MARKET SHARE

When researching your competitors, consider the issue of market share. Try to work out how the market is currently divided up between competitors and how you can start to gain a share of that market. Your proposed business venture will either increase the likely size of the market (this is most commonly seen with new products or services) or succeed only at the expense of your competitors. Sometimes the success of a new venture can be due to a mixture of both, but the implications can be significant.

If you think you will be expanding the market it means new customers will be buying from you — where will they be coming from and what will attract them? Are you expecting them to stop buying something else to have the spare money to spend with you? If you are trying to break into an existing market, how will you win customers from other suppliers? One way of enticing customers away from competitors is to offer a better-quality product service. Another is to undercut current prices. Think carefully about which you can deliver and which will be most profitable.

DIRECT OBSERVATION

If your intended business is retailing, then walk around the area in which you are thinking of opening a shop to look at the types of retail businesses nearby and to check out potential competitors. Talk to local surveyors, who usually have a good idea as to the retail business in their area.

Once you have located a competitor, there are a number of techniques to use. If they are local you could sit outside their premises and observe the comings and goings; note down how many people go in and how many come out with purchases. In the case of industrial units, careful observation can reveal the names of suppliers and customers (conveniently written on the sides of vans) and the general level of activity of the business. Do this at several different times of the day or week, and for an hour or more at a time. If the competitor is a manufacturer, try to buy, rent, or borrow a sample of their product and check it out, noting any strengths and weaknesses. How does it compare with your own product in terms of appearance and features? What can you offer that the competitor does not? Note any patent or registered design markings, since these should be respected.

If the competitor is in the service sector, try to use their service yourself, or ask friends to phone as if they were customers. Enquire about prices and how soon the service can be provided (this may reveal how busy your competitors are or provide a target for you to beat).

RESEARCHING INFORMATION

You can also use less direct means to find out more about your competitors. If you have a potential supplier, ask their sales representatives who else they supply in your area. Read trade magazines and attend the relevant trade or consumer exhibitions, sincemost of the businesses who are actively trading are likely to be there as exhibitors or visitors. Obtain pamphlets, sales literature, and price lists from shows or exhibitions. Here your competitors are at their most vulnerable since their goods are on display, and you can usually walk straight on to their stands. Also, look at their advertisements and check out their web site. If possible, speak to some past or present customers. Try asking direct questions, such as “How do you find…?” or “Do … deliver on time?” Sometimes the answers can be remarkably candid. If a competitor is a limited company, they have to file annual accounts and returns, which are available to the public.

You can hire a stall on a regular monthly basis, or you can hire a stall on a casual ‘every now and again’ basis.

Position is quite important at these markets, and when you start trading you might well be in a bad position. But if you decide to do the market regularly, you’ll become known and can work your way into getting a stall in a good position. Also if you become a regular trader, customers will start seeking you out as well. To benefit from a market you should trade regularly — then you will start balancing out good and bad selling days.

Casual stalls are slightly more expensive and you seldom get a good position. But if you want to test your product, taking a stall at a flea market can be a very good option.

Hire fees are paid per day and are usually very reasonable, but obviously vary from market to market. For this fee, you will be provided with the space for a stall, approximately the size of a parking bay. You can, of course, always hire more than one stall if you need the extra space.

Tables and power points are available for hire on the day. You have to supply everything else. Display racks, ‘walls’ if you want to separate your stall from your neighbours or even a changing cubicle if you are selling clothes that need to be tried on.

Flea markets have a selection day once a week, because they have a much faster turn-over of stall holders. Phone them.

Hint: If you need display equipment, have a look at shops or auctioneers selling second hand office furniture and office equipment. You can find wonderful pieces for next to nothing, which you can revamp and turn into something fabulous with a coat of paint or even some decoupage. To find them, look up ‘auctioneers and/or office furniture — used’ in your local Yellow pages.

Display shops also have interesting things and some of them carry second hand stuff as well.

Make a list of all the shops that would be likely to stock your product. Because you’ve done your market research, you should be able to accurately pin point who to go to. The range of areas you sell in can be quite wide.

Every shop owner is on the look out for different and unusual stock which will give them the edge over their competition. Don’t supply shops that are close to each other.

