An entrepreneur: “a person who sets up a business or businesses, taking on financial risks in the hope of profit.”

It’s a calling, your destiny, to be your own boss, to have creative freedom, choice, setting your own objectives, building a legacy and having a positive impact on the world.

It is in equal parts a hugely challenging and rewarding endeavour, and not for the feint hearted, so having made the commitment, why do so many start-ups fail? Why do we see headlines quoting 90% failure rates in the first 12 months? What is it that makes this such a difficult path to tread?

To understand more about entrepreneurs, what keeps them awake at night, and what to do about it, millennial and generation X entrepreneurs share their experiences of where the pitfalls are, and what to do about it! Based on the feedback, there were five key areas which were repeated time and time again:

1.   Finding clients

2.   Cashflow

3.   Time management

4.   Legal

5.   Accounting

So my fellow entrepreneurs, what do we do to improve the odds, to de-risk the new venture, to be one of the 10% who successfully navigate the first 12 months? Preparation.

Not 100 hour working weeks, not lucky heather or a rabbit’s foot, but effective planning and preparation on the left brain activities which underpin all your creative genius as an innovator.

Finding clients

The process of identifying, investigating, and analysing new markets is difficult and time consuming, and the mix of skills required of the entrepreneur, from sales and marketing to product or service management, from networking to financial management, can be daunting. Support from friends and family can add additional pressures to an already fraught process. So how do you prepare for success?

The answer is there is a lot you can do before you hit the ‘go’ button on your new venture. Depending on the product or service you have identified, and the scale of the venture, market analysis is the #1 area where you need to be focused, clear-minded and ruthless in your assessment. Get this right, and it provides the cornerstone for your success. Get this wrong, and you are loading the dice against you.

  “Formal education will make you a living; self-education will make you a fortune” (Jim Rohn).

If your background is marketing and market research, you’ve got a head start. If not, you can take a systematic approach to defining, analysing and validating your target market. This is not a ‘window dressing’ exercise, this is your opportunity to be confident that your assumptions, your ‘gut feel’, are on the money, and if they’re not, to adjust your thinking accordingly.

With the wealth of online resources available, spend time reading about your approach. There is no one way of approaching this, but there are some components you should consider as part of a framework to drive our research.

Who is our target customer?

Firstly, define your target market. Where will you find your customers, how many do you expect to find, what will they pay for the product or service, and why will they buy it from you?

Behavioural: what are the benefits sought and value to be derived from you product or service? What is the readiness to buy?

Demographic – what is the age or age range for your target customer? Are factors such as gender, nationality, ethnicity and occupation relevant?

Psychographic traits would cover areas such as lifestyle, personality and personal values, which provide insight into your target customer’s drive and motivation.

Geographic factors cover factors such as the region, country and population.

 As you research these areas in the context of your product or service, you will start to build a picture of both the potential scale of your market, and your target customer.

For a bakery for example, you may focus your attention on the size of your local town, or of the population within a 15 minute drive of your town. You could then research the number of households, and the demographic for the area. Data on other bakeries may be published in terms of customer buying patterns for particular products which you could match to the demographic of your local area. As you reflect on the makeup of your target customer, you may priorities particular products, such as pastries, cakes, or savoury products, in the context of your product offering.

As you form a view of what your ‘typical’ target customer looks like – age, buying habits, spending power, and so on, you can use this to define a customer persona which can be a useful aid to focusing on those criteria, and inform other decisions you make about how best to service your customer.

The analysis for a software product would be similar, but you would tailor the scale and reach of your product or service accordingly. Instead of the local town, you may look at a domestic national market. Instead of household buying habits, perhaps you are targeting SME businesses with under 25 employees.

Target Market

However, you view the market criteria, you are looking to establish three key components:

·     The Total Addressable Market (TAM): what is the total market size you could address;

·     The Serviceable Addressable Market (SAM): what is the proportion of the TAM you could realistically expect to be interested in your product or service;

·     The Serviceable Obtainable Market (SOM): what proportion of the SAM are you targeting, based on your assumed conversion rate (the ability to convert target customers to actual customers) and your available resources.

The SOM will be a key benchmark for your business plan targets, and form the cornerstone of your financial planning and budgetary needs. This, combined with the customer persona(s), provide invaluable insights into what you expect to happen, and therefore the goals against which you will measure your progress.

It also informs your marketing strategy, both physical and digital marketing, so the time you spend on these questions now is fundamental to your success in being one of the 10% - so don’t shoot yourself in the foot, focus on the preparation!

Articles in this series are published on Wednesday each week, with the next article on the one fundamental factor which will make or break your business...Cash!

Colin Aurelius is an entrepreneur, investor and strategic adviser who has worked with a broad range of start-ups and early stage businesses over a 20 year period. Colin’s experience derives from both successes and failures as an entrepreneur in a broad range of industries including IT, enterprise software, electronics, health and digital media.

Colin works with both established businesses and start-ups in the quest to encourage talented business leaders and entrepreneurs to build profitable businesses which have a positive impact on the world. Colin has worked with Henley Business School on entrepreneurial development programmes, and more recently with the Oxford Said Business School in areas including Fintech, Blockchain and Disruptive Marketing.