Maarten Hoffmann: Any new business owner needs to consider whether there is a market. Where is my market? Do I know how to enter that field? And is there a gap? Would you agree with these first basic considerations?
Robert Taylor: Basically, yes. Many people have perceived that there's a market where there's not one, which is a dangerous thing to do. Or, they will go in, without sufficient capital and then lose out and waste their or other people's money.
Gregor Watt: One of the most dangerous things is somebody who's incredibly creative, who has a fantastic idea for a business concept, but absolutely no idea what to do with it. They then run gung-ho into setting up a business without everything else being in place.
MH: Angela, as someone who works with the Help to Grow programme at the University of Brighton, who are the people you’ve come across?
Angela Maguire: This is what I’d call the ‘ideas generation.’ I see many people come up with a great idea, and then convince themselves that, because they think it’s good and will work, everyone else will – without asking anybody first.
What needs to be done with a great idea is to engage, and involve as many stakeholders as possible; people who will not only agree with your idea but also seek to find any potential problems with it. ‘What’s bad about it?’ ‘What can go wrong?’
MH: James, not long ago, you opened your own business. What were your first considerations?
James Sherrard: My experience was one of transitioning from being a sole trader to setting up a limited company. I had some awareness of the market that I wanted to pitch to and knew what worked well. However, there are differences between operating as a sole trader and working as a limited company, and marketing something as a limited company is a different experience to selling your services individually.
MH: How did you identify that gap in the market?
JS: At the time, there was no established limited tutoring company that specialised in the Humanities covering the age range and education levels that we intended to offer. We found a huge demand for those subjects, and a couple of companies doing it, but with very little regulation. This allowed inappropriate people to work in the industry. What I wanted to do was establish a trustworthy and accredited tuition company.
MH: How do I, as a new business, see if there's a gap in the market for me?
AM: Often, people don’t know what they don't know. Some of the businesses we’ve come across are where they’ve come up with a bright idea in their bedroom, and from there, they develop that into a business.
One example I'm thinking of is someone who set up a business selling vintage trainers from his bedroom, but it was his Mum who was dealing with all the business matters for him. Now, his mum wants him to run the whole business. So she put him on our course to learn the business aspect.
In this instance, it’s about having a passion for it and knowing your market. His market was his peer group. From that, he’s used social media in a way that others previously hadn’t, and they were able to reach markets via new, maybe even unorthodox, methods.
We don't know what the next best idea is, so with the notion of the ‘ideas generation’, where traditional businesses will look for a gap, the new kid on the block will operate to a different, emerging business model.
MH: Do you witness this, Gregor, in terms of reaching out to your peer group and using social media to find that gap in the market? Or do you use other methods?
GW: We’re back to the original point; it’s about doing your research. There are plenty of people in my field who think they've carved out a niche, only to find that there are 65 other companies all operating in the same niche.
RT: My daughter sells a lot of stuff on Vinted. Sometimes she actually makes nearly as much money as it costs her to buy the item. However, she’s not using it as a business, but there’s nothing to say she couldn’t.
MH: After I’ve come up with a great idea where I realise there is a hole in the market, what’s the next thing I have to look at?
RT: Structure your business to ensure you've limited your risk; make sure you've got the best platform to trade from, not just for the ‘here and now’, but for looking towards the future. We’ve already had the example here, of starting as a sole trader and then morphing that into a limited company, looking for that natural progression…
JS: As the son of an employment lawyer, protecting against legal disaster, especially because I work with young people, some of whom have disabilities, or are below the age of 18; so, DBS checks for employees and safeguarding, and small business insurance.
GW: Can I just take a step back? Perhaps the next step is to think about, how are you going to deliver that product or service to your target market.
There are plenty of businesses that are massively successful, built on delivering an existing product, but in a different way. For example, Harry's Razors. They came up with a form of postal delivery, regular subscription, funky colour scheme, lovely branding – the works. And within a fairly short timespan, they sold out for a billion dollars to the owners of Wilkinson’s Sword, because they needed to close the gap in the market on Gillette, and they’d found the perfect vehicle.
