Basic Business Cents
Homework for Starting a Business
Part I-Is Your Business Idea a Good One?
by Lou Schultz, SCORE counselor
Original publish date 08/2010 (#41)
Most of us dream of starting our own business someday. It can be the most rewarding, self-satisfying thing you could ever do in your life or it could be a nightmare if you encounter events for which you had not planned. It really pays to do your homework before you start.
This is the first in a six-part series of things to think through before you commit yourself to this new, wondrous journey. You will be asked a number of questions that, if answered honestly and accurately, will help you think through the things you need to consider in order to increase your chance of success and fulfilling your dream.
The first step is to make sure this is a good fit for you. If you are not passionate about this business, if you do not enjoy this kind of work, if you are not willing to put a lot of extra time and effort into it, you will probably fail. One definition of an entrepreneur is a person who would rather work 16 hours a day for himself or herself than 8 hours a day for someone else. If it is not fun for you, then you are not likely to succeed. We all have a need to take pride in our work. That work must give you satisfaction of doing something worthwhile, and know that you are good at it.
What are your goals, your long-term aim, your strengths and weaknesses, and your skills? Is there a market and who are your target customers? Can you delight them with your planned product or service so that they become loyal customers and brag to their friends about your business?
Is your product or service real? Who will be your competition and what will be your advantages over them? Is it easy for new competitors to emerge unexpectedly? Do you have something unique that will be difficult for competitors to match? Does the demand exceed supply?
How will your pricing be compared to your best competitors? What can you do to justify a higher price? It is very difficult to compete on price alone. How will you promote your products/service? Can you be competitive in sales or distribution, in management, in marketing, and in service?
Is the timing right? Are you taking advantage of a developing trend or is your product or service and/or market on the downward slope?
How will you manage inventory? Inventory is sometimes needed to satisfy needs of customers but remember to plan to avoid some of the pitfalls of inventory-obsolescence, lost or misplaced, pilferage, carrying costs, damage, etc.
Is this business idea worth it? Will it be profitable, can you afford it, is the return on your investment adequate, and do you have the resources to handle the needs for cash flow? Are you comfortable with the risk involved? Does it support other objectives? Are there overriding factors?
The major reasons businesses fail are:
- Insufficient planning
- Inadequate money
The above questions and others in this series of articles will help you develop the data and thinking that you will need to write a good business plan. A good template for a business plan can be downloaded free from SCORE at www.score.org, click on Business Tools, and click again on Start-Up Business Plan.
In my opinion, a good business plan provides an unfair advantage over your competition.