Too many people have what they believe is a great business idea and then go off and start a business without having performed the upfront research to understand if there is a market for their product or service. Once one determines whether there is a market, there needs to be due diligence performed to understand if the idea is something that is in demand or whether this is a product/service that will require a lot of marketing to sell. One needs to know their competition in the market in which the product or service is being sold and determine how this could affect your sales. There needs to be an understanding of how potential customers are dealing with the problem that your potential product or service solves today. Are there other alternatives to solve the problem that are easy to implement without your product or service?
You need to know how consumers or businesses will buy type of product or service and whether the margin you make will allow you to break even. One must also identify what costs they will have to start their business. These are just a few of the items that you think that most entrepreneurs know before they start and invest their money and others in starting a business. The truth is, more than not, many people start the business first and find out the answers on the backend which can become a costly approach.
We are currently doing work for a client now who is looking to start a business in Ontario in the next year. He has started researching which businesses have the highest growth potential and he wants to use this research to uncover the potential market, competition, best geographies, and the cost to set up the business. When this level of due diligence is done, there is a greater chance of success for the business.
Many start a business without any level of due diligence of whether they can actually make money at selling the products and services they want to sell. It isn’t to say that once the business is set up, there are ways to look at structuring the business to turn it around, but if you are not cash flow positive, this is going to be a very costly mistake. In fact; most businesses die from poor cash management – not from a lack of orders.
You need to understand the business and environment you are going to get into. You can have the best idea in the world and not make a dime, if you have not done your homework up front. Sometimes a business might invest in a feasibility study to be done which is a good way to test if your business is worth pursuing. In too many cases, the business is already underway and is almost too late to get the benefit of the insight. Example: a manufacturer that opens a business in Canada because the product is popular overseas and finds out there is a saturated market for that particular type product. Once you have paid for office space, sales people, warehousing, marketing, and other expenses and then you uncover this issue; it is going to be a costly mistake to try to turn this around and change your business model. You want to uncover this before you spend money on major expenses.
Below is a list of items at minimum that you will want to uncover before you lay out an investment in a new business:
- Is there a potential market for what you plan to sell and where you plan to sell it (geography)?
- What is the exact problem are you going to solve and what is the current cost of that problem?
- How is your solution going to make the customer better off than the alternatives that currently exist?
- Are there any barriers to entry; such as licensing, regulations, controls?
- How large is that market and is it large enough if you penetrate it to make enough money short and long term?
- Is there competition for what you plan to sell and is there enough market left for to make money?
- Is what you are selling have a unique value proposition from the completion?
- What are the different channels to market for your product and what are the costs associated with each?
- What are the expenses for opening up this type of business and what revenue / margin do you have to make to sustain the business?
- How do plan to market the product or service?
If you can answer and have the research at minimum for these questions before you invest in the idea for a business, it can end up costing you less money and decrease stress and frustration versus starting and figuring this out after the fact.
Posted by Karen Fischer. Posted In : General Business