Make an appointment to show them your things, particularly if you are seeing them for the first time. Just pitching up without an appointment is not a good idea. You might arrive at an inconvenient time.

If they like what you do and the price is right, they will buy your stock. It can become a very satisfying relationship with shop owner and crafter developing and creating exclusive ranges of goods together.

Important note

If you want to supply retail shops, you need to consider if you also want to sell directly to the public. If so, determine a suggested retail price in which a shop can make at least an 80% – but usually 100% – mark up. If you sell directly to the public it should be at the same price as the shop to protect your retailers. Occasionally crafters have created very unpleasant situations for themselves by undercutting their retail outlets.

Retail shops, especially the smaller gift and decor shops, are always on the look-out for unusual and exclusive products. Shop owners often have very good design ideas and need someone to manufacture them. Many a successful relationship has been developed between a crafter and a shop owner, where together they design and create a range of exclusive products.

There are two ways of supplying a shop. The first, (and in my opinion, the better option), is that they buy your product outright. They then add their mark up and sell it.

The second, is that you supply them with goods on consignment. In other words they do not pay you for the goods. Instead you get paid when, or if, they sell them. The shop owner takes a percentage of the sale as commission. The disadvantage of doing this, is that because they have not paid for your goods, there is always a chance that they will not look after your things properly. There is also not the same incentive to push for sales. If you have faith in your product you shouldn’t have to leave goods on consignment.

Advantages

• You don’t have to get involved with, or sp end time selling your things, as happens at a market, which leaves you free to concentrate on manufacturing.
• Once you have established agood relationship with a shop, you simply supply them on a regular basis.
• If you are paid for your products, you are guaranteed sales – any further risk is theirs. This enables you to plan your production and manufacturing.

Disadvantages

• You have to be committed to supplying the shop witgoods on a regular basis. So you have to establish a disciplined manufacturing system. For a creative person this means doing the same thing over and over. It can become very boring.
• You have to provide exactly the same product as your sample, because that’s what the shop owner chose and that’s what they’re expecting.
• Your profit is lower than if you were selling at a market, because you have to allow the shop owner to put on their mark up which is their profit.
• Most shop owners will want 30 days credit. You have to have the cash flow to be able to carry this. Occasionally you will have a shop owner defaulting on payment too, which can put your business at risk.

to be continued

No large manufacturer of consumer goods ever invests in a product without testing it first. You must do the same. Show it around. Compare it to products already available. Get feedback from people whose opinions you trust.

Listen to the forthcoming opinions objectively — if you can! You don’t need to act on every single piece of advice. In fact if you did, you’d end up with something with no style at all. (Remember: a camel is a horse designed by a committee!)

Use the feedback you get to assess what you’re doing. If you feel very strongly about your product, even though you might get sceptical or negative feedback, then trust your instinct. If Edison, Marconi and Galileo had listened to their critics, our world would still be awfully dark, dull and frightening! Selling something you’ve made takes courage and an adventurous spirit. And when all is said and done, even if it doesn’t work as well as you’d hoped, you’ve probably had lots of fun and learnt all sorts of useful new things and enriched your life along the way.

The Market

Explore the market you want to move into. Look at it with very critical and analytical eyes. Are there many products out there similar to yours, or is your range fairly unique. Work out who you think is the best in the market. Why do you think they are so successful. And how do you compare with them.

If your product is not better — how can you make it better or different!

Try to define the needs of your market. Does what you do fill any of those needs? For example they could have a need to keep up with the latest decor trends. Could your product fill that need?

Hone your skill

After you’ve done your market research and the indications and your intuition tell you your product needs improvement, there are many ways of improving your technique, skill and confidence.

Find yourself a teacher and join up for lessons. It’s comforting to have the moral support, and it’s very useful to have someone to help you solve some of the problems you might encounter as you develop your range. Attend workshops. These are very useful. They’re quick — usually from half a day to a weekend — and very concentrated. You learn as much in a day as you’d probably learn in a month of classes. There are excellent workshops available all the time, given by our own very talented teachers and sometimes by visiting international teachers. It’s a very good way of keeping in touch with trends and you’ll find the workshops very inspiring.

Join an appropriate guild for your product. Guilds are good for networking and frequently have guest lecturers and workshops.

