Tactics for transforming a business idea into a business reality
Itching to start a business? The right concept can become the basis of a successful part-time or full-time venture. But before you make a New Year’s resolution to give up your day job, know that many entrepreneurs struggle to bridge the gap between vision and reality. If you’re yearning to start your own company, here are several areas to pay attention to as you embark on your entrepreneurial journey.
Make sure there are customers for your product or service
This may seem like a no-brainer, says Joseph Aranyosi, associate dean in the College of Business and Information Technology at University of Phoenix.
“But it’s actually where most new entrepreneurs fall short,” he says. “They don’t do a complete analysis of the market to see if there’s a need for their idea.”
Indeed, studies show that “no market need” is a top reason for business failure. You probably don’t have the money to conduct formal or in-depth market research. Few entrepreneurs do. But you can do quality detective work on your own to gauge demand for your idea.
Informal research can help you find your north star
“Suppose you have a great idea for an online shop. You could do some research to find close competitors and see what they are currently doing,” Aranyosi says. “Is their business entirely online, or do they also have a ground shop too. Are they regional, national or international? Who is buying their products or services? Whom are they advertising to? You can tell a lot about a company by how they advertise their products.”
Your product doesn’t have to be entirely different from what’s on the market currently. You may be able to build a business by providing the same product or service already on the market, but selling it to a different market, either geographic or demographic.
Case in point? The iPhone.
“When the iPhone was first introduced it was a unique product,” Aranyosi says. “Now there are many different competing products marketed with different features to different types of customers.”
Develop a business plan to flesh out the details
So you have an awesome idea for a product or service that your target market needs or wants. Start drilling into the details. The more details, the better.
Can you operate this business yourself or do you need a team? Are you manufacturing or reselling products? Do you need warehouse space? Thoroughly explore the logistics of operating your business.
According to the U.S. Small Business Administration, about 80% of small businesses survive the first year. Only about half of small businesses survive five years and only one in three makes it 10 years.
The federal agency also advises writing a detailed business plan to substantially boost your odds of long-term success. Why? The process of writing a plan can help you better understand your business idea, map out the costs of starting and running your business and grasp what’s needed to make it a success.
You’ll also appear much more professional to those who might finance your business — lack of financing is another top cause of business failures.
Forget what you think you know about financing
Crowdsourcing and angel investing are fantastic ideas, Aranyosi says, but in reality few businesses get funded that way. There is financing for new and existing small businesses, but you’ll need to demonstrate you’re an excellent risk for a bank or financing company.
If you don’t have experience in the industry you want to start a business in, you may want to consider partnering with someone who does, even if that individual is involved in an advisory capacity only. This can make you a better financing candidate. Having a co-signer with industry experience can help.
Also, think twice about taking out a second mortgage to fund your business or using your home as collateral. If your business fails, you may lose your home too. Ditto for maxing out your personal credit cards. Your business and personal life should be kept separate.
Beware of hidden costs
Want to know why 90% of new restaurants fail?
“When starting a business, there are a lot of hidden costs you don’t realize — and that’s especially true with restaurants,” Aranyosi says.
Any business is going to have to deal with unexpected events and costs. Not having the financial resources to deal with an unexpected problem — an equipment breakdown or the loss of a major customer, for example — is yet another top reason businesses fail. Just as in your personal life, having an emergency fund and planning for the unexpected are vital.
Pay close attention to feedback
Unlike large businesses, a small business isn’t going to have a lot of money to spend on fancy surveys or hard data. That’s OK! Online or in person, solicit your customers’ opinions. Ask friends and family for honest input. Learn to listen. You may have a gut feeling that you’re on the right track, but if everyone else is telling you the opposite, you will need to make some changes.
Don’t get too emotionally attached
Lastly, don’t get so attached to an idea that you’re not willing to throw it away. Should you be enthusiastic about your business? You bet. But entrepreneurs can be so attached to their idea that they overlook (or ignore) signs that the business isn’t viable over the long term.
Perhaps this Chinese proverb sums it up best — “When you play a game, you need to decide three things at the very beginning: the rules, the stakes and the moment to stop.”
By Lesley Mitchell, Contributing Writer