Every year, more new small businesses fail than succeed. But that shouldn’t stop you – test your idea and yourself by answering these questions.
Do you have what it takes?
Running your own business can mean long, unpredictable days, with little respite until you start to make a profit. Reaching that milestone can take years.
You’ll need to be:
- Passionate: If not, you’ll find it hard to keep going when you hit a hurdle.
- Prepared to make sacrifices: You’ll have less money to spend and may have to give up hobbies and social activities, at least while the business is getting up and running. Make sure your family is prepared for changes, too.
- Good at managing risk: It may take time to develop a steady flow of revenue.
- Persistent: Things may not always go your way.
- Open to learning new skills: You may have to be company CEO, bookkeeper, sales team and cleaner until you hire specialist staff or advisors. You’re also going to be developing what your business is selling — and working out how to sell it.
How good is your business idea?
It helps to evaluate your idea so you can decide if you are ready to join the ranks of the self-employed. Many people are able to come up with new ideas, but there’s a crucial difference between a good idea and a commercial idea. Often the most successful ideas are the simple ones, like identifying a gap in the market that can be filled with a new product or service, or adapting and improving an existing business idea.
Take the time to evaluate your idea before you leave your job, borrow money and put your family life on the line.
What problem or need does your business solve or fill?
Is your idea for a business going to solve a problem — or tap into an unfilled need — for the public or other businesses? If your answer is no, scrap it and start again. If your answer is yes, think about the scale of this problem or need. If it’s minor, you are going to struggle to make sales. You need to solve what’s giving people a major headache, or provide something they can’t get elsewhere.
Defining your business
Before you start researching your market, you need to work out what your business does — its purpose — and if it’s unique.
First, define the product or service you’re offering then ask:
- Why will customers buy — is there a need or demand for it?
- What else is on offer in the market?
Researching your market
Think about your customers. Are they other businesses (referred to as businesses-to-business or B2B), or members of the public (business-to-consumer or B2C)?Knowing who’ll buy your products or services — and why — is crucial for your planning. This applies to domestic and overseas markets.
You need to:
- make sure what you’re selling appeals to your target customers
- find out how large your potential market is
- find out where your customer market is.
Find your customers by:
- household size
- family type.
How much market information is available can depend on the industry you’re in e.g. trade associations often provide members with up-to-date data for their specific markets.
Banks also produce research that you can access freely — though it’s often general information about the economy and small businesses.
How to research your competitors
Find out what advantages competitors have over the business you’re planning, and examine their pricing and marketing strategies.
Try to find out:
- who your competitors are
- their sales figures
- where they’re based
- what portion of your market share they already serve.
Will people buy from you?
Unless you’re going to sell something no one has thought of before, you’ll be competing against other businesses. Your products or services must stand out from the rest. What is it that is different about your business?
Some things you may want to consider that make your products or services stand out from the crowd could be:
- first to the market
- most reliable
- exclusive outlet
- highest quality
- most economical
- easiest to use
- locally made (when everyone else doesn’t)
- organic (when everyone else isn’t)
- made from sustainable materials
- environmentally friendly.
You should also consider creating personas or avatars — fictionalised profiles of the people you most want to sell to — as you shape up your idea.
Numbers gameYou need realistic estimates of future income and costs to work out when you’ll be in profit. If the numbers show you won’t make profits for some time — even years — do you have funds to carry you through?
How to develop your USP
Finding a point of difference and refining it into a profit-making business requires work. Take these steps as a starting point:
- Write down what you know about your target customers. Good starting points are what they do, what motivates them and why they buy. Think about your personas — fictionalised profiles of key customer types.
- Write down what you do that your target customers need — these are potential USPs e.g. you want to sell lunch to office workers, so offer online orders and deliver to their desks.
- Remove USPs your competitors are already doing well — remember, you want to be unique.
- Match potential USPs to things your business does well.
- Interview target customers — say 10 to 12 — about which of the potential USPs best meets their needs.
- Establish a customer feedback system, monitor what comes in, then ask yourself if the USP:
- is unique
- is clear
- fills a gap in the market
- is something you can deliver
Who are your rivals?
Some markets are more crowded and harder to break into than others. For example, if your area is flooded with cafes, what makes you think yours will be a success?
- How many competitors will I have?
- Are there any who will be in direct competition with me?
- How difficult will it be for others to repeat what I’ve done?
What should go into creating a business plan?
There isn’t a one-size-fits-all formula to create a business plan. But there are some key things you should consider.
- Be clear and focused about what you want to achieve – this will help align your team so you’re all working toward the same thing.
- Choose the type of business plan that works for you – you may like to have a document, or a business canvas might work better.
- Keep it short, simple and easy to understand.
- Keep your goals realistic and relevant to what is going on in the economy and in your industry.
- Get out and speak with your customers to gain understanding of how your product works for them and whether it’s something they would pay for.
- Do a SWOT analysis to determine your strengths, weaknesses, opportunities and threats.
- Ask your advisor or mentor to review your plan and give you feedback and suggested improvements.
Implementing your business plan
- Keep your business plan as a living document – don’t leave it to gather dust on a shelf.
- Make sure it’s easily accessible and top-of-mind for you and your team.
- Reflect your goals in the day-to-day operations of your business.
- Outline the most practical and cost-effective way to achieve each goal – make a note of any extra resources you’ll need.
- Make it clear these goals are the top priority for the business.
Reviewing your business plan
- Check how you’re tracking to reach key milestones in your business plan every month, and celebrate when these have been reached.
- Stay on top of industry trends and stay connected with your customers – this will help you stay ahead of any changes needed in your business.
- Update your business plan with any changes affecting your business or industry.
Starting your own business is challenging, risky and rewarding. You'll learn a lot about yourself as a person - your strengths, your fears and areas of resistance, your ability to learn, adapt and grow, your levels of tolerance and perseverance. The biggest reward is who you become during the process. I wouldn't have it any other way.
Awhimai Reynolds is a Leadership Development Consultant and Business Coach.