dear strictly business: early mistakes, and how to avoid them

The idea of starting a small business can be extremely daunting. Do you shoot for the stars from day one? Is it something you should do alone until you’ve built up some momentum? How do you get people to notice what you’re doing? And what do you do when – inevitably – you take a misstep along the way? There will be challenges, of course, but that doesn’t mean that if you have an idea you’re passionate about you shouldn’t go all in.

Welcome to our Dear Strictly Business advice column, brought to you by our pals at Xero, where you ask the questions and we get an expert to answer. For this round, one of our lovely readers asked how they could avoid some of the most common mistakes people make when starting a small business.

We spoke to the people behind three very different businesses (all Xero customers, by the way!) to get behind-the-scenes knowledge about some of the dos and don’ts when you’re getting started.

Got a burning question you'd like us to answer? Feel free to send it our way.

The panel:

Aaron Billings, Aoife Billings, Frances Cannon, and Gemma Flack – founders of Pink Ember Studio a not-for-profit queer arts space that provides studios, workshops and a store to sell locally made art.

Phoebe Bell – founder of Sage X Clare, a homewares and lifestyle brand that celebrates colour, artisanal products and has a big focus on texture.

Maggie McGowan – Co-founder of Magpie Goose, a clothing brand which works closely with Indigenous artists and textile makers from around Australia.Magpie Goose

What was your first misstep?

Phoebe: Just wanting everything to be absolutely perfect. It would have been a good 18 months to two years before I actually launched online because I wanted everything to be polished and so finessed. I obviously wanted to launch something I was proud of, but in hindsight, the best thing you can do is just get your idea out there. There’s so much feedback you get from the market just in doing that. It really assists with knowing where to go next, so sometimes 'done' is better than 'perfect'.

Aaron: We didn’t make contracts for artists who have studios with us, which led to some people being a bit confused about who was allowed to use the space. Something we would definitely do from the get-go would be to have studio contracts so everyone knows what the responsibilities are on both sides.

Maggie: We underestimated the cost of freight. We were sourcing fabric from remote art centres and the cost of shipping hundreds of metres of fabric was astronomical. We basically couldn’t make it viable. So we switched our model to licensing designs and getting the fabric printed in Sydney. This approach enables the business to survive!

How do you know you’re onto a good business idea?

Aaron: I think the most important thing is to have a good reason for setting up the business, to provide something that doesn’t already exist, or to provide something that needs to be in the world.

Phoebe: As a business, particularly if you’re backing it yourself, it’s very hard to launch into a mass market space and even be seen or recognised in any way – so I think one of the best things you can do is really consider what your point of difference is, what your niche might be. It’s OK if other people are doing that, but what is it specifically that you bring that’s different, or what is it about your story that’s different? Establishing that at the outset is helpful.

How do you know if you’re ready to launch your business?

Maggie: Starting a business requires many steps. You’re ready to start when you’re willing to take the first step! You can always have a crack – start small, and change your idea or abandon your idea if it’s not working. There’s not much risk if you keep it small, until you get market traction.

Phoebe: I don’t know if there’s ever a point where you think yes, I’m ready for this, because there’s just a lot you learn as you go. You’re often juggling a few different things when you’re trying to get something off the ground.

Frances: You never really know when the right time is, or maybe the right time doesn’t really exist, You just have to go for it when you’ve got the vision: take the leap. It’s always going to be difficult – you just have to take that as it comes and roll with the punches.

How do you make sure your business is sustainable?

Aaron: I think the most important thing you need to have before you start getting a lease and putting money in is to have good collaborators, good people you can work with that you trust.

Phoebe: When you start, money is often tight and you’re not drawing a wage for yourself – it’s all getting poured back into the business. It feels really counterintuitive to say “Maybe I need a couple of casual people to help me”.

I think you get forced down this path of thinking you can do everything yourself and it doesn’t necessarily serve you that well, and your business can’t move forward. You can’t spend the time on the things you’re really good at that will grow the business if you’re tied up with all the admin and day-to-day running of it.

Maggie: We sought out advice from a lot of people – lawyers, accountants, business consultants, friends and families who’d been involved in business. There is so much to learn and it’s always good to get different perspectives. There’s no one formula, so it’s good to understand the options, and then choose which is best based on what you want to achieve.

Frances: When we started we all did a bit of everything, but then things got missed or some of us were working too hard on all of the things, so when we separated the roles into more clear responsibilities, things got better.

Pink Ember

How do you look after your finances?

Phoebe: I got to a point where I was spending three of my five days a week on bookkeeping and probably not doing it exceptionally well either. I was like, if I keep doing this, that’s all I’ll be able to offer this business and that’s not where my strength lies. So I got a bookkeeper.

Maggie: We taught ourselves how to use Xero so we could do the day to day of bookkeeping ourselves, and we work with an accountant to do the BAS (business activity statements). It’s really helpful to have oversight of the finances – and a clear picture of what’s going in and out.

Gemma: We use Xero now and I wish I’d started using it from the start because I’d underestimated how much we’d need to track. In a previous life, though, I was a bookkeeper for other small businesses, so I do have the background that makes it very easy for me to deal with the finance stuff.

How did you get your cashflow in order?

Phoebe: Initially we had to plan out cash flow for the next 12 to 24 months to really understand whether we could manage to buy the stock we wanted and what impact that would have. Xero’s been fantastic for just keeping a track of it all, making sure you understand at any point quite easily and quickly what your position is, and that your BAS is up to date and you understand what your tax liability might be.

Maggie: We launched a Kickstarter campaign to fund our first collection so we were fortunate to be able to raise significant start up capital through customer pre-orders. In subsequent years we were able to access loans to cover cash flow shortfalls until we had sufficient working capital to cover these independently.

In terms of getting our heads around cash flow, we started with pretty small-scale orders –100m of fabric to make 100 tops, to sell to people in our networks. This enabled us to get a clear idea of cost of goods – including all the extra things you wouldn’t think of until you’ve had to make clothing (the swing tags, labels, pattern making) – and how much we needed to sell in order to have enough money to start the whole process again! So we understood the cash flow once we’d gone through the process of manufacturing the clothing a few times.

What about all the legal stuff?

Aaron: Aoife and I had just finished an NEIS course a couple of months before we opened, and we used a lot of that knowledge when we were setting up our business plan.

Phoebe: We engaged a lawyer at the start, as well as assistance from an accountant, just to make sure everything was set up correctly. It seemed like an expense we could spare at the time, but I’m glad we did because we had things set up pretty well from the start.

Do you have any other words of wisdom?

Frances: Have a clear vision of what you want your business to be. Trying not to do too much is important, too.

Maggie: Don’t be afraid to test an idea and start a business – but don’t hang onto the idea if it seems like it’s not going to work! You can get a really good sense of whether your idea has market traction by making only a few things or offering the service to a few people, and getting immediate feedback. Take on the feedback, and adjust your offering. And try to get feedback from people who are not just friends and family as they’re obliged to be kind!

Phoebe: Be OK with the fact that what you might be offering or selling isn’t going to be perfect for everyone; there’s going to be people that don’t like it and that’s OK. Don’t give up, and really focus on building that community of people who truly get what you do.

This little chat took place in collaboration with Xero, online accounting software that's committed to supporting small businesses with a range of free resources via their business continuity hub. Designed to let you do business beautifully and simply, nab a free 30-day trial over at xero.com.