As an SBDC business consultant I meet with people all the time that have ideas for building a grand and glorious business. They are excited, energized and of course they need money. Now I know people don't like to write business plans but at least before you ask for money can you develop some sort of feasibility plan? It is important that you have an idea of whether the business will work for YOU not just work...there is a difference. A business idea may have legs but until you have determined what you want and need out of the business it is difficult to ascertain if you should proceed.
Here are the typical components of a feasibility plan:
- Product description
- Market assessment (includes Industry profile, Customer profile, Customer benefits, Target markets, Market penetration)
- Pricing and profitability
That still sounds kind of business plan-ish...let me simplify this...
- What specifically are you selling?
- Who will buy what you are selling and where are they?
- How much will you charge for the product?
- How much will it cost to produce the product you are going to sell?
- How much money will you make?
Once you have that information there is one more question to answer...Will this business allow you to live, thrive and survive?
Let me go step by step:
What specifically are you selling? You may have one product you are selling, fine. You may also have multiple products you are selling, fine. You may also have one product you are selling into different markets in different ways. I would be very clear on this issue in your plan.
Who will buy what you are selling and where are they? Once you have identified your product determine who will most likely buy it. First, build a profile of who you think would most likely buy the product. What are their characteristics, their wants, needs, etc. This profile will allow you to better target your market research. This is done through a combination of demographic research and customer inquiry.
Demographic research is done by working through various databases to determine where your potential customers are. Most people hate this part but there is help available at the Columbus Metropolitan Library. On the third floor of the main branch (corner of Grant and State) there are professional research librarians that can help you work through the databases. The library also has subscriptions to many of the major databases and all you need is a library card to access them (these databases are also available on-line).
Customer inquiry involves talking to potential customers. It is important to see if what you have has enough value to get customers interested and potentially to buy. At this point you are not selling or taking orders you are inquiring. If you are far enough along you might sign people up to beta your product (if that is appropriate) but the point here is to determine if you are on the right track or should you make adjustments in your offering.
How much will you charge for the product? & How much will it cost to produce the product you are going to sell? These are somewhat interchangeable as to order and often they are done on parallel tracks but the point is to establish a proper price point. I really don't like a cost plus method of pricing unless you are selling a commodity. I prefer to price to value. I recommend you read "The Strategy and Tactics of Pricing". The premise of the book is "For value pricing, the target price is based on an estimate of value, not costs. The target price then drives decisions about what costs to incur, rather than the other way around". Another point I like, "The purpose of value-based pricing is to price more profitably by capturing more value, not necessarily by making more sales". Now to find this "Value Price Point" you need to understand the customers and what they perceive as the value and what they would be willing to pay. The book has 388 pages that tells you how to do that but the point is that you need to have done research and establish a good price point. Guessing and the shotgun approach will not work without a lot of trial and error and I'd rather reduce the trial and error in my business.
How much money will you make? Profit? Cash flow? Is there any? If you have done what I discussed earlier you can do the math and come up with projected profitability (or loss). You should try to put this into a standard financial format so things are clear. If you use standard formats it will be easier for you to get feedback on if you have done your calculations correctly. Here is a nice tool that we use in our business planning classes that might help ~ Download new_business_financial_plan.xls (FYI...you will need to enable the micros when asked).
Will this business allow you to live, thrive and survive? What you now need to determine is what do you want out of this business financially. I have a person I am working with that really can't get to the numbers part of what she wants out of her business. She has a great mission and vision of what the business should do but is that enough to really quit your job and build a business (being an entrepreneur can be kind of hard by the way). One of the primary reason businesses fail is lack of a realistic view of what is expected from the business. To avoid this determine what you need from the business and when you need it. Then based on your research and projections you determine the business can meet your needs you have a GO decision. If not you should wait and continue to tweak the business model or not take the leap at all, a NO-GO decision.
I do want to clarify...You don't have to wait for the magic 8-ball to say "all signs point to yes" but there is a right time and a wrong time to launch. I know Guy Kawasaki says "Don't Worry, Be Crappy" and I agree that you have to get a product out to the market to determine if it is right or if it needs modifications based on customer feedback. However, there is a is a right time to launch, when you have a GO decision based on you initial research. As an entrepreneur you will face obstacles you will need to overcome. Don't start in a hole you have to climb out of because you haven't done the initial research and determined the feasibility of the business to meet your needs.
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