Bivek Sharma, head of KPMG Small Business Accounting, argues why timing is more important than ideas for small tech firms.
Watching an episode of Dragon’s Den, one could be forgiven for believing the greatest fallacy of business; that when you add together a great idea and a pile of cash, hey presto, a profitable enterprise is born.
In reality, ideas and funding are just two of many elements that contribute to entrepreneurial success. In addition to real determination, building the success requires quality (products, service, ideas), credibility, sound financial planning, an ability to scale up and – most importantly of all – perfect timing.
The harsh reality of starting a small technology business is that no matter how good the idea is, if it’s executed at the wrong time then its potential for success will suffer. Take for example the cloud storage solution Loudcloud, founded in 1999 – long before the mainstream adoption of cloud computing. The idea was solid, but the timing meant that audiences didn’t need, or even understand, the product. Had Loudcloud been released a decade later, the story may have been very different.
In contrast, the concept of private holiday rentals has been around for years (more than 200, in fact), however the founders of Airbnb recognised that trust in digital transactions was growing and that there was an opportunity to do things differently. What’s particularly interesting about Airbnb is that the company didn’t hit its stride until 2012, when it went from taking one million to 10 million bookings in just 12 months.
While the idea was a good one in 2008, consumers weren’t ready to fully embrace it until four years later, when the sharing economy was more widespread. Alongside having the confidence to catch and ride the crest of a wave like this, successful timing relies on extremely careful financial planning – enabling a business to wait it out until that magic moment.
Looking at the full picture
Keeping an accurate record of business performance can allow a business owner to forecast properly and pinpoint the ideal times for growth and expansion. The post-mortems of failed startups reveal that, financial issues are often a core reason for failure. Entrepreneurs cite reasons such as “costs were higher than income”, “failed to generate enough revenue” and simply “ran out of cash” for their business’ collapse, showing that poor financial planning can break a business. Forecasting can provide the full picture of the business so that it’s easy to get the timing right.
Financial planning is particularly critical for fast-growth startups as more growth usually requires more investment. Continued expansion in terms of staff and premises can be a drain on cash. Solid planning can keep a business owner abreast of this spending.
Eyeing the regulatory environment
Beyond the internal finances of the business, the timing in relation to wider socio-economic trends also has an impact on the likelihood of success.
This includes any regulations coming into force that may hamper the business.
Research into any legislation that may have an effect is particularly useful and could highlight times in which it would be beneficial to launch or expand the business.
Developments in product or technology can also bring with them short windows of time that are highly beneficial to businesses looking to launch or scale. The explosion in e-commerce towards the end of the 1990s brought with it previously non-existent opportunities for businesses to boom.
Those to jump on the trend quickly – think eBay or etsy – used the opportunity to grow at rapid pace and become some of the biggest brands in the world. Having a strong knowledge of industry trends – especially of expected developments in the near future – can ensure business owners are ready to answer when opportunity knocks.
Knowing your market
Perfect timing also requires a thorough knowledge of the market and competing ideas. Ideas aren’t siloed; they exist within a matrix. The success of each depends upon the progress of the others. Knowing the competition inside out can provide a business owner with the critical insight they need to grow, expand and stay ahead of similar businesses in the market.
You only have to look at Snapchat’s IPO plans – announced three months after Instagram launched its Snapchat-esque ‘Stories’ feature – to see that market intelligence can inform commercial timing for the better. On top of this, obtaining statistics detailing the success rates of competitors can give also an indication of the market’s appetite for a particular offering.
Ultimately, choosing the right time to expand rests on the shoulders of the business owner and their personal goals, as well as their business. But a thorough knowledge of competitors, the industry and of the finances of the business itself can provide a boost when the time comes. An exceptional idea deployed badly is still likely to fail, but an idea supported by good financial planning and timed perfectly has every chance of success.
There’s a magic point when social change, customer demand and technology come together – take for example Deliveroo’s rise to success, which coincided with a rise in app usage and home entertaining.
The key is to be ready to seize the moment when it comes.