Thursday, July 4, 2013
Six Steps to Developing Low Cost New Businesses
Starting a new business doesn’t necessarily mean that large amounts of money need to be raised. Even businesses with the potential of capturing a new market of substantial size may not require a substantial investment. This may be good news for individuals with a great idea coupled with expertise and know how.
I have seen individuals lose control of their ideas and their vision of a successful company by seeking out investors to support the company in its early stages. This can be avoided by building the business though alliances and involving individuals that can benefit if the business is a success.
Steps in sitting up a low cost venture should include:
· Identify potential prospects that would benefit from the product or service to be offered. These prospects can be interviewed to see if your offering is going to fill a market need. They may be enlisted to further refine the offering.
· Once the product or service is validated, find a strategic ally that is willing to work with you by adding your product to their offerings or by allowing you or include their products to your offerings. This automatically creates market credibility. The more successful your ally, the better your credibility.
· Maintain control of your business. This can be difficult and dangerous especially if working with a very aggressive business ally. One way of providing control is making sure that business transactions and cash flows are conducted through your company. That is, customers pay you and you pay your business ally.
· Avoid large administrative and workforce expenditures. To process payments, payroll, business expenses, insurance and billing use an accounting service. There will be a fee for these services but there is no organizational expense and the cost of the service is directly related to the level of activity.
· Find a university business school that is looking for internships for their students. These students can provide a workforce at a low cost and can be the beginning of permanent staffing and a future management team.
· Plan an investment strategy that allows you to seek out investors when you have the best negotiating position.
At the Houston Chronicle we sought out new publications that could be distributed in our newspaper. The publication would help the Chronicle reach a broader spectrum of the community. The publication would benefit by having the credibility of being distributed in the Chronicle (they were able to command a higher advertising rate) without the cost of an internal distribution organization. Paper City, which is now in several major cities started with an alliance with the Houston Chronicle. It began as a very small operation and has grown significantly by strategically developing and controlling business alliances.
In a venture currently taking shape, a group of physicians felt that there was a need for a consulting service that provided healthcare guidance to underdeveloped nations. These doctors visited with several countries and were well received. One country invited the doctors to visit and make a presentation on the development of a major hospital.
The doctors explained the opportunity to a major architectural/engineering firm that had a great deal of experience building hospitals internationally and invited them to be a strategic ally.
The architectural firm accepted the alliance and accompanied the doctors to visit the country’s health ministry and make the presentation. The presentation went very well and the doctor’s group is now being considered for consulting services on 5 hospitals as well as other health ministry programs.
To develop a staff to gather information, the doctors have identified a university with a healthcare MBA program that is looking for opportunities for their students. The work for the students will be meaningful and cogent to their career objectives. The company will receive bright, capable individuals working on programs to solve health care challenges for the health ministry of a developing nation.
Cash flows for this new healthcare consulting company will come from regular payments from the contracting government and paid directly to the doctor’s consulting firm. The consulting firm, based on services requested, will pay all payments to business allies.
In this case the consulting company will have significant expenditures only when there is a significant revenue stream. Organizational expenses are held to a minimum and tightly controlled.
Finally, the health care consulting company is developing a long-term strategy to attract investors when they have a strong on-going business.