things to consider before starting a business

Assessing a Business Idea and 8 Things to Consider Before Starting a Business

Erik Entrepreneurship, Thoughts of a Mastermind 8 Comments

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things to consider before starting a businessYou have an idea, and now you’ve decided you are done sitting around. You’ve decided it’s time to take action since ideas are worthless without it.

It’s time to go make a million dollars! You know your idea is amazing, and you think about all of the fun Instagram meme pictures you are going to post to build your brand.

Let’s slow down for a second.

There’s a lot for you to consider before thinking about your Instagram memes if you are looking to make this a profitable endeavor. (though, I will agree, Instagram memes definitely will crush for you 😉 )

We want to first assess and consider many things to make sure that by pursuing this idea, you aren’t going to set yourself up for failure. Sometimes the best idea is to avoid a certain path.

In this post, you’ll learn how to assess your idea, and read about 8 things you should consider before starting a business.

How to Assess a Business Idea

There are a number of things you need to consider for assessing your business idea.

First, let’s look at what all successful businesses do:

  • Successful businesses have products and services which satisfy a need
    • People need to be able to call people when they aren’t home and want to be able to check email on the go.
      • Apple and Samsung satisfy this need with their mobile phones
    • People need to food and drink to survive
      • Farmers and grocery stores satisfy this need
    • Another example is a certain type of restaurant that you think might be successful in a certain area.
      • What if in the past, the same type of restaurant has failed in the location you want to try one? Why does it make sense to open another one up of the same variety in the same place?
  • Successful businesses are profitable
    • Your time is valuable, and also your money is also valuable.
      • If it costs $5 to make or do something, and you can only sell it for $2, it’s not going to work out.
      • Likewise, if it takes 10 hours to make or do something for $3 and you only can sell it for $4, then it might not be worth it.
  • Successful businesses have products which have the potential to appeal to many
    • It’s a lot easier to make your business work if you have a target market of 10 million people vs. 1,000 people.
  • Successful businesses are in markets where they have an edge and the skills to succeed
    • Focus is key in anything a person or business does. Lawyers aren’t going to start doing taxes because they don’t know accounting laws. That’s what accountants are for (and vice versa).
    • For example, not many companies are trying to build search engines because Google does such an amazing job indexing and serving searches (and to get the point where a company might even have a chance, they would need to spend hundreds of millions of dollars to get the right talent, hardware and software in place.

Assessing Your Business Idea

wantrepreneurship to entrepreneurshipLet’s talk about your business idea.

First, does it satisfy a need? Are there other similar products or services n the market which you could use as a starting point for your product or service?

At the end of the day, your product or service will need to fill a void in your customer’s life. If your potential customer doesn’t know about the problem, it will be a lot tougher for you to explain why your product is the solution.

Many smart business people only go into existing markets, and look to improve a little bit on those existing products and services – it’s less risky that way and you will most likely still be able to put your own touch on it.

Second, is your idea profitable? If you can make money producing your product, then that’s a good thing. If you can’t, it isn’t a business – it’s a hobby.

Third, is a stranger going to buy your product or service? How do you know?

At the end of the day, your grandma can’t be the only one to purchase your product. (Sorry grandma)

How many people potentially would be interested in your product or service? 100 people? 1000 people? 10,000 people? The more people you can potentially reach and get interested in your business, the more sales you can potentially expect.

Fourth, do you have the expertise to build or create your idea?

Over the years, I’ve thought about creating different phone apps. Unfortunately, I have no idea how to program mobile applications. For now, there goes that idea.

If you don’t know what you are doing, you won’t be able to produce the best possible product or service.

At this point, time to go back to the books if you still think the idea is worth it and re-assess after becoming more knowledgeable.

Did your idea pass these initial tests?

If you idea has passed these initial tests, great!

There’s still a few more things to consider before starting your business.

8 Things to Consider Before Starting a Business

Below are 8 additional things to consider before starting your business. I want to make sure that you are able to put the best product or service out into the market – and in my opinion, that will require a little more work before we get to the real work.

1. What is your why for acting on this idea?

Start with why. What’s your why for your product or service?

One mistake that many people will make when approaching a business idea is they focus on themselves, and not the customer.

If your primary why is something along the lines of “I want to make money”, “I’m bored and want to try entrepreneurship”, or “I am going to enjoy working on the project”, then it’s time to re-assess your mindset.

The focus should always be on your customers or clients.

“I believe the my product or service will make my customers lives happier or easier in this area of their life.”

See how that is a little more outward facing? Hopefully your why aligns with a customer-oriented mindset.

2. How much does implementing an idea like this cost?

Many businesses can get started for less than $500.

If you have a service, you can get started for a very low cost.

Digital product? All you need is a computer and an internet connection.

Do you need a building for what you are doing? Are you already renting a space or will you need to budget time and money to do this?

Are you doing a physical product? How much will it cost to make it?

There’s a lot to think about here… how will you obtain financing or capital for your idea, can you afford to put cash in yourself, etc.

3. What will your business be called?

The  name of your business is going to be one of the first things your client or customer sees.

Think about what is an appealing and non-confusing name which aligns with your product or service.

