Once you’ve made the decision to start your own business, the natural instinct for many is to charge headlong into getting it off the ground right away.
Starting your own business might have been something that’s been at the back of your mind for years, and now that you’ve finally decided to take the plunge, you don’t want to waste any more time.
Well, despite the urgency you probably feel, it would be sensible to spend some time examining 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 for a good reason. Maybe it’s difficult to make money from it. That doesn’t mean impossible – there are opportunities everywhere – but if the gap seems obvious, ask yourself why no-one else is capitalising on it. When you go looking, you may find a graveyard full of businesses that did what you intend to do, and failed.
Research can be as simple as talking to potential customers, spending a few hours on the internet, 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. A quick search online will lead you to guides examining different industries and are an invaluable way to find out about industries you want to operate in, or even sell to. You can buy this information incredibly cheaply from some sources, like Scavenger.net.
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 than you have anticipated.
If the figures don’t stack up, don’t ignore the message they are giving you. Figures don’t lie, and you will have much more fun running a profitable business than one which turns over plenty, but doesn’t leave any profit for you!
5. Think about five years’ time
Even though it’s probably one of the last things on your mind when you are getting your business off the ground, it’s very important you think about your exit strategy before starting 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.