And all they’d done was come up with a similar product that already existed and found a different way to deliver it to people.
RT: We've got a client that does exactly that with condoms. It just gets delivered to your door and it’s a good business model.
AM: Therein lies a generational shift. We go into a shop to buy stuff, whereas the younger generation don't tend to do that. It’s part of the thought process of goods coming to the youngsters, rather than the youngsters going and getting them.
GW: It’s a kind of lateral thinking. The direction of travel says people don't want to go to the supermarket. They want their stuff to be delivered, to which any entrepreneur would go ‘Why does it just have to be food from a supermarket?’ It can be my razors or my footwear.
RT: This is why Amazon and similar companies are so successful. It’s not Amazon's products; it’s all about the customer service experience of items being delivered at all because the younger generation doesn’t go shopping.
AM: This idea of a subscription service has grown post-COVID. It's all about keeping you, the customer by making you subscribe to something which you didn't even know you needed a subscription for, but find very useful.
GW: Netflix started as a DVD rental service. It was a subscription service. Their model was, ‘How many DVDs do you want, and how long do you want them before you send them back?’ Netflix adapted, and Blockbuster didn’t.
AM: One big reason why people started up businesses was as a result of COVID and the lockdowns. They started them because of their lifestyle change or because they were made redundant. If they've been made redundant, the risk element was reduced, because they have money, and they were of an age where they felt empowered to go and do it. Not all of them have worked out, but it threw a different dynamic into how and why you start a business.
Since COVID, there are now an awful lot of lifestyle businesses – mentoring and coaching – to the point there’s now a new term, ‘care washing,’ and it’s not far short of saturation point.
MH: As the fictitious owner of a fictitious business, and I’ve done my research and I am satisfied with my method of operation, how do I fund it?
GW: It costs a lot more than it did two or three years ago. You can go to Riverbank finance, or use crowdfunding services, which seems to be a far more popular route for raising money. Or you can go via family connections and friends.
MH: If we look at those options, banks are so risk-averse, that they want your soul as a guarantor. Crowdfunding could be an option, but surely having a friend ready to invest is a match made in heaven, is it not, Bob?
RT: No. Categorically not. Once you start a business, you need to seek professional advice, you need to have a shareholders agreement in place. The last thing you want to do is give the business away and start carving up the percentages that investors will demand from the company. I've seen many relationships go completely wrong as soon as that business is worth seven figures, and they’re at each other's throats, and it costs hundreds of thousands to settle those arguments.
MH: So what's my alternative for funding?
RT: The funding methods you’ve already mentioned are fine, provided you sort out – ahead of time – the structure, and whom and when you bring them into the ownership of the business.
GW: There isn’t a situation where a business angel comes in, lends you money, and there isn't a shedload of documents.
MH: So how do I structure it? James, how did you fund your business?
JS: My father gave me some for setting up the website, but much of it was transitioning from a sole trader into a limited company. I’d already had some funds together, just from operating as a sole trader, and I used that to transition. I’d saved for two years and put that capital in. And because it's an online business, my initial overheads were fairly low, so I was able to put some of the profits from Humanitas back into the business
AM: There are also venture capital business angels who specialise in helping young people who haven’t got access to any family funds. I know Ben Francis at GymShark started that way.
RT: One issue I have is when you’re talking to private equity firms or business angels, you ideally need to talk to someone who’s been there before because these people are looking for blood. They’re not always playing from the top of the deck, and if they say they want, say, 40%, they’re looking to deceive you because, ultimately, they’ll stack the finance deal so that if the slightest thing goes wrong, they’ll take control of your business, and you’ll be a minority shareholder before you know it.
MH: If that’s the case, assuming you’ve also found a good lawyer, they wouldn’t let you sign that kind of arrangement?