For example, many personal finance blogs will throw something in their name related to money, debt, saving, investing, or finance.

It probably wouldn’t make sense to start a website that primarily talked about dogs and call it investingdogs.com or something (actually, that’s not a horrible name for a site where the owners talk about dogs and investing!)

Also, know names can change over time, so if you don’t get it right the first time, you don’t need to worry. I recently changed my kombucha business’ name – it cost $50 with the state of Minnesota.

4. Are there any licenses, permits, or certifications you need to sell your product?

For my kombucha business, in order to package and handle the food, I needed some food safety certifications and a retail food license. These licenses and certifications weren’t too expensive ($200 a year), but were necessary for me to do work.

For blogging, I don’t need anything – just my mind.

Keep in mind that these licenses and permits must be acquired before doing work – otherwise you could get into some trouble.

5. Do you have the skills to carry out the work?

Like I mentioned above, I’m interested in doing web and app development in the future. In school, I took a few courses in C# and Java. Now at my day job, I use a number of programming languages for statistical analysis.

I know that I can learn the skills necessary, but it will take some time.

Other business ideas, like a graphic design company, I wouldn’t know the first thing to do. I definitely wouldn’t have the skills to carry out the work there.

For you, how much will you have to do, learn, or potentially need to hire out?

6. How much time will something like this take you to get done?

How many hours do you estimate you will need to get your product or service to market?

Can you start today? Are you able to cold call potential clients right now and could you handle their requests?

Will it take 3 months to get to market? Could you get it done in 1 month with more hours upfront? Or is it not urgent and you’d rather draw it out over a few more months to make sure it’s the best version of itself?

Make sure you get a decent handle on the potential timeline so you can have the appropriate expectations going into the business.

7. Will you do it alone or with a business partner?

Potentially one of the biggest decisions you will have to make in your business is if you are going to work alone or with someone (or many others).

There are pros and cons to working alone and working with others.

A few things to consider:

  • What responsibilities will each person have? 
  • Are there things which you are bad at and others are good at, which will make your life easier?
  • How much skin will the various partners have in the game? (Money, equity percentage, responsibility, etc.)
  • Could you do it alone?

I’m going to dedicate the better part of a post later in this series to talk about this question specifically, but these questions above can give you a decent starting point.

8. Who are your potential competitors?

Statistically speaking, best of luck if you decide you want to build another Amazon, Google, or Facebook.

We want to consider entering markets which are proven, but not over-saturated or full of huge players.

Most Businesses Fail Before They Begin

sellingWe all know the statistic that over 90% of businesses fail within the first few years of starting.

I’d imagine that if the people running those businesses didn’t think about the questions above that they could have saved thousands of dollars and hundreds of hours of their time doing other productive work.

Take it from me: I detailed my entrepreneurial story earlier in this series, and in my first real business, I’m about $12,000 in the hole.

This has not been from a lack of effort, but rather, from a lack of know how and experience. I didn’t know the first thing about kombucha when I started the business. Strike 1.

I didn’t know the first thing about handling and packaging food. Strike 2.

I wasn’t a good marketer and would need to learn quite a bit about how to create a physical product worth buying. Strike 3.

Really, the smart move for me would have been to not get involved with this business upfront – it would have saved me a ton of time, money, and headache.

At the end of the day, you want to maximize the chances you will be successful. While I’ve learned quite a bit and now am in a decent spot to make this kombucha business work, it will be interesting since I’m still a newbie.

Your Task

With every post in this Wantrepreneur to Entrepreneur series, I will be providing you with a task for you to think about after finishing this post up.

Today, take your idea and seriously answer the questions above.

Does your idea fill a need? What is the potential cost? Are you going to do it alone?

By going through these questions, you will be able to save a lot of time and money upfront – if it doesn’t make sense to pursue your idea upfront, then don’t do it!

Conclusion

Before starting, we should always start with why and figure out if the idea is actually worth pursuing.

Many businesses fail before they are even started; whether that be due to a lack of access to need, capital, time, or skills.

Now, whenever I start talking to people about their business ideas, I will ask them the questions above to ensure they put themselves in the right spot for entrepreneurial success.

Readers: are there any questions that you ask yourself when you start to pursue a new idea? What is the most key question you’ve asked in the past for yourself? What do you think of your business idea now?

Erik

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Comments 8

    1. Post
      Author
  1. Ditto what Tom said. Comprehensive was the first word that came to mind!

    I would also ask “what, if any, legal and/or liability issues need to be dealt with up front?” You may need a business entity. Or if you’re producing a product you may need specific disclaimers.

    1. Post
      Author
  2. One of the tasks for any entrepreneur to do is to assess the ifs of succeeding. A few years ago, I really wanted to open a restaurant. After I learned that the odds of succeeding are horrible and there is the possibility that you can be in the business for years and not make a dime.

    After that, I was content with making a decent salary.

    1. Post
      Author

      The restaurant business is pretty tough… I think you are in a great spot right now, so it seems to have worked out for you!

    1. Post
      Author

      That’s a great point – when to exit (and how) is a great thing to think about…

      So many people work themselves into a business and then can’t escape.

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