Pop in to your craft supply shops regularly, become friendly with the owners. Ask them to let you know when anything interesting is happening.

Visit craft, hobby and decor exhibitions — many of them have workshops and demonstrations on the go.

Get on to the mailing lists of craft material suppliers and craft product manufacturers and distributors. They often hold courses and workshops too.

Visit craft markets and exhibitions regularly and keep an eye on international trends in overseas magazines. There’s a fair amount of competition out there — keep ahead of it!

Be committed

You have to be committed to keeping your stock levels consistent, so when you’re not at the market you have to be manufacturing. It’s necessary to keep improving and refining your product. Assess your range every few months to see what is selling well and what isn’t.

Be quite ruthless, because it’s a waste of time and money to keep producing something that doesn’t sell well. Maybe the article or product just needs an adjustment of some kind or maybe it needs to be dumped!

There’s absolutely no point in continuing to produce something that isn’t selling. Also do some discreet market research with your customers. They can often provide remarkably useful information. But be assured that after a while, you’ll develop a pretty good feel for what works for you. Introduce new elements into your range. If you’re passionate about what you do — and it really helps if you are – then you’ll be doing this anyway. The opposite applies too, of course. If you keep churning out the same old stuff you’ll start getting very bored and your quality will suffer accordingly.

Bath Products

• Soaps (glycerin and traditional), fizz balls, bath salts, foam bath, bath oils

Candles

• Traditional, gel, painted, embossed, aromatherapy Decoupage

• Traditional, serviette decoupage, decoupage under glass, on fabric, 3 dimensional

Fabric Painting

Glass

• Stained glass, etched, painted, sandblasted Gift Packaging

• Gift boxes, gift wrap, dyed raffia, ribbons, dried flowers and grasses

Jewellery

Needlecraft

Machine embroidery on clothes or home linen

Hand and ribbon embroidery

Appliqué and patchwork

Quilts

Paper Craft

• Handmade paper and envelopes, cards, invitations.

• Embossed parchment cards, invitations

Quilling

Pewter and silver work

Porcelain dolls

Pottery

Including ceramic painting

Silk Painting

Teddy Bears

Wood

• Painted furniture (particularly popular for children’s rooms), painted cutouts, toys, jigsaws, signs, carvings, boxes

Your finished article

Your product is the single most important element of your business. Without a product you don’t have a business.

So, first of all, decide whether your range of products is practical or decorative.

Are they primarily wearable, usable and functional or are they there to create and/or enhance attractive surroundings.

If they are practical it will influence your choice of materials. It is essential that they be hard wearing and easy to clean. And don’t take chances. Pre-shrink all fabrics, use colour fast threads and ribbons, heat set your paints according to the manufacturers’ instructions.

There is nothing worse than having something returned because the fabric shrank or the colour ran. It will shake your confidence and certainly will not do your reputation any good. It probably means you’ve lost not only that customer, but whoever else they talk to, as well.

Secondly, you need to decide which market you want to attract. Your market could be an elite, affluent top end of the market, or you could choose a wider, more general market, or any of the niche groups in between.

This will determine, to a certain extent, how much you should invest in the raw materials. But if you want to succeed, and whichever way you decide to go, it is important that your product is of the highest quality possible.

In order to make your range cost effective to produce, you must try to cut costs wherever possible, but never, ever compromise on quality. You want to look at the things you’ve made and feel proud.

Hint: Don’t forget the important role that packaging and presentation can play in your product.

There are many really inventive ways of packaging things. A good place to look for inexpensive, yet interesting, packaging is at shops or companies that sell supplies for the home baking, or catering industries.

to be continued

To create such a market, you would need to rent a shop and fit it out with display areas divided into cubicles, shelves or hanging space. These display areas are rented to crafters (generally on a monthly basis) who also pay a negotiable percentage of their takings – usually about 10%. The running of the shop is your responsibility, and, at the end of every month you pay the crafters. Efficient and accurate bookkeeping is absolutely essential in a business of this nature.

A craft market shop will require start-up finance for such things as deposits for rent and electricity, and shop fittings and putting an accounting system in place. Do your home- 0 work as regards the costs that these payments involve and how long, realistically, it would take you to recover this investment.