RT: And not just a lawyer. Any decent accountant wouldn’t let you either. They’d insist you structure your company in a way that works best for you. But you’d need a good lawyer to deal with the private equity firm or the business angel because they know what they’re doing.
GW: There are several ways in which a startup business can fail, and some of them are absolutely predictable and easily preventable, but only if you seek advice from people who've seen it before and know what to warn you about.
RT: It’s when you’re looking to attract investors that you need the benefit of someone’s professional expertise to help you.
GW: There is a variety of sources that we can link anyone up with, from private individuals and personal contacts to people whose entire business is funding startup companies. And if we know you well enough, we'll probably be able to steer you towards the ones that are most suited to you.
MH: And that personal recommendation puts more trust in that professional?
GW: If an accountant or a solicitor recommends one of their clients to me, I normally suggest they're in the room too, because that individual doesn't know me; they know their accountant or solicitor who referred them. I think it makes perfect sense to try and put people as much at ease as possible.
MH: In meeting people through Help to Grow, does funding come up often?
AM: When that subject comes up, we tell them about a company called Let's Do Business. They put them in touch with business grants and loans that are available – and there are quite a lot available out there.
The government offers these financial packages as they see it as being to the UK economy’s benefit as a whole that SMEs grow – even if just a little bit. The main problem is that so many people don’t know about the whole range of grants and loans available to them, including funding to acquire professional help as you start up. And this includes the government’s own British Business Bank. People have heard of Lloyd’s and Barclays, but not of the British Business Bank.
MH: Has the growth of your business – even though it’s not a cash-hungry company – meant you’ve needed help along the way?
JS: Designing the website and branding were a cost., so I needed investment for that. What was difficult in the early days was that when I transitioned to a limited company, my overheads tripled, but I wasn't yet bringing in many clients through the business. Until that righted itself, I felt I needed a little help.
MH: So I've got my great idea. I found myself a great accountant, a great financial planner, and a lawyer. This takes me on to marketing – that's a minefield. How do I find a marketer?
AM: Before you do that, you need to ask yourself, what is your vision? What are your objectives? And who are you selling to? Many people can't answer those questions. Or, worse, they thought they knew, and they didn't ask other people. It's amazing how many businesses have been around for a long time and they don't know what their vision is, and this isn’t just one generation. I’ve known businesses where more than one generation just plods along – they just exist – once the sons and daughters have taken over, and they too don’t know their mission.
GW: These questions are the first that a decent marketer would ask a business owner. ‘So you’re trying to offer me a job to do the marketing for your business – what's your mission? Who’s your target?’ And if the right answers don’t come back, any decent marketer will quickly get out. A marketer can't solve your issues about why you started the business.
AM: If you can answer those questions, then the marketer can help you prepare a marketing strategy. And then you've got an actual document, which will form part of the toolbox that you can then take to a financier to help you with your business.
GW: A marketer will deliver a strategy to get you to where you want to go, but you’ve got to know where that is first.
MH: How did you market your business, James?
JS: We use various platforms on social media, from Instagram to TikTok to Facebook. We find that parents are more accessible on Facebook, while lots of university students are more often on Instagram and TikTok.
We produce snappy content which is digestible on TikTok and Instagram. So if there's a particular exam question which students struggle with, we'll do a two-minute video on it. We have found it's been very successful.
Another thing we did was a flyer campaign. A company analysed some demographics in London for us, and we then sent the flyers to the appropriate houses. We have gone to some trade fairs and advertised our services there. We also went to Freshers Fair and stood outside the university giving out flyers and info, which was good. We've got four new clients just this week through that.
In the midst of all that, our marketing costs are pretty low. The flyer campaign cost me about £200. Social media is basically free, aside from the running costs of my staff producing the content. From there, we can work out which methods and platforms are most successful.
MH: Are there other costs involved with social media sites?
JS: We have done some sponsored content on Instagram, which worked quite well and the returns were good. Overall, it’s about getting the brand out there.
