Knowing the sector

In an excerpt from his new book, Startups founder David Lester explores the importance of sector experience

It will be much easier for you if you are setting up a business you know about already.

When I set up my computer games publisher business, I already had quite a bit of knowledge about how the industry worked, from my own and friends’ experience.

When I set up my second business, publishing magazines, I had very little experience of that sector, and despite my much stronger knowledge of business in general, my lack of knowledge of the media sector meant that I ended up making some very expensive mistakes.

Another advantage to setting up a business in a field you already have experience in is that you are likely to have contacts in that sector.

This might help you find the right staff, where you can trust the people you know – they know what they’re doing, might work harder for someone they know, and you won’t need to spend money finding them; plus, you will have a good idea of what they are capable of.

Knowing suppliers, too, can be really useful. One friend of mine was able to set up a business with much better terms than most startups would get just because several suppliers knew and liked him, and wanted to help him out.

In his case, this meant that they gave him quite a bit more credit than they would usually, so he was able to start his business for less money than it would normally need.

Yet knowing potential customers already is probably the most significant benefit. This is true whether your customers will be consumers or businesses – imagine a hair stylist who has worked at a place for years, and then decides to open her own salon; there’s a good chance that many of the clients whose hair she has done before will go with her to her new salon, providing the new business with crucial early custom.

For business customers, it can be very hard for a new business to be seen by the right level of potential buyer. This can be especially true if you are trying to sell products to large retailers.

But a business started by someone who the retailers already know is more likely to be seen and treated seriously than a business they know nothing about.

Despite these advantages, many successful businesses are set up by people who haven’t worked in the sector before – innocent drinks is a good example here.

Its founders had good business experience, but not within soft drinks. And they have succeeded spectacularly. So don’t rule out running a business just because you haven’t worked in it before.

A little knowledge can be dangerous. If you’ve got plenty of experience as a customer, but no work experience, you might well think you can improve on what’s already on offer, but not realise that there are some serious obstacles making it hard to achieve your ideas. Restaurants and pubs often look easy to run to people who haven’t done it before – but there’s an enormous difference between being a good cook at home, and running a busy, professional kitchen. Be cautious, and learn as much as you can before you start.

– Excerpt from startups.co.uk founder David Lester’s new book, ‘Starting Your Own Business: the Good, the Bad, and the Unexpected‘, Crimson Publishing, £12.99.

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