The second of a two-part series on how to start a successful business (or not)…
In our first article in this series, we asked you questions to determine if you’re ready to be a business owner. If you think it’s a good fit, then it’s time to think through your idea to make sure it will succeed.
Research & Planning
“If you fail to plan, you plan to fail” – Benjamin Franklin
This quote sums up why SBDC advisors, lenders and investors talk ALOT about planning. The idea is that if you’re about to embark on a journey, then it’s a good idea to have a map. Business research and planning is the process of creating the map. While it may feel tedious when you’re eager to get going, it’s better to find out if your plan will work before you change your life and invest your money.
What kind of plan?
There are multiple types of business planning tools. Some are formal and lengthy (usually required by lenders). Some are in the form of “pitch decks” often used for presentations to investors. Some are even on one page, with the focus on the key ideas and not on writing. All planning tools will help you determine if your plan makes sense.
What’s in the plan?
There are certain questions you’ll need to address in a business plan to prove your idea is viable. Below are the types of questions typically found in most planning documents.
What need or problem are you addressing?
To be successful, your product or service must fill a need in the marketplace; otherwise, nobody will buy it. Ask yourself how your business will meet an unmet need or solve a particular problem. It could be an improvement on an existing product; a service not available in your geographic area; or something completely new.
Who will buy your product?
There’s a difference between people who buy coffee from Dunkin Donuts and those who buy from Starbucks. Understanding who is most likely to purchase your product, and whether there are enough of them to make your business viable is critical. This will drive your branding and marketing strategies. It will also determine the size of your overall market and if you can be profitable.
Answering this question means doing market research. If you have a new product, you need to do even more work through testing, feedback and pre-sales to prove the demand for your idea.
Who is the competition and how will you be different?
Who else is providing a similar product or service, or solving the problem in an alternative way? If there are several businesses trying to solve the same problem or fill the same need as you, how will you be different? Will you offer a lower price, a higher quality product, a higher level of service, or a more convenient delivery method than the competition? Will you serve a different geographic location? You don’t want to open a business without knowing how you will convince people to purchase from you rather than the competition.
What is happening in the world that affects your business?
Is your business highly dependent on a certain supply chain? Is the labor you need available in the marketplace? Are there regulatory issues that might affect the need for your product or service? Are there new trends that are changing what customers want? You need to understand what’s happening in the world around you before starting your business.
Business model and operations
How will your business “work?” What kinds of systems, software, technology, equipment, space and people need to be in place? How will you make or distribute your product or service? Will you be outsourcing functions to subcontractors or hiring employees? What are your hours of operation? What other businesses or people can help you? What licenses might you need?
Financial projections are the most important tool for assessing the viability of your business idea. They document your primary revenue streams and expenses and help you understand your break-even point. They will help you determine the cost of starting your business and help you know if you might run out of cash. If you are purchasing an existing business, you’ll need to dig into the tax returns and financial statements of the business to understand what is really going on behind the scenes.
After doing the work, it’s decision time, and we think making the decision to NOT start a business is just as important as deciding to move forward. If you do decide to move forward, now you can make it “official” by doing things like setting up your business entity, getting relevant licenses, insurance, sales tax certificates, designing your branding kit, setting up a website and other important tasks.
No matter what stage you are in, a Maine SBDC advisor can help you every step of the way. Visit us at www.mainesbdc.org or request advising here.