Starting and growing a business can be very daunting. The financial investment and commitment required will likely leave most up to their necks in debt, and it doesn’t help that about 30% of businesses fail in the first year and over 70% will fail by their tenth year. Before rushing to invest significant time and money into a business, you may find it prudent to consider the following:
Create a business plan.
An important step to evaluating the legitimacy of your idea, you should put together a business plan. It doesn’t have to be 50 pages long, but it should be more than an idea expressed on a napkin. A basic business plan should summarize the business you would like to start, and include an overview of the functions and strategies vital for your business to succeed. The overview should include how you plan on operating your business, and how you plan on making money (i.e. what are your revenue streams). Also, what is your marketing and sales strategy, and can you provide a projected financial statement for the first five years? This information is will help you and potential investors understand the fundamentals of your business.
Determine the market size.
Whether you are selling toothbrushes or starting a social network, you need to understand how large the market is that your product can appeal to. How much money does your market generate each year? Is your market projected to growth or shrink in the next five years? This information, coupled with the information found in the section discussing your competition below, will help you quantity the potential value of your business.
Know who your competitors are.
Before entering any market, you should know who your competitors are. Learn about their business and operating models, and what they charge for their products. What does the market share between competitors look like? If you discover that one competitor is weaker than the others, you could target their customers first. Understanding your competitors will help you position your product within the market to compete against established companies.
Differentiate yourself in the market.
Is your product or service unique? It should be. What makes you unique in comparison to your competitors? If it’s not your product or service, does your support or convenience differentiate you? If your business is too similar to those of your competitors, you could end up engaged in a price war, which will likely not end well for a new business.
Why now? Understand trends.
Is this the right time for you to launch your business? Your product or idea may be great, but is the market ready for what you are trying to sell? One of the best ways to figure this out is to talk to potential customers. Ask as many people as you can to educate yourself as to the needs or desires of your target consumer and how your product or service will help satiate those needs or desires. If your business targets a particular industry such as the restaurant industry, visit restaurants in your area and ask them about your idea. Be careful though, you will want to safeguard your idea before sharing it with the public. If your idea is patentable, you can protect it by submitting a patent application to your country’s patent office.
Understand your customer base.
Who are you going to sell to? Understanding the demographics of your customers helps to identify their values, spending habits, and consumer behavior. This knowledge will help you measure the sales potential of your idea and allow you to formulate a plan to market your product.
Sales skills are vital.
Can you successfully convey to a potential consumer why they should buy your product in 60 seconds? How about 30 seconds? In order to accomplish this, you need to understand your product very well and have excellent communication skills to convince consumers why they should buy your product.
Having great sales skills is more than just dealing with consumers. Arguably one of the toughest aspects of starting and growing a business is managing negotiations and closing deals. If you are building a product, how confident are in negotiating the best price for your materials or manufacturing so that your costs will be reduced? If there is an outstanding contract waiting to be signed by a vendor or potential customer, what skills do you have to persuade them to sign sooner?
You are only as good as your team.
During an interview at the Yale Graduate Writing Center, CEO and Founder of SumZero, Divya Narendra, said, “[I]t’s much better to own a small piece of a big pie than a big piece of nothing.” When building your team, this is an important message to convey. Many companies start with a small team of two or three people and each of these people can be equally important as the other in executing the business strategy. Especially if you are trying to raise money later on, your team members may endure as much scrutiny as your business plan. Initially, you may want to source the brightest and smartest people you can find, and afterward, you can bring young stars on board and help them develop into their potential. Watch Divya discuss business proposals here.
Are you ready to make the leap?
One of the greatest advantages of being an entrepreneur is that you are your own boss and can set your own hours. You just have to decide which 14 hours out of each day you would like to spend working and building your business. That’s right, 14 hours. As the founder of Guitar Hero, Charles Huang, discussed, sales of Guitar Hero were barely able to pay employee salaries for the first two years. However, in those two years they built partnerships in the market and developed their brand. Those were the toughest two years in Guitar Hero’s history, which subsequently ended up grossing over $5 billion in sales and was purchased by Activision. Watch his interview here.
Starting and running a business is a serious commitment, and it may take upwards of two or three years before it starts paying back. If you have any additional questions about starting a business, contact us using the form here.