An estimated 50 to 70 percent of start-ups fail within the first 18 months, for a variety of reasons.
AsiaBiz, a leading corporate services firm in Singapore, discusses common pitfalls of new start-ups, and why entrepreneurs should consider Singapore as their destination to pursue their dreams.
Located strategically in the Asia Pacific region, Singapore rests on the same content as two thirds of the world’s population and is a short flight from some of the fastest growing economies in the world. This presents a wealth of opportunities for budding entrepreneurs and foreign investors. More importantly, its reputation as a trusted financial hub and strong diplomatic ties means that investors and companies can leverage off Singapore’s bilateral trade agreements and strong network of financial institutions that have a solid presence in the city-state.
Particularly for new entrepreneurs who intend to be pioneers in new industries, Singapore is ideal, as a significant number of its government grants and incentives cater specifically to companies that plan to explore opportunities in these new areas. However, in spite of all the benefits of Singapore, there are still many mistakes made by entrepreneurs.
We examine a few of the most common pitfalls to avoid:
Pitfall #1: Avoiding the Administrative Nightmares
Despite the fact that the company is the main vehicle through which their business will be run, a shocking number of entrepreneurs and business owners conduct little research on the actual administrative processes required to set up and maintain a company.
Particularly for new start-ups that are cost conscious, choosing the cheapest way to set up their company or opting to DIY may initially seem like the best approach. However, this may result in unanticipated complications arising due to legal documents that were signed in ignorance; or disruptions to business operations and business reputation due to overlooking statutory compliance obligations, which are compulsory for all companies incorporated in Singapore.
Ideally, new business owners should conduct adequate research on the various administrative procedures and seek professional advice, especially if there is legal paperwork to be executed. Professional corporate service providers will also be able to provide new business owners with a broad overview the incorporation process, as well as share important tips other matters, such as how to open bank accounts. Singapore, with its flat corporate tax rate at 17%, is already one of the most attractive low-tax regimes in the world. In addition, its wide range of tax incentives and other business-friendly policies could substantially benefit companies.
At the end of the day, picking your legal advisor and/or professional corporate services provider is just as important as choosing a partner for your business.
Pitfall #2: Not Having a Solid Business Plan
As exciting as the entrepreneurship journey is, having a solid business plan comes extremely useful in mapping out your business goals, ambitions and unifies the vision for the entire start-up team.
Several key elements are as follows:
A good Executive Summary
With a good and well-written executive summary, the entire start-up team can be on the same page and won’t leave potential investors or partners with different perceptions or ideas of what the business concept is.
Having a model or mock-up of your product that fully encapsulates your vision of how it should look like on the shelves will help investors and stakeholders understand and share your vision for the business.
In addition, identifying the key features and target audience for your product can help narrow down the team’s marketing strategy and its other priorities.
Do your research. Compare your product against your competitors in the market and brainstorm methods on how your product can succeed amidst the competition. Depending on the nature of your product, you can compare packaging, marketing strategies, pricing strategies, etc.
Simply setting up your business to leverage off an on-going trend in the market may be initially profitable, but ultimately will not be sustainable in the long-run if it does not value-add to the consumer. Hence, having a strategy on how you can differentiate your business can make a significant difference.
Have a Ballpark Figure
Estimate your costs – from engaging professionals, marketing and branding costs, production and manufacturing costs, rental costs, employee salaries, etc. Once you have a ballpark figure in mind, you’ll be able to confidently let investors, banks or financial institutions know how much the business will need to get up and running; and it can also give you a clearer picture on how much funding you need to seek.
Pitfall #3: Insufficient Funding
With Singapore’s pro-business climate, many entrepreneurs are attracted to the island-state for the comprehensive range of government grants, funding and tax incentives made available.
To take advantage of these opportunities, plan ahead and prepare in advance, particularly since some grants are selectively granted based on certain criteria. More importantly, many of these grants are sometimes limited to a specific time window.
In addition, most forms of funding come with certain obligations that may not be ideal in the long-run. Hence, do research on funding opportunities, to avoid being trapped within obligations that are not necessarily ideal or suitable for your business. Examples of such commitments that may form part of a funding or investment agreement include:
- Allotting shares;
- Granting a nominated person directorship in the company; or
- Requirement to hire and train local employees
Though they may not seem to be huge commitments at the initial stage, allotting shares will mean that the business owners are giving up ownership of their business – which could potentially lead to disputes or result in the original founders losing control of the company.
Granting directorship also grants power to the investor or stakeholder, as this means that he or she will have veto power over certain decisions, such as opening of bank accounts and approval of the company’s ability to enter into contractual agreements. This may be frustrating if the director decides to be uncooperative or is frequently overseas.
On the other hand, government grants do tend to request that companies hire and train locals, in a bid to improve the skill sets of the local workforce and ensure that companies are value adding to the economy. However, this may not be feasible if the company does not have the capital or resources to do so. Hence, it is crucial that companies carefully consider their options, before deciding to make a commitment.
Pitfall #4: Having the Team Fall Apart
Having a great, experienced and reliable team is essential – but delegation and mutual understanding of each other’s’ roles and responsibilities is even more crucial. Play to the strengths of each team member and give your investors a holistic view of the team and emphasise how each member is important to the success of the business.
More importantly, the legal implications of having a discordant team can be potentially destructive to the entire business, especially if there is a patent, new product or unique idea involved. While it may seem “unfriendly”, it may be prudent for the company to consider having a legal document to prioritise the interests of the business and company from the very start.
Pitfall #5: Getting on the Wrong Platforms
In this day and age, entrepreneurs are faced with keener competition and may be unable to achieve economies of scale for production or may not have the networks to gain a foothold in the industry. In such instances, it may be wise to leverage off the wide range of platforms provided by multi-national corporations such as Unilever, incubators or the government. However, while entrepreneurs can potentially grow their business exponentially with such support, they should also be fully aware that compromises may have to be made.
Examples of benefits that entrepreneurs can expect from such platforms would be funding, industry support, free work spaces, as well as access to experienced industry professionals who would be able to provide relevant advice and guidance.
While the appeal of Singapore’s business-friendly policies have lured many global start-ups to the city-state, there remain real challenges that all entrepreneurs must consider regardless of geography.
You may also like to check out our infographic for the common pitfalls of new Singapore start-ups.