Starting a New Business?

Despite the economy, lots of new businesses are launching.  Are you considering, or already underway with a new concept?

Whether you are a first time entrepreneur with free time resulting from a recent job loss, or a multi start-up veteran seizing another opportunity, proper planning and risk reduction will increase your chance for success.  Remain flexible; stay open and willing to change.  A ready – fire – aim approach can be costly.

When you have clear answers to the following six questions, you’ll be well on your way.

1. What are your business goals?

Make a hobby profitable for additional income

Start a lifestyle business to support your family

Launch a fast-growing enterprise that could eventually go public

2. Who is the management team?

Do you and they have start-up experience

Does your plan capitalize on any particular skills of your team members

3. Will you require additional capital?

What is your burn rate

Will available funding allow you to reach a cash flow positive phase

Do you have another funding source if your initial forecast fails

4. What is your new business?

Not sure yet?

First, it may be easier to determine what you don’t want it to be.  The process of elimination might be a good start. Then consider an industry you’ve worked in, technology you know well or a serious hobby to find a niche.  Your knowledge and expertise may provide the insight to unmet needs or opportunities.  Take the time now to observe your competition and potential customers thoroughly.  Learn their operations, challenges, and assess their customers’ satisfaction level and unmet needs.  Study what will be needed from you.

If you are working with a team, have everyone go through this process on their own to get a better variety of ideas at first. Determine exactly what your business will be in terms of services, products, pricing, customers, etc.  Setting up a Wiki to track the progress of each concept and including details like market size, entry barriers, leading competitors, and related news clips can keep you and the team moving together toward a determination.

The brainstorming phase can be critical to the future success or failure of a start-up and should not be rushed.  If you and your team are dedicated to the process full time, a thorough job still may expend several months. A solo part-time effort might take a year or more.  However, when it’s well executed brainstorming can yield significant rewards.

5. The Winner is?

Which ideas are worth your time, sweat and money? Is it the one with the highest forecast return on investment? If not, why not? There may be several good reasons, but how will you prioritize?

  1. The first cut is easy – what fits the goals you stated to question #1.
  2. Then, some market research on the Internet to identify competing products, their prices, and market size.
  3. Have IP questions – do a patent search at the U.S. Patent & Trademark Office (uspto.gov). Hire a patent attorney before you invest in one concept.
  4. Following a hosted dinner – present no more than your last five concepts (three is better). Invite experts in your field, mentors, previous colleagues, fellow entrepreneurs – ask everyone to rank favorites after answering questions, and hearing insights, and criticism.
  5. Bad news isn’t all bad as suggestions or improvements mean they can at least envision your concept.

The winner will meet all of your criteria and maybe most importantly, it should excite you!  Remember, you’ll probably need all your enthusiasm to sell it to customers and investors.

6. Feasibility

OK, you’ve got a great idea. Does it translate to a viable business?

  1. Can we make this product, or provide this service, and at what price?
  2. Do customers really want it?
  3. How much will they pay?

Are there any deal-breakers?

  1. Are there any unproven elements of your technology?  Resolve them, or show they can be overcome.
  2. Manufacturing and distribution costs can be reasonably forecast with some internet research.
  3. Does your target really want what you’re about to sell?  Conduct focus groups and surveys with consumers and retail buyers to determine what they will pay.  If businesses are targeted, interview dozens of them, attend trade shows and/or hire consultants to make this critical determination.

Finally, construct a functional prototype for customer testing.  Make design changes before manufacturing in quantity.  Let the wisdom of crowds play a role. Time spent now prototyping and validating the concept can really benefit your plan and ultimately your new company’s profitability.