Many entrepreneurs make the mistake of thinking they can be an expert at everything, says Catch Group’s Hezi Leibovich.
Photo: Jesse Marlow
How do you treat start-up risks when you don’t know what they are? For many entrepreneurs, failure becomes like a best friend. Like any healthy friendship, though, you need to learn from your mistakes in order to move the relationship forward. I have learnt you can give your new business the best chance by asking these six simple questions.
1. How will you fund it?
The answer will depend on your risk appetite and/or your comfort level on conceding control to fund providers. The amount you need also has a level of risk in it; the more it is, the harder the fall (if you do).
CatchOfTheDay was personally funded with only a few thousand dollars and a credit card. This allowed us to maintain control of the business and keep debt at a manageable level if the business failed.
2. How will it fund you?
The risk here is having a good idea but not monetising it properly, running out of money before your business gains traction, or not being able to support fast growth. Give yourself a deadline to achieve profitability and make sure you have enough supporting capital. Figure out your revenue model and be realistic about ramp time.
Due to CatchOfTheDay’s small starting capital, we needed to develop a lean business model and be profitable within eight weeks. We could not afford to be left with excess stock or pay upfront for stock so we created a consignment model, only paying suppliers for stock after we sold it. Our model was scalable too, which meant that when CatchOfTheDay grew in popularity we could maintain customer satisfaction levels.
3. What are your costs?
Overhead costs can undermine your business’ profitability. Keep overheads low and only commit to a cost when it will provide value for your business.
Keep overheads low and only commit to a cost when it will provide value for your business.
My brother and I had no choice but to keep overheads low. Our first website was built by a web developer offshore for $1500, instead of the $30,000 it would have cost to build in-house. We couldn’t afford many staff so we drove around in a van to source stock, answered customer enquiries and packed goods in recycled boxes before posting them over the counter at the post office, which was cheaper than pick-up.
4. Do customers want what you’re selling?
It’s easy to see a “gap” in the market but there’s a risk the idea doesn’t work in the real world. Test your offering before investing your time and money in a business based on that idea.
Before we launched CatchOfTheDay, we experimented with selling a single item a day in shopping centres and on TV infomercials. We learnt to focus on a single product. When the idea proved successful, we developed and launched the site.
5. How will your business evolve?
While establishing the foundations of your business, envision how it may evolve and be mindful of the risk of restricting growth by stifling opportunities. Identify the fundamental appeal of your business to allow it to progress.
CatchOfTheDay started as one daily deal but now features more than 100 deals a day while still keeping its original appeal – it wasn’t about the product but the “event” format. We evolved and scaled up the business because our customers wanted more variety, more merchants signed up and we had more deals to feature.
6. Who is behind your business?
Surround yourself with successful people who will help you with different aspects of your business. Many entrepreneurs make the mistake of thinking they can be an expert at everything. The consequences of forging ahead without the right knowledge are worse than recognising that you don’t know! Create an “advisory network”: you’ll be surprised at how available people are when you ask in the right way and have the right intentions.
In 2011 CatchOfTheDay teamed up with Tiger Global, which has investments in some of the world’s best-performing companies, James Packer and the founders of Seek – all successful business minds. We also have a network of professionals from accountants to lawyers, logistics experts to marketing geniuses, as well as some of Australia’s best retailers. Make sure the relationship is reciprocated; we provide a lot of our time to our network too.
There are many reasons why businesses fail; a lack of an answer to these questions shouldn’t be one.
Hezi Leibovich is the co-founder of online shopping group The Catch Group, incorporating online retail sites CatchOfTheDay.com.au, Scoopon.com.au, Groceryrun.com.au, Vinomofo.com, Mumgo.com.au and Eatnow.com.au.