Many entrepreneurs go into business with a very good idea, pursuing a passion. But often they may overlook some key business needs, and then encounter avoidable pitfalls.
Along with your great idea, there needs to be a clear idea of how the business will succeed.
It’s important when considering starting (or buying) a business, to ask these FIVE KEY questions, and understand why you need to ask them:
1. Have you done the research required to achieve success?
Whether starting or buying a business, you must do your homework. I always put customer development at the top of my “research” list. If you don’t have customers, you don’t have a business! In other words will your idea fill an unmet need in the marketplace or solve a pain point for your customer?
Next, understand who your competitors are, and what you can do better than they do. But don’t let this de-focus you from customer development!
After gathering this information, you can create your strategic plan, with a clear vision of how to meet your business goals, and begin to focus on things related to everyday running of the business, and dealing with sales and customers.
As part of your initial research consider putting together a team of trusted advisors, including an attorney, an accountant, a banker and a financial advisor. Always take advantage of available resources when launching your business.
2. How much time will running this business take?
We all underestimate the amount of time and energy it takes to launch a new business! Changes in the economy have led to many people deciding to start their own business; but launching a new business is not an endeavor to jump into lightly. The time needed to research, plan, market and operate a business may be much more than you expect.
And of course there’s the cold, hard fact that only half of all new businesses survive five years or more, and about one-third survive 10 years or more, according to the U.S. Small Business Administration. That’s a wake up call to separate the truly determined from the rest…!
It’s important to know how much time you have available to invest in your small business to make it successful. Make sure to allow time to strategize, market, and sell your product or service, not just focus on running the business.
3. When will I make a profit?
Most small businesses do not turn a profit immediately, especially start-ups; you need to make sure there are enough reserves on hand to cover expenses (read: live on). Every business is different, so there’s no general rule about when a business may become profitable. Some small businesses don’t make a profit for years, though they may be covering operating expenses. You should have enough working capital on hand to cover payroll, operations and other unplanned expenses for at least a year.
4. How should the product be priced so it’s competitive?
One mistake many entrepreneurs make is pricing their product or service based on their perceived value of the commodity, rather than based on what the market will bear. Remember customer development in step 1? Determine ahead of time whether your potential customers are willing to pay for your product or service, at a price which allows you to make a profit!
Winning the price war is not always better – make sure the business can generate sufficient profit margins to cover everything you need….
5. Can I afford to start my business?
Starting (or buying) any business often requires a large initial investment, so it’s important to ensure that your current and future finances are in order. How much can you invest? How can financing be raised if necessary? Also, look at how much savings or additional income you have available to live on while getting the business off the ground. And lastly, ask yourself how much money you can afford to lose, if this whole thing goes belly-up?
Research the startup costs for the business and develop a realistic plan to ensure that the needed funds are available. Maybe you should keep your day job a bit longer?
Summary: When launching a new venture, go forward with your eyes wide open. Be sure to explore all of the resources available, and seek help from experienced advisors and peers to help you navigate your course. Building a successful business starts with asking the right questions.
The stakes are high for owning a small business; but growing your own idea into a profitable company can be extremely rewarding, especially if you have done your research and planned well ahead, and thus avoid the usual start-up pitfalls. Work smart! Because you already know you will be working hard!