This is a continuation of my last post. In Part 2, I discuss in general terms the positive characteristics of the proposed business you should consider.
There have been libraries written on what makes a startup successful. I will not repeat any of that here, as it would take a river of ink (pixels).
Instead here are some items I have personally found useful to consider.
This discussion is definitely not comprehensive! Just things to consider.
Why are you trying to start this particular business?
Maybe you have a killer, versatile skill set that would make any entrepreneur jealous. And your personality and motives are spot-on for entrepreneurship. But if your business idea does result in someone buying your product or service, you will not succeed.
There are many, many variables to be considered. This includes location, timing, capital requirements and availability, technology risk, competition, market needs, and on and on. A key question is whether you are the right person to execute the vision. Can you pull it off or will you need help?
But a key point is that you want to differentiate your business. Don’t have your business be the equivalent of bringing coals to Newcastle.
A very important consideration is whether there is some unmet demand for the product/service you are considering providing. And sometimes the customer will not even realize they need the product yet. That was part of the genius of Steve Jobs, knowing what the customer would want even before they did.
After figuring out the above, can you meet that demand with a product/service that is competitive in selection, price, quality, and/or location? A great framework for analyzing this is Phil Kotler’s four Ps. Product, Price, Promotion, Place. I will not discuss that here but strongly encourage you to look it up for yourself.
Know as much about your market as you can. Learn who will be your customers. Try to understand their needs and wants. Compare yourself to the existing competition. And how will you protect yourself from the competition? If you are successful, anticipate their inevitable response.
How will you run this business?
Converting the business idea into a working business requires a lot of decisions. Some of these are best made with the help of professional advisors such as lawyers and accountants. But do not rely on these professionals without knowing something about what they are advising. Acquire at least a minimal level of knowledge of these topics. Know the pros and cons of the resulting consequences of a decision.
Naming your business can be tricky. Choose an appealing name, and one that communicates what it is that you are doing. I have to admit that the names I’ve chosen for my businesses over the years do not follow this advice (e.g. Alteris LLC).
Choose the appropriate form of legal incorporation. Do not run your business as a sole proprietorship but rather choose one of the forms of incorporation. Limited Liability Companies are an excellent choice in terms of ease of setting up, ongoing administration, and expense.
Know how local, state, and federal regulations will affect your business. Ignorance is no excuse for non-compliance with these laws.
Conduct a realistic and clear-eyed financial analysis of the business. Put together pro forma financial statements and make projections. Especially know what your cash flow and capital investment requirements will look like. Take into account factors such as seasonality, salaries for yourself, accounts receivable and payable policies, and so on. These projections will almost certainly be different from what you actually experience in reality. However, going through this exercise will provide enlightenment as to the dynamics of your business model. It will reveal the strong and weak points of the business. And may give you an indication as to the potential value you will be creating with the enterprise. I cannot emphasize enough that you should do this.
Knowing where to locate the business is another factor to consider. Many businesses are virtual, meaning no physical location is required. Others are location intensive. Make sure your location plan considers the needs of customers and employees. It should be appropriate in terms of size and configuration.
Control your fixed expenses. If you need office, factory, and warehouse space make sure that you do not set up more than you would need. If your expenses are variable, it will be easier to accommodate the ups and downs you will experience in running the business.
Make sure that you protect against protecting the business from unexpected losses from disasters such as fire, theft, vandalism, robbery, and legal liabilities (such as an accident). This can be protected through the use of insurance.
This post is only designed to stimulate thinking and is only a very short list of items to consider. There is so much more. There are many books and places where advice is given on this subject. A very good and extremely popular book on general startup strategy is The Startup Owner’s Manual by Steve Blank and Bob Dorf.
