Startups - 5 essential steps before starting your business

If you’re like many people who are starting their own business, you’ll find it hard to pinpoint that exact moment you realised going it alone was your destiny.

It could be something that’s been at the back of your mind for years. And maybe it took current events to bring that idea alive in your mind and make you look seriously at it. Well, despite the urgency you probably feel now, it would be sensible to make the idea wait for just a few more weeks while you look into the true viability of your business.

Many people rush into their first business and live to regret it down the line. Important decisions made in haste tend to have implications. And while you shouldn’t use that as an excuse not to get on and make your dream happen, there are five things you must do before you start your business.

1. Research the market

Just because you can do something doesn’t mean people will buy it. Or, just because you can do something doesn’t mean people will pay enough or buy enough of it to make you a profit. There’s nothing smart about working flat out running your business for no profit. You won’t be an entrepreneur, instead just a busy fool.

Sometimes the gap in the market that you’ve spotted is there because it’s difficult to make money. That doesn’t mean impossible – there are opportunities everywhere – but if the gap seems obvious, ask yourself why no-one else has spotted it. When you go looking, you may find a graveyard of businesses that did what you intend to do.

Research can be as simple as talking to potential customers, spending a few hours on Google, or acting as a potential customer and checking out the competition.

2. Get information

Your own research becomes even more valuable when it is backed up with solid information compiled by professional researchers. You can buy information incredibly cheaply from Scavenger.net. Guides available there cover hundreds of different industries and are an invaluable way to find out about industries you want to operate in, or even sell to.

On a different scale, Keynote reports are significantly more expensive but are one of the most comprehensive sources of business information you will find. They analyse existing markets, showing how the market leaders do it and what the future could hold. Best of all you don’t have to pay several hundred pounds for them. Many main libraries hold copies you can view for free. Normally you will be allowed to photocopy a small number of pages from each report.

3. Prove demand

This is something you won’t find in a report – will people buy what you have to offer? Many people that start in business do so because they’re good at something and want to do it for themselves, rather than someone else. But just because they buy something from your former employer doesn’t necessarily mean they will buy it from you.

To determine if there is demand, assess the size of the market (using the information reports) and the number of companies serving it. Then look at the existing offerings: is there an opportunity to be cheaper, more expensive, higher quality, lower quality? Go back to step one and do your research to see if customers are there. Be brutal and remember that people bring nice to your face in the research phase won’t necessarily turn into work when your business starts.

4. Work out the figures

So, you’ve established there’s demand in a growing market for your product. Well done; but now you need to determine if it’s profitable. If the opening is to be the cheapest in the market, will your pricing allow room for profitability? If it’s to be the highest quality, can you deliver the best product for a reasonable price?

Put together a budget for the first three years. It’s easy to work out costs; but beware with your sales forecasts – most business people wildly over estimate the sales they think they will get. If anything, be pessimistic with your sales forecast… you’ll enjoy being pleasantly surprised when your business performs better.

If the figures say it isn’t going to happen, don’t ignore them. Figures don’t lie, and you will have much more fun running a profitable business than one which turns over plenty, without much left for you!

5. Think about five years’ time

It’s sensible to consider your exit at the start of your business. This can drive everything you do in the years to come.

If you want to sell your business in five year’s time, you must develop a business that thrives without you. If you want to sell to your management team, you must pick your key players carefully. Want to make a million? You will need to be able to scale the business up (while remembering that none of your employees will work as hard as you will).

Armed with the research and information you have already gathered, setting your five year plan will be a lot easier, and you will be ready to actually get started on your business.

For more ideas on starting up a new business, why not browse our Start-Up Tips section.