Entering the entrepreneurship scene
Kirjoittanut: Emil Makkula - tiimistä SYNTRE.
Written by: Emil Makkula, Ariel Cohen, Samu Nyqvist
What do they mean by establishing a company is difficult? You just come up with a name and start selling. Well… it’s not as a piece of cake as you would maybe think. If you are reading this paper, I am sure you are in some way interested in being or becoming an entrepreneur and starting your own business. We formed a cooperative as a part of our studies and started to think about the meaning behind it a little bit deeper. This essay will discuss about what it is like to enter the entrepreneurial scene.
Setting the groundwork for business
Founding a business before coming up with an actual business plan or a clear vision of what field of business you want to approach may sound stupid – and in most cases it is. You wouldn’t want to dive into the world of business without having formed an idea of how things actually function, right? This is a general thought and entering the entrepreneurial scene with this said approach is generally very rare. There are those groups of people, however, that want to dive in headfirst and figure things out along the way. A good example of this is us, the students of Entrepreneurship and Team Learning Degree Program. After all, how complicated can it all be?
We noticed very early on, that setting up the grounds for business-making is not something someone would call a simple dive-in. Having a business plan is one thing but dealing with the bureaucracy related to officially establishing your company and setting up necessary support systems related to it is something else.
Establishing the company
The procedure of establishing a company is dependent on the country in which the business is being established at. In Finland, one of the biggest decisions a starting entrepreneur has to make very early on is what business structure they should choose. Establishing a business in Finland doesn’t require much starting capital, which lowers the threshold to become an entrepreneur. If you’re pursuing a business on your own, a sole proprietor (toiminimi) or a private limited company (osakeyhtiö) is a common pick. If you have partners, a private limited company or a cooperative (osuuskunta) is a good decision. The private limited company is better if you already have a clear vision and a business idea, but if you have many partners with more of a general business mindset, a cooperative is a safer bet. A cooperative is the company form SYNTRE Osk picked because it’s easier to carry on a business with 20 different people in it.
After having picked the company form that fits your needs, next up is submitting the documents to the Trade Registry to carry out the incorporation process. This is where the process gets tedious – especially if you have an international group of partners. This is also the time the company structures start to form for the first time. To establish a cooperative, for example, a board of directors has to be picked, community rules have to be developed, and the name of the company has to be decided. This all sparks a lot of conversation and debate within the team – the process is uniquely easy or uniquely hard for each of the company founders.
There are multiple documents the Trade Registry requires you to send in: Memorandum of Association (a document providing details of the original shares which are subscribed by the members to the company), Articles of Association of the Company, and personnel information form, to name a few. The Trade Register has clear instructions on how to fill out the paperwork, which is very helpful. The tough part in filling the information in an international team like that of SYNTRE Osk, however, is that every detail has to be made understandable for everyone. If everyone is on the same page with, for example, the rules of the cooperative, it saves a lot of hassle and misunderstandings later. Trade Register requires the paperwork to be sent in in Finnish and all the paperwork had to be delivered on paper. So, prepare for actual paper paperwork!
Setting the bank account up for business
After having filled in the required details for the establishment of your company and having it officially registered in the Trade Register, there is still some stuff to do! Having a business id can only take you so far – you’re going to need a bank account which to run your business through. When deciding which bank you’re going to set your business account in, there are a few things you should think about: What services do you need? What’s the location of the bank? What kind of support do you need?
For SYNTRE Osk, getting a business bank account took way longer than getting the actual business id itself. There are a few reasons why. First, we spent an unnecessary number of days deciding which bank to go with. Our top candidates were OP and Nordea, and because of some good feedback from a teammate, we decided to pursue being OP’s business client. Secondly, When applying to set up the account, however, OP was very hard to communicate and cooperate with. OP was also very tricky because to open a business account with them, one of the board members had to have a private bank account established with them already – which we hadn’t taken into consideration when deciding the board members.
So, after using a short of few weeks sending messages back and forth to OP, we decided to drop it and go with Nordea. Working with them was easier and getting the bank account up and running was quick. Nordea is good for our team because it’s used to international clients. They have very good customer service in English, and as a business owner, you can trust that they are there to support you. And even though everything can be done online, it still gives peace of mind to know that they have a branch office nearby in the city center if some face-to-face assistance is needed. The only drawback of Nordea is that its service fees are a little more expensive than OP’s.