Location is probably the most important factor for the success of a craft market shop – followed closely by the quality and variety of products.

To source good craft products, visit all the craft markets regularly. Go to art and craft galleries, do the Natal Midlands meander, the Crocodile River art and craft ramble and any other art and craft area tours you can find. Visit small towns out of the way as well.

Visit all the appropriate trade and consumer shows.

Read local craft and decor magazines, particularly their diary sections, where they publicise exhibitions.

Sometimes the owner becomes so engrossed in tiny details or an irrelevant issue, that important issues are ignored or glossed-over. For example, the owner may spend days reading through computer magazines simply to choose a personal computer. The problem often occurs when the business is experiencing some kind of difficulty and the owner finds it uncomfortable to think about the difficult problems and resorts to solving a few easy ones. It is a way of escaping from troubling concerns while at the same time feeling that useful work is being done.

To avoid this, it is essential to keep the business in perspective.

Take the time to ask big questions like ‘Is our strategy working?’, ‘What are our objectives and are we going to achieve them?’ If you find yourself spending hours beautifying the office or perfecting a filing system, ask yourself: ‘Is this the most useful thing I could be doing right now?’

Poor planning

Starting and running a business is a complex undertaking. There are hundreds of things which need to be done at specific times. Poor or insufficient planning results in unwelcome surprises, broken promises, under- or over-production, cash flow crises, missed opportunities, and a myriad of other problems. Keep a diary and draw up a detailed business plan to consult and revise regularly. This will relieve the burden of having to remember what needs to be done when, and why.

Incorrect sales forecast

The sales forecast is central to almost every decision and plan in the business. How much you expect to sell determines how much raw material (or stock) is ordered, how much is invested in the business, what type of machinery is bought, who is employed, how much is spent on advertising, and so on. Unfortunately, it is often extremely difficult to forecast the demand for a new product or service with any accuracy. If this is the case, it is probably better to be somewhat conservative — underestimating the demand will not put anyone out of business, but overestimating may.

This is where market research can play a very important role. The better the understanding of the market, the better the estimate of future demand for the product or service will be.

If the level of uncertainty is high, do a sensitivity analysis. Ask ‘What if?’ for a number of sales scenarios, gear up for the one that is most probable, and make contingency plans for the rest.

Poor record keeping

Financial records are not kept for the sole pleasure of the tax man. They are valuable tools for measuring the success of a business, detecting problems and maintaining control. Financial records are a source for analysis of what went wrong, and right, with the business in the past and to relate this to decisions taken at that time.

Other forms of record keeping are also important, for example, minutes of meetings, a diary, written plans, and correspondence. A simple filing system is an invaluable aid in this respect.

Failure to develop managerial skills

Sometimes a business expands despite a lack of management skills in the firm. Intuition, an expanding market and luck, allow the firm to prosper despite occasional mistakes. Sooner or later, however, the company will face a situation which calls for real management expertise. Unless external help is obtained, the owner may be unable to cope with the situation, and the business may fail.

The obvious solution is to develop individual management skills. For example, read management texts, subscribe to a management journal, attend courses or receive counselling from management experts. Another approach is to help employees to develop management skills by sending them on courses or encouraging them to read about management issues.

Cash flow problems

This is the single most common cause of new business failure. Many businesses, even profitable ones, fail because they run out of cash — they go insolvent. Insolvency occurs when a firm is unable to meet its obligations such as salaries, creditors, interest payments and expenses. It is caused by cash flowing out of the business faster than it comes in. Although a firm can sometimes survive a period of insolvency by delaying the payment of its obligations, it is liable to be sued by its creditors or employees (or have its electricity or telephone cut off) at any time.

Cash flow crises are caused by two factors — poor cash flow management and undercapitalization (insufficient start-up funds). The intelligent use of accurate cash flow forecasts is the most reliable way of remedying poor cash flow management. An accurate cash flow forecast will also show whether the funds secured to start-up the business are adequate.

Expenses get out of hand

Spiralling expenses can adversely affect both cash flow and profitability. Failing to plan for inflation and poor control of unnecessary expenditure are the two major causes of this problem. Keeping accurate financial records is a prerequisite for controlling expenditure.

Problems in selling the product

A poor gross profit (profit before expenses and tax) can be caused by only two things — low volumes and low margins. A low sales volume may be due to poor marketing, an unattractive product or too high a selling price. A poor margin is the consequence of too low a selling price or unnecessarily high production costs. If a firm’s product, marketing strategy and production process are satisfactory, the problem is usually one of price. There is often a delicate trade-off between selling at a high price in order to improve the margin and selling at a low price in order to improve volume. In some situations it may be wise to consult a marketing expert.

The owner’s enthusiasm wanes

A common problem is that the owner loses interest in the day-to-day running of the business once the excitement of the initial start-up has subsided. This can be prevented by starting a business which involves work that you enjoy doing. If you begin to lose interest, despite having taken this precaution, the damage can be limited by training a motivated and competent person to take over.

The owner fails to delegate

In the early stages of a small business the owner tends to do everything. This is fine as long as the business is fairly small. But as the firm grows, the task of managing the business becomes increasingly complex and time-consuming, and a point is eventually reached beyond which it becomes impossible for a single person to manage the firm effectively.

The owner may do one of two things — delegate certain management tasks to others and concentrate mainly on strategic issues, or desperately try to stay in control, and refuse to relinquish any decision-making power at all. If the latter course is chosen, the business is in grave danger of failing. The way to avoid thisproblem is to be alert to it and to start grooming key subordinates for management roles at an early stage.

If you are paying £54,000 for a business which is earning pre-tax profits of £18,000, you are buying it on three years‘ purchase. This is equivalent to a return on your money of 33¹/₃ per cent before tax. If it costs you 17 per cent to borrow the money, a 33¹/₃ per cent return is as low as it is sensible to accept. Businesses often sell at, say, one-anda-half years‘ purchase, a return of 66²/₃ per cent, but because this ignores your salary it is not a true return.

If you could earn £300 per week working for someone else and your business is earning £18,000, you have only true profits of £2,400 after deducting your salary. This represents the real return. So, if you paid £27,000, ie only one-and-a‑half years‘ pre-tax profits, you would really be earning about 9 per cent on your money, ie £2,400 on £27,000.

What are the real profits?

Watch out for sales increasing rapidly in the year or two before the business is put up for sale. This could mean that the figures are being dressed up in some way, possibly by the inclusion of takings which were previously concealed, or possibly by lowering prices to stimulate business in the short term. The latter should show up in lower profits, but this can sometimes be concealed by boosting the stock valuation.

If the vendor claims extra hidden profits not declared, you should remind yourself that he has been cheating and that there is a serious risk of being caught out, not only for income tax, but also for VAT. One can argue that, if he has not declared the sales, the vendor should not obtain the value in his selling price. You yourself will run serious risks of severe VAT and tax penalties if you continue the practice.

In the end, any alleged ‘true’ sales are merely a point to be taken into account in the negotiations, since it is really a question of how much you are prepared to pay and how much he will accept. But always be suspicious of anyone who claims to have concealed a significant part of their profits. If they are willing to admit such a deception to you in order to persuade you to buy the business, what other bits of chicanery are going on, about which you are not being told? He has cheated the tax man. How do you know he’s not about to cheat you too?

If you can see accounts for two or three years, you will have a pattern of results of the business. Sometimes, however, up-to-date accounts are not available and unaudited figures may only be available for a short period. This can happen when a business has recently changed hands and is being resold. Beware of this, since the figures may not be representative of the annual results and may show short-term trends only. Check also whether VAT has been eliminated.

Checking the claimed sales figure

If you look through the purchase invoices for the business for a period, you should get a fair idea of whether the claimed sales are correct. This is simple in some cases where few main items are sold, eg a fish and chip shop. You can check quantities bought each week and, since stocks will be small, you can compare the claimed sales with the purchase totals. Even for something more complicated, like a grocery and general store, you will often find that there is only a limited number of main suppliers’ invoices which will account for the bulk of the sales; much useful information can be gleaned by going through them.

Do the gross profit and stock figures make sense?

You should check the gross profit ratio in the accounts to see how it compares with the normal figure for the type of shop. There can be many reasons, connected with buying and pricing policy, which affect this. Make sure you understand how they apply in this case. Similarly, the stock ratio gives you clues as to how well the shop is managed, whether there is overstocking, and so on.