Starting Small – Risk Aversion

I have recently been reading about The Cambridge Satchell Company’s founder Julie Deane. Even after the company was a huge success she was still running the business she had started with just £600 from her kitchen table, shipping hundreds of orders across the world with the help of her mother.

Like her, I am averse to high risk strategies to get a business off the ground. If you can start it with nothing, it can survive when times are harsh. If you take on huge financial commitments before your business has grown flippers let alone legs, you might be in for a nasty shock.

I started my business slowly, at the beginning of my second year at Uni with nothing but my student maintenance grant to live off. By the time I left and turned it into an actual business, fully registered with business cards and everything I had already developed a base to work from. I had one of those freebie websites, portfolios on several modelling and photography platforms and a bunch of customers. More importantly I had the beginnings of a reputation.

My portfolio was already looking better than many of the hobbyists using the same sites as me. Even so I continued to work from cramped quarters in house shares for another three and a half years before finally renting my own studio space. I am not saying this was the best plan but it was a plan.

I started my business officially in the summer of 2012 with £2,500 from an Enterprise start up scheme and by holding down part time jobs for a couple of years so there was a financial safety net. I was working full time on shoots and design work for a year before I moved city and set up a real design studio in central Manchester. My thought was, if it’s paying all my bills, something is going right.

This probably isn’t how people used to do it and I’m not saying it’s been the best strategy, but in times of recession with banks not lending and with no desire to get into debt of any sort I had to think on my feet financially. I don’t have delusions of grandeur. I don’t want to be running a chain of shops or churning out designs in some factory somewhere. I want to be an individual who designs exclusively limited runs. I have no interest in earning billions. I just want to be happy, enjoying what I do.

Of course, some careful pre-planning financially is always advisable. Emergency back up funding in the form of two carefully nurtured ISAs has always been there for me so I was never literally at the point of being unable to pay the bills. There was always a fallback position. It makes you a little braver but perhaps a little more complacent. It does remove stress, fear and uncertainty though, not great feelings for a start up environment and not the kind of pressure under which I work well.

I certainly wouldn’t say I’ve been as enthusiastic as I should have been. I haven’t pushed myself. A number of personal set backs and being continually uprouted because of my housing situation have kept me emotionally in check. Relocating to a new city has helped and having a permanent base for my studio, if not my personal life, has been hugely advantageous. But I am still guarded about letting go.

Recent news that HSBC is going to be lending 400m to small businesses in Manchester didn’t excite me. If they’re lending it’s because they are making something. We’ve seen it all before. I’ll leave it to businesses who can take the hit if austerity continues.

Many businesses and freelancers start without funding. You don’t have to dive straight into the plush office and expensive equipment to get yourself on the ladder.

Deane firmly believes that people should be able to start businesses without taking on major risks. While many entrepreneurs think that launching a company requires taking out loans or soliciting private funding, Deane preaches that if you play your cards right, it is possible to grow a thriving global business without overly endangering your financial future.

To assess whether borrowing is worth it, think of how much you would borrow. Now think what might happen if a few years down the line your business still isn’t turning your high hopes profit projections. Or worse still, that it should fold. Can you afford to keep on paying back your creditors, or clear your debts? If you have no back up plan, no escape route, why are you borrowing in the first place?

Financial projections are all well and good. But we live in very uncertain times. 10 years ago they thought it would take a couple of years for a new business to turn a profit. Then it was 3 years. Then 3 – 5 years. Now they are projecting up to 10 years. Who can survive that? Certainly not businesses with huge financial committments.
If you don’t plan properly you could end up like two acquaintences of mine. One ended up bankrupt (which fundamentally ruins your life) and the other went to jail for cheque fraud. Either way, you are in serious trouble with little chance of getting back on your feet financially for quite a while.

This is what debt and not exercising caution can do. It’s very exciting getting that chunk of money and blindly buying wonderful new furniture and equipment and getting into that shiny office you leased for 2 years. But think. If you start small and you do well, your business can grow out of current circumstances. It’s hard to whittle it down if you’ve started too big, too soon, with many committments you cannot honour.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s