Entering the business world
Everyone knows that the main point of business is to create income. Businesses need money in order to run. So, does this mean that you need to have a lot of money before starting your business? Well, necessarily not, but it sure helps! Too many people have great business ideas but are too afraid to try. Establishing a fresh company is all about trying. According to a Harvard Business Review article, How fear helps (and hurts) entrepreneurs, written by James Hayton and Gabriella Cacciotti on 3.4.2018, 75% of ventures fail within their first 10 years. Failing is a big part of an entrepreneur’s life. The cliche quote “diamonds are formed under pressure” proves itself once again true.
Capital can be acquired through many different sources like angel investors, funds, and maybe the most popular one, investing in it by yourself. As I implemented before, money is needed in business, so the first projects need to be developed to bring in revenue. We established SYNTRE Osk as forming a business is part of our studies in Proakatemia. We gained capital by doing these so-called “cash milking” projects. The point behind these very simple projects like doing an inventory for some company is to gain capital so you can start your own “real” projects later. SYNTRE’s first project was a cookie-packing job where we went to a local warehouse to pack cookies for sale before Christmas.
Simon Sinek speaks in his TED talk (start with why — how great leaders inspire action, TEDxPugetSound, 2009) on how you should always start with the “why”. He claims that this simple method of thinking is the reason behind the most successful organizations in the modern world. “People don’t buy what you do, they buy why you do it,” Sinek says. So, when developing your first projects, start with “why” and start building your business from there.
You don’t have to reinvent a wheel. Too many starting entrepreneurs think that their idea is not good enough. When creating a new business try to think about ideas that already work. Do deep research about them and try to find weak points, then start thinking how those weak points could be improved. If you think about some of the world’s biggest firms by revenue, all of them have something in common. Amazon didn’t invent a bookstore. They were just one of the first ones to realize the books can be sold online. Apple didn’t create the first smartphone; they were just the ones to make it simple enough for everyone to understand. Be brave and think simple.
“A BUSINESS THAT MAKES NOTHING BUT MONEY IS A POOR BUSINESS.”
– HENRY FORD
Dealing with the risks
Entrepreneurship is itself a huge risk-taking and gambling game, where you often put a lot of personal assets and time at stake, and you can never be sure of the outcome. While entrepreneurship is scary and you may have to jump into the unknown, there are ways you can identify potential risks, minimize them, and make plans to avoid them. The idea of risk management is to identify the weaknesses in your organization and make plans for when things don’t go according to plan. Risk management is a strategic process to ensure the continuity of your business and the well-being of your staff.
“We don’t manage risks so we can have no risk. We manage risks so we know which risks are worth taking, which ones will get us to our goal, which ones have enough of a payout to even take them,” – Forrester Research senior analyst Alla Valente, a specialist in governance, risk, and compliance. (Tucci. L. 2021)
Risk management has never been more important than in today’s entrepreneurial world. The world is changing at a frantic pace, wars are breaking out, countries are globalizing, and global pandemics are emerging. New businesses are springing up like mushrooms in the rain and climate change is not having a positive impact on entrepreneurship. Often the best way to learn is through failure, so Covid19 taught businesses a huge lesson about the potential for really unlikely risks. (Tucci L. 2021)
Risk management can be roughly divided into two different types, traditional risk management and enterprise risk management (ERM). In the traditional model, risks are often examined only after they have occurred, and attempts are made to prevent them from happening again. ERM, on the other hand, is a forward-looking strategic approach that tries to determine in a holistic way all possible situations and events that could or are likely to happen. After assessing the various risks, the profitability of taking them can be analyzed. There are always risks in business and some risks are strategically worth taking for business growth (Donohue. J. 2022).
The ERM covers the whole company and often has a dedicated team, often made up of staff from different departments, who know best the risks of their own department and can therefore create a risk management plan for the whole organization and react more quickly to changes. In the traditional model, risks are divided between different departments, with departmental managers or managers of the whole company being responsible for them and often unaware of the potential risks of other departments. Thus, in a chain reaction, risks in one department may have a massive impact on another department and the outcome can be chaotic (Tucci. L. 2021).
So where to start with risk mapping?
- Identifying risks
- Analyze the possibility of their occurrence and consequences for the activity.
- Prioritize risks according to the company’s objectives
- Plan what to do if they occur
- Monitor the results and be ready to adapt the action plan. (Tucci. L 2021)
When identifying a risk, it is a good idea to look at the risk holistically and consider what could cause the risk and what the consequences are. What we can do to prevent it and how we can minimize the potential damage if it happens? (Beasley. M 2020)
How to create a risk management plan?
