Starting your own business can be great fun and very rewarding, but it can also be a high risk. Statistics show that between 70% and 80% of small businesses fail within the first 5 years. So how do you minimise the risk of failure?
You need to check the viability of your business idea before you spend money on starting up your business. This can be hard to do especially if you are passionate about your idea, however just because you think it is a wonderful idea doesn’t mean that others will be willing to buy your product or service.
So how do you check the viability of your business idea?
Question your business idea
The first step is to ask yourself questions about your business idea. Be honest and objective, remember that at the end of the day your product or service is for your potential customers, so look at the idea from their perspective.
Question 1: Does your idea solve a real problem?
Does your business idea fill a gap in the market? When you ask this question you are checking to see if your idea will alleviate a frustration that consumers have in your chosen marketplace. What will your customers be able to do, that they weren’t previously able to do?
Question 2: Are people willing to pay for your product or service?
Even if your idea will fill a gap in the market, it doesn’t necessarily mean that people will be willing to pay for your product or service. Here you can do some preliminary market research by talking to people most likely to use your product or service. Get feedback on what they think of your idea and how much they would be willing to pay for it.
Question 3: Who is your competition?
This isn’t just about researching your direct competition but also alternative solutions. Find out what they are offering, what their best selling products or services are, how they deliver their solutions to their customers, how much their customers spend on average and what the biggest attraction is for customers.
Question 4: What can you do better than your competition?
When you analyse your competition you should also be looking for their weak spots. Check to see how you can improve on their offerings. Will you be able to use technology to deliver faster? Will you be able to offer lower prices by sourcing from local suppliers? Will you offer features that your competition don’t currently offer?
SWOT Your business idea
A handy tool to use to further exam your business idea is a SWOT analysis. A SWOT analysis helps you analyse the Strengths, Weaknesses, Opportunities and Threats of your business idea.
Your strengths are the positive factors that will influence your business. For instance what will you be able to do better than your competitors? Why would customers switch to your business? Look at all areas of your business from sales support through to your operations and delivery.
Your weaknesses are the negative factors that will influence your business. For instance what can your competitors provide that you aren’t able to and what will prevent your customers from buying from your business.
These are external factors that can give your business an advantage. For instance new technology that will enable you to deliver to your customers faster, economic changes that helped pushed supplier costs down or changes in regulation.
These are external factors that could hinder your business growth. For instance changes in the law, or an economic decline, or new technology that you can’t afford to purchase.
Test your business idea
After analysing your idea and if you still want to go ahead with it, take the next step and test your idea. This means building a small scale version of your solution, be it a product prototype or service test, and putting it in front of people for them to try out.
With minimum cost you will be able to get valuable feedback from a select group within your target market. They will be able to tell you if they like your idea, what they don’t like about it, what it will take for them to switch from their current supplier and what they would be willing to spend.
If your business idea still seems viable after your test then make sure you incorporate their feedback during your product development phase.
Analysing and testing your business idea will help reduce some of the risk of failure, however consumers are fickle and the market changes quickly so there is no guarantee that you will be a success. To be successful you need to ensure that not only is your idea viable but you also need to invest time in planning your business. This is not only focussing on your product development but all areas of your business from marketing, sales and financing through to your operations.
For more information on how to launch your start-up, email me – Jacky Baz, your start-up coach.