It is 2016! We survived the great recession and are now looking forward. Over the holiday break many people start to mull over business ideas. Some are ideas that have been kicking around the back of your mind for some time and some come as a quiet mid-winter break allows brain to work as space is freed up. Either way, the beginning of the year is one of the times when people start looking around for information on setting up their own business or developing a business idea.
If you have never done this before one of the key questions is how do I know if this idea will work and is potentially viable? Here are a few comments before we go further;
- You really should assess the viability of a business idea before investing real time and money
- There are standard ways of assessing a business idea; a business plan being the most common
- Anybody can write a business plan and you should write your own business plan
- It does not need to be too complicated, the objective is to assess your idea
- If idea is viable then you engage in a much more detailed process of business planning and execution but only if you have a viable idea
So how do you get from a business idea to a business plan/assessment? The following table gives an outline of the process.
The first thing is to develop a refined business concept. Before going forward do market research. Is somebody else doing this? Does someone have the intellectual property (IP) protected? Has this been tried before and not worked? Why did it not work? Has something changed? Has any academics/agencies/consultants done market reports on what you are thinking about? Market research is about finding answers to the pertinent questions you have. A lot of this information is freely available but be careful to separate facts and opinions. Focus on the facts. Having done this market research it is highly likely that you will reassess or redefine the business idea and have a refined business concept.
You cannot write a business plan on a business idea/concept. This is where many people get confused. You write a business plan on a defined business model. So to develop a business model you are asking what strategy and organisation do you need to get your good/service/programme to your customers/clients. In my write your own business plan programme we do this by spending two and a half days asking awkward questions on management, operations and sales and marketing. So who are the customers, what do they want, how do they want to buy, what type of organisation do we need to have to deliver this to the customers, how many people do we need in this organisation, what channels of distribution and what subcontractors can we use, what management skills do we need, what size of premises will we require? Lots of other questions but when you start answering them one on top of the other you build up a model of the type of business you will need to deliver what your customers want, when they want it. This becomes your business model. Doing a start your own business courses can help you with this as well as mentors.
Now you have a framework, you can start to put numbers on things. How many customers can we actually serve initially? What revenue will this generate? What are our costs and overheads? Will this generate a profit/loss? What is our breakeven sales figure? What investment do we need to put into the business to get passed the first few years? This leads you to putting together a cash flow projection.
Next write up a summary of all the different issues you have researched. Write up a section on:
- Management: what are your skills, what are your strengths and weaknesses, do you have a plan to address your weaknesses, do you need key people to boost management capacity and what skills do they require?
- Operations: how will the organisations nuts and bolts be put together? This is about writing an idiots guide to running your business. Where will it operate from, who is involved, what does it do, how do have systems, policies and protocols for running your business?
- Sales and marketing: who are your customers, what are they likely to want to buy, where do they want to buy, why should they buy from you?
- Finance: cash flow projections based upon gross margin, overheads, set up costs and of course projected revenues. This should then lead to an income statement (profit and loss) and your breakeven sales figure and how many units do you need to sell to breakeven?
Once this is done write up a short one-page summary where you outline the key points and finally make your assessment of this business idea. There are likely to be 4 potential outcomes from this process:
- This is a potentially viable business idea and I want to go and do it now
- This is a potential viable idea but I am not ready to start it yet. I may need to generate more money, get more experience, acquire a formal qualification or I need to finish off something before I clear my desk and then start this idea. I will do what I need to do and then reassess the idea and may start in 6, 12 or 18 months’ time
- This is a potential viable idea but it is not for me. An example being a creative person and a franchise. There is little room for creativity in implementing a franchise idea and the idea may work but not suit the person
- The business idea may not be financially viable. The idea may be nice but the cash flow projections show that the business will not make enough money quick enough to start covering its costs. It is not that the idea is bad or that the person will not do the work but building the customer base will take too long and you will run out of money before going into profit
All of these 4 outcomes are equally valid. Being honest with yourself will lead you to the right outcome for you. So if you are about to engage in taking your idea forward then may I wish you good fortune but be realistic and be honest with yourself. Happy 2016!