A risk management plan describes how an organization manages risks. It should be very detailed and adaptable to new situations, just like a business plan. Equally, in the event of an unexpected risk, you should be prepared to change your business plan if necessary. (Reciprocity 2022)
As the name suggests, you want to start your plan by identifying the different risks your business could face or may have already faced. Risks can happen in any area, and you need to be prepared to use your imagination and think about what could happen in the worst-case scenario, from natural disasters to financial crises. To make your mapping as diverse as possible, take advantage of the knowledge of people within the company and ask them for their own opinions on the risks that could potentially occur.
What do you do if one day you get a call from the fire brigade that your entire warehouse has burnt down overnight? What if another global pandemic strikes? An economic crisis? A competitor lowers prices? Problems arising in your supply chain?
Remember, of course you can’t see into the future, and you have to accept that. That’s why it’s important to go through the different scenarios and stick to a good plan. Be flexible and ready to adapt the plan. (Reciprocity 2022)
After identifying the risks, it is time to analyze the possibilities and consequences of their realization. What is the probability of this particular risk materializing? How much will your business suffer from the potential consequences? How quickly will the consequence be reflected in your business? What is the severity of the consequence?
Assessing the extent to which risk affects more than one area of your business will greatly help in the next section, where your priority the risks in order of severity. If the risk affects more than one area of activity, it should be taken seriously and prioritized (Reciprocity 2022)
All risks are not equal to each other. There are risks that have a massive impact and those that may not affect the business enough to be of major concern. Prioritize risks based on their likelihood, severity, and consequences.You can create a visual “risk map”, where you score risks according to their severity. (Reciprocity 2022)
Risk response and treatment
When a risk occurs, in general, you have four different risk responses.
- Avoidance, by which a business strives to eliminate a particular risk by getting rid of the cause.
- Acceptance, where you are forced to accept the risk.
- Transferring risk to a third party. It means that one party is assuming the liabilities of another party. Purchasing insurance is a common example of transferring your risk to a third party: the insurance company.
- Reduce the risk with a good plan. (CFI Team 2022)
The process of risk management is a continuous journey that does not end with only identifying or analyzing the risks. To minimize the organization´s risk exposure, it is crucial to monitor occurred risks and make sure to update your risk management plan, register, and response plan. With active risk management, you can mitigate more risks than with the traditional reactive approach. (Reciprocity 2022) In SYNTRE, we are using ERM, since we see SYNTRE as an organization and not only as a platform for individual projects. Having a clear vision of our risks helps us prepare for the future better.
- Ariel Cohen, Samu Nyqvist, Emil Makkula
List of references:
AON. 2019. Global Risk Management Survey. Read on 20.9.2022. https://www.aon.com/getmedia/e4f87881-52be-46ae-8f34-8daba97f3de2/2019-Aon-Global-Risk-Management-Survey-Exec-Summary.aspx
Beasley. M. 2020. What is Enterprice Risk Management ERM. Read on 1.10.2022. https://erm.ncsu.edu/library/article/what-is-enterprise-risk-management
CFI Team, 2022. Risk Management. Read on 2.10.2022. https://corporatefinanceinstitute.com/resources/knowledge/strategy/risk-management/
Donohue. J. 2022. Enterprise risk management vs traditional risk management: Which one is best for you. Read on 4.10.2022. https://www.diligent.com/insights/grc/enterprise-risk-management-vs-traditional-risk-management/
Enterslice. 2022. Company Formation in Finland – An Overview. Read on 15.10.2022. https://enterslice.com/company-registration-in-finland#:~:text=The%20following%20are%20eligible%20business%20structures%20for%20company,Branch%20Office%20…%206%20Co-operative%20society%20%28Osuuskunta%29%20
James Hayton & Gabriella Cacciotti, 2018. How fear helps (and hurts) entrepreneurs. Read on 12.10.2022. https://hbr.org/2018/04/how-fear-helps-and-hurts-entrepreneurs
Reciprocity. 2022. What is a risk management plan. Read on 5.10.2022. https://reciprocity.com/resources/what-is-a-risk-management-plan/
Simon Sinek – Start with Why – How great leaders inspire action. 29.9.2009. watched on 12.10.2022. https://www.youtube.com/watch?v=u4ZoJKF_VuA
Tucci. L. 2021. What is risk management and why is it important. Read on 4.10.2022. https://www.techtarget.com/searchsecurity/definition/What-is-risk-management-and-why-is-it-important