MH: Is your client the parent or the student?
JS: It varies. For university students who are looking for assistance, we deal directly with them, but when it's the younger students – GCSE and A-Level – it’s very much the parents that we're targeting, and that tends to be through Facebook.
MH: Is AI playing into your field, especially regarding plagiarism?
JS: There are illegitimate companies who are offering that sort of assistance. But I think university professors are quite good at noticing that, and they can tell when an essay is being created through AI. However, some competitors are using AI in a far more legitimate way. For example, one company which used to offer one-to-one traditional tuition has now moved into an AI platform created by multiple experts. One of the things we emphasise is that we don't provide an automated system. We construct personalised learning plans tailored around the individual, and our experts will derive that from an initial consultation.
MH: So now everything is falling into place after my initial ‘Big Idea’. Next in my plan is mentors. Are they worth it?
GW: They can be. The challenge for people of my age is that the traditional business model is evolving rapidly – towards people being able to run a successful business out of a back bedroom selling stuff I wouldn't buy.
TikTok is full of people who make hundreds of thousands of dollars a year. So when choosing a mentor, it has to be the right one. There is very little point in a 20-year-old having a 60-year-old mentor, whose relative business methodologies are at odds with each other. But if you can find the right mentor then, absolutely – they’re worth it.
MH: Surely finding a mentor who only understands a new way of working is only ever going to be through someone who hasn't got a lot of experience?
GW: Experience is not a be-all. You have to have had the right experience.
RT: It’s also not about mentoring in one area. The quickest way to get me to reject anybody's email or LinkedIn post is to say you're a business coach. But you can have mentors in different areas of business. It doesn't have to be in the overall strategy of what you're selling. You can have a mentor who's teaching a bit about finance, a bit about marketing; I think those types of people are more useful.
JS: How does one know that, as a young person setting up a business, whether a mentor is worth it? There’s so much corporate speak. And there are so many charlatans out there, and it would be very easy to string somebody along and make them think that what you're saying is essential.
GW: If a mentor came to a young person and said, ‘I can help you grow your business, and it's £1,000 to sit down for an initial chat’, I'd be pretty peeved.
We’ve got to know what that person or service is like. We never charge a new client for a first meeting, because I can't think of anything that would annoy me more than to sit down and spend an hour of my life with somebody I then decide I don't like, and then be sent a bill for it.
MH: This loops back to getting the right advice. So if you find a genuine business mentor, you're talking to one of your advisors and saying, What do you think about this deal?
GW: If you chat to some of your peers and say, I'm looking for a bit of help in this area, and somebody you know and trust says, ‘I know this person, and they're brilliant, and they'll give you an hour or two of their time. I'd recommend them. That's a pretty good starting point.
AM: On the Help to Grow programme, the candidates were entitled to ten hours of free business mentoring coaching. The government chose to use the company, Enterprise Nation, and they trained all the mentors and coaches, so they were all effectively government-approved.
Interestingly, of the people who have taken our courses, I'd say 70% found their mentors helpful, while the other 30% thought them a waste of time. A lot of it was the personal relationship, someone they felt they could get on with. Some of them then decided that it wasn't the business skills tutoring they wanted; they wanted to know about leadership skills, empowerment skills, business skills and team building.
MH: Can you train a mentor? Or can mentorship only come through years of experience?
RT: Experience. I wouldn’t trust someone who is claiming to be a mentor without having worked in that field.
GW: I'm conflicted on that one. There’s no substitute for good experience, but I think a lot of the best experience is learned by people who listen. Some of the best advice I've ever had was about things like understanding the concept of echo chambers and cognitive disciplines. I now embrace people who don't think like me because they might have ideas that I would never have. I might disagree with those ideas, but I'd never have thought and considered them if I hadn't heard them.
RT: And it’s about listening differently to everyone around you. That means to your market, to your suppliers, to your clients, the way your whole market operates – everything.
