Starting a business in South Africa
Small business owners in South Africa struggle with access to the appropriate information to help them grow their business. Our blog will help you find some free advice and information that has been proven to work and will give you much needed knowledge about the journey you have embarked on. The blog post, “Starting a business in South Africa”, is for all those with business ideas but do not know where and how to start.
The prospect of “being your own boss” can be an enticing one, so enticing that many often rush in without giving too much thought to what it means. Some of the naïve thoughts that follow the idea of being one’s own boss include choosing when one wants to work or not, how much money to pay oneself, and the idea of just not having to work for someone else.
However, the reality of the matter is that any self-employed person works for his/her customers. You face the constant challenge of meeting their needs. Being your own boss is no fairytale, and the stats back this up.
In South-Africa, seventy to eighty percent of businesses fail within the first two years of operation. Only four percent make it beyond the 5-year mark. So, what does this mean for someone who wants to start a business now? Give up and find some company to work for earning a steady monthly salary? Not necessarily. You need the right information to make sure you turn your business dreams into reality.
Read on to learn some of the most crucial steps to take when starting a business in South Africa. These are no industry secrets, but you would be baffled by the number of companies that fail due to a lack of this fundamental knowledge.
The business idea
What are you selling?
A question you should ask yourself when you decide to start a business is, what is my product? That seems like an obvious thing; besides, you cannot begin a business without knowing the product you want to sell, or can you? Many entrepreneurs go into business without considering what product or service they have to offer any potential customers. Aspirations of financial independence are not enough. Forget the selfishness and develop a consumer-centric mindset.
The quality of your product impacts the success of your business in the long run. You need to take the utmost care when selecting your product offering. So, let us revisit that question.
What is my product?
It can be easy to brainstorm a few products or services you may want to sell. If you sit down and give yourself half an hour, you could probably come up with a couple of seemingly good ideas. However, that is only the beginning. There are further questions to ask for each:
1. Does my product already exist?
If it exists
Can I provide a better one?
In business circles, this is commonly referred to as Creatively
destroying your competition. It is one of the most powerful ways through which you
can get yourself a sizeable share of any target market. American companies such
as Netflix and Amazon have had a creatively destructive effect on the disc
rental industry and retail industry, respectively. The common theme between the
two is the relentless endeavor to bring value to their consumers. They did not
need to reinvent the wheel and, you do not need to either.
If it does not exist
Will anyone be willing to buy your product? You work for the customers now, so good branding and marketing will not take you far if your product is not wanted by anyone. Let us investigate this further.
2. Whom am I looking to sell to?
The client is king, and providing the service they need is the key to success. Make sure that you know the profile of your ideal client. Then make sure you provide exactly what they are looking for.
Market Segmentation – the key to finding your ideal client
Three ways you can use to find your ideal client are listed below:
· Demographic segmentation
· Psychographic segmentation
· Behavioral segmentation
Once you find the ideal client, you develop a clear picture of which segment of the market you will be targeting. Once you understand what your clients need, you can put all your innovative energy into creating the exact product they need.
3. Who is my competition?
You need to figure out who your direct competitors are to make sure you are not producing a product that has no competitive advantage. Direct competitors are those businesses that provide a product or service that is similar to yours. Studying your competition allows you to pick off their weaknesses and offer a superior product to the clients you are all competing for.
Always keep your finger on the pulse. That means taking note of any industry changes that may offer an opportunity or pitfall for your business. Keeping track of your competition will help you improve your service if done well.
The place of business
You want to make sure your customers can easily find you. To figure out the best location to set up your business and get more clients, you must study the patterns of your ideal customer. If you want to be part of the four percent that make it beyond the five-year mark, you must not leave anything to chance when planning your business.
If you offer your services online, make use of the various tools that are available to pick up the behavioral trends of your ideal client (part of behavioral segmentation) so that you use the appropriate online platforms for your marketing strategies.
Marketing
The best way to get clients coming through your doors is to market your product. If you do not market your product you lose out on potential clients taking their business elsewhere, simply because they do not know you even exist.
The choice of marketing tool will depend on the size of your budget and the stage you are at in the development of your business. You need to be careful with marketing because you can spend lots of money with no revenue gain. Develop a marketing strategy with help of marketing consultants that know what they are doing if you do not.
If you provide an excellent service to your clients, they will be a very cheap marketing resource because they may tell their friends and family. However, if your service or product is of poor quality, that client will lose you even more clients than you would have gained had the client been satisfied and told their friends.
Business registration and financial accounts
If you are serious about your business and you plan to grow it into a sustainable brand, then you need to register it.
Where do I register my business?
The Companies and Intellectual Properties Commission (CIPC) is the go-to place for your company registration. Unfortunately, registering a company is not as easy as you would expect it to be. South Africa is ranked 84th in the ease of doing business rankings of 2020 by the World Bank, and 139th for starting a business. The help of business consultants can come in handy for this because they can help you go through all the steps with no unforeseen issues coming back to bite you.
What about tax registration?
A new business will need to register with SARS and all appropriate authorities. Find yourself a trusted consultant who can help you with all these registrations if you are not well versed.
Financial accounts
You must open a bank account for your business to avoid mixing your personal and business finances, a surefire way to mess up your business plans.
Expertise
I mentioned earlier that most entrepreneurs get into business without fully knowing what it entails. Many businesses fail because of a lack of managerial, business, and technical expertise.
You may get an idea that no one else would get but may not be prepared for all the regulatory and financial aspects that you will need to make your business a success. You need some level of understanding of these factors to keep your business afloat. Step forward, consultants. There are business management, strategy, marketing, accounting consultants who can help you with all the nitty-gritty of what is required to run a business. Their services will cost you money so you may need to consider getting training to get the skills you require as well.
Funding and planning
Where do I get funding for my business?
Even the smallest businesses require some cash injection: buying equipment, transport, office space rentals, website hosting, etc. Depending on your business idea and its magnitude, you can look for government or private funding. Seek professional help in deciding which type of funding will suit your business and not create problems for you in the future.
Business planning
Before you find a funder, you need to have a comprehensive plan for your business that can indicate the potential for profitability. No one would dare fund a company with no plan or financial projections, or targets. A proper, well laid out business plan gives you a sense of purpose, helping to guide you in your business operations.