Idea and execution are two sides of the same coin. If you’re confident you can execute a business plan, the next step is to make sure that plan is going to work.
If you can answer “yes” to the following questions, there is a good chance your business idea is a viable proposition.
Do you have a unique selling point?
Unless you’ve been lucky to find a gap in the market, your product or service is going to have to compete against other similar products for customers and market share. To compete, your business has to stand out from the competition – it has to have a unique selling point you can use to encourage customers to buy from you.
This doesn’t mean you have to invent a totally new product or service. Your offering might:
- Be cheaper or more economical to use.
- Be more appealing.
- Be more practical.
- Follow a fashionable trend.
- Be lighter or better made.
If you’re not sure if your product or service adds value that customers can’t find elsewhere, it might be better to brainstorm a few more business ideas before you forge ahead.
READ: Before you start a business in Kenya – part one
Do you have a market for your business?
Knowing who will buy your product and what motivates their purchasing decisions is vital to the success of your business. Not only will you need to make sure your product appeals to your target market segment, but you’ll need to find out how large your potential market is.
Think about the size of your market in your area or wider (if you plan to sell online, for example). How many people will be interested in your offering at the price you’re likely to need to charge?
The next step is to look at your potential competitors. Find out what their respective competitive advantages are, and examine their pricing and marketing strategies. Looking at their website, physical Yellow Pages adverts or printed advertising material is a good start. Many businesses have social media offerings so check to see if they have a Facebook or Twitter profile to get a feel for how they interact online.
Is there room for you to muscle in and get a large enough share of the market to break even and start making a profit? Does your product or service really fill a need that is not met by the competition? If you’re still answering “yes”, then it’s time to crunch some numbers to test if your idea is really viable.
Do the numbers add up?
What costs will you incur in producing the goods or providing the service? What is your selling price? How much demand do you anticipate? Is there enough demand and are the margins high enough for you to break even after a few months and then start trading at a profit?
Work out a cash flow forecast using your anticipated costs, selling prices and sales quantities. How long will it take to build up your sales to a point that your business is able to break even? How long before your business starts to generate a profit?
Perhaps most importantly, once your business is established, what sort of return-on-investment will you get? There’s little point in investing a lot of money, time and effort in running a business if you earn less than the returns you’d get from putting your money into a term deposit. Is your business venture going to do more than keep you busy? Is it going to make you money?
Do you have enough money to last until your business is profitable?
If you’re satisfied that your business idea should bring in a good return-on-investment once it’s established, the last question you need to consider is whether you have enough money to meet start-up costs and take the business to profitability.
Work out a cash flow forecast to see how much money you will need. Remember, you might need to:
- Rent premises
- Buy equipment
- Employ staff and pay salaries
- Fit out an office
- Purchase stock or supplies
- Get your marketing campaign off the ground.
These costs can add up to a sizeable amount.
In addition, you’ll need to be able to cover your operational costs and personal expenses for quite a few months before you break even or turn a profit. If you’re borrowing money, you will also need to be able to make the interest payments when they fall due.
If you’ve answered this with another “yes”, chances are you have a viable business idea. But before you go charging ahead with entrepreneurial enthusiasm and set up your business, it makes sense to test your idea with a start-up business plan.