RESTART Resilience and Training for SMEs

The basic model differentiates between fix and variable costs:

Fix costs: that need to be paid regardless of how much product or service you sell.

• Fix costs are for example:  the cost of office/warehouse/shop, if you decide to rent/buy one, the cost of administration for an MSME (an accountant).
• On the short term, fix costs can also include employment costs (as it is not easy to hire/lay off personnel due to labour market conditions and regulations) but many count them as variables on the longer run (depending on the flexibility of the given labour market & employment scheme)
• On the short term, amortisation/depreciation costs are also fix (if you buy an expensive equipment, you will be able to write it off over the next couple of years).
  Variable costs depend on how much you are producing
• Typical variable costs are the costs of the supply you need – input materials – for your production

One-time, set-up costs include legal fees for creating the company, logo and web design, etc.

Calculate all costs! Use online tools if needed. Consider cost-efficient solutions.

• Your potential customers – the size and availability of the population as well as their capacity to pay for your products/services. Learn about the specific preferences, details they currently buy and try to access their potential demand for something you aim to offer.
• Your potential competition – the companies already present in the given market, their level of price/quality, their reach regarding the customers, their marketing and sales strategies, etc.
• Your potential collaborators – let those be your future suppliers or other small businesses with whom you are not competing directly but cooperate (e.g. opening up a joint shop, sharing logistics, etc.)
• There are several ways and expert strategies to approach the research and do it yourself  based on sufficient data or have someone do it for you.

A business model is a general framework, a main and general approach to running your business. The business plan builds on this, with a more detailed and structured set of information, tailor-made for your business. In a slightly different approach, the business model establishes your revenue-making process while the business plan defines your goals and strategies. In all concepts, the business plan is derived from the business model.

When setting up your business plan:

• use professional calculation tools (BM software, apps, etc.)
• do not hesitate to ask for help (from a more experienced entrepreneur, from an accountant, from a marketing specialist, from the local chamber of commerce, the EBN network, etc.) If you do not get sufficient help from one, go to another, do not give up!

Calculate costs and revenues on at least a yearly basis, better on a 3-year basis in order to:

• allow for all types of costs and revenues to show
• allow for trends and dynamics to emerge

Typical ways to financing an enterprise:

In other words, the traditional models characterize the typical business behaviours we see throughout the 20th century.

From Business to Consumers - Traditional small businesses exist since the dawn of human societies. They are simply built on the realization that a small company – originally within a family or with a specific group of professionals (guilds, etc.) – can produce/offer goods and services for other people - for their communities – their customers. If you want to reach out directly to your customers, you must find sales opportunities to meet them.

In a B2C business model, the entrepreneur has to plan for….

From Business to Business (and, similarly, Business to Government) - Selling your goods and services to another company or public/governmental agencies differs from simple B2C businesses in several aspects. Most importantly, you have to deal with a much smaller number of clients but in return, it is harder to get them and it is more crucial that you keep them (or at least build a good portfolio so you will not be depending on 1 or 2 sole buyers.)

In a B2B business model, the entrepreneur has to plan for….

In the franchise model, the concept is based on one successful model, that has proven itself to work and make a profit in a given environment. The owner of this model – the franchiser – sells the “recipe” – to the franchisee. The recipe includes the exact business model, the brand and respective intellectual property, often the connections to supplies/suppliers, and somewhat strict regulations on operations (to protect the main brand).

In the franchise model, the entrepreneur has to plan for….

When an MSME operates in a specific local environment  - in its city, county, region, or country – it has to meet specific requirements:

• Meet the requirements of local and national regulation – in terms of taxation, accounting, and administration, but also work safety, labor laws, environmental hazard management, and so on. These conditions may differ across countries, and although they are mostly (though not fully) harmonized across the European Union (under the concept of the European Single Market).
• When setting up your business model, make sure that the competition from another country - that has to meet fewer requirements - is not endangering your economic success. This is especially important in cross-border areas.

