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Starting your own company

As you start out you're likely to be given lots of little nuggets of information, some of which you might actually act on but most will probably pass you by; but if there's one point which you remember, let it be this: have a product you believe in - because if you don't know one else will.

That might seem obvious, but if you're not completely committed and believe in the company you're about to set-up, what is the point in going along with it? Ultimately, the owner or MD is responsible for the success or failure of their company, and if from the outset there are worries, then it doesn't bode well for the company's long-term future.

The next point of advice is linked to the above, but from a totally different perspective: be objective about your idea and actively try to see its weaknesses and problems. Really analyse the market and see if there is a legitimate gap which you could plug with your new company. It's so much easier to count the costs of market research before you take the plunge than it is of dissecting the ruins of a failed start-up.

The question of finance will inevitably crop-up at some point and this largely breaks down into four options: first, your own; next, friends and family; then a rich individual or two who like the product; and finally, the venture capital route for rapid expansion. All of course have their own advantages and weaknesses, but be particularly wary of giving away too much equity to venture capitalists and if you're borrowing from friends and family, remember to draw up a contract - this is as much for your benefit as it is for theirs!

Next, set specific timescales and goals in your business plan. Of course, if you borrow capital from banks or building societies then they will want to be seeing these firm predictions in your plans, but it's amazing how often they're ignored if you're 'just' borrowing from a relative. Besides, without them you're just playing around and not taking the new enterprise seriously enough - after all, you wouldn't dream of borrowing money from a bank without a firm repayment plan in place would you?

Don't worry about not inventing the next Internet or internal combustion engine - if that happens then market dynamics should take care of everything else; but assuming you're not the next Edison or Leonardo da Vinci, don't panic. Small incremental steps forward from an existing product are the life blood of most inventions and it's where most progress generally stems from after the original idea.

Then try and build a balanced firm. Inventing the product is all well and fine, but without back-up you're going to find things difficult on your own. Include growth projections in your business plan and know when you're going to be able to hire new staff - if not from the outset. Engineering firms are particularly prone to the inventor becoming chief salesman and this can lead to problems as they are often too close to the firm to fulfil this role correctly. If you can, look to employ a professional salesperson as soon as you can.

If you can't put together your ideal team personnel-wise, then look to outsource. Many specialist business functions can today be successfully farmed out, so why not look to utilise this area. Once the business is up and running, then in-house functions can easily be taken back in depending on cash flows. This not only covers ensuring the product actually works, but also fundamental business areas, from IT hosting and office FM to CAD design and marketing.

Make sure you research patents carefully, as this can be a mine field. However, don't get too hung-up on it. The speed to market of a product and the networking back-up capability is often much more important and very few patents end up being totally defensible. In some areas, don't even look to be first to market as the real opportunities only lie in coming in second or third - but be warned this is a high-risk strategy and can be difficult to execute.

Get the right partner. Most start-ups fail due to the individuals involved and not due to product weaknesses. Make sure that, contractually, you are in a strong position so that your partner can't exploit possible weaknesses or, alternatively, try to pull their weight. Ensure that any partners are people with whom you can work, be straight with and, most importantly, argue with strongly, but not hold grudges.

Look to acquire particular knowledge, as often engineers can find that they're lacking in a particular area, be it marketing, financial planning or business strategy. One of the best solutions is to invest in studying for an MBA, as it will allow you to concentrate on those areas where you are weakest. Contact the Royal Academy of Engineering and the Sainsbury's Management Fellows as they run a dedicated scheme specifically to help fund engineers studying for an MBA at a top Business school. Lastly, be clear about your exit strategy from day one. Make sure you are all in the same boat about where the company is going and what you all want out of it ten, or even five years down the line. It is much better to have this argument early on, than when you've invested years and a considerable amount of capital in the project.

One alternative strategy to consider if you're still unsure about setting-up on your own is to consider becoming a contract engineer. This involves hiring yourself on a self-employed basis to separate companies and has a few key benefits. Firstly, you can double or even triple your salary. It also gives you more flexibility for career development and for where and when you want to work. It's also, crucially, very beneficial for networking opportunities for possible future career developments and gives you a breadth of experience which is likely to be extremely useful for when you do finally take the plunge and set-up on your own.


Written by Paul Dolan, President of the SMF.