How to secure a healthy start-up business

Marc Castrodes

Posted at Jun 04 2016 08:37 AM | Updated as of Jun 04 2016 08:56 AM

(Business Mentor's note: Marc Castrodes is the president and chief executive officer of Aretei Foods Corporation. Together with his wife Tricia, they developed Brands Cookie Sticks and Little Cakes. He is also a corporate consultant, trainer, and motivational speaker. He works with Inspire Leadership Development Consultancy and Arete Leadership Development Consultancy in bringing trainings and learning sessions to many of the country’s top 100 corporations. He was the former main news anchor of PTV 4, commissioner-at-large of the National Youth Commission, and vice chairman of MTRCB.)

MANILA - Going into business is a dream for many. The dream of owning your own company is exciting. The idea of controlling your own time, having products or services you can be proud of, and giving employment to people drive many towards entrepreneurship.

My wife and I had those dreams too when we got married. Over many meals and late nights, we talked about business ideas. We were both working in government then. When our stint with government was nearing the end, we had to make decisions.

Around the same period, as a lawyer and organizational consultant, I had the opportunity to help set up Go Negosyo. The experience exposed me to businessmen of many kinds. That exposure deepened my desire to start our own venture. So, around Christmas-time of 2006, Tricia, my wife, sold the first few packs of our cookies.

From developing products in our own kitchen in 2006, to building a commissary sometime in 2009, to having the honor of being the Philippine nominee to the ASEAN Business Awards in 2015, we have learned a lot. We are far from being a major market player, but we have graduated from being a micro business into a small business. And that I believe is significant, because many businesses never grow beyond the micro stage.

This article will present what I believe are the imperatives for a successful start-up. Here, I will present what are most important in order for a new entrepreneur to avoid the most common pitfalls in starting a business. The entrepreneur’s life comes in various segments. The segment I will be focusing on in this article is the very beginning when one is yet to register a business and move on to the initial stages of the business.

Why is it important to start at the very beginning of the journey? Because the foundations of the business, like that of a house or a building, will determine whether it can stand strong. Statistics tell us that the rate of new businesses closing is greatly higher than the number of those that become successful. Hopefully, with the right fundamentals, we will be part of the few that have succeeded.

Allow me to share the four imperatives for a successful start-up.

First imperative is the Mindset Imperative. One should never enter a business with the "I will be a Millionaire Mindset." Yes, money can be made and lots of it if the business succeeds, but one should never be driven by money, before the business has even begun. If your daydreams are made up of fancy cars, lots of money, and luxurious items while you’re working on the fundamentals of the business, you might end up frustrated and discouraged. Because instead of tons of money, you will for sure see tons of work, and instead of riding fancy cars, you might have to carry your own products on your back. The stories of successful businessmen are full of hard work stories.

Instead of money, have the value mindset instead. What business is really all about is offering value to the world and value to people through the job opportunity. If one goes out thinking how the products or services he is offering can make living on earth better, then he works for a higher reason.

Henry Ford was not thinking of money, he was thinking of a car for every American. Steve Jobs was not thinking of billions, he was thinking of a computer in each home. Elion Musk is not thinking of profit per se, but of the value of technology to build a healthier and safer world.

What value do you offer? This value is usually connected with what we are passionate about. Because what we are passionate about, we usually become excellent in. If we can offer what we are excellent in and what we are passionate for, then we offer value.

Let us also have the mindset of offering the value of work opportunity for people. If we consider our business idea as an opportunity for people of diverse knowledge and skill sets to come together, work together, and to offer value together, then we do not just hire employees we pay salaries to, we really enrich lives.

The second imperative is the "Who To Do Business With Imperative." Here are the usual options:

  1. Do it alone;
  2. Do it with friends/relatives; or
  3. Do it with investors.

This is absolutely important because many business failures are not caused by a bad product or service, rather they are caused by bad relationship between business partners. Hence the common saying, “If you want to lose friends/relatives, then do business with them.” There is some truth to that, stories of fighting business partners being all too common, but that is far from being a rule written in stone.

There are many businesses that are run among relatives or friends that have succeeded. So, here are a few things you should be mindful-of in deciding on whom to do business with: First, doing it alone is safe, but the chance to see fast growth is low. One needs the expertise of other people and the network of other people to grow a business.

If you just want to explore the world of business, not certain whether you are fit to be an entrepreneur, then maybe going sole proprietorship is good. But if you have a big idea, and the feasibility is good, then have people around you to help build the business.

On finding a partner, the most common option is one’s spouse. Most couples would start a business, own controlling stake, and then nominate their parents or adult children to fill-in the required slots to form a corporation. This is common and it has worked for many. This is our own model. Here’s a reminder: Make sure the relationship is held together not by the business but by the vows professed before God and man. A strong marriage could strengthen a business. A weak marriage will not be saved by a business.

