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Jessica covers Australia's technology start-up scene, writing on breaking news and trends in entrepreneurialism, media and marketing. She was previously named Australia's best New IT Journalist for 2011.

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How long should you plan before setting up your business?

Published 04 October 2012 04:14, Updated 04 October 2012 05:06

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How long should you plan before setting up your business?

The length of time founders spend creating a business plan is as individual as their companies. Photo: iStock

At first glance, the careers of Michael McShane and Matthew Sampson have followed a similar pattern. Both left roles at recruitment companies to start their own firms – McShane runs Stealth Recruitment and Sampson heads Aspect Personnel. But where they diverge significantly is in their approach to planning and the time taken to open their businesses.

McShane took one month to get Stealth Recruitment up and running, while Sampson took about a year.

For technology start-ups, the accepted wisdom is to get a basic version of the company up and running as soon as possible. Then founders can tweak the technology and the business model based on feedback. But a look at the time taken planning by BRW Fast Starter companies in 2012 shows there’s no such status quo. The median time taken to plan a business was between one and six months but there was a wide spread, as the table shows.

How new or unique an idea was often influenced time to market but much of the difference comes down to personal preference or the approach of the founder. The contrasting paths provide food for thought for aspiring entrepreneurs.

For McShane, speed was of the essence. His previous employer, a mining-focused recruiter, closed during the global financial crisis due to a lack of confidence about future market conditions for resources companies. “My opinion differed starkly from that,” he says.

With a former colleague who would become Stealth’s first employee, in four weeks McShane rallied former clients and candidates to build a database of leads. He signed an office lease, organised insurance for the candidates the firm would place and set up an advertiser account with online job board Seek. These were his non-negotiables before the business could begin.

“We knew exactly what we needed to do to set up,” he says. “It was an exceptionally busy time but having gone from one business to another, doing exactly the same thing, it was fundamentally simple.”

McShane was already comfortable that there was a need for the service Stealth would offer but says market validation, along with a business plan, are the two most critical aspects to get right in the planning stage. “If you haven’t researched your market, potential clients, and a demand and need for your service and you haven’t done a proper business plan . . . then it’s never going to succeed.”

In contrast, Sampson took a more measured approach. While working for a large international firm, he stumbled upon “an obvious level of discontent with the recruitment industry”.

The genesis of Aspect actually came from research on ways to improve the service, “which I then noted down and reported back to my director and suggested solutions,” Sampson says. “That was a point at which he said given the size and scope of the organisation, there is a fixed business strategy and those amendments probably didn’t fit in too well with that.”

Sampson reckoned that clients were dissatisfied with the high turnover of consultants, which led to a poor understanding of the business. He decided to open his own firm and concentrate on improving the retention rate of staff to improve the service to clients. Before setting up on his own, he worked for five months to fine-tune his business plan.

Of his business plan, he says: “I spent a  very long time writing it. It turned out to be not sufficient to run a business on . . . but it gave me the confidence to start.”

Looking back at himself as a 22-year-old “very confident” company founder, Sampson wishes he had spoken to more people during his planning to get an objective view of his business plan.

“By speaking to more business owners who had been through the same process and hearing stories gives you a much better insight,” he says.

In contrast, the chief executive of banking and insurance comparison website Mozo, Rohan Gamble, took just under a year to create a 50-page business plan “that still holds true today”.

Gamble embarked on “full-time thinking” for the first six months or so. He didn’t have a formal time frame in mind but says his approach was “think first and act second”.

“I was only going to act when I felt comfortable,” he says.

The idea had validity in Gamble’s mind because the model of online marketplaces in other categories, such as Seek for jobs and Wotif for travel, had been successful. In addition, Gamble had seen financial services marketplaces succeed overseas. After the thinking stage, it took another year to build the website, giving a total of about 21 months for planning, he says.

It’s a significant gestation period but it’s topped by training outfit Performance Education. Chief executive Owen Firth took a bit over two years before he was ready to open for business.

“It’s not like I was opening a McDonald’s franchise,” he says. “It needed a fair amount of research.”

While running his own recruitment company, FinanceMark, Firth noticed “a gap in terms of the preparedness of international students for the workforce”. That gave him confidence that there was a need for a business that offered specific job-readiness courses but Firth says “was it just our impression?”

Firth spoke to other recruiters, students and organisations such as universities. “Because they all said, ‘Yes, this was a big issue’ and it was consistently, strong feedback, it gives you the impetus and the confidence to move to the next level.”

After about six months of researching, Firth put together a business plan. He says the beauty of not being in a rush to start the business was he enjoyed “selective perception” (“You know, when you’re thinking about buying a Mercedes, you notice lots of Mercedes,” he explains). This was the case when he ran into an old university classmate, Matthew Reid, who would end up partnering Firth to establish Performance Education.

“The great thing about having a very clear plan is, even if you’re not ready to start, that selective perception thing makes you constantly on the lookout for more info, validation [of the idea], people to talk to or people who can help you get the business started,” he says.

Planning a second venture on top of his other business had advantages and disadvantages. It meant Firth was busy, but also provided financial security. As well, Firth was able to tap into office space and administrative facilities he already had to run a “pilot”; “We called it a pilot, but it was really starting the business, but on a small scale with a few classes,” he says.

Although he says his approach to planning was cautious and calculated, Firth emphasises that “you don’t put it in a drawer and sit on it for two years, you’re actually doing something on it the whole time”.

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