So much attention today is paid to finding a great business idea but how do you workout if your idea is brilliant or one that will bankrupt you?
At KLT we would recommend to anyone considering starting a business to ask themselves four key questions before they rush in. Remember building a successful business has very little to do with the initial idea but all about how you implement it.
People have ideas and spot new opportunities every day, in some ways this can be counterproductive, and many people don’t end up seeing any of them through to the end. The people that generally make a success of their start-up are usually the ones that know how to analyse an idea for its potential and look at how they can make it happen. If the figures don’t stack up they walk away. So, when you have a brilliant idea, take the time to ask yourself…
Can IT Make A Profit?
This may sound simple, but it is amazing how may people start a business that really has no potential to actually make a profit.
It’s not just about making a nominal profit, but the profit must be big enough to absorb the running costs of the business too. Always ensure you have good profit margins from the outset or that your product or service will generate healthy profit from economies of scale in the future.
If you are planning to “just get started and worry about making a profit later” it’s time to rethink your plans. It’s a known fact that businesses started purely on passion rarely last; if you are working a 70-hour week and still not making a profit your passion will be short lived.
Will YOU Make A Profit?
A very different question from the one above, but as important. This simply is about examining your market place to see what potential revenue there is, what your competitors are doing, and if there is enough business in the market to have a profitable market share.
New businesses rarely do well trying to break into an established market. Try looking for a new market where you have proved there is demand for a product or service and room for you to dominate this area. Have a unique selling point (USP) that is fresh to the market to make you standout and help your chances of success.
Is This Business Scalable?
This is particularly important for people that are providing a service or selling their time. Unlike selling a product which is easily defined by its availability, market demand and the profit on each unit, selling time or services are based on the quality of that service. Working as a Sole Trader may produce a healthy profit, but you are only able to scale your business up if you can recruit staff that have the same passion and drive to deliver the same level of service you do.
If your plans in the future are to grow the business, then you may have to consider a different business model. Often people find that they have created a job for themselves, which provides a good income, but not a scalable business. Before you get started just check which category your idea falls into.
Is It Saleable?
Considering the sale of the business before you have begun sounds strange, but this is a vital question. If you have invested years into running your business you want something to show for it. Ask yourself if your business could survive without you or are you going to always be too integral to remove from the equation.
Businesses that can be sold tend not to be reliant on one person, using a model that relies more heavily on using replaceable employees and still make a healthy profit. If the business will be built around your unique skillset, chances are it might be hard to sell unless you consider early succession planning, ensuring your replacement is ready in the future.
So, as you look at your business idea ask yourself if your business could be run by other people and could these people still potentially make a profit. A buyer will only be interested in purchasing a business if it still has the same potential for profit as it did when you were at the helm.
If you require help making critical business decisions why don’t you contact one of our qualified team, we are always here to help and guide business at what ever stage you find yourself.