Many businesses fail in the first five years. There are a lot of reasons for failure, but I tend to feel you are failing out of the gate if you do not put in the research in the beginning. If you go out half-cocked, you aren’t giving yourself a fighting chance.
The first things to research:
- Has this been done before?
- Is there a market for this product or service?
- Are there any governing bodies that regulate this business?
- What are the costs involved?
- What is the time commitment?
- What is your expected return on investment?
- After all of these questions (and more), is this still a viable idea?
Let’s go over these points one by one:
Has this been done before?
Have you done some searching to figure out if this is a new idea, or just new to you? Basic web searches can usually uncover any similar products or offerings. If you feel that you have a great new product, the US Trademark and Patent Office website is a good place to start. Patent attorneys and online legal self-serve portals offer paid services if you need more detailed help.
Is there a market for this product or service?
Have you done any market research? Are their people complaining about a “hole in the market” that your service or product would fill? Have you identified your target market (i.e., certain businesses, demographics, etc.)? If you know people in your target market, you can always send them a generic survey to get more information about your ideas, if they think they are good, and if there is any interest in what you plan to do. Always make sure there is a market before you waste lots of resources. Survey Monkey is a great FREE survey platform. You can send out the surveys and get data very quickly and easily.
Are there any governing bodies that regulate this business?
If you plan to start a business, remember that there is usually some government body that regulates it. If you plan to work in a certain city or county, there are usually taxes on income, permits that may be required, and sometimes bureaus that you must be compliant with in order to legally do business. Spend time to figure out what the laws (and taxes) are that are associated with your business. This could change the nature of your business or uncover expenses that you didn’t foresee. You might also find out what types of insurances are required during this process. That could also be expensive and needs to be included in your overall assessment of viability for your business.
What are the costs involved?
Going back to the taxes and insurance, make sure to include them in your overall cost estimate. Also consider things like software, hardware, subscriptions needed, payment processing, business lawyers, etc. for service businesses (they are low-cost, but not no-cost). For products, what is the cost of materials, manufacturing, online stores and marketing, inventory storage, and more. For storefronts, what are the costs of the property, tenant improvements, equipment, displays, payment processing, utilities, etc? This is just a starting point, as you start adding up the costs, you can also start to figure out what you should be charging for your product or service.
This tends to be overlooked by a lot of aspiring business people. It is very easy to start a business saying “I can make this blanket for $5 in materials. If I sell it for $10, I make 100% profit.” This is very short sided. First, consider what your time is worth. If it takes you 4 hours to make it, what are you giving up to spend the time to do it? Do you have to hire a sitter to work? Would this time be otherwise spent doing other work? Are you including the cost of your sewing machine, or the costs to repair and maintain it? Once the blanket is made, how do you intend to sell it? Go to a swap meet? Are there costs involved with selling at a swap meet? How much time do you have to spend at the swapmeet to sell this blanket? If you are doing it online, how much does it cost for payment processing?
These are all costs that are not always included in the “I can make it for X dollars” scenario.
What is the time commitment?
In the previous section, we discussed your time. A business takes a lot of time. I find myself working while at my daughter’s dance class, or after everyone goes to bed. It isn’t always fun to open your emails while out with the family and see someone’s email that includes a bunch of exclamation points (not good ones). It is time and effort, and not just in the actual providing of your service or making your product. You have to hustle. Businesses need to be visible, you need to network (in person or on social media) and be willing to spend a lot of unpaid time on things. Just because you have 20 hours of week to work, not all of it will be billable or “productive” time. If you are a service business, plan to spend 50-75% of your time actually making money, and the rest of the time on growing your business. No matter how efficient I am, I never can say 100% of my work blocks are directly generating money. But they do in other ways. It is important to just be realistic about your actual income or profit.
What is your expected return on investment?
ROI is very important in business. You need to decide what your actual income (return) will be once you include all of the costs (cold hard cash, work hours, opportunity costs – like sleep! -, etc.). Maybe you still can profit a million dollars in the first year, but most likely you will break even or lose money in the first three years. Are you in a financial position to not make money on all of your hard work? If you need a “real job” while you are starting up, will the time commitment of both jobs be too much for you? There are a lot of costs to consider, but also consider what you could benefit from having the business. ROI is not just the numbers, but the overall return.
After all of these questions (and more), is this still a viable idea?
Most likely, you will shutter your business in five. Here are some great statistics by industry, as well as why businesses fail. If you have spent time researching your idea, and feel that it is still a good idea, great! Off to the next step.
If not, it is a good time to re-evaluate the idea. Do you just need to change your market? Tweak the product? Re-think how you can better turn your skills into a business? Don’t give up, just go back to the beginning – rework your concept. You will be happy you didn’t invest so heavily in a business that wasn’t viable to begin with.
Next up – Refining your offerings.