It might even be completely broken because of it. So, in partnering with one’s spouse, it is absolutely important to learn to separate business concerns from family priorities. Here’s a practical tip: Never mix business money with personal money. Have separate accounts for business and personal funds. Never co-mingle. And over lunches and dinner with your spouse, try your very best to avoid discussing business.

If one decides to partner with friends and relatives on the other hand, make sure that you level off with them on goals, approaches, priorities, roles, and expectations. Follow these strictly:

  1. Have all agreements in-writing.
  2. Have regular board meetings with an agenda and minutes of meeting. It is important to have something in writing to guide the business when partners go through relationship difficulties.

The third common option is to get investors. One has to be careful in defining what an investor’s role is. In the Philippines, unlike in more mature entrepreneurial economies, investors have the tendency to meddle in the operation of the business. It is important to have agreements on when investors can meddle. It is best to have these agreements in writing.

Two things can help manage relationship with investors: First, have professionals run key roles in the business. Hire a manager. This way, a level of objectivity is infused into the business. An entrepreneur could be protective of his own ideas and approaches. A professional could help manage the need of the entrepreneur to be granted wide leeway, while ensuring that the investors are provided proper feedback to monitor their investment.

Second, it is very helpful to hire an external auditor who could provide regular reports to both management and the investors. Money is a common clash-point. The presence of an external accounting and auditing team will prevent conflict.

The third imperative is the "Registration, Systems, and Discipline Imperative." A start-up should start legally right. Starting right means registering the business with DTI or SEC, BIR, SSS, Pag-IBIG, PhilHealth, and the barangay and city business offices.

Registration will grant the business a legal personality. It will have the right to exist. Compliance with government regulations even in the earliest stages of the business will ensure that the business owners will put together the necessary admin and finance systems.

Admin and finance system is like the nervous system of the body. Ensuring that it is in place and healthy will make the business grow. To keep and maintain admin and finance systems will require discipline. Yes, it is hard to maintain a system when the volume of sales is still very low, but doing this in the early stages of the business will develop discipline in the entrepreneur. Financial discipline is critical in any business. The system to account for 100,000 is very similar to the system to account for 100 million; if one cannot properly account 100,000, how much more for 100 million.

Here are practical tips:

First, hire the services of a commercial lawyer for consultation purposes. Legal consultation as part of the setting up process is very helpful. It is best to consult a lawyer before problems arise. A lawyer can check the articles of incorporation or partnership papers. The lawyer can also ensure that all necessary registrations are complied with.

Second tip is this, ask an accountant-friend to help in establishing an efficient accounting and finance system at the very beginning of operations. Even better if an accountant or accounting graduate is among those that will be hired first. If budget does not allow for a full-time accountant, an external accounting consultant should be hired.

The fourth and final imperative is the "Belief and Grit Imperative."

The early stages of the business will be challenging, one has to believe in the value of its product or service if one is to survive the challenging days. Return on investments usually takes time.

Money spent will not become money earned until much work is put into the business. Grit or perseverance is a necessary attribute of entrepreneurs. Steve Jobs once said, “I am convinced that about half of what separates successful entrepreneurs from the non-successful ones is pure perseverance.” And Bill Gates once said, "Your most unhappy customers are your greatest source of learning.”

Strength of heart and of will is important so the entrepreneur will continue to journey on. But this struggle need not be experienced in solitary misery. Here’s a tip: join business associations. There’s usually one in every city and municipality. Gatherings of business associations are full of encouragement and inspiration. Successful businessmen understand what the start-ups are going through. And they are usually very generous with their words of advice and encouragement.

Further on belief, here’s a reminder: belief in one’s product or service should be anchored on objective and factual bases. There is the intuitive part of it, but it is important for the business to be anchored on the realities of the market, the trends of the times, and the preferences of people. That is why it is helpful to be keen in observing the market and key competitors. It is good if the start-up entrepreneur can seek feedback from businessmen friends. There is wisdom in seeking the honest opinion of those who understand the dynamics of business.

Belief and grit in one’s business destiny could also mean that the entrepreneur is willing to ditch an existing business concept or business model for a new one. Many successful businesses have products and services that are completely different from the original offerings that started the enterprise. Meaning, in the course of the life of the business and the entrepreneur, there was refinement and more refinement of concept.

Sadness and disappointment could attend those refinements, but the entrepreneur has to accept from the very beginning that that is just how businesses are. They change with the changing times. If the entrepreneur is willing to meet those changes that are sure to come, and respond quick, his life will be changed as well, hopefully for the better.

All the best!

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For questions and more information, you may contact Armando "Butz" Bartolome by email: [email protected] or on Twitter https://twitter.com/philfranguru. His website is www.gmb.com.ph