You have a great business idea, and even got started on a business plan. But now you wonder: is my upstart business model really viable? Here is an eight-point test to tell you if you should forge ahead with your business idea.
IN PICTURES: 8 Tips For Starting Your Own Business
Before you worry about upstart financing, marketing or business location, you should begin with an idea - not just any idea, but one that's unique. What makes your business stand out from the rest? (Although they probably have better hair, the business world doesn't go easy on celebrities. Check out Celebrity Business Busts.)
Uniqueness doesn't necessarily mean you have to invent something (though that's never bad - just look at Snuggie's success), it just means that you have to set yourself apart from the competition. If you're starting a catering company, say, what will make your catering service different from the rest? These are tough questions, but important ones. The most successful businesses have a strong, unique concept, and a clear identity. Take the time to define yours.
- Upstart Funds
What will your start-up cost be? Every business has some expenses at the start, whether you're paying for equipment, rent or just basic marketing materials. Make a realistic estimation; you'll need these figures to obtain a loan or simply to budget if you're paying these expenses out of pocket.
Who's your customer? Knowing who will be buying your product or service is vital to your business success - how else will you find your customers if you don't know who they are? Are you catering to busy professionals, stay-at-home moms, college students, retirees? Define your customer, even if you have to be broad at first. If you'll be renting a space, make sure the local demographic fits this profile; the real estate agent will be able to provide you with that data. (Don't let these myths stop you from reaching your entrepreneurial dreams. Check out Top 7 Myths About Starting A Business.)
Unless you're lucky enough to find a hole in the market, your business will have competitors. Check them out, because your future customers surely will. Competitors can be a great resource to you as an upstart; you can see how much they charge, what marketing strategy they use and the location they chose.
Ask yourself: how can I do better than the competition? Use your uniqueness identified in step one to find ways to outdo your competitors.
- Economic Mood
Your business' success can greatly depend on economic mood: imagine starting a luxury real estate business at the start of the housing crisis. Gauge the state of the economy, and think of how it relates to your upstart: where are consumers' mind right now? Are they cutting back, spending more time at home, concerned about the environment?
Even an economic downturn can be an opportunity if you can meet the mood of the consumer. If your business idea doesn't fit the current trends in spending, think of ways you can tweak it to tap into today's needs.
Timing is crucial, especially for an upstart. Opening an ice-cream shop in January is a bad idea; opening Memorial Day can make it the place to be that summer. Do you expect your business to be seasonal? If so, time your opening to the strongest consumer demand. You'll come out of the gates with a flood of new customers, customers who will come back for more.
Remember step three, where you identified your customer? Now you have to develop a marketing strategy to make sure these potential buyers know about your great new business. With today's internet capacity, marketing can be relatively low-cost, using online coupons and mailing lists. Brainstorm ideas with friends and family, and look at what your competitors do to get new business.
Your local SCORE chapter, which consists of business counselors for startups, is a great free resource with counseling, classes and networking opportunities. (If you're going into business, you must have a plan. Find out how to put this important document together in 4 Steps To Creating A Stellar Business Plan.)
- Continuing Cash Flow
Imagine this: business is booming, you're on a roll and getting in more orders than you ever imagined. But you have to front the money for supplies and other costs, and you're out of cash - just like that, your business stumbles because you can't meet demand. This is a classic cash flow problem many new businesses face, and one that can be prevented with proper financial planning.
Before you open up shop, prepare a detailed financial plan; there are many guides available in places like the Small Business Administration. Now is the time to plan for your business' first year, to make sure you can face any obstacle thrown your way - especially financial ones. (Don't overlook the details when starting up a business. It's the small expenses that have the potential to make or break a great idea. Don't miss Business Startup Costs: It's In The Details.)
The Bottom Line
Did your upstart idea pass the test? If not, find ways to adjust. There are many more things to consider, like zoning, insurance, and legal entity, so take the time to plan and do your research. Use every resources you have available - SCORE, the Small Business Administration, even your local bank have information to plan your business venture, so you can be a successful entrepreneur for years to come.
Catch up on the latest financial news; read Water Cooler Finance: More Spilled Oil, Fewer Jobs.