The globalization of media and business in the 2nd half of the 20th century paved the way for the global production and innovation chains that surfaced at the end of the 20th century. This global economic model was built on optimizing cost-effectiveness (often neglecting the negative human, democratic and environmental aspects also associated with low-cost production).

While several events in the 21st century have slowed down or even turned back globalization trends (such as geopolitical events, the rise of China’s independent research, development, and innovation (R&D&I) capacities, the COVID-19 crisis, the realization of the effect of global transport on climate change, the current energy crisis and oil/gas dependency, etc.) several other factors further enhanced global production and distribution of products and services (such as wider and wider availability of broadband internet connections, the development of remote working and global, virtual teamwork (RESTART Training Module 1), overcoming several language barriers via machine learning technologies, etc.).

The European Union has made it a key priority to increase European economic competitiveness by creating the Single European Market, which is built on a common set of regulations and standards that allow European companies to relatively easily operate across borders, offer products and services, use banking, legal, taxing and consultancy services without the necessity of opening up daughter companies in each of the other countries.

To operate on the European market, familiarize yourself with the respective regulations, require an EU VAT number, and make a detailed market analysis of whether it is worth it for your company to invest in internationalization.

Not all new companies must directly compete on the global market, but the economic milieu, the availability of options, and general trends must make each new company aware of their position not only in the domestic but in the European and global markets as well.

Most businesses start as micro- and small businesses (though there are examples of the opposite as well, large companies created by mergers, acquisitions, or larger holdings breaking up). Yet, at a very early point, they can be set on one of two significantly different tracks: they either become a small business or a start-up.

What is the difference?

Start-ups build their business model on technology that allows them not only to duplicate or triple their economic performance but to multiply by tens, hundreds, or thousands in just under a short period of a couple of months/years. 

Successful start-ups are often “born-global” – even from the start, they offer products – but much more often, services – that are demanded across the globe, maybe with minor localization efforts.

Start-ups are always very innovative and include a high-risk factor. Just a small share of start-ups succeed on the international, and an even smaller share on the global scale.

Start-up funding must include risk-friendly capital involvement at the early stages. A typical cycle:

The new business models described below are sometimes working independently, but sometimes as a combination of the models below. In each case, a unique decision must be made about the ideal combination of these elements.

Sharing economy:

The sharing economy as a business model is built on sharing resources, existing goods, and services among potential users. It is almost always built on the use of technology as a tool for sharing. Sharing may include the creation, production, distribution, sale, or use of the given products and services. The sharing economy can also be B2C (for example Airbnb) or B2B (e.g. coworking offices).

Platform economy:

SWOT

First, conduct your market research – or have someone conduct it for you – as discussed in Chapter 1.1. Be familiar with the potential customer base, their preferences and demand capacity, with your competitors, and with potential alliances. Then position yourself, and your project idea and try to identify your planned business’ strengths, weaknesses, opportunities, and threats. Put them down in a matrix:

Further support: examples, best practices, step-by-step guide 

Based on your SWOT, you will be able to determine the main trends for your business model.

1.  You can – and are encouraged – to use an old-school spreadsheet software – Excel, etc. – and do the calculations on the cost/expense side and the revenue side
2.  You can also – and be ready to use more than these options! – use online tools/apps designed to create business models. Certain examples are:

Once you have your business model figured out, make sure you create the followings:

 

Your last homework is to find alliances, mentors, and supporters – do the networking!

Contact:

• Local and European chambers of commerces, chamber’s associations
• Local and European sectoral associations
• Local and European business support centers
• Innovation labs , innovation centres (in case of innovative ideas) and accelerators
• Co-working offices

Remember: not everyone will be able to help you with useful information or real help but keep on looking for support, mentors, and partners. Never hesitate to learn from others. Remember: not only good practices but failures and bad experiences are also extremely useful lessons for the future.