GW: I'd be quite interested in a mentor with experience, but not in the industry I'm operating in. Someone who can bring me business knowledge, listening skills, market understanding, tactics and strategies for developing a business, but not in my field. Bring me something new.
The next step after that is you have to mitigate risk. I would raise one simple question – what is the biggest asset that every business owner has? To me, it’s their future earnings. If you've borrowed money, you are at risk. If you have a period of sickness or injury and you cannot work for a while, you are at risk.
Many risks need to be mitigated, so if you're 40, and intend to work until you’re 65, your future earnings are the biggest asset you've got, and you need to protect them.
MH: So presuming I’ve taken on board all the appropriate professional advice, including what you’ve just mentioned, how do I scale my business from there?
GW: It depends on your funding arrangements and whether you can work out how to expand your proposition because there is a limit to just selling more of one thing. You're going to need to branch out and sell other things as well. Every business will hit a plateau at some point. The question then is, ’ What happens when you hit that plateau?’ Do you stay there? Do you take off?
RT: You'll always have to take off. If you don’t continue to grow to some degree, the next step will be that the market will take you down.
AM: The traditional product life cycle has always been a curve. But it doesn't happen like that. It is more of a series of step changes. When you employ up to ten people, your costs are in one place. But if you go from ten to 50 people, everything else becomes more complicated.
Likewise, there is the next step from 50 to 249 – the government's ceiling for what an SME is. If you want to go above that, then there is a whole range of other issues. Many entrepreneurs or SME business people actively choose not to do that.
There is a statistic about women, who won't take their business above a certain size. It may be because of lifestyle or lack of confidence, but there are key stepping-off points to do with scaling a business.
GW: To get beyond a certain point, unless you come up with something different, you need that catalyst to move forward. This plateau that every business hits, you need something to take you on to the next phase of growth.
RT: You also need the staff to generate those ideas or the skill sets internally, where maybe you're paying externally. Many people bring in legal resources at some point to cut down on the amount of money they spend with external businesses. People will bring in a CFO, and they can spend dedicated amounts of time on the business, as opposed to just coming in, helping the business and immediately exiting. That's the time that maturity or growth happens in a business.
MH: Once you get the bit between your teeth with your business, and it's going well and you're having success, isn’t it the case that it's almost impossible not to scale?
GW: It can be dangerous. There’s someone I know who started as a financial advisor. This person was very successful and reached a stage where they had too many clients to deal with, so they took on staff, and they took on other advisors.
Within three years, this person is running a business, which was outside of their skill set. They started as a financial advisor, and now they’re having to be a businessperson, managing people and all other things associated with running a business.
MH: On the subject of getting professional business help, there’s great growth in fractional help. Hiring these people can be expensive, but doing so by the hour seems like big business at the moment.
RT: It's huge, and it's great for some businesses. We have used a CFO for the past five years. He comes in on a bi-monthly basis and does the management accounts. We buy that service in, as we don’t need to carry that cost all year round.
MH: In terms of the scaling of your business, was it purely the change in the regulation rules for law firms that allowed you to deal with freelance lawyers?
RT: That was the catalyst. Covid accelerated it. That was the start of the business. We were able to scale by the market driving us. The conditions were there, and we’re now in 90 countries, and 34 US states.
MH: But when it comes to mentoring or helping out, we’ve come across some who weren’t successful in their field, and still ended up coaching or mentoring. So where does their wisdom come from? Do you look for a mentor that's not in your sector, just because you’ll hear something you already know?
RT: If you want an accountant or a CFO to come in, its vital to get someone with the right experience. It’s the same with marketing. We use suppliers in many areas throughout our company. All of our designers are in America and we wouldn't do anything without them. They do the design work, and they also provide us with ideas of what to do. And I do consider that a form of mentoring.
MH: James, can you ever imagine scaling your business suddenly? Or would you let that happen organically?
JS: The growth has been largely organic, as has the company transition. My scenario was like you were describing earlier, I simply had too many clients to attend to myself, so I started taking on people. We are starting to prepare for growth. But we’re concentrating at present on growing our client base through marketing. We’ve grown to a certain point, and we’re now looking to speed that process up.
MH: Do you think you will get to the point where you start employing – as opposed to using self-employed people?
JS: I intend to continue to use independent contractors for a lot of the tutors, but some of my staff members now help with running the website, they help with managing the business, and a bit with producing revision guides and so on, I’d consider taking them on as permanent staff. But other obligations come with that. Legally speaking, I'd have to do that strategically, and at the right time.
MH: What do you think is the benefit of having someone on the payroll doing the same job that someone who's not on the payroll is doing? Where's your benefit?
JS: The first benefit is that it may well increase loyalty. At present, the tutoring market is pretty crowded. Those who work for me now could advertise those same services on other, larger platforms. I've got some top-level staff; PhD students, and people with first-class degrees, and I need to incentivise them to keep them with Humanitas, as I’d like to be able to keep them on an exclusive basis.
It’s down to me to make them want to stay. I'm doing that through not only providing tutoring work but other work opportunities as well, like producing revision videos, attending trade fairs, help with working on the marketing side of things – a variety of tasks to alleviate the mundane. At the moment, I'd only be confident enough to take them on as a full-term employee once I've managed to upscale the business.
RT: Would you be paying them less if you took them on as employed, rather than having them continue as consultants? I know they’d have job security, but they’d also have not as much coming in. It’s a bit of a balancing act, isn’t it?
JS: They’d indeed be on less-per-hour, but they’d then be working on a full-time basis, so hence more hours. At present, I don't need to guarantee them a set number of hours per week; it's very flexible. Also, if there's a slight downturn, I can take on the lessons on their behalf. The balancing act is theirs as well as mine.
MH: Is that a de-motivator for James’ staff to want to come onboard; they're going to be paid effectively, less, maybe per hour per se, but there's security. But is that a de-motivator?
GW: It depends on the circumstances of the individual members of staff. We've spoken a lot about work-life balance. There are people out there who want to just do 20 hours a week. And if that’s enough for them, they don't want to be doing 40-50 hours a week.
JS: I’ve spoken to Ben, who has been with me from the start. He’s of the same understanding that we'd have to upscale until I could guarantee those hours. The advantage is that all of my staff are all PhD students who are very passionate about academia and education. Most of them are looking for part-time work – but ongoing, secure part-time work.
MH: We've all seen people go into a business which they thought was a great idea. They probably consist of the 60% of people who are going to fail.
GW: That contains an awful lot of restaurant owners. ‘I like food, let’s open a restaurant…’ I had to have that conversation with my brother. We were on holiday in France, and he found a ‘For Sale’ sign outside a restaurant. ‘We should do that. I'll run the kitchen. You run the front of house with the wine buying.’ Er… NO!
MH: It brings us, full circle, back round to the fact that to avoid that, get the right advice. Good advice speaks the truth. We've come to the end, so if I can go around the table, and ask, what's your best advice to our readers who are looking to start a business?
RT: Talk to the experts after you've got your business plan together.
MH: And a business plan is still a relevant thing these days?
RT: It is. You should look at how good your idea of a business is in black and white. You should produce a marketing plan to find out what your market is, how good that market is and what your competition is in that market.
GW: Make sure you don't forget about the simple risks that can drive your business under through no fault of your own.
MH: What’s your advice, James, as a young business person?
JS: Be clear about your product, and whom you’re marketing it to. Is there a gap in the market, and if so, make sure your marketing properly targets that demographic.
AM: If I were to make a list, I’d say there is the importance of generating and testing ideas; the value of obtaining professional help and support; networking with a wide range of people; communicating with your future stakeholders; write a clear vision, mission and values statement; have a working strategy that you share with your colleagues, and don’t be afraid to say No!
MH: Thank you all for your time and expertise.
