Anyone who starts their own business does so because they believe in their business idea and its potential for success; however, belief alone will not ensure that a business survives even a year. Before you set out into the wonderful world of business ownership, you should know everything about your business, the industry into which you are entering, your target customers, and the strengths and weaknesses of your own business and those of your competitors. This post will help you gauge the success of your business idea by asking valuable questions that test your knowledge of both your own business idea and the target market, customers, and competitors that you will be dealing with on a daily basis.
Your Business Idea
In order to determine whether or not your business idea is more likely to succeed than fail, it is important to outline all of the key details about your business idea, the products or services it will provide, and the potential risks and rewards associated with going into business in the first place.
Describe your business idea in 25 words or less.
What, exactly, is your business idea? Create a precise yet detailed description of your idea and the products or services that you offer and their uses. A good description of a business idea identifies:
- Who you and/or your company are, exactly
- What you plan to provide
- Who you will provide it to
- The features and benefits of your product/service/company
- What customer need you are satisfying
Identify and capitalize on the opportunity
Why do you feel that this opportunity exists? Is there a proven need for the product or service that you will be providing? Not only that, but why do you feel that you can capitalize on this opportunity?
Weigh the odds
What are the risks and rewards associated with starting a business based on your business idea? Do you believe that these risks and rewards are acceptable? What might you have to sacrifice in order to get your business off the ground? What might you have to sacrifice long-term as your business grows? Are the potential profits and rewards large enough and have enough longevity to justify taking the risks you just identified?
How far have you come in developing your product? Have you already created a prototype or samples of your work, or is it still an abstract idea? Making sure that you know your product or service inside and out will help to ensure that you do not miss some of the more major unforeseen problems that stem from design flaws, packaging problems, or uninformed pricing structures, for example.
Think about licenses and permits, building leases, and any services required to open your business, as well as employees, equipment, vehicles, inventory and supplies. Will you be renting equipment, financing it, or purchasing it outright?
Make a list of all of the required resources that we covered in the last section, along with the estimated cost of each item. If necessary, add in such things as necessary renovations or modifications to a building you are planning to operate out of.
What is the estimated size of the total potential market for your product or service? Where will you be selling your product/service: regionally, nationwide, or internationally?
Barriers to entry
There are many types of barriers that hinder your ability to break into a particular market. Not every barrier will be relevant to your company, but potential obstacles may include:
- high research and development costs
- high startup costs
- competitive pricing (to such a point that you will be financially unable to compete)
- a strong brand exists in the market already
- contracts, patents, and licenses
- customer loyalty to existing companies
- limited access to key resources or raw material needed for business
Who are your main customers and why would they buy your product or service? What benefits do you offer that would interest them, and how do they differ from that of your competitors?
Feeling stuck? Check out this post for more information on how to define your ideal customer and get the list of the right questions to ask!
How will you get your message out to potential customers? Advertising mediums range from traditional newspaper ads to Facebook ads, and which types you choose will depend on your customer and the number and type of potential buyers you are wanting to reach. How difficult is it to explain what it is you provide, and the benefits and advantages of your product or service?
Strengths and Weaknesses
What strengths will you and your company bring to the business? What are your weaknesses? How can you use your strengths to your advantage, and what will you need to do to improve on or overcome your weaknesses?
Check out this post on conducting your very own SWOT analysis for an at-a-glance report of your company’s strengths, weaknesses, opportunities, and threats.
Understandably, as a new start-up, you will likely have a hard time keeping up with increases in production that require you to purchase more inventory with money you may not yet have, only to sit around and wait for it to sell so that you can start making your money back. What is your financial capacity for this? Think about how much money you will need, whether or not you have family, friends, others who would like to invest in your business, what assets you can use as collateral and the strength of your personal credit rating if you decide to get a loan.
How will you acquire the goods you need in order to create the products you sell or to deliver the services you provide? What will that cost, and how much of that needs to be paid upfront before you are able to sell
Estimating your production capacity gives you an idea of what you can reasonably handle as a new business.
In order to compete with your competition, you need to know a bit about them. List your competitors and arrange them from largest to smallest. By arranging your competitors in this way and providing a detailed overview of their company you will have a clear snapshot of how they differ from your business and, in turn, can create a strategy that sets you apart from them.
For each competitor, list everything that you can about their product/service ad marketing activities. In addition to your competitors’ pricing, write down everything you know about their sales force, terms of sale, advertising, distribution and services.
It is also useful to determine:
- who is the pricing leader
- who is the quality leader
- who is growing the fastest
- who is the most aggressive
- who is having the most success
- who is having the most difficulty
Other important questions to consider are:
- what are their strengths and weaknesses?
- what are they doing better or are able to achieve easier than you?
- what do you believe you are doing better than them (this can include cheaper pricing)?
- what are your USPs (Unique Selling Points) that sets you apart from them?
Pricing and Profit
What will you charge for your product/service and how much will you profit off of each sale? How often is a customer able to re-purchase your product/service (think about how often a customer will buy baked goods vs. large machinery).
How long will it take you to pay off any debt that you incur paying for start-up costs? What are your estimated profits for the next three years? More importantly, is there enough money in your idea to make a living, or will your company struggle financially?
Sales and delivery
How will your customer place their order, and how will you get paid? How will your customer get their product or service?