The Process of Starting Your Business
Answering the “Defining Dozen” questions is one of the most critical first steps in preparing and planning for the journey into business. Work through the following section to begin the first steps into business.
Defining Dozen - What’s your idea?
1. What’s your idea?
In simple, straightforward terms, write down what your business idea is. If you cannot explain the essence of your idea quickly and simply then you are not there yet. Complicated jargon filled descriptions are real turnoffs. Someone listening should be able to say immediately – “Oh I get it”.
Your description must highlight the qualities that distinguish your ideas. e.g. Geneworks, is a manufacturing business that produces key ingredients for pharmaceutical companies at a lower-than-average cost”.
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2. How does your idea address a need?
This is where you get to explore the true potential of your new idea. There are two basic types of demand in the marketplace –a “want” and a “need”.
A business that addresses a need is always more promising than one that addresses a want. In the case of a market need, there’s pre existing demand and creating awareness is all that is required to catalyse the sale of your offering. A market need creates “pull” in the market place, and the end user literally pulls your product or service through the system to satisfy his or her need.
In the case of a market want, you’ll be required to push your product on to consumers, and this usually requires expensive advertising and marketing campaigns in order to encourage and influence the sale. There are varying degrees of “want” in the marketplace so try to get a sense of the degree to which your market wants your product or service. Basic food and shelter are examples of market needs while goods like jewellery, video games, and even gourmet food products are examples of marker want.
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3. What model & structure suit you best?
Figuring out the right business model is critical to your success.
Do some research and investigate the business model that other people have used when selling a similar kind of product or service.
Work out a business structure that best fits your overall vision and offers the most direct route to success with minimal risk to you.
The clearer your business model & structure are the easier it will be to determine your operational, staffing and financial plans.
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4. What’s so different about what you offer?
The answer to this question is: research & more research!
You can be assured that someone’s going to come up to you and say, ‘Hey, did you know that XYZ Company does exactly what you do?’ If you are prepared you will be able to answer ‘Yes I do know them, but this is how we’re different.’
You have to become the “expert” in your domain. That’s especially important when it comes to selling to customers or persuading potential investors to invest in the business.
Pick the one that you can really prove and substantiate and it does not have to be complicated technology hype. Often it may be a simple but profound distinction – simply executing better than anyone else.
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5. How big is the market and how big will you grow?
Exploring the market and understanding the growth potential for your ideas is essential. To get a handle on this you have to understand the demographics of people in your target market. Distil those people into categories of low level of need, medium and then high level of need for your product or service.
To get a fix on the degree of need that may exist for what you’re going to offer, try to work out which market is easiest to penetrate.
Is the market growing?
If so by how much?
On the other hand is the market already saturated, mature or even shrinking?
We find that a great deal of information you will need can be readily obtained via the internet (usually free), Statistics NZ (www.stats.govt.nz)or through research companies such as AC Nielsen.
Avoid using potential customers in your market estimates. Be realistic about how many people there are in your target market – and about how you can reach them effectively
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6. What is your role going to be?
To answer this question, go back to your vision. Review all the activities you love to do and the skills that you enjoy using. Maybe you will want your role to be centred around people and leave the technical stuff to a partner or key employee.
Write your own job description so you can free yourself from duties that are not the best use of your time. Be true to yourself, your business will suffer if you take on roles that you either don’t enjoy or that don’t fit your interests and skills.
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7. Who is on your team?
This is where thinking about team members comes in. One of the key factors that will separate your business from the competition will be the people you choose to work with. Your success depends to a large degree on a good team.
Your business plan is the place to sort out your areas of expertise. Maybe you do have a great idea in a market you don’t know much about. If this is the case, hire someone who has expertise in that market.
And if you intend to be the sole owner/operator don’t forget to write down how you plan to outsource work that you simply can’t do yourself e.g. engaging an accountant to prepare monthly financial reports.
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8. How will customers buy from you and how much will they pay?
Outline in detail just how you plan to get your product or service to the market. This includes describing how you are going to manufacture or source your product and how you will deliver it. Will it be sold over the internet or from the shelves of your own corner shop? Will you distribute through large retail chains or employ a network of sales reps? Just remember that you must have a well defined and achievable plan in order to get what you are selling in front of your customers.
What about the price? It’s a crucial component of success. Price your product too high and nobody will buy it. Price it too low and you might not make any money at all.
Never forget who pays the bills-your customers!
9. How much money do you need and how much will you make?
Now’s the time to plan your financials.
The two fundamental ingredients here are:
-
the expenditures required to convert your idea into a viable operating business
and -
the income that the business will generate.
You’ll start by estimating how much you‘ll spend on facilities such as factory or shop rent, staff salaries, stock, marketing etc. Do your research and talk to people in your field. It is better to overestimate expenses than to understate them.
Next estimate number of units to be sold and for how much and this gets exciting because the idea now turns into dollars. Unlike expenses it is better to underestimate revenues than the other way round.
Lastly, don’t forget to identify when you expect revenues to be received versus when the expenses are actually paid out. This is a basic form of a cash flow analysis designed to show you when you may need additional cash input (either capital or loan) or you have surplus money available to meet future commitments in order to keep the business surviving.
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10. Where’s the start up money coming from?
By answering the previous question you will learn two most important things you need to know when answering this one. Firstly you will know how much money you need and secondly how much money you think you are going to make (profit).
Now start thinking about where to get the capital to get your business off the ground-consider sources such as personal savings, family and friends or commercial banks.
If you’re thinking of obtaining a bank loan than other issues that need to be considered are financial viability of the business, personal property for security, cash deposits and a good credit rating.
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11. How will you measure success?
For most people making profits is the big measurement of success. But while financial achievement will be fundamental to your business viability and success comes also from freedom - to do what you want to do and when you do it.
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12. What are your key milestones?
Create a chart that shows dates when you expect to achieve key milestones as your business starts to grow. These milestones are important because they will keep you accountable as you evaluate your progress.
If you are not meeting your key milestones, it will force you to review your performance and the resolve you need to get back on track- before its way too late.
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