. In China, however, they see it as just a recommendation of how to make the product and use their own judgement on how to actually proceed. When outsourcing, you must make sure that your outsource supplier understands exactly what you require, and you will need to invest time and effort in managing the relationship.

Article / Updated 03-26-2016

Preparing your business plan is a key stage in launching your business successfully and objectives – sales and profit targets, for example – are the measurable element of your plan. Management by objectives (MBO) is a management system in which the objectives of an organisation are discussed and agreed on so that everyone in the organisation understands the way forward and their role in the task ahead. Even if you start out as a one-man band, this is a good discipline to get into, and an essential practice when you start employing people. You can use this tool with outsourcers too. MBO is generally seen as having five stages: Stage one: Provide employees with a clear understanding of their roles and responsibilities as well as the results they are expected to achieve. Involving employees in the goal-setting process increases employee empowerment, job satisfaction and commitment to achieving the objectives. Stage two: Cascading your objectives to those responsible for achieving them. For an organisation to achieve its mission, everyone on the payroll has to work in some way to that end. In order to make the process effective, the goals that are agreed have to be SMART: Specific: Ambiguous goals leave room for confusion. Having clear goals is the only credible way to monitor progress. Measurable: Activities that can be measured, such as sales targets or cost-reduction programmes, have a better chance of being achieved than less-concrete goals, such as improving a business’s image or the quality of training. What gets measured gets done. Agreed as being achievable: When the person responsible for achieving the goal has a hand in developing it, you’re more likely to get that person to buy into the aim. Realistic: Being realistic sets a limit on over-eager staff or hopelessly ambitious bosses. Time related: Tying objectives into the timeframe of the planning cycle provides an important constraint. Stage three: Monitor performance against agreed objectives. Monitoring performance against objectives you’ve agreed reinforces the idea that objectives should be measurable and that a system to report against them must be in place. Stage four: Evaluate performance against the agreed objectives. Some elements of performance are outside the control of even the most able, dedicated and committed individuals, so this step is critical. The assumptions on which the objectives depend come into play here. So if, for example, the organisation assumes that the economy will grow and a major credit crunch drags the world into recession, then the original objectives may reasonably fail the test of being realistic. Stage five: Reward for achieving results. For anyone in sales a reward could be sales commission, but a pat on the back often goes a long way too. While what gets measured gets done, what gets rewarded gets done again. Studies have shown that companies whose top dogs have demonstrated high commitment to MBO showed significant gains in productivity, and that even those with only lukewarm commitment saw noticeable gains.

Article / Updated 03-26-2016

Growing your business requires that you generate possible options and then make decisions as to which of those will work best for your business. Here are the tools most commonly used to help you set out the options. Ansoff’s Growth Matrix Igor Ansoff, while Professor of Industrial Administration in the Graduate School at Carnegie Mellon University, published his landmark book, Corporate Strategy (1965), where he explained a way of categorising strategies as an aid to understanding the nature of the risks involved in them. Ansoff invited his students to consider growth options as a square matrix divided into four segments. The axes are labelled with products and services running along the ‘x’ axis, starting with ‘present’ and ‘new’; and markets up the ‘y’ axis, similarly labelled (see the following Figure). Ansoff then went on to assign titles to each type of strategy, in an ascending scale of risk): Market penetration, which involves selling more of your existing products and services to existing customers – the lowest-risk strategy. Product/service development, which involves creating extensions to your existing products or new products to sell to your existing customer base. This is more risky than market penetration, but less risky than entering a new market where you face new competitors and may not understand the customers as well as you do your current ones. Market development involves entering new market segments or completely new markets either in your home country or abroad. Diversification is selling new products into new markets, the riskiest strategy as both are relative unknowns and this one is best avoided unless you’ve exhausted all other strategies. Diversification can be further subdivided into four categories of increasing risk profile: Horizontal diversification – taking an entirely new product into your current market. Vertical diversification – moving backwards into products that you currently get from your firm’s suppliers or forward into your customer’s business. Concentric diversification – introducing a new product closely related to your current products either in terms of technology or marketing presence, but into a new market. Conglomerate diversification – introducing a completely new product into a new market. Ansoff’s Growth Matrix. The Boston Consulting Group Matrix This tool was developed in 1969 by the Boston Consulting Group; you can use the group matrix to plan a portfolio of product or service offers. The thinking behind the matrix is that a company’s products and services should be classified according to their cash-generating or consumption ability against two dimensions: the market growth rate and the company’s market share (see the following Figure). Cash is used as the measure rather than profit, as cash is the real resource used to invest in new offers. The objective then is to use the positive cash flow generated from cash cows, usually mature products that no longer need heavy marketing support budgets, to invest in stars, that is, fast-growing, usually newer products, positioned in markets in which the company already has a high market share – usually newer markets. Dogs, which are products with a low market share and slow growth rates, should be disinvested and question marks, which are products with low market share but where market growth looks high, should be limited in number as these are big cash consumers and need to be watched carefully to see whether they are more likely to become stars or dogs. The Boston Consulting Group Matrix. The Boston Consulting Group Matrix is explained in more detail at Value Based Management, net, and you can access a tutorial showing how to create a BCG Matrix in Excel at Best Excel Tutorial. The GE–McKinsey Growth Matrix General Electric (GE) was much taken by the visual aspect of the Boston Matrix and was using it to enhance its own performance using another consulting firm, McKinsey and Company, to help. Between them, in 1971, they came up with a variant (see the following Figure), and in some ways an improvement, by substituting business strength and industry attractiveness for market share and market growth rate. The logic was that although these measures are subjective, they are more accessible than market growth and share, which are hard to establish. The GE-McKinsey Growth Matrix. You can find out more about the GE–McKinsey Growth Matrix at MBA Knowledge Base. The Long-Run Return Pyramid Another helpful strategy tool is the long-run return pyramid, which is in effect a checklist of growth options. None of the options are mutually exclusive and the tool doesn’t provide for any form of evaluation. Nevertheless, the pyramid can be a valuable memory aid to help you ensure that you’ve left no stone unturned during your strategic review process. The pyramid in the form shown this Figure is attributed to Robert Brown, a senior academic at Cranfield School of Management. The Long-Run Return Pyramid.