Starting a small business and wondering if it involves higher risks?
I am thrilled with the response I received via email last night around my post Are You really a Small Business Entrepreneur. Based on your feedback I shall focus my energy around researching topics such as:
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Thank you once again for the support and for regularly providing feedback to me. I noticed that most of you prefer emails rather than commenting. I urge you to communicate with other readers as well. Now to get started with today’s burning question:
Have you done the analysis of whether your small business idea is risk worthy?
Here are a few questions that I received via email, thank you for allowing me to list these questions in this post:
- “I want to open a small bakery business and have been talking about it for a few years now? Is it worth it?”
- “What is my first step to open a brand new hair salon?”
- “I’ve been thinking about starting a small business here in New Jersey but am a bit afraid due to finances. Can you give me a few good tips on validating my startup before investing a huge amounts of time and money. I have a full time job in a large retail outlet. My business plan focuses on e-commerce selling products online. Could you please help me figure this out.”
Looking at the trend of questions today I called my Business Mentor along with calling a few of my friends who have their own bakery, hair salon and ecommerce website. It was an interesting conversation and I should have recorded the communication for you to have a listen but hey I did not have the equipment for it so here is the summary of what was recommended.
How to Validate a Business Idea?
Before you start a business, it’s important to remove emotion and see whether the idea will make money. If the idea does not show you profits even before starting then you know you need to alter your strategy. This method allows you to know for a fact if you are heading for failure or the monetization path to grow your small business.
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- Put all your ideas on a piece of paper or an excel sheet or in a mind map.
- Ask your friends and family members for their opinion
- Go to Google and search if your business idea is currently operational and whether the business is successful by looking at their website, reviews, etc.
- Do some keyword research to figure out if people are actually searching for your business idea.
- Then once you feel confident that this idea would work, the next step is to talk to other business entrepreneurs within that industry for their feedback. So if you want to start a bakery ask other bakeries what hurdles and benefits they have found, if you are a hair dresser ask other hair dressers their opinion, etc.
- Visit a university and ask the Business professors out there for their view points.
- Join a few groups either on LinkedIn, Facebook, Twitter, Yahoo Answer, or any other niche social network and ask the members of these business startup groups for their feedback.
- Finally ask yourself if you are willing to give your 110% to this business idea.
Test your small business startup Idea
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I believe recession was God sent to most budding Entrepreneurs, as it allows you to test your idea before you even get to spending a lot of money. Ask yourself
- Can you work on this small business idea full time?
- Are you able to finance the business by yourself?
- Have you applied for Government Funding for your Business Idea?
- Are you able to service customers?
- Do you have customer support policies in place?
- Is your product ready?
Once you have understood your limitations, then the next step is to figure how to overcome these limitations.
Part time involvement with your small business startup:
If you need to keep your full time job then the first step you need to come up with is a budget and a resource plan of what’s required for your small business to operate while you are working. Make sure you prioritize the business items along with costs. Below I have created a short excel plan to help you get started. Once you know the tasks that are required for day to day operations and you have identified the resources needed to fulfill those tasks along with costs, you are now not fooling yourself.
Remember it’s important to treat resources be it a desk or a human as a priority. By not having identified the resources, postponing, making excuses, will only delay your goals. It sounds like a huge task but you need to do this exercise, trust me on this one.
Don’t have the Finances:
What if you don’t have the finances to attach to your budget resource plan matrix. Many have been in this boat but you still want to do the business. So here’s what you need to focus your efforts on.
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- First find out how much money you would need each month to finance your business
- Work exactly the amount of time you get paid for in your full time job
- Work on your business every alternate day not every day as you need to give yourself a breather. I know you may laugh at me when you read this statement but you will thank me one day when you reach your goal.
- Treat each task on your budget plan as you doing the work
- Put a date by which you plan having the task completed
- Look for a business or work plan that will free you from a full time 9 to 5 job. This could be working for a company part time, or selling a product or service which has a recurring income, or applying to the government for funds, requesting your full time based company if you could work from home, or look for home based business opportunities, etc
- Should you need to buy equipment for your business, it’s a wise option here to either rent the equipment or buy it on hire purchase to make smaller payments. If you have the money then look at buying some of the equipment second hand. All this requires time and research. So make sure you account for this time in your budget plan.
Is your product or service ready?
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If you need to make sales you need to have the product ready. Developing a go to market plan is a good option. Here social media marketing can be very useful. Some Entrepreneurs may not have their product or service ready at this stage but that should not stop you from getting the word out in the market place. A simple and easy option here is to create a few give aways and hold contests or tell stories about the life cycle of your products.
So for example if you are planning on starting a hair salon or a night club and at the moment the location space is under going renovation, then speak about this through videos and text blogs to capture people’s attention. Talk about the time and effort that’s going for this business. You could start by speaking about this casually with your friends on facebook or twitter. Click pictures and have them up for your friends to see. Give an update to the nearing shops about how you are doing and how they could help you advertise your business.
Always market your product or service where ever you go.
Successful business entrepreneurs try it out on a small scale first
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Prototyping if your business concept is going to work with you being the back bone is crucial. This can be easily achieved in the online space if your business is an internet business. Now should your business be an offline business such as selling cakes, hair dressing, a night club, etc the costs of investment is a bit higher. Today when I spoke to the group that I mentioned earlier in my post one of them spoke some really wise words when it comes to offline business
Go and get a job in the same industry, learn everything there is to learn by trialing it out with someone elses business.
Now not everyone is fortunate enough to get a job in the same industry so here the option you have is to speak to similar business entrepreneurs or better still observe the offline traffic that the business receives during a week. In this way you get to come up with stock standard estimates if the business is worthwhile. If you notice a similar product being sold at retail shops ask the retail owners of how well the product is doing?, ask questions to receive the answers you are after. So come up with a plan of how to try the business concept out with minimal investment.
Evaluate your business risks by weighing finance and competition:
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Some of the businesses listed below have been considered as risky businesses when you take into account competition, investment
Top Risky Businesses to get into
- Computer stores
- Laundries and dry cleaning
- Internet cafes
- Florists
- Bakeries
- Used car dealers
- Gas stations
- Retail outlets such as selling beds, curtains, household items
- Infant clothing stores
- Personalised Clothing
- Groceries
- Meat Stores
- Restaurants
- A Cleaning Business
Now if your business Idea is in the list mentioned above that does not mean you need to walk away. Instead take this as an opportunity to be well prepared before you make a leap into investing a lot of time and money into your business startup.
It’s recommended to try the idea from home before you even go down the route of registering a business name and getting a business bank account setup. Of course if you are sure that you business idea is going to break even soon and you are on your way to making it then do go the full path of protecting your business by engaging in all the legal requirements by bootstrapping your way forward.
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August 27th, 2010 at 11:51 am
Very good article. Before starting a business man should consider many things.