Charles Theuma stated (The Sunday Times of Malta, June 26) that the “future outlook for Malta necessitates the development of a new generation of entrepreneurs” and “…they need to plan well” … “and have a sound understanding of all aspects of business”.

Anyone can think up a new product or service; few, however, can build a business. Delivering on a clearly defined and researched hypothesis often separates the few winners from the many losers.

Entrepreneurial spirit is characterised by risk-taking and innovation but the objective of planning is to minimise risk.

In my extensive experience, this is often misunderstood, poorly executed and often poorly taught as an interrelated subject. Too often I see plans that lack market research, which underpins every facet of the business planning process and defines the value proposition. Business plans are developed in a disjointed way.

Of those that do start a business, survival rates are low, and evidence from the UK and US indicates that 70 per cent fail within just three years, the majority after 18 to 24 months, and 90 per cent fail to make it to their 10th month. It’s rarely one reason that causes failure but there is a common theme: they don’t do their homework.

First, it’s important to identify the assumptions from which a business idea is derived and validate them before and during development. Properly constructed market research through questionnaires and surveys is critically important as results underpin every aspect of a marketing and the consequent business plan. Often, this is not understood as a key influencer throughout an integrated planning exercise. A complete understranding of one’s customer is imperative.

It is important to define the true value you bring to the table which is unique and different to others in the marketplace. Research will clarify these and in a crowded marketplace, you need to stand out

Testing a questionnaire will identify issues that need to be considered before extensive research takes place. Research should identify not only whether prospective customers like your idea but which ones will buy your service or product, namely, achieve product/market fit and market size.

It also requires an understanding of your competitors and what’s working for them. However, market research is not a one-off exercise; you need to constantly be aware of your prospective market and competitive threats.

This will allow you to assess the risks, opportunities and timing objectively and scale an investment accordingly.

Often, the first product that a new business brings to market doesn’t meet market need. Market research will identify what revisions are required to get the product/market fit right or whether a complete re-think is needed. This indicates that validating ideas with customers before and during, development did not take place or was poorly executed.

Relying on weak research and anecdotal evidence or guesswork, giving more credit to a vision of what the future may hold, often holds sway rather than an examination of the real facts.

A key and interrelated issue is clarity of a compelling and sufficient value proposition to cause the buyer to actually commit to purchasing. It is important to define the true value you bring to the table which is unique and different to others in the marketplace. Research will clarify these and in a crowded marketplace, you need to stand out.

Excessive optimism, about how easy it will be to acquire the first 100 customers, is a common cause of failure. After that, it rapidly becomes an expensive task to attract and win customers, and in many cases the cost of acquiring the customer may be higher than their lifetime value.

Many entrepreneurs pay inadequate attention to identifying the realistic cost of customer acquisition. It is essential to find a scalable way to acquire customers. Often the link between research and promotions is not explored and validated and this can carry through to poorly thought-out go-to-market strategies.

A very common problem that causes start-ups to fail is weak management skills, which lead to mistakes in multiple areas. Starting a new business requires a host of skills for the multitude of decisions which need to be taken, including strategy and implementation.

It is a common failure for entrepreneurs to identify and overcome gaps in skills and knowledge. Those who succeed often spend time with personal development. Those with weak skills often build weak teams below them resulting in weak business and rampant poor execution.

Running out of cash starts well before financial collapse. This is a reflection of other problems such as market need, poor product/market fit, weak marketing and the spending of money beyond the essentials on growing the business – such as by hiring sales staff, expensive marketing, perfecting the product, leasing offices, and so on – before ensuring the product/market fit. One needs to be lean and mean, directing cash to the best return.

Cash needs to be managed that will carry it to a milestone which can lead to a successful financing or to cash flow positive.

As Mr Theuma said, “if we don’t plan well, we plan to fail”. It is how you plan that matters.

Louis Naudi is the Chartered Institute of Marketing ambassador for Malta, an honorary professor and fellow, Chartered Institute of Marketing. He has started five very successful businesses and today lectures in entrepreneurship. He is also a judge for Malta’s best entrepreneur awards.

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