We start small businesses for various reasons. For some it is the economic pressure to replace lost earnings from a job termination and a dismal outlook for being rehired. For others, it is a business concept they are passionate about and a belief it will serve a niche marketplace. And yet others want to have the personal freedom to be their own boss and a chance to build something of their own.
The specific motivation for starting, buying or franchising a small business varies as widely as the businesses themselves – Opening a Micro Brewery, an Italian Restaurant, a Medical Claims Service, a Web Design and Hosting Services, a Custom Jewelry Shop, a Photographer Studio, an I.T. Services, a Small Farm, a Wedding Planning Services, an Ice Cream Shop …etc.
In today’s business climate there are three important interrelated actions you need to consider in order to go into business 1) Identify and evaluate a commercial opportunity, 2) Formulate and write a business plan to pursue it and 3) Create and manage an organization to make it happen.
A commercial opportunity consists of offering a product or service that provides significant value for a consumer – solves a problem, meets an unmet need, provides a cost or competitive advantage or achieves a goal. Equally important, it provides the potential to generate a profit for the owner(s). Further, the commercial opportunity must be durable, amenable to financing and most importantly, it has to be a good fit with the owner’s resources and capabilities.
A business plan turns your business idea (commercial opportunity) into a solid plan for manufacturing, marketing, selling, delivering, financing and operating your enterprise. Brilliant ideas don’t go anywhere without the capacity to execute. Your business plan will help you determine who your customer is, what they value and why they will buy from you and not your competition. Also, the business plan requires you estimate start up costs, determine the break even point and the size of profit potential, as well as, an assessment of your personal readiness to start a business – all essential to your overall long term success. Without a business plan you find yourself riding a never ending wave of crises, jumping from one troubled spot to the next and fighting fires (kind of like trying to paint a burning building!).
The transition from a long term corporate employee or “first time entrepreneur” into a business owner requires going from doing what you enjoy or are good at to serving as your business’s CEO – “Chief Everything Officer”. Running a business means finding customers, negotiating and closing the sale with buyers, delivering and servicing clients, dealing with vendors and suppliers, managing employees, payroll, accounts receivable and cash flow. Not everyone is meant to manage a business. It takes an enormous amount of time, energy and money. For many it can be a poor fit with skills, experiences, capabilities and resources. People launch ventures with the best of intentions and work long hours but there is a very thin line between survival and success.
In today’s conceptually glutted world, the primary business start up challenge isn’t finding planning advice, but rather it is improving the quality of initial decisions made that put plans into action. Before spending money, buying business cards, registering with IRS, building a website and perhaps hiring employees, you need to consider customers, profits, competitors and your abilities, resources, capabilities and motivation. Perform the following assessments to improve odds for success.
Initial Business Assessment, Feasibility and Reality Check- Conduct market research to determine your target market:
Determine what exactly is to be sold. To Whom? By Whom? How? How will the product/service be paid for? How will the product/service be produced? Delivered to the client/customer? How will the product/service be serviced after the sale? Perform a competitive analysis and determine who will compete for your customers. Rate your company and your competitors against: Quality, Durability, Value, Location, Hours of Service, Availability, Image, Pricing, Sales Methods, Bargaining Power with Suppliers, Threats of Substitution. Evaluate your concept – candor about risks, assumptions and expectations.
Conduct a self assessment on your motivation, strengths and personal circumstances. Are the risks and rewards in line with your expectations and tolerances? Can you make the transition to running the business?
Can you fund the money for start up costs?
Don’t be naïve about the complexity of running a business. Remember, you need paying customers, that cash is king, and marketing is your business’ oxygen. If you are inspired and qualified to start your own business, don’t go at it alone, find the practical, battle tested advice you need to build your business plan.
Submitted by Jim Kearns, SCORE Counselor. Free and Confidential Counseling. 111 Pearl Street NW, Grand Rapids, MI 49503 (616) 771-0305 